Independent Auditors' Report to the Members of Arm

AR M Holdings plc 110 Fulbourn Road Cambridge CB1 9NJ ARM Holdings plc United Kingdom Annual Report & Accounts 2012 Telephone +44 (0)1223 400400 Facsimile +44 (0)1223 400410 www.arm.com Annual Report & Accounts 2012 & Accounts Report Annual plc Holdings ARM

ARM

We are connecting intelligence

ARM

ARM More information available online at: www.arm.com/reporting2012 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 Overview 01 Financials and risk 45 – Chairman’s overview 02 – Financial review 46 – Operational highlights 04 – Risk management 52 – Financial highlights 05 – Our business model 06 Governance 55 – Chairman’s introduction 56 Our marketplace 08 – Board of directors 59 – Corporate governance 62 – Where the market is now 09 – Directors’ report 73 – Where the market is heading 10 – Remuneration report 78

Strategy and performance 11 Financial statements 92 – Our strategy for long-term growth 12 – Independent auditors’ report to the members of ARM Holdings plc 92 – Consolidated income statement 94 Our partnership approach 21 – Consolidated statement of comprehensive income 94 – Warren East, Chief Executive Officer – Consolidated balance sheet 95 Ecosystem strategy 22 – Consolidated cash flow statement 96 – Mobile computing 24 – Consolidated statement of changes – Machine-to-machine 28 in shareholders’ equity 97 – Network infrastructure 32 – Notes to the financial statements 98 – An external perspective 36 – Company balance sheet/UK GAAP 142 – Notes to the financial statements /UK GAAP 143 – Independent auditors’ report to the members Our commitment 40 of ARM Holdings plc 149 – Corporate responsibility and sustainability within ARM 41 – ARM’s wider role 42 Glossary and Group directory 150 – Glossary 150 – Group directory 151 – Key shareholder information 152

This report has been printed on Cocoon Offset a paper which is certified by the Forest Stewardship Council® and contains 100% recycled waste. The paper is Process Chlorine Free (PCF) made at a mill with ISO More information available online at: 14001 environmental management system www.arm.com/reporting2012 accreditation. This report was produced using the pureprint® environmental print technology, a guaranteed, low carbon, low waste, independently audited process that Designed and produced by reduces the environmental impact of the Radley Yeldar. www.ry.com printing process. Printed using vegetable oil based inks by a CarbonNeutral® printer certified to ISO 14001 environmental management system and registered to EMAS the Eco Management Audit Scheme. ARM, ARM Powered and Artisan are registered trademarks of ARM Limited. ARM7, ARM9, ARM11, Cortex, Cortex-A7, Cortex-A9, Cortex-A15, POP, Mali and Connected Community are trademarks of ARM Limited. WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 Overview Our marketplace Strategy and Our partnership Our commitment Financials and risk Governance Financial statements performance approach

ARM

We develop and deploy energy-efficient technology that gives a smart consumer product its intelligence. We have assembled an ecosystem of leading companies, enabling them to connect and collaborate. Together we are creating some of the world’s most innovative products.

Creating shareholder value

ARM processor‑based Profit before tax Normalised profit chips shipped Revenues under IFRS before tax 8.7bn £577m £221m £277m

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Chairman’s overview Connecting The Dots ARM develops and licenses processor and other technology designs that leading semiconductor companies incorporate into silicon chips. These chips go into a wide range of mobile, consumer and embedded electronics that are connecting people to their friends, their workplace and their personal data. We are paid a one-off licence fee for a company to gain access to each design, and we receive a royalty payment for every chip that contains ARM technology.

2012 Financial summary Success in a challenging environment During 2012, Group revenue grew 16% ARM is developing and licensing advanced to $913.1 million (£576.9 million). Revenue technology for the mobile and embedded Sir John Buchanan growth has enabled us to continue to invest computing markets. Our latest technology is Chairman in more staff and infrastructure to develop also opening up new markets such as PCs, and deploy new technology. Balancing servers and enterprise networking, and we increased revenue growth and investment saw our first design wins in 2012. plans, we were able to increase the dividend by 29% to 4.5 pence per share following an ARM is facing well funded competition in these increase in normalised profit before tax by 20% new markets and also in the smartphone to £276.5 million. The IFRS profit before tax market where ARM has a high share. ARM increased by 41% to £221.0 million. and our Partners are continuing to innovate and develop new technology to make products 2012 Operational highlights that are even more capable in a wide range of 2012 Financial summary consumer and embedded electronic devices. • ARM signed 110 processor licences as more companies made commitments to using The ARM team Licence revenue ($339.3m) ARM technology in future products The knowledge and creativity of our people and the ability to deliver customer satisfaction • 8.7 billion ARM processor-based chips in an ever demanding and competitive + 19% reported as sold, representing a 32% share environment are all key determinants of our of the total available market Royalty revenue ($473.9m) success. We continue to attract outstanding • Google and Microsoft both announced ARM people and in 2012 we hired a net 276 processor-based mobile computers using additional employees, the majority of them + 17% versions of their PC operating systems and engineers. These new hires were a mix of new graduates and experienced talent from Other revenues ($99.9m) application software all over the world. • ARM’s Cortex-A class processors were + 7% shipped in about 700 million phones, tablets and TVs Profit before tax under IFRS £221.0m

Normalised profit before tax £276.5m

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We are living in an increasingly digitally connected world. People are connecting together wherever they go using their phones and mobile computers.

Board changes Early impressions On a personal note, I would like to thank the I feel privileged to have been invited to The clear ARM strategy continues to serve the Board, Warren and the leadership team, become Chairman of this fine company. Group well. The delivery of it shows quality, and all of ARM’s employees for their effective Doug Dunn announced his plans to retire as as do the leadership, talent development and contribution in 2012. I look forward to Chairman and a director at the 2011 AGM, strong culture. Innovation thrives through a continuing to work in the ARM team as we and handed over to me following the AGM wide range of mutually beneficial partnerships. plan, invent, design, deploy and support our in May 2012. Doug had been on ARM’s Board That is an impressive base. However, we must products and help our Partners create and from 1998, and served as Chairman since not underestimate the challenges of the wider realise their future ambitions. 2006, giving many years of leadership economic environment nor of the strength and guidance to CEO Warren East and and quality of the competition in the markets the ARM executive team. we serve. Sir John Buchanan In May 2012, Tudor Brown, President, Looking forward retired from ARM, the company he helped We are living in an increasingly digitally to found in 1990. Tudor has made an connected world. People are connecting excellent contribution to ARM, its employees together wherever they go using their phones and Partners over the past 22 years. and mobile computers. Machines are Mike Inglis, Chief Commercial Officer, becoming smarter and their connections retires in March 2013. In his 11 years at ARM, enable more effective control and more Mike has run marketing and sales, and was efficient energy use. ARM technology is highly General Manager of the Processor Division. suitable for our Partners to take advantage Young Sohn, non-executive director, also of these trends. We intend to develop and stepped down from the Board in December deploy the right technology to maximise the 2012 to take up an executive position outside benefit for our Partners, communities, the Group. shareholders and employees. The Nomination Committee is actively seeking new candidates as independent non-executive directors with in depth knowledge and experience of the technology sector. Doug, Tudor, Mike and Young leave with our deep thanks and good wishes for the future.

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Operational highlights Progressing our strategy

ARM introduced its latest 64-bit processor technology, which Read more on page 32 opens up new markets such as computing, enterprise networking and servers. 15 companies have licensed this technology including AMD, AppliedMicro, Broadcom, Calxeda, Cavium, HiSilicon, NVIDIA, Samsung and STMicroelectronics.

ARM maintained a >95% market share of smartphones and Read more on page 14 tablets, with shipments of its most advanced Cortex‑A family processors increasing by more than 100% year-on-year.

Shipments of ARM‑based processors in non‑mobile devices grew Read more on page 15 25% in the year, driven by increasing penetration in digital TVs, microcontrollers and wireless networking chips.

Microsoft launched Windows 8/RT, its latest PC operating system Read more on page 24 which now includes support for ARM processor-based chips.

ARM’s Mali 3D graphics processor shipments increased Read more on page 18 three‑fold year-on-year with important design wins in the Samsung Galaxy SIII and Hisense digital TV.

ARM announced advanced physical IP to accelerate the Read more on page 18 implementation of ARM’s processors and graphics processors on next generation manufacturing processes to 14nm and below.

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Financial highlights Another year of growth

Revenues £m/$m

08 298.9 546.2

09 305.0 489.5

10 406.6 631.3

11 491.8 785.0

12 576.9 913.1 Revenues £m Revenues $m ARM’s revenue growth is sustained by our customers incorporating ARM technology in more of their product lines.

Operating expenses £m

08 169.5 206.1

09 186.2 233.9

10 219.0 273.6

11 245.9 315.2

12 284.2 336.9 Operating expenses under IFRS Normalised* operating expenses ARM is increasing investment in the development and deployment of technology.

Operating margin %

08 20.1 32.7

09 15.0 31.2

10 26.3 40.4

11 30.3 45.1

12 36.1 45.6 Operating margin under IFRS Normalised* operating margin Continued ﬁnancial discipline drives ARM’s proﬁtability.

Earnings per share pence

08 3.39 5.66

09 3.11 5.45

10 6.36 9.34 * Normalised figures are based on IFRS, adjusted 11 for acquisition-related charges, share-based 8.19 12.45 payment costs, profit or loss on disposal and 12 11. 51 14.70 impairment of available-for-sale investments, restructuring charges, share of results in joint Diluted EPS under IFRS Normalised* diluted EPS ventures and Linaro™-related charges. Revenue growth and margin expansion drive higher earnings per share. 5 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 ARM Holdings plc Annual Report & Accounts 2012

Our business model How AND where we make money ARM is the world’s leading semiconductor intellectual property (IP) supplier. The technology we design was at the heart of many of the digital electronic products sold in 2012. ARM has an innovative business model. We license our technology to a network of Partners, mainly leading semiconductor manufacturers. Our Partners incorporate our designs alongside their own technology to create smart, energy‑efficient chips suitable for modern electronic devices.

Our business model When the chip starts to ship, ARM receives a royalty ARM designs technology to go into energy-efficient on every chip that uses the design. Typically our royalty chips for a broad range of end-markets. ARM licenses is based on the price of the chip. each design to multiple semiconductor companies. Each ARM design is suitable for a wide range of end Every company pays an upfront licence fee to gain applications and so can be reused in different chip access to the design. families addressing multiple markets. Each new chip The semiconductor company will incorporate the family generates a new stream of royalties. An ARM ARM technology design into their chip. It can take design may be used in many different chips and may 2–3 years to build a chip and a further year for an OEM ship for over 20 years. to build their product, such as a digital TV or mobile ARM’s flexible business model has proven to be suitable phone, containing the chip. for different technologies, end products, licensing strategies and a broad range of ecosystem partners.

Business development

ARM technology to Partner ARM SemiCo OEM Licence Partner Customer fee OEM sells consumer products

Per chip royalty Partner develops chips

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Why semiconductor companies Technologies that are suitable How ARM creates value use ARM technology for the ARM business model ARM endeavours to recover its costs from the ARM designs technology that would be ARM’s licensing business started in the early licence revenues of each technology, leaving difficult and expensive for our Partners’ R&D 1990s with the development of our first the majority of royalties to be reinvested back teams to develop for themselves. It is cheaper processor. The processor is like the brain of into the business or to be returned to for them to license the technology from ARM the chip; it is where the software runs and it shareholders. Over the medium-term, we than to develop it internally. controls the functionality of the product. ARM expect ARM to become more profitable as designs each processor to be applicable to a our partners design our technology into a The design of a processor or a library of broad range of end‑markets to maximise the broader range of end-markets. physical IP requires a large amount of R&D number of Partners that can license each investment and expertise. We estimate that processor and to maximise the number of As our customers are the world’s largest a major semiconductor company would need markets in which the Partner can deploy semiconductor manufacturers, their regular to spend over $100 million every year to that technology. royalty payments have become a reliable cash reproduce what ARM does. This represents flow. ARM’s business model is strongly more than $20 billion of annual costs for the In most years ARM introduces 2–3 new cash generative. industry. By designing once and licensing many processor designs. Over the past 10 years, times, ARM spreads the R&D costs over ARM has developed other technologies the whole industry, making digital suitable for a licensing and royalty business electronics cheaper. model, such as graphics processors and physical IP components. Both of these technologies are now widely licensed and are delivering royalty revenues.

Our global markets ARM revenue by location of customer

The majority of ARM’s revenues are earned from 2012 2011 Rest of North Asia semiconductor companies that are based all over the £m £m UK Europe America Pacific world. These companies sell their ARM‑based chips to OEMs building consumer electronics, which are UK 5.5 1.5 % % % % also based in all major economies. The OEMs sell Rest of Europe 58.7 59.5 their products to consumers and enterprises in every North America 217.1 189.5 1 10 38 51 country. ARM’s royalty revenues are derived from the chips in these OEM products, and ARM therefore Asia Pacific 295.6 241.3 benefits from the growth in all economies and countries around the world. Demand for consumer products has been growing Consumer products by destination rapidly, especially in emerging markets such as Brazil Consumer Automotive and China. Handsets Electronics Computers Multimedia Europe 20% 28% 25% 22% North America 23% 23% 31% 19% Asia Pacific 41% 31% 32% 46% Rest of the World 16% 18% 12% 13% Source: GfK Digital World, produced by GfK in association with the Consumer Electronics Association of the USA.

ARM employees by location

UK 42% Rest of Europe 12% North America 24% Asia Paciﬁc 22%

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ARM

We benefit from long-term growth markets from mobile phones to computers and smart sensors to energy-efficient servers. Our technology is connecting the world together, where every electronic device can communicate with another.

In this section

Where the market is now Read more on page 9

Where the market is heading Read more on page 10

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Where the market is now The semiconductor industry develops computer chips that control all of the world’s electronic devices. PCs, mobile phones and even modern washing machines have some form of computer chip providing their intelligence. Each generation of chip is smarter than its predecessor, enabling more capable and more efficient consumer and embedded products.

Overview of a semiconductor Disaggregated industry Where ARM fits within the industry A semiconductor, or silicon chip is the The semiconductor industry has disaggregated ARM is the global leader in the design of electronic controller that manages many into specialist companies that focus on each semiconductor IP components that form some of the digital devices that we use every day. stage in the creation, design and manufacture of the critical elements within System-on-Chip Computers, mobile phones, televisions, of a silicon chip (see diagram below). This designs. ARM is best known for its family of washing machines and cars all can contain allows each company to invest and innovate processor designs that are used in a range of many silicon chips. Also many enterprise in an area where they can add the most applications from mobile phones to car and industrial applications are made smarter expertise in the value chain. braking systems. and more efficient by silicon chips, from sensors to servers. Some companies specialise in designing the There are a handful of other IP component chip; other companies specialise in designing designers that mainly specialise in In 2012, about 650 billion silicon chips were critical IP components within the design; complementary areas. Their IP can often manufactured. Of these about 27 billion others in building the tools needed to be found alongside an ARM processor in contained a processor. The processor is the manufacture the chips; others in the chip the same chip design. brain of the chip, and controls not just the fabrication; and others in developing operation of the chip, but also the operation software, such as operating systems and apps. ARM works closely with the semiconductor of the product that chip goes into. All of these companies work closely ecosystem to ensure that its technology works together as a single ecosystem of partners. well with other companies’ products, and that ARM processor designs were in about Each collaborates with the others as if they a silicon chip designer can quickly build a 8.7 billion chips, a 32% market share. were a single organisation. low-power and high-performance chip, and The remaining market share mainly consists an OEM can create complex programs using of our customers’ own processor designs. In 2012, there were over 1,000 companies a combination of third-party and in-house ARM gains share when our customers in ARM’s Connected Community®. operating systems and applications. outsource their processor design. ARM shares knowledge, experience and innovations with these companies, enabling As silicon chip designs become more complex greater collaboration. it is expected that the semiconductor industry will continue to license semiconductor IP. As the global leader, ARM is well-positioned Our disaggregated industry to benefit from this trend.

100s of chip 1,000s 1,000,000,000s design companies of OEMs of consumers

<10 1,000s of <10 IP <10 Tools <10 1,000s of specialists providers Fabricators Operating service Systems application developers providers

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Mobile computing in 2017 Where the market 3 billion is heading Analysts forecast that the market for mobile computers, including smartphones and Trends within the semiconductor industry and its tablets, will nearly double over the next five years, to about 3 billion devices. marketplace are bringing new opportunities and new competitive threats.

Mobile computing – connecting us Internet of Things – connecting billions Efficient networking – moving more to each other, and our data of smart sensors data, without using more energy Mobile phones have been getting smarter Advances in manufacturing technology are With mobile computing connecting us to each and more capable. No longer just connecting enabling the creation of new low-cost smart other, and increased machine-to-machine us via telephone calls and text messages, sensors. These devices usually combine three communications between smart sensors, it smartphones can now send email, browse main elements: is forecasted that internet traffic will increase the internet and allow us to engage with 18 fold between 2011 and 2016*. As IT and our friends on social networking sites. • one or more environmental sensors communications equipment is already using an Meanwhile PCs have been getting smaller (temperature, pressure, yaw, pitch etc.); increasing proportion of the world’s energy, and lighter, with a longer battery life, and such an increase is not sustainable. better connectivity. The mobile phone • a smart computer to process the data and PC markets are converging, enabling gathered by the sensor; and Network operators and data centre us to connect more easily to each other, managers are now looking for lower power • a wireless radio to connect the smart sensor and to our personal and workplace data. technology to better transport, distribute, to the internet. This convergence is bringing new analyse and store data across the internet. opportunities and threats for the industry. This is leading to increased levels of Data gathered from these sensors can then experimentation and innovation as companies In October 2012 Microsoft launched their be collated anywhere in the world enabling try to cope with increased demand for data Windows 8 operating system. Previous remote monitoring of the sensors such as: throughput, without having to increase the versions of this operating system were energy required. targeted at the PC market and only supported • Industrial automation where factory the x86 architecture. Microsoft Windows 8 ARM technology-based System-on-Chip equipment in a region can be monitored designs are well placed to provide lower extended the market for their Operating from a head office System to include other consumer electronics power options for enterprise applications such as tablets and digital TVs, and also • Home automation where appliances in such as servers and networking equipment. included support for chips based on the the home can be monitored and controlled ARM architecture. by the home owner wherever they are Read more on page 32 This enables ARM-based chips to enter the PC market, including laptops and desktop Collectively these technologies are referred PCs, but also enables companies making chips to as the “Internet of Things”. These smart for PCs to more effectively compete in the sensors need to be very low-cost (the chips mobile market. within them often cost less than $1) but they could be deployed in very high volume. Read more on page 24 Read more on page 28

* Cisco Visual Networking Index Feb 2012. 10 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 Overview Our marketplace Strategy and Our partnership Our commitment Financials and risk Governance Financial statements performance approach

ARM

Our strategy is to develop technology for long-term growth markets, enabling our Partners to connect with both emerging trends and established high-volume markets. Together we meet the needs of our Partners’ customers and create value for our shareholders.

In this section ARM Increase market penetration Read more on page 14 Increase value per smart electronic device Read more on page 17 Generate additional royalties from complementary technology Read more on page 18 Reinvestment and shareholder return Read more on page 19

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Our strategy for long-term growth ARM’s strategy is for our technology to continue to gain market share in long-term growth markets, such as mobile phones, tablets, consumer electronics and embedded digital devices, and to increase the value ARM receives from each device, including developing new technologies that can generate additional royalty revenue.

Our three growth drivers: KPIs:

ARM has achieved a more than 95% • Building the base of licences that • Increasing market penetration in 1 Increase market penetration of mobile handsets. will drive future royalties target end-markets As other end-markets require smarter • Growing the number of processors, we expect ARM technology ARM processor-based chips penetration to become more penetrated in other application areas. Read more on page 14

As consumer products become smarter • Increasing the value that ARM receives they often contain multiple ARM for every smart device sold 2 Increase value per smart processor-based chips, increasing our royalty opportunity. Smarter phones and electronic device TVs can generate 5–10 times more royalty than a basic model. Read more on page 17

ARM has introduced complementary • Developing and licensing technologies which we believe are suitable new technology to generate 3 Generate additional royalties for R&D outsourcing and can command an additional royalty streams from complementary technology up-front licence fee and an ongoing royalty.

Read more on page 19

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Increase market Every licence represents the opportunity for About a quarter of the deals signed in 2012 1 a future royalty stream. In recent years ARM were signed with companies taking their first penetration has added about 100 processor licences per ARM processor licence. The majority of these year to its existing base of licences. In 2012, new Partners are established semiconductor we signed 110 processor licences taking the companies choosing ARM technology for licensing base to more than 950 licences. the first time. As the trend towards smarter KPI This growth in the number of licences signed products gains pace, so semiconductor is largely due to existing customers upgrading companies are finding ARM technology Building the base of their ARM processor to the next generation; instrumental in helping them gain share in existing customers choosing to deploy ARM an increasingly competitive marketplace. licences that will drive technology into another part of their product future royalties portfolio; and new customers taking their first The future opportunity ever ARM processor licence. ARM expects that its customers will Our Partners are planning to develop chips continue to re-equip their R&D teams with for a broad range of end-markets from the the latest processors for existing product lines. simplest of microcontrollers to the most In addition, ARM’s technology is becoming advanced servers. These include: increasingly relevant to growing markets such as sensors, computers and servers, • internet connected consumer devices such leading to more new customers taking as digital TVs, mobile phones and mobile their first ARM licence. computers; • deeply embedded products such as microcontrollers, sensors and smartcards; and • enterprise applications such as networking and servers.

ARM licences

08 +61

09 +87

10 +91

11 +121

12 +110

ARM signed 110 processor licences in 2012, taking the total number of processor licences signed to 954.

Internet connected devices Number of licences signed by end-market Number of licences signed by processor type

Mobile 29% ARM7/9/11 4% Embedded 25% Cortex-A family 32% Enterprise 17% Cortex-R family 8% Home 13% Cortex-M family 37% Multiple* 16% Mali 15% Other** 4%

More than half of the licences signed in 2012 were with companies intending to develop a chip for smartphones, tablets or digital TVs.

* 16% of licences were signed with companies **Other includes architecture and subscription licences. intending to use ARM technology in multiple end‑markets.

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In 2012, ARM’s customers reported 8.7 billion The future opportunity chips shipped, a 9% increase over 2011. By ARM expects unit shipments and royalty comparison, the industry declined 2% in the revenues to grow faster than the * equivalent period. This demonstrates ARM’s semiconductor industry as ARM continues increasing relevance to equipment to gain market share. Shipments of ARM manufacturers as they choose ARM processor‑based chips are growing most KPI processor‑based chips over chips containing rapidly in microcontrollers as several major proprietary processor designs. semiconductor vendors ramp into full Growing the number ARM’s total market share rose to 32%, up production, and also in mobile computing of ARM processor- from 29%† in the prior year. The mobile phone products such as smartphones and tablets. based chips was the first consumer electronic device where ARM processor‑based chips started to be widely deployed. In 2012, ARM processor‑based chips could be found in more than 95% of the world’s mobile phones. ARM’s Partners sold 4.6 billion chips into mobile devices, driven by the growth in the number of smartphones and mobile computers. ARM has been seeing rapid adoption of its processor technology into markets such as digital TVs and microcontrollers. Overall ARM’s Partners sold 4.1 billion chips into non‑mobile devices, an increase of approximately 20%, year-on-year. * Source – Gartner, January 2013. Excludes memory and analog chips. † Market increased since 2011. Now includes Enterprise Networking.

Shipments of ARM processor-based chips bn

08 4.0

09 3.9

10 6.1

11 7.9

12 8.7

ARM Partners reported the highest ever number of ARM processor-based chips shipped in 2012.

ARM processor-based chips shipped Chip shipments by end-market Chip shipments by processor type 2012*

Mobile 53% ARM7 36% Embedded 26% ARM9 21% Enterprise 16% ARM11 9% Home 5% Cortex-A Family 9% Cortex-R Family 3% 8.7bn Cortex-M Family 22% ARM processor-based chips

* Nearly all Mali graphics processors were in chips containing a Cortex-A family processor.

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ARM has increased market penetration into Digital TVs 45% each of its key end‑markets in mobile phones, As digital TVs become smarter they are more set‑top boxes and digital TVs, disk drive likely to need an ARM processor-based chip. controllers and microcontrollers. ARM has In a smart TV these chips can run the announced new technology developments operating system and applications. that will position our customers to enter markets such as computers, servers and Microcontrollers 18% KPI medical devices. The microcontroller and connected sensor Increasing market market is highly fragmented and OEMs Mobile phones >95% penetration in target are increasingly requesting that their For many years, mobile phones have used semiconductor suppliers use a common end-markets ARM processor‑based chips in most of the processor architecture. ARM is often the applications processors and baseband modems. choice as it is a suitable architecture that Networking 35% is available to all semiconductor suppliers. Most of ARM’s share is in WiFi routers The future opportunity in homes and businesses. ARM has seen All of these target end‑markets have promising increased design activity in enterprise long‑term growth prospects and ARM’s networking, but we do not expect the market share gains look set to continue as first shipments until 2013. many of ARM’s Partners have announced new products in these areas.

Market penetration

Mobile Digital Micro phones Networking TVs controllers Year (%) (%) (%) (%) 08 95 15 25 5 09 95 15 30 5 10 95 20 35 8 11 95 25 40 15 12 95 35 45 18 ARM has gained share in all its target end‑markets. Market share is calculated as the penetration of ARM processor-based chips as a proportion of chips estimated to contain some form of processor technology. Market data from Gartner, January 2013.

Mobile phones Microcontrollers Enterprise networking

More than 95% of mobile phones contained ARM processor-based microcontollers are In 2012, several Partners announced ARM at least one ARM processor-based chip. embedded computers used in everything from processor-based chips for use in enterprise white goods to industrial automation. products such as networking and servers.

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Increase value per smart Sales of chips into smart devices such as The future opportunity 2 electronic device smartphones and high‑end digital TVs ARM expects that as consumer electronic generate higher royalty revenue than basic devices become smarter they will incorporate phones and TVs. more chips that could be ARM Typically, ARM’s royalty revenue per device technology-based. Some of these chips can increase the smarter the device gets. may be based on the Cortex‑A family of KPI Smarter devices may generate more royalty processors, thus generating higher royalty revenue per device. Increasing the value that revenue because they may contain: ARM receives for every • more chips than basic models; smart device sold • more expensive chips than basic models; and • more advanced ARM technology that commands a higher per-chip royalty.

During 2012, the total number of smartphones sold increased by 45%.* We also saw sales of ARM processor‑based mobile computers, such as tablets, grow to 160 million. In this period, shipments of ARM’s advanced Cortex‑A family of processor more than doubled to 765 million. Cortex‑A processors typically command a higher percentage per-chip royalty than previous ARM families, which helped ARM’s dollar royalty revenue to grow by 17% despite the overall industry declining by 2%.* * Gartner, January 2013.

ARM value per mobile phone (indexed to 2008)

08 1.00

09 0.85

10 1.00

11 1.13

12 1.18

ARM royalty per mobile phone has continued to increase.

Smartphones Cortex-A family processors 75% A typical smartphone can contain multiple chips About 75% of all smartphones had a Cortex-A based on an ARM processor. family processor in the main chip.

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Generate additional During 2012, ARM continued to develop Physical IP for advanced manufacturing 3 royalties from new technologies that are suitable for processes licensing to leading semiconductor companies, ARM develops physical IP for use by leading complementary and for generating additional royalty streams semiconductor companies that manufacture technology in the future. chips using advanced manufacturing processes. Multimedia IP for 3D gaming and ARM is already the leading physical IP provider KPI HD video and is well placed as semiconductor companies increasingly outsource manufacturing to Developing and licensing Many consumer electronic devices are utilising ARM’s foundry Partners. 3D graphics and High‑Definition (HD) video new technology to to improve the visual experience and make During 2012, ARM saw strong licensing, generate additional games more engaging. Mobile phones, digital especially for advanced processes, signing royalty streams TVs and computers are familiar, but other nine foundry platform licences for ARM’s applications such as cars, media players and physical IP that will drive future royalty navigation devices are emerging. revenues. In addition, ARM signed 17 licences for POP IP (pre-configured physical IP During 2012, ARM signed 17 Mali graphics IP components) which assist Partners licences, and leading technology companies implementing ARM processors. such as Google and Samsung launched computing, mobile and consumer electronics The future opportunity devices incorporating chips based on ARM’s With a growing base of customers just starting multimedia IP. to sell their chips in high quantities, we expect that the number of chips enabled by ARM’s physical IP and Mali graphics technology will continue to grow in the future.

Physical IP revenues ($m)

08 44.6 40.3

09 35.9 36.2

10 41.3 43.8

11 49.2 48.7

12 52.2 56.2

Physical IP Licensing Physical IP Royalty

Physical IP penetration into smartphones Mali graphics growth in 2012 Mali graphics processors with Cortex-A processors 40% 5.5x 20% Application processors in smartphones that ARM’s partners reported a 5.5 fold increase in One in five chips containing a Cortex-A family were developed with ARM’s physical IP. the shipments of Mali processor-based chips. processor also had a Mali graphics processor.

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Reinvestment and ARM specialises in designing innovative The future opportunity = shareholder return technology and developing a sophisticated ARM expects to continue to invest in its community of Partners to bring that employees as we develop our engineering technology to market. Our people are our capability and operational execution. strength for designing the next generation As ARM technology is designed into more of technology, delivering it to our customers, end-markets, we expect the business to and for growing and maintaining the ARM become more profitable. KPI Partnership. ARM invests in our employees Investing in ARM’s through hiring a mix of graduates and seasoned industry experts, developing them product development and providing a supportive culture to maximise and deployment capability their capability and potential. In 2012, ARM hired an additional net 276 people. The majority of our new hires were engineers, to increase our R&D capability. Most of this investment was in our processor and multimedia engineering teams to take advantage of the opportunities for new ARM technology in servers, computing and 3D graphics. ARM also invests in the infrastructure our engineers need to develop and test complex technology. In 2012 we opened our new data centre, which hosts our development tools and test software.

Read more about our data centre on page 42

Number of employees at year-end

08 1,071 1,740

09 1,024 1,710

10 1,191 1,889

11 1,382 2 ,116

12 1,652 2,392

Number of engineers Total employees

Investing in R&D

The majority of new employees 69% in 2012 were engineers Approximately two thirds of ARM’s employees are engineers, supporting our customers and developing new technology.

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ARM’s business model and exposure to During 2012, ARM generated £267.3 million of structural growth markets means that ARM cash, up 31% over the prior year. The increase is well positioned to grow its profitability, to in cash generation is primarily due to the generate cash and to support a progressive increase in revenue. Since 2004, ARM dividend. ARM intends to cover most of its has returned £496 million of cash operational costs from the licence revenues of to shareholders through a combination each new technology. This leaves the majority of share buybacks and dividends. In 2012 ARM KPI of royalties as profits. increased the dividend by 29% to 4.5 pence. Growing normalised In 2012, ARM’s financial discipline focused The future opportunity operating margins, investment in areas of maximum opportunity As royalty revenues become a greater such as the recruitment of more engineers to EPS, cash generation proportion of ARM’s overall revenues, develop the next generation of technology. and dividends ARM’s profitability and cash generation As our customers are the world’s largest is expected to increase. semiconductor manufacturers, their regular royalty payments have become a reliable cash flow. Given our broad base of Partners and end‑markets, ARM is not overly reliant on any one company or consumer product for its future profits and cash.

Operating margin % Earnings per share pence 08 201. 32.7 08 3.39 5.66

09 15.0 31.2 09 31. 1 5.45 10 26.3 40.4 10 6.36 9.34 11 30.3 45.1 11 8.19 12.45

12 36.1 45.6 12 11. 51 14.70

Operating margin under IFRS Diluted EPS under IFRS Normalised* operating margin Normalised* diluted EPS

Normalised net cash generation** £m Dividend per share pence

08 95.3 08 2.20 09 86.1 09 2.42 10 179.9 10 2.90 11 203.8 11 3.48 12 267.3 12 4.50

* Normalised figures are based on IFRS, adjusted for acquisition-related charges, share-based payment costs, profit or loss on disposal and impairment of available-for-sale investments, restructuring charges, share of results in joint ventures and Linaro™-related charges. **Normalised net cash generation is defined as movement on cash, cash equivalents, short-term and long-term deposits, adding back dividend payments, investment and acquisition consideration, restructuring payments, other acquisition-related payments, share-based payroll taxes, payments to joint ventures and Linaro, and deducting inflows from share option exercises and investment disposal proceeds. 20 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 Overview Our marketplace Strategy and Our partnership Our commitment Financials and risk Governance Financial statements performance approach

We have created a unique community of companies to deliver smarter technology. This ecosystem connects hundreds of companies who work together to develop solutions and services around ARM products.

In this section

Ecosystem strategy Read more on page 22

Mobile computing Read more on page 24

Machine-to-machine Read more on page 28

Network infrastructure Read more on page 32

An external perspective Read more on page 36

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Ecosystem Connecting Intelligence: strategy Internally and Externally In 2012, 8.7 billion ARM processor-based chips were shipped, going into many of the consumer, industrial and enterprise electronic products sold last year. We have achieved this breadth by developing the ARM ecosystem, a network of more than one thousand companies building products around a common platform. We pour effort into nurturing this ecosystem, and have developed an internal culture and organisational structure that encourages leaders who can manage complex teams, enabling everyone to contribute their creativity, for the mutual success of all concerned. Employing about 2,400 people, ARM has For the business to succeed we want to see 29 offices around the world, including design the number of ARM technology-based chips Warren East centres in the UK, China, Taiwan, France, continue to grow. Our business model means Chief Executive Officer India, Norway, Sweden, and the US. Any that this requires our Partners succeed too company which has people distributed across and hence we do not limit the connectivity so many regions and time zones will find it and idea-sharing to just within the company. challenging to get those teams working About half our commercial team, effectively and efficiently together. As with approximately 150 people, are tasked with most companies, we need to achieve a balance forming connections with our external between regional autonomy and centralised ecosystem; with our customers and other processes and policies. At ARM we emphasise influential market leaders across the cross-company communication, thinking value-chain. We link with semiconductor and decision making. Our leadership team vendors and manufacturers, OEMs and dedicates effort to keeping conversations operators, hardware and software tools flowing within and between our various sites developers, OS and apps developers, and ARM brings its Partners together in a series and functional teams. We use internal TV content and service creators. As well as of conferences throughout the year. streams, video conferencing and social media connecting these companies to ARM, we to ensure ideas can flow across the company. also bring them together to encourage Face-to-face meetings remain one of the most interconnectivity, either in small meetings effective means of sparking new innovations, or in a series of Partnership conferences and there are regular cross-company that we host throughout the year. Our main engineering and functional conferences Partner conference is held in August. We invite so our people are well versed in the latest more than 500 senior managers from across advances and able to think laterally and to our ecosystem to the ARM Partner Meeting in spot opportunities for new technology. Cambridge – a series of presentations and small group meetings to exchange plans and ideas for the future. In 2013, we are further investing in the ARM Connected Community, facilitating new ways for our Partners to connect, collaborate and create.

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Our partners trust us to leave them the space and freedom to add value, by differentiating their products, investing in their businesses and making profits for their shareholders.

Connections between companies can only The improved people-to-people connectivity With more consumers connecting together result in creativity when there is trust. is now being taken a step further, and we are using smartphones and mobile computers, Where appropriate, our Partners share seeing more machine-to-machine connections. and even machines interconnecting across vast with us their product roadmaps, business This interconnection between the physical networks, the planet’s data requirements will plans and market intelligence so we can help and digital worlds is creating an “Internet of continue to spiral upwards, along with the create the technology to take them forward. Things”, where smart sensors can enable energy requirements to enable all that data They trust us to leave them the space and communication, measurement and control to move around. ARM and our Partners are freedom to add value, by differentiating their from anywhere in the world. This evolution working to develop the right technology to products, investing in their businesses and requires multiple technologies to come contribute towards sustainable connectivity in making profits for their shareholders. together, and the ARM ecosystem is well the future. These opportunities are potentially suited to the challenge given the breadth huge; CISCO has forecasted that by 2050 Over the next few pages, we explain how and diversity within it. there will be over a trillion connected devices the ARM ecosystem is developing new in use worldwide. We are helping our Partners technology that will help to make the world This sharing of data between individuals and and their customers to prepare for this a better place for everyone. Smartphones between devices will significantly increase the demand, to the benefit of their shareholders and mobile computers, such as tablets, have data bandwidth requirements across existing and our own. quickly become established as the primary, mobile networks and internet infrastructure. go-to device in our modern lives. Nearly all of IT equipment already accounts for an these have an ARM processor in the main chip, increasing proportion of global energy use, but with many different companies integrating and operators are seeking to provide Warren East their technology alongside the ARM processor, increased data bandwidth, but at much greater creating a rich and diverse set of products and levels of energy efficiency. This is unlocking services for consumers and companies alike. exciting new markets and opportunities for ARM and ARM’s Partners to build smart, low-power technology.

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Engage with ARM on our Facebook page: http://www.facebook.com/ ARMfans Mobile computing

Always Connected. Always On. Always With Us. Over the past five years mobile computing has changed the way that consumers and workers interact with each other, with their data, and with the services they use. Smartphones, and then tablets, have become the primary, go-to devices for many people – always connected, always on, and always with you. This has been enabled by increases in performance and capability, without compromising energy-efficiency.

2012 saw another plethora of new devices 2012 saw the first mobile devices with and applications launched, and consumers’ quad-core processors, the first computers habits are shifting to take advantage of the with chips based on our Cortex-A15 functionality they bring. Gone are the days technology, and we also saw rapid adoption when telephone calls were the primary of both LTE handsets and higher resolution function of mobile phones. Increasingly emails displays putting mobile devices at the forefront are being read on mobile devices, rather than of improving user experience. The net result desktops. 60% of one billion Facebook users is evident in the marketplace today as tablets access their accounts from their mobile. are expected to outsell laptops in 2013. Laurence Bryant (top) Apps developers have seen a 100% growth ARM’s technology is at the core of these Director of Mobile Solutions in revenues over the past year. devices. Scores of our semiconductor Laurence has led ARM’s Mobile Segment Marketing 2012 was also marked by the real beginning of Partners are developing low-power ARM team since 2009. He and his team maintain the post-PC era, as the mobile device became technology-based chips. OEMs can then relationships throughout the mobile value chain, the primary computer enabled by major develop the high-performance, energy‑ including influential handset OEMs, network operators and major software developers for advancement in hardware performance and efficient devices that give users the highly mobile devices. innovative operating systems that changed mobile and high quality devices they expect. consumer behaviour. The launches of the Software developers are taking advantage Microsoft Surface, Nexus 10 and Google of the breadth of form factors, based on Roy Chen (bottom) Chromebook are blurring the lines around the ARM architecture, to create new types Director of Client Computing what a conventional personal computer is. of applications, services and experiences. Roy joined ARM in 2007. His primary role is to work with leading OEMs and to help connect them into the rest of the ARM ecosystem of semiconductor and software vendors.

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Follow ARM on twitter: @ARMCommunity @ARMEmbedded @ARMMobile @ARMSoC @ARMjobs

In the past three years the capability of mobile China remains an extremely exciting market Mobile technology is creating unparalleled devices has accelerated. In 2009 most and a source of new products, manufacturing opportunities for people and businesses new smartphones had a single-core ARM ideas and consumer trends. In 2013, we expect across the world. Over the next few years, processor. Today almost all high end that sales of tablets in China will outstrip the up to one billion more people will get their smartphones are dual-core, and many are combined sales in the rest of the world. ARM first mobile phone or tablet and become now moving to quad-core processors. In 2013 has found that its ecosystem approach is highly “connected”. Meanwhile the information we expect to see multiple chipset solutions compatible with China’s approach to business and services available to the billions that are with a quad-core processor becoming and over 130 Chinese Partners now belong already connected will continue to increase. available for entry-level smartphones, and we to the ARM Connected Community. The challenge for ARM and our Partners also expect the first shipments of chips based is to continue to develop and deploy on our innovative big.LITTLE technology. It is not just established economies that are high-performance, low-power technology big.LITTLE uses an asymmetric multi-core benefiting from mobile devices. The social that will enable this explosion in connectivity processor that can adjust to dynamic and economic benefits of mobile phones and content sharing as we all enjoy the benefits computing needs by switching tasks between across Africa are already hard to overstate. of a mobile society. different cores within the processor. This Smartphones are becoming tools for accessing smart approach means the right processor is health services, receiving information (eg crop used for the right task, giving consumers more information for farmers, weather reports for battery life as well as more performance. fishermen) or starting a business. Educators worldwide, including those in emerging We have also seen the penetration of Mali, markets, are working with tablet devices that ARM’s graphics processor, grow to more than are well suited for today’s fast-paced, modern 20% of Android smartphones and over 50% learning environments. Digital versions of of Android tablets worldwide. Mali powers textbooks, with interactive and visual tools advanced computer games, and innovative for teachers, appeal to the preferences of user interfaces that help make mobile devices increasingly connected students. interactive and easy to use. Developers of computer games often launch new titles on mobile devices before they are available on traditional platforms, a trend we expect will accelerate as the resolution of mobile devices exceeds that of traditional platforms.

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Smartphones and tablets have become the primary, go-to devices for many people – always on, always connected and always with you.

Laurence Bryant Director of Mobile Solutions, ARM

NVIDIA® Tegra 3™ NVIDIA’s Tegra 3 was the first quad‑core mobile processor based on ARM Cortex‑A9 technology. It enables new mobile applications, new experiences, more robust multitasking, higher quality gaming, and faster web‑browsing. The combination of high‑performance quad‑core Cortex‑A9s with a fifth Cortex‑A9 optimised for power consumption enables Tegra 3 to deliver higher performance and longer battery life than previous generation single- and dual‑core devices.

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Microsoft Surface Surface with Windows RT delivers a compelling experience for consumers and enterprises who need a device that is great for both entertainment and productivity. Surface is thin and light, has great battery life and offers a great integrated experience across Microsoft devices. It is powered by NVIDIA® Tegra™ 3 processor, which is based on a quad‑core ARM® Cortex™-A9 processor.

The challenge for ARM and our Partners is to continue to develop and deploy high-performance, low-power technology that will enable this explosion in connectivity and content sharing as we all enjoy the benefits of a mobile society.

Roy Chen Director of Client Computing, ARM

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Developers share and discuss ideas on the ARM-based LinkedIn page: www.linkedin.com search for “ARM based group”

Machine- to-machine

The Internet of Things: Connecting the Machines The market for embedded computers is one of the fastest growing opportunities for ARM and its Partners. It includes deeply embedded chips going into automotive, industrial and medical applications, and provides the intelligence that will enable the “Internet of Things”. ARM processor-based chips span from ultra low-power microcontrollers up to embedded computing. This enables a huge breadth of use cases including in-vehicle entertainment systems, anti-lock braking devices, intelligent lighting, smart washing machines and so on.

Eight out of the world’s top 10 leading semiconductor manufacturers use ARM technology to develop microcontrollers. In 2012, leading microcontroller vendors announced new ARM-based microcontrollers including:

Atmel Ultra low-power microcontrollers for NXP Low-power microcontrollers for office industrial automation, smart grid, and lighting systems building and home control

Gary Atkinson (top) Freescale Kinetis chips for machine-to-machine Renesas Connected applications demanding Director of Embedded Computing communication and network connectivity high-speed data processing and a human-machine interface Gary Atkinson joined ARM in 2010 to lead the development of ARM’s strategy in embedded chips Fujitsu Up to 500 new ARM processor-based ST High-performance microcontrollers in automotive applications, smartcards and microcontrollers for industrial, home for utility metering, renewable energy, microcontrollers. appliance and medical applications and healthcare

Ian Thornton (bottom) Infineon Microcontrollers for digital power Toshiba Microcontrollers for smart meters VP Marketing conversion in solar invertors and the automation of manufacturing applications After 12 years at ARM, Ian is currently responsible for ARM’s ecosystem development. He is also head of corporate communications and investor relations.

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Read more from the technologists at ARM in their blogs: blogs.arm.com/

The ARM partnership model enables silicon intelligence to even smaller, lower cost Innovative companies are connecting together vendors to focus on bringing their unique chips. We believe that this extra intelligence networked intelligent sensors and are creating competencies to bear in the creation of combined with additional connectivity, brings new business models, products and services optimised, differentiated solutions that address the possibility of new products with huge for individuals, communities and industries. diverse market needs. ARM technology implications for efficiency and innovation. Many of these networks will utilise ARM scales across performance points, enabling The Internet of Things is the concept processor-based chips. a standard architecture across multiple where everything has both intelligence and connectivity – this is directly enabled ARM is proactively working to lower the application types for software reuse. barrier to innovation in the Internet of This allows OEMs to reduce their software by efficient, low-cost, low-power ARM microcontrollers. Things. We founded the “Internet of Things development costs by sharing software Association” forum to ensure interoperability, costs and expertise across multiple Environmental sensors, networked together, and are also promoting the Weightless product lines. In addition to reducing costs, can give an overview of temperature, pressure standard for low-power, long distance ARM processor-based microcontrollers and humidity in a home, office, vehicle wireless data communications. offer significant energy efficiency benefits or construction site. Personal sensors, compared to older, proprietary designs. networked together, can inform medical Together with our Partners, we are paving professionals on an individual’s health by the way towards unimaginable connections ARM technology can already be found in measuring such things as activity levels, in many future Internet of Things applications. billions of embedded microcontroller chips, heart rate and glucose levels. providing additional smartness to products that have traditionally been fairly dumb. In 2012, we announced Cortex-M0+, our smallest and most power-efficient processor to date. This processor brings greater

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“As a new high-tech company, we combine the best technologies to create a genuinely innovative solution to a decades-old problem. We work with established and well respected companies such as ARM and ST, and that gives us an excellent embedded platform to monitor and log power switching performance.”

Bryn Parry Founder, Amantys

Richard Ord, Marketing Director, Amantys talking to Ian Thornton, VP Marketing, ARM “We use an ARM Cortex-M processor- based chip because it is becoming ubiquitous in industrial electronics. We chose STMicroelectronics’ STM32 chip because it is proven to be reliable even in the extreme environments that our products can go into – from wind turbines in the North Sea to electrical systems in locomotives.”

Richard Ord Marketing Director, Amantys

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STMicroelectronics STM32 F1 series The STMicroelectronics STM32 F1 series incorporates a high-performance ARM Cortex-M3 processor, high-speed embedded memories, and an extensive range of enhanced peripherals and I/Os. The chip efficiently operates in temperature ranges from –40 to +105 °C, making it suitable for a wide range of applications in environments where robust technology is required.

Amantys Power Drive Amantys is an independent design and manufacturing company of innovative medium and high voltage, power electronic switching products. They combine advanced digital control techniques with power system designs to monitor and control the switching of power devices. The first application of the technology is for wind turbines. Future applications include motor drives, traction control, electric and hybrid vehicles, UPS, transformers and HVDC infrastructure.

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Network Huawei™ BTS3900 is a compact macro infrastructure Base Transceiver Station which features a large capacity and good extensibility, and is small and lightweight. It is integrated with HiSilicon’s Hi1380, the industry’s first eight core ARM Cortex-A9 network SoC. The platform provides innovative multicore technology, which allows it to address global market opportunities with highly competitive solutions. The Hi1380’s high-performance and low-cost meets the need of GSM/UMTS/LTE base stations. A Fully Connected World The server and enterprise networking markets must evolve to be more power and cost efficient to realise the vision of a fully connected world. With the current cost and availability of energy, IT infrastructure cannot meet the needs of the next billion users, or the evolving needs of currently supported users.

In some companies, especially where “data As energy consumption has become more is the business”, the servers generate the important to network operators, ARM and revenue and are also the source of much our Partners are helping them create lower of the organisation’s cost. Such companies power servers and networking equipment. include social networking businesses, and One way to reduce power consumption in a online retailers. Unlike more general-purpose complex system design is to create a highly platforms that are deployed in conventional integrated chip that features the appropriate enterprises, these servers run one specific combination of heterogeneous processing, application. Reducing the acquisition cost storage and networking functionality. In the of the server infrastructure and improving last few years we have seen the first design the system’s efficiency directly impacts wins for ARM technology in integrated the company’s bottom line. Systems-on-Chip within both servers and enterprise networking equipment. ARM’s Smartphones and tablets are becoming our Cortex-A family of processors have enabled primary compute devices and this is putting some of our Partners to build multi-core chips a huge demand on mobile infrastructure, that deliver higher performance at lower the vast networks that enable consumers’ Lakshmi Mandayam (top) power than existing chips used by the industry. mobile devices to be always on and always Director of Server Systems connected, worldwide. Current demand for In networking equipment, this can be seen With ARM since 2008, Lakshmi has focused on the data is forecast to multiply 18-fold between by the adoption of ARM processors by enterprise market including networking and mobile 2011 and 2016*, yet much of the present semiconductor companies such as Cavium, infrastructure. Recently she also started to manage infrastructure is not scalable or able to adapt. Freescale, Huawei, LSI, Mindspeed and ARM’s server initiative. This presents a key challenge for network Texas Instruments, with software support operators. They need to deliver high quality, by Montavista and Wind River. Ian Ferguson (bottom) competitively priced services and higher VP of Segment Marketing bandwidth for an increasing density of subscribers, against a background of rising Ian joined ARM in 2007, and led the strategy to open energy costs. up the server market for the adoption of ARM technology. In January 2013, Ian took over managing ARM’s segment marketing team.

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Join ARM at our Google+ hangouts where we discuss new technologies and markets: plus.google.com/+arm/posts

In servers, a broad range of semiconductor 2013 will also be an important year for ARM companies including AMD, AppliedMicro, in server technology. We expect to see the Calxeda, Marvell and Texas Instruments first 32-bit ARM powered servers go into full have announced ARM processor-based chips. production. We expect the first prototype A server ecosystem around ARM technology- 64-bit ARM processor-based chips and based servers is beginning to develop with hardware platforms to be available. Initially, platform announcements from Boston, Dell, these will be deployed to leading server HP, MiTAC and ZT Systems. In 2012, Dell companies and to third-party software started shipping ARM technology-based developers. In 2012, companies such as Oracle servers with Marvell’s quad-core Armada XP and Red Hat released new Java and Linux SoC products. HP’s Moonshot platform and technologies for ARM technology-based Houston-based Discovery Lab will enable servers and in 2013, the Linaro Enterprise the development of ARM technology-based Group is well placed to advance software server applications. HP cites the potential standards so more companies can benefit of the ARM technology-based server from ARM’s ecosystem approach. architecture solution to use 89% less energy, 94% less space and 63% less cost. In the future, the demands on IT infrastructure such as servers and enterprise networking In 2013, we will see more ARM technology- equipment and mobile infrastructure will based mobile infrastructure start shipping into continue to increase. With energy costs energy-efficient macro base stations. We can already rising, IT departments know that they also look forward to new types of products need to deliver more for less. ARM and our such as small-cell base stations which can be Partners have connected together to enable more cheaply deployed where mobile data equipment manufacturers to design new coverage is challenging, whether in rural, or classes of low-power products to meet these less developed areas or densely populated challenging demands. The ARM ecosystem is metropolitan areas. reshaping IT and operator economics and meeting the needs of business in a fully connected world.

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In 2013 we expect to see the first 32-bit ARM powered servers go into full production. We also expect the first prototype 64-bit ARM processor-based systems to be available, which will accelerate the efforts by our Partners in the software ecosystem.

Ian Ferguson VP of Segment Marketing

Calxeda EnergyCore The Calxeda EnergyCore ECX-1000 Series is a family of Server-on-Chip products that brings the power efficiency of ARM processors to the data centre. By tightly integrating these hardware and software capabilities together with ARM processors and I/O subsystems, each ECX-1000 SoC delivers the scalability and intelligence needed for building the industry’s most power and space-efficient server clusters.

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The server and enterprise networking markets must evolve to be more power and cost-efficient to realise the vision of a fully connected world. With the current cost and availability of energy, IT infrastructure cannot meet the needs of the next billion users, or the evolving needs of currently supported users.

Lakshmi Mandayam Director of Server Systems

Boston Viridis The Boston Viridis is a self contained, highly extensible, 48 node ultra low-power cluster of quad-core ARM® Cortex™-A9 and Cortex-M3 powered server processors (that feature on-chip high-speed interconnect) within a standard single 2U rack.

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An External Perspective

Leadership and strategy in the age of business ecosystems

The ARM processor had its origins in the late 1980s. A small British company, Acorn, developed the technology whilst working on a quasi-public computer project for schools, funded by the BBC. After the ARM processor was adopted by Apple for the Newton PDA, the 12 founders were spun out of Acorn into a small start up. With little money and few resources they decided to collaborate and work together with other companies who wanted to use their design. These early decisions set the values and the business model for the Company more than 20 years later. The business model then and today is to make available intellectual property that enables other companies to work together to create successful digital products. ARM’s values include leveraging a relatively small number of employees, seeking to help ARM Partners grow into successful enterprises and helping link these companies together into an ecosystem where each gains from the strength Dr. James F. Moore of the others. Academic and author Obviously ARM and its business ecosystem are effective by any conventional business measure. Today ARM is a relatively small company, employing about 2,400 people worldwide – and yet it leads a business ecosystem comprising many of the world’s About the author largest technology companies. As we will see, ARM does this by respecting its Partners Dr. James F. Moore has studied and taught leadership and strategy in business ecosystems for three decades. and learning from them, as well as teaching. As one ARM executive told me recently, He is the author of the seminal book on the subject, “we don’t know everything and we don’t want to – if we did we would require far more The Death of Competition (HarperCollins 1996). than 2,400 people. We want to rely on others. We get better specific leadership from He conducted research at Stanford and Harvard, and has advised leaders of many of the world’s top our Partners, and we are free to focus on what we do best – which includes helping to technology organisations. connect Partners across our ecosystem.”

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Leading a business ecosystem requires championing the shared purpose of the community, creating opportunities for members to strategise and to act as an ecosystem.

Leading a business ecosystem requires championing the shared purpose of the community, creating opportunities for members to strategise and act as an ecosystem, helping members meet and do business, and assisting them in their work together. ARM promotes a vision of its ecosystem as a place for collaboration and shared learning: “A better world, all together.” “We see a world where billions of people can collaborate and connect every day.” “We work alongside the world’s technology companies fostering a vibrant, diverse ecosystem, unleashing the creativity of many, providing market opportunities for all.” ARM and its Partners jointly strategise and act. Joint strategy making – and the transparency required – is facilitated because at the highest level of discussion ARM believes in the sharing of total ecosystem revenues and profits with its Partners. ARM argues that for an ecosystem to succeed as a whole, the members need to thrive. This opens the door to recognising the ecosystem itself as an asset and a public good, and to working with Partners to maximise business for all. The ARM ecosystem provides a living critique of other ecosystems where the dominant players take most of the profits. Some processes for joint strategy-making are ARM-centric, with ARM either leading the conversation or making a platform for others. The annual discussion schedule revolves around an invitation-only Partners meeting in the summer and an open technology conference later in the autumn. These events punctuate the near-constant strategic conversations and initiatives active among members. ARM executives tell stories of being influenced by others in these exchanges. One of my favourite stories is from the early years of ARM, when a major Partner wanted chips for mobile phones. This company suggested that ARM limit its processor to a 250 milliwatt budget for electrical power – tiny by computer standards – and asked that ARM learn how to double the processing capability of chips every 18 months while keeping power constant. Of course ARM could have rejected this technology strategy but, by embracing it, ARM learned how to do sophisticated power saving in advance of its competitors. This in turn helped the entire ecosystem to succeed with small devices of all kinds, and energy efficiency is today one of ARM’s most distinctive competencies. A current strategic collaboration that will improve energy efficiency further is ARM’s joint work with foundries, such as GLOBALFOUNDRIES, Samsung and TSMC, on developing the most advanced, small- feature-size chips using FinFET (also called “3D Transistor”) manufacturing technology.

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In 2010 ARM helped launch Linaro, an open source software not-for-profit organisation which enriches the software toolkit for Android phones.

www.linaro.org/

There are also ecosystem-centric strategic processes that ARM fosters. For example, in 2010 ARM helped launch Linaro, an open source software not-for-profit organisation which enriches the software toolkit for Android phones. By summer 2012 the results looked pretty impressive, with a reported 100% performance improvement for the Android 4 operating system*. ARM and its Partners are active in establishing these kinds of initiatives where the ecosystem can benefit. Leading a business ecosystem means enabling Partners to make business deals between themselves to further their own interests and to succeed. This “connecting the dots” – as one ARM person calls it – is critical to the ARM business model. ARM’s intellectual property is of value only if it can be made into chips that succeed in devices. And ARM does neither itself. So it creates an environment that helps companies come to agreements between themselves. For example, as part of the activity to break into the mobile computing ecosystem, ARM created a formal programme to introduce its semiconductor and software Partners to OEMs and ODMs in China and Taiwan. This helped to accelerate the learning for both groups on how ARM technology could be used in tablets and laptops. To create a catalyst for entry into both the microcontroller and server markets – two markets at polar opposites of the compute spectrum – ARM encourages its ecosystem by investing in start-up companies to pioneer into these emergent markets. Multiple members of the ARM team told me the Company intentionally “leaves room for others to differentiate on the chip.” This is another way of expressing the ARM value of joint wealth creation and shared fruits. Chip customers can mix and match designs for technology elements and combine them on one chip, buying the intellectual property for the elements from any of several sources, and then working with these sources and ARM and a foundry to make the combination succeed. Currently the parts that can be combined within the Systems-on-Chip are going beyond the typical microprocessor and graphics and becoming quite varied. This puts ARM continually in the middle of complex business action, helping as chip capabilities are designed and simulated, fabricated and tested.

* Lucian Armasu, June 2012 http://www.androidauthority.com/linaro-android-is-up-to-twice-as-fast-as-stock-android-92831/ 38 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 Overview Our marketplace Strategy and Our partnership Our commitment Financials and risk Governance Financial statements performance approach

Several features of the ARM ecosystem stand out. The first is that the stance that ARM people take towards the others around them is remarkably humble. ARM has an agenda; it has points of view and a strong identity. But at the core of that strength is a willingness to learn, to give and take, and to share in the service of the ecosystem. Humility is a surprising characteristic in a technology company – and even more interesting in a highly influential and profitable leader of a fast-growing business ecosystem. When did you last hear an executive in a technology company say that he or she wants the company to stay compact? That the company doesn’t want to solve every problem, and wants to leave room for other companies to invest and become profitable? That is not to say that companies don’t focus – they do – but they don’t talk about it in this way. This stance is reinforced with remarkable consistency in ARM’s actions – they have limited their size, they do learn from others, and they are open to new Partners – and they have Partners who thrive. My second observation is that the values ARM expresses and the ecosystem that has resulted are well-adapted to the world that is unfolding. There was a business era when only large integrated semiconductor companies could supply what the world needed. But over time this changed. Scientific knowledge spread from large companies to open communities, seeded by entrepreneurial individuals working peer-to-peer, university labs, and the “open source” and DIY social movements to share technology. Integrated companies in some cases aided this movement where it suited them, for example licensing advanced technologies, supporting open standards initiatives, and spinning off divisions into new industry-serving foundries. Within this radically open environment the barriers to entry for device makers are very low. Those wanting chips today find themselves with an enormous range of choices – but they need fundamental designs, they need standards, they need to share resources such as foundries with others – and most of all they need help connecting the dots, making their own personal ecosystems successful. ARM provides access to these. My third observation is that ARM’s success depends on maintaining trust across the ecosystem. ARM’s stated strategy is to grow by expanding the success of the collective ecosystem, and not by squeezing its Partners or taking away their businesses. This approach, documented in history, helps assure current and prospective Partners that they will be treated fairly. Face-to‑face, ARM professionals are connectors, problem solvers and facilitators. As one person pointed out, in many cases ARM professionals have worked with their counterparts in other companies for years – people have track records of commitments met, of help given and of successful outcomes. Hundreds of management studies demonstrate the value of trust to businesses, especially in conditions of uncertainty, and when working across group, organisational and professional lines. One of the limits one can see to business ecosystems is their ability to keep up with change in society, science and technology. However when I consider the ARM ecosystem I’m optimistic, given its willingness to reward Partners, to embrace new ideas and to maintain a culture of trust. ARM’s success depends on maintaining trust across the ecosystem. ARM’s stated strategy is to grow by expanding the success of the collective ecosystem, and not by squeezing its partners or taking away their businesses.

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We are committed to connecting sustainability with every element of our business, integrating it as a central part of our long-term success.

In this section Corporate responsibility and sustainability within ARM Read more on page 41

ARM’s wider role Read more on page 42

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Our commitment Creating a More Connected and Sustainable Society From smart meters helping people to manage energy in their homes to digital controllers making wind turbines more productive, ARM technology is changing the way we use resources. Products containing our technology are connecting everyone together, enabling people and machines to use resources more efficiently. Whilst no single company can deliver on technology’s potential in solving sustainability issues, ARM’s low-power processors and ecosystem business model are enabling us to play an increasingly important role.

Corporate responsibility and (Project Diamond) which acts as a sustainability within ARM communication channel with the Group-wide decision making body, the Energy Use and Our approach is to integrate sustainability and Climate Change Committee (EUCCC). corporate responsibility into the core business. The EUCCC decides which ideas should We focus on increasing the power efficiency of be proposed at a corporate level. Everyone, products containing our technology as well as from recent graduates to the Chief Operating on how these products can have a positive Officer, is included in this process with major global impact. decisions going up to the highest level in the Group. ARM’s new data centre is the first in the world Within ARM’s operations, our priorities are to: to be awarded the CEEDA Gold certification “Our people are our most important asset” for its energy efficiency. is an over-used and often incorrect statement Read more on page 42 • continue building and retaining an – but it is true for ARM as a company that exceptional team; depends on the continual development of • act with integrity in our interactions intellectual property. ARM is still a small with all stakeholders; company relative to its global influence. This means that we place great importance • support charitable and sustainability initiatives on ensuring that our culture endures and our where ARM can add real value; and ability to innovate remains strong. • continue reducing our environmental impact. This is especially so given ARM’s success and the need to develop our team. Our workforce Corporate responsibility (CR) and governance grew by more than 10% in 2012 and further at ARM are established and reach throughout growth is anticipated during 2013. By the end the Group. The Board underpins ARM’s of 2012, ARM employed 2,392 people with sustainability and CR strategies, receiving operations in 13 countries. A clear indication of the importance ARM places on its global updates twice a year. The associated team can be seen in the provision of the committees develop the Group’s CR strategy same benefits and policies to all our full and and ensure a good flow of information and part-time staff, wherever they are located. For further information please refer to our full ideas around the business. Our local offices report on ARM’s corporate responsibility: also develop their own priorities within the To sustain ARM’s success, we need strong www.arm.com/reporting2012 strategy established for the Group and report internal networks and a company culture back into the committees. For environmental that is maintained at all levels of the business. issues, local teams (the Green Teams) feed This is achieved through intensive technical ideas and priorities into a central committee conferences and effective team building activities. 41 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 ARM Holdings plc Annual Report & Accounts 2012

From the two-week Global Graduate Alongside our growing team, another ARM’s direct environmental impact is low. Conference to the ARM Leadership consequence of ARM’s success is an increase Emissions come only from energy use in Programme for those in senior positions, we in our data-processing requirements. We offices, our data centres and flights. The Ethical focus on training and personal development needed more processing power to help us Investment Research and Information Service for all employees. As ARM continues to design the next generation of processors and (EIRIS) has graded ARM as an environmentally evolve, leadership plays an increasingly so, in 2012, we completed a new data centre “Low Impact” business. Nevertheless during important role at many levels by aligning in Cambridge. Our goal was to provide 2010 we set the target of reducing our CO2 people, purpose and performance. scalable computing power with the lowest emissions per employee by 30% before 2020 environmental impact possible. and we are confident of making significant These programmes are already achieving progress over the next twelve months. results. Figures from the 2012 Interim Global The new facility has become the first data Employee Opinion Survey show that leaders centre in the world to be awarded a gold ARM’s wider role at ARM feel more confident and their teams CEEDA (Certified Energy Efficient Data We have the opportunity to develop consider them more in tune with ARM’s values Centre Award) for its energy efficiency, with technology that can really improve people’s and culture. a projected annualised efficiency ratio (PUE) lives and global sustainability. Our technology of well below 1.1. This sets the standard for is bringing even more capability to the mobile all ARM’s future data centre projects and computers that we carry with us every day. demonstrates our company-wide commitment In 2012 we introduced big.LITTLE, an innovative to energy efficiency and carbon reduction. approach to ensuring that the processor uses as

Corporate Responsibility at ARM

Local office Team Green Teams ARM

Charitable Donations and Project Sustainability Diamond Committee CR (CDSC) Team

Energy Use and Climate Change Committee (EUCCC)

Executive Committee

Holdings Board

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little power as possible to perform a given task. It is for innovations like big.LITTLE that ARM We are supporting a variety of research ARM’s big.LITTLE technology is a combination has been recognised by Forbes as one of the projects to improve understanding of how of our Cortex-A15 and Cortex-A7 processors. most innovative companies in the world. our technology and ecosystem might be able Combined they deliver twice the performance It also demonstrates why we are seen as to support a more energy-efficient future. of today’s smartphones, but with up to a 70% being central to the future of energy-efficient power saving. technology. In 2012 the Smart Electronics ARM is partnering with the Carbon Trust Initiative (SEI) identified ARM as a clear on a project to model the global energy and Read more on page 25 innovator in energy-efficiency and asked us carbon reduction potential of introducing our to help them bring a new wave of efficiency low-powered chips into computer servers. innovation to California. Their goal is to The research will look at a number of different ARM technology is also enabling a new maintain the state’s energy consumption at the scenarios with different assumptions and will generation of lower power server and current rate of 30% below the US average. also use measured data from some prototype networking products, helping network ARM technology-based servers. operators and infrastructure providers SEI is putting a spotlight on the huge operate more efficiently. At the other energy-efficiency savings that new consumer We have continued our collaboration with end of the spectrum, the frugal and tiny electronic devices (such as set-top boxes, The American Council for an Energy Cortex-M0+ processor has great potential computers and televisions) can have in cutting Efficient Economy (ACEEE), supporting the to deliver on the promise of the Internet of over 20% of the current energy consumption development of their 2012 Intelligent Efficiency Things and the smart cities of the future. drawn from appliance use. SEI, ARM and report. This has led to a new research project some of our Partner companies are working exploring how smart appliances can reduce Read more on page 28 with California policy-makers to expand energy consumption. In 2013, the ACEEE will the research, design, manufacture and sale bring together a wide range of experts to of more efficient products both in state quantify the impact that smart connected and around the globe. appliances can have on achieving a sustainable energy future. Our CR programme for 2012 continued to focus on energy-efficiency as well as on Information Communication Technology as an enabler for economic development and growth in developing countries. To find out more visit: www.smart-electronics.org & http://aceee.org/research-report/e125

Team ARM is a programme that helps strengthen our values and culture whilst raising funds for charities through employee-led events. 2012 has been a great year, raising over £100k through employee led activities, helped by matched funding from ARM.

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Information Technology has a key role to play Literacy Bridge develops low-cost technology ARM is committed to building sustainability in international development and Information aimed at alleviating poverty. At present, considerations into every element of our Communication Technology for Development Literacy Bridge is focusing on poor subsistence commercial activity. We expect our (ICT4D) has become a focus for farming communities in Northern Ghana contribution to a more sustainable world to Non-Governmental Organisations (NGOs) where its Talking Book device, that is based prove central to our future success. and the United Nations. Unfortunately the around ARM’s technology, helps deliver key results promised by technology often do not agricultural information to farmers. With the materialise. One reason for this is that next generation of this device, Literacy Bridge hardware and supporting systems fail as they hope to expand into areas such as health are designed for countries with extensive and education, and also to other countries. infrastructure and reliable grid power connectivity. This section intends to provide a brief overview and examples of our CR and To understand how technology might be sustainability activities in 2012. designed more appropriately for use in developing countries, we have formed a partnership with Inveneo, a NGO focussed Our full 2012 Corporate Responsibility Report is published on our website at on delivering appropriate technology to those www.arm.com/reporting2012 who need it most. Through its ICT Works programme, Inveneo is gathering information on why IT systems tend to fail during charitable projects in developing countries. The intention is to use this analysis to catalyse the development of new products that will better meet the needs of individuals and organisations. ARM and Literacy Bridge are entering into a strategic three year partnership. Over this Literacy Bridge develops low-cost technology aimed at alleviating poverty. period we hope that our collaboration will ARM and Literacy Bridge are entering help improve the health and livelihoods of into a three year partnership. more than 100,000 people.

To find out more visit: www.inveneo.org & www.literacybridge.org

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ARM’s approach is to connect our business model, strategy, and financial and risk management. This enables us to grow our profits and OUR returns to shareholders.

In this section

Financial review Read more on page 46

Risk management Read more on page 52

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Financial review Our financial discipline Balancing revenue growth and increased investment in the business has led to increased profit before tax and higher returns to shareholders.

Financial performance Record profitability and strong cash generation This review discusses the Group’s results underpin growth in dividends. Normalised against our key financial performance cash generation for the Group in 2012 was indicators, being revenues, profit, earnings £267.3 million (2011: £203.8 million) and the per share and cash generation, and provides directors are recommending payment of a information on our treasury and tax strategies. total dividend of 4.5 pence per share in respect of 2012, representing an increase of 29% During 2012, we achieved record revenues year-on-year. and profits at the same time as increasing investment in both our research and Over recent years, ARM has acquired a number development capability and the business of companies giving rise to the recognition of Tim Score infrastructure that underpins our growth. intangible assets other than goodwill. These Chief Financial Officer Licensing revenues reached new highs in are amortised over their expected useful lives, the year as our existing and new customers with the cost recorded against research and deploy ARM technology across a broadening development, sales and marketing or general range of end-markets. More information on the and administrative expenses as appropriate. Processor Division (PD) and Physical IP Division In addition, the issuance of ARM share-based (PIPD) licences signed during the year is provided remuneration to employees of the Group gives in the Strategy and performance section. rise to share-based payment charges. Figures excluding these charges, restructuring charges, US dollar royalty revenues increased by 17% Linaro™-related charges, ARM’s share of the from 2011 to 2012. An analysis of ARM-based results in joint venture and changes in the value unit shipments in 2012 is provided in the of available-for-sale investments are referred Strategy and performance section. to as “normalised” in this narrative to aid comparability.

Dividend per share pence Selected financial data/IFRS

08 2.20 2012 2011 2010 2009 2008 £m £m £m £m £m 09 2.42 Revenues 576.9 491.8 406.6 305.0 298.9 10 2.90 Cost of revenues (31.9) (27.7) (26.1) (25.5) (32.8) Gross profit 545.0 464.1 380.5 279.5 266.1 11 3.48 Total operating expenses (336.9) (315.2) (273.5) (233.9) (206.1) 12 4.50 Profit from operations 208.1 148.9 107.0 45.6 60.0 Operating margin 36.1% 30.3% 26.3% 15.0% 20.1% Investment income, net 13.6 8.0 3.1 1.6 3.2 Share of results in joint venture (0.7) – – – – Profit before tax 221.0 156.9 110.1 47.2 63.2 Tax (60.3) (44.3) (24.1) (6.8) (19.6) Profit for the year 160.7 112 .6 86.0 40.4 43.6 Dividends paid 51.8 42.2 34.3 29.0 26.4 Capital expenditure 33.2 13.0 7.4 6.9 8.7 Research and development expenditure 166.3 165.4 139.7 112 .2 87.6 Cash, short- and long-term deposits 527.6 429.0 291.8 141.8 78.8 Shareholders’ funds 1,206.1 1,061.2 894.9 738.7 740.3 Employees at end of year (number) 2,392 2 ,116 1,889 1,710 1,740

46 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 Overview Our marketplace Strategy and Our partnership Our commitment Financials Governance Financial statements performance approach and risk

Revenues PD royalty revenue was generated by our We have invested in our research and Total revenues for the year ended 31 December customers shipping 8.7 billion chips, up from development teams in both our Processor 2012 amounted to £576.9 million (2011: 7.9 billion in 2011, demonstrating the increasing and Physical IP divisions in 2012, ensuring £491.8 million). In US dollars, revenues were penetration of ARM technology in a wide that we continue to develop market-leading $913.1 million in 2012 compared to $785.0 range of end-markets. innovative technology including the million in 2011, an increase of 16% compared acceleration of the development of our Other revenues portfolio of graphics processors. to overall industry revenues that were down Total revenues from sales of development 2% over the same period. The average dollar systems and services were £63.1 million in Sales and marketing costs in 2012 were exchange rate for ARM revenues in 2012 was 2012, compared to £58.9 million in 2011. In US £72.9 million compared to £72.6 million in $1.58, compared to $1.60 in 2011. dollars, revenues from sales of development 2011. Normalised sales and marketing costs in Licensing revenues systems and services were $99.9 million in 2012 were £64.3 million (2011: £60.5 million). Total licensing revenues in 2012 were £214.0 2012, up 7% on $93.7 million in 2011. Additional investment in sales and marketing million (2011: £180.5 million), comprising has contributed to strong revenue growth, Profit and operating expenditure £181.1 million from PD (2011: £149.3 million) record shipments of ARM-based products and £32.9 million (2011: £31.2 million) from Gross margin and an order backlog at the end of 2012 PIPD. In US dollars, total licensing revenues Gross margin in 2012 was 94.5% compared which is more than three times as high as at in 2012 were $339.3 million compared to to 94.4% in 2011. Normalised gross margin the end of 2009. in 2012 was 94.8% (2011: 95.1%). $285.7 million in 2011, an increase of 19%. General and administrative costs in 2012 PD licensing revenues of $287.1 million were Operating expenses were £97.7 million compared to £77.2 million 21% higher than 2011 whilst PIPD licensing Total operating expenses in the year to in 2011. Normalised general and administrative revenues of $52.2 million were 6% up on 2011. 31 December 2012 were £336.9 million, costs in 2012 were £85.9 million (2011: £66.6 Royalty revenues compared to £315.2 million in 2011. million). The increase is largely attributable Total royalty revenues in 2012 were £299.8 Total normalised operating expenses in 2012 to increased investment in the IT and other million (2011: £252.4 million), comprising were £284.2 million (2011: £245.9 million), business infrastructure required to support £264.4 million (2011: £222.2 million) from PD an increase of 16%. growth and a charge in 2012 of £1.8 million due to the impact of a weaker dollar on the and £35.4 million (2011: £30.2 million) from Research and development expenses in PIPD. Dollar royalty revenues earned in PD accounting for derivative instruments 2012 were £166.3 million compared to (2011: £3.0 million credit). were $417.7 million, an increase of 17% over £165.4 million in 2011. Normalised research 2011. Dollar royalty revenues in PIPD were and development expenses in 2012 were $56.2 million, an increase of 15% over 2011. £134.0 million (2011: £118.8 million). Average headcount in research and development increased to 1,581 in 2012 from 1,366 in 2011.

Revenues $m The following table shows normalised costs and expenses reconciled to IFRS costs and expenses

08 546.2 Disposal/ Share- Acquisition- impairment Linaro™- 09 489.5 based Intangible related of related Normalised payments amortisation charges investments charges IFRS 10 631.3 £m £m £m £m £m £m £m 2012 11 785.0 Cost of revenues 29.8 2.1 – – – – 31.9 12 913.1 Research and development expenses 134.0 25.8 2.2 4.3 – – 166.3 Sales and marketing expenses 64.3 7.7 0.5 0.4 – – 72.9 General and administrative expenses 85.9 9.8 – 1.4 0.6 – 97.7 Revenues £m Total net operating expenses 284.2 43.3 2.7 6.1 0.6 – 336.9 08 298.9 2011 09 305.0 Cost of revenues 24.2 3.5 – – – – 27.7 Research and development expenses 118.8 34.8 2.4 2.5 – 6.9 165.4 10 406.6 Sales and marketing expenses 60.5 11. 3 0.8 – – – 72.6 11 491.8 General and administrative expenses 66.6 8.1 – 0.7 1.8 – 77.2 Total net operating expenses 245.9 54.2 3.2 3.2 1.8 6.9 315.2 12 576.9 Royalty Licencing Other

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Segmental reporting reported into four main revenue streams Cortex family of products and the Mali 3D ARM designs technology that is used in (namely licensing, royalties, development graphics processors. Royalty rates increased energy-efficient chips in a broad range of systems and services), the costs, operating in 2012, as products incorporating newer, end-markets. Information on ARM’s position results and balance sheet are only analysed high-end technology contributed to the in the industry and the markets in which it into these three divisions. strong growth in overall royalty revenues. operates is described in the preceding pages. PD revenues (including revenues from services) PIPD revenues in 2012 were £68.3 million Internally, ARM is organised on a worldwide in 2012 were £473.9 million ($749.8 million), ($108.4 million), compared with £61.3 million basis into three main business segments, being compared with £397.6 million ($634.7 million) ($97.9 million) in 2011. The increase in licence PD, PIPD and the System Design Division in 2011. PD licensing revenues are driven by and royalty revenues was due to continued (SDD). This is based upon the Group’s internal customers’ ongoing R&D programmes. The higher licensing activity and further utilisation organisation and management structure and is portfolio of licensable products comprises a of ARM physical IP by foundries. SDD the primary way in which the Chief Operating rich mix of ARM technology, with the main revenues in 2012 were £34.7 million Decision Maker is provided with financial revenue growth in the year coming from the ($54.9 million), compared with £32.9 million information. Whilst revenues are also ($52.4 million) in 2011.

PD PIPD SDD Unallocated Group £m £m £m £m £m Year ended 31 December 2012 Segmental income statement Revenues (GBP) 473.9 68.3 34.7 – 576.9 Operating costs (243.3) (82.8) (40.1) (2.6) (368.8) Investment income, net – – – 13.6 13.6 Share of results in joint venture – – – (0.7) (0.7) Profit/(loss) before tax 230.6 (14.5) (5.4) 10.3 221.0 Tax – – – (60.3) (60.3) Profit/(loss) for the period 230.6 (14.5) (5.4) (50.0) 160.7 Reconciliation to normalised profit/(loss) before tax Intangible amortisation 2.4 0.8 – – 3.2 Acquisition-related charges 3.1 1.7 – 0.8 5.6 Share-based payment costs including payroll taxes 30.0 8.6 6.8 – 45.4 Profit on sale of investments, net of impairment 0.6 – – – 0.6 Share of results in joint venture – – – 0.7 0.7 Normalised profit/(loss) for the period before tax 266.7 (3.4) 1.4 11.8 276.5 Goodwill 138.0 367.0 14.4 – 519.4 Total assets 284.6 409.2 32.5 740.5 1,466.8 Revenues (USD) 749.8 108.4 54.9 – 913.1 Year ended 31 December 2011 Segmental income statement Revenues (GBP) 397.6 61.3 32.9 – 491.8 Operating costs (223.8) (81.1) (41.2) 3.2 (342.9) Investment income, net – – – 8.0 8.0 Profit/(loss) before tax 173.8 (19.8) (8.3) 11.2 156.9 Tax – – – (44.3) (44.3) Profit/(loss) for the period 173.8 (19.8) (8.3) (33.1) 112 .6 Reconciliation to normalised profit/(loss) before tax Intangible amortisation 2.2 1.0 – – 3.2 Acquisition-related charges 2.4 0.6 0.2 – 3.2 Share-based payment costs including payroll taxes 36.9 12.1 8.7 – 57.7 Disposal/impairment of investments – 1.7 0.1 – 1.8 Linaro™-related charges 6.9 – – – 6.9 Normalised profit/(loss) for the period before tax 222.2 (4.4) 0.7 11.2 229.7 Goodwill 143.7 383.9 14.9 – 542.5 Total assets 274.6 419.9 30.9 574.4 1,299.8 Revenues (USD) 634.7 97.9 52.4 – 785.0

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Profit before tax in the year for PD was Earnings, taxation and returns £230.6 million, compared to £173.8 million to shareholders in 2011. Normalised profit before tax in 2012 Earnings and taxation for PD was £266.7 million, compared to Profit before tax in 2012 was £221.0 million or £222.2 million in 2011. 38% of revenues, compared to £156.9 million Loss before tax in the year for PIPD or 32% of revenues in 2011. Normalised profit was £14.5 million, compared to a loss of before tax in 2012 was £276.5 million or 48% £19.8 million in 2011. Normalised loss of revenues, compared to £229.7 million before tax in 2012 for PIPD was £3.4 million, or 47% of revenues in 2011. compared to £4.4 million in 2011. Loss before The Group’s effective taxation rate in 2012 tax in the period for SDD was £5.4 million, was 27.3%, compared to 28.2% in 2011. compared to £8.3 million in 2011. Normalised profit before tax in 2012 for SDD was Fully diluted earnings per share in 2012 were £1.4 million, compared to £0.7 million in 2011. 11.5 pence compared to 8.2 pence in 2011. The improved results in both of these Normalised diluted earnings per share in 2012 business segments are primarily due to were 14.7 pence (2011: 12.5 pence). increased revenues.

Profit from operations £m The following table shows non-GAAP measures used in this annual report, including reconciliations from the IFRS measures. They exclude acquisition-related charges, share-based payment costs and restructuring charges, 08 60.0 97.7 and profit on disposal and impairment of available-for-sale investments, share of results in joint venture and Linaro™-related costs. 09 45.6 95.1 2012 2011 2010 2009 2008 10 107.0 164.3 £m £m £m £m £m Profit from operations 11 148.9 221.7 (per IFRS income statement) 208.1 148.9 107.0 45.6 60.0 12 208.1 262.9 Intangible amortisation 2.7 3.2 11.4 16.2 19.6 Acquisition-related charges 6.1 3.2 – – 0.4 Profit under IFRS Normalised profit Share-based payment costs and related payroll taxes 45.4 57.7 41.9 24.7 15.9 Operating margin % Restructuring charges – – (0.4) 8.4 1.8 08 20.1 32.7 Profit/loss on sale/impairment of investments 0.6 1.8 – 0.2 – Linaro™-related charges – 6.9 4.4 – – 09 15.0 31.2 Normalised profit from operations 262.9 221.7 164.3 95.1 97.7 10 26.3 40.4 Normalised operating margin 45.6% 45.1% 40.4% 31.2% 32.7% Investment income, net 13.6 8.0 3.1 1.6 3.2 11 30.3 45.1 Normalised profit before tax 276.5 229.7 167.4 96.7 100.9 12 36.1 45.6 Tax (per IFRS income statement) (60.3) (44.3) (24.1) (6.8) (19.6) Operating margin under IFRS Tax impact of above charges (11.0) (14.2) (17.0) (19.1) (8.5) Normalised operating margin Normalised profit after tax 205.2 171.2 126.3 70.8 72.8 Earnings per share pence Normalised diluted EPS (pence) 14.70 12.45 9.34 5.45 5.66 IFRS diluted EPS (pence) 11.51 8.19 6.36 3.11 3.39 08 3.39 5.66

09 3.11 5.45

10 6.36 9.34

11 8.19 12.45

12 11. 51 14.70 Diluted EPS under IFRS Normalised diluted EPS

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Dividend Balance sheet Treasury and taxation strategies The directors are recommending payment Goodwill at 31 December 2012 was Treasury of a final dividend in respect of 2012 of £519.4 million, compared to £542.5 million at The Group has established treasury policies 2.83 pence per share which, taken together 31 December 2011. The decrease in goodwill aimed both at mitigating the impact of foreign with the interim dividend of 1.67 pence per in 2012 is due to foreign exchange movements. exchange fluctuations on reported profits and share paid in October 2012, gives a total Goodwill is not amortised under IFRS, but is cash flows and at ensuring appropriate returns dividend in respect of 2012 of 4.50 pence subject to impairment review on at least an are earned on the Group’s cash resources.1 per share, an increase of 29% over 3.48 pence annual basis. During the year, the directors per share in 2011, continuing the steady performed the review which involved making The consolidated cash, cash equivalents, and growth in dividends in recent years through various assumptions regarding the future deposits was £520.2 million net of accrued challenging economic cycles. Subject to performance of the business. After considering interest of £7.4 million as at 31 December 2012 shareholder approval, the final dividend will various scenarios that could reasonably occur, (2011: £424.0 million net of accrued interest be paid on 17 May 2013 to shareholders on the directors concluded that no impairment of £5.0 million). the register on 19 April 2013. Total dividends was required. For more details, please see Net investment income was £13.6 million actually paid in 2012 amounted to £51.8 million note 15 to the financial statements. for 2012 compared to £8.0 million in 2011. (2011: £42.2 million). Other intangible assets at 31 December The increase is due primarily to the higher Share buybacks 2012 were £11.2 million, compared to cash balance carried by the Group Between 2005 and 2008, the Company £12.5 million at 31 December 2011. Further throughout 2012. bought back 213 million shares (being 16% analysis can be found in note 16 to the financial of issued share capital) at a total cost of statements. Other intangible assets are £261 million. No share buybacks have been amortised over their estimated useful lives. undertaken since 2008. The rolling authority to buy back shares given by the shareholders Accounts receivable at 31 December 2012 at the 2012 AGM remains in place and a were £124.5 million, compared to £119.6 resolution to authorise the directors to make million at 31 December 2011. The allowance purchases in appropriate circumstances will against receivables was £2.4 million at be proposed at the 2013 AGM. 31 December 2012, compared to £1.7 million at 31 December 2011. Deferred revenues Cumulative cash returned £m were £150.6 million at 31 December 2012, compared to £116.8 million at the end of 2011. 08 77 261 338 Prepaid expenses and other assets at 09 106 261 367 31 December 2012 were £137.6 million, 10 141 261 402 compared to £33.0 million at 31 December 2011. Included in the 2012 balance is a 11 183 261 444 prepayment amounting to £103.7 million, 12 235 261 496 being ARM’s contribution to a consortium to acquire rights to MIPS Technologies, Inc’s Dividends Share buybacks portfolio of patents. Normalised cash generation £m Capital structure 08 95.3 The authorised share capital of the Company is 2,200,000,000 ordinary shares at 0.05 pence 09 86.1 each (2011: 2,200,000,000). The issued 10 179.9 share capital at 31 December 2012 was 1,380,768,350 ordinary shares of 0.05 pence 11 203.8 each (2011: 1,351,315,597). 12 267.3

1 The Group’s treasury policies are discussed in detail in note 1c “Financial risk management”. 50 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 Overview Our marketplace Strategy and Our partnership Our commitment Financials Governance Financial statements performance approach and risk

2012 2011 2010 2009 2008 £m £m £m £m £m Cash and cash equivalents 46.3 26.8 29.4 34.5 76.5 Short-term deposits 340.0 319.1 247.4 105.5 0.5 Short-term marketable securities – – – 1.8 1.8 Long-term deposits 141.3 83.1 15.0 – – Less: interest accrued (7.4) (5.0) (1.7) – – Normalised net cash, at end of year 520.2 424.0 290.1 141.8 78.8 Less: Normalised net cash, at start of year (424.0) (290.1) (141.8) (78.8) (51.3) Cash inflow from exercise of share options (5.6) (8.5) (24.0) (19.1) (5.6) Cash inflow from sale of available-for-sale securities – – (0.1) (0.7) (6.3) Add back: Cash outflow from payment of dividends 51.8 42.2 34.3 29.0 26.4 Cash outflow from purchase of own shares – – – – 40.3 Cash outflow from advance payment to the MIPS patent consortium 104.5 – – – – Cash (inflow)/outflow from investments and acquisitions (net of cash acquired) (8.8) 17.3 11.0 9.7 8.4 Cash outflow from investment in joint venture 7.5 – – – – Cash outflow from restructuring payments – – 4.5 3.5 1.9 Cash outflow from other acquisition-related payments 3.8 3.1 – – 2.2 Cash outflow from share-based payroll taxes 14.4 12.4 3.2 0.7 0.5 Cash outflow from payments related to Linaro 3.5 3.4 2.7 – – Normalised net cash generation 267.3 203.8 179.9 86.1 95.3

Taxation rate, and we have worked with the UK Principal risks and uncertainties ARM’s tax strategy is to enhance shareholder Government on new initiatives, most recently In line with the guidance for the preparation of value by minimising its tax liabilities through on the new patent box regime, to help create an operating and financial review, the principal the use of legitimate tax exemptions and tax a competitive tax environment for innovative risk factors faced by the Group are identified reliefs. ARM is committed to paying the high-tech companies in the UK. in the “Risk Management and Principal Risks” correct taxes in each relevant jurisdiction and section. Details of other risks and uncertainties follows a policy of full disclosure in its dealings In line with other global companies in the faced by the Group are noted within the with the tax authorities worldwide. The Board technology sector, ARM encourages employee Annual Report on Form 20-F for the year has oversight of ARM’s tax strategy and participation in the business through the use of ended 31 December 2012 which is available regularly reviews key developments that may employee share schemes. The increase in on ARM’s website at www.arm.com. influence the Group’s global tax position. ARM’s share price has benefited its employees, Further details of the Group’s internal controls leading to higher taxes being collected by ARM and risk management procedures are included ARM is a UK-headquartered business with on behalf of tax authorities, in addition to in the Corporate Governance report. significant operations based in the UK. More regular payroll and social security taxes. than 99% of Group revenues are generated outside the UK, however 90% of the Group’s ARM’s profit before tax in 2012 was worldwide profits are earned in the UK and £221.0 million. ARM’s total tax contribution Tim Score are subject to UK corporation tax. In addition, worldwide in 2012 amounted to £152.4 million Chief Financial Officer ARM pays taxes in other countries where our (2011: £139.0 million), of which £121.7 million customers and employees are based. ARM (2011: £112.1 million) related to tax collected reinvests about 30% of its revenues in research on behalf of the tax authorities for employee and development and so benefits from R&D payroll taxes, £26.1 million (2011: £22.4 tax credits both in the UK and overseas. ARM million) related to corporation taxes, £1.3 has also benefited in recent years from the million (2011: £1.4 million) to property taxes reduction in the headline UK corporation tax and £3.3 million (2011: £3.1 million) related to other taxes.

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Risk management RISK MANAGEMENT AND PRINCIPAL RISKS ARM has a robust risk management process that follows a sequence of risk identification, assessment of probability and impact, and assigns an owner to manage mitigation activities.

At a strategic level, our risk management Corporate Risk Register have an action plan that mitigates or further objectives are to: Corporate risks are identified and assessed reduces the probability of the risk occurring within the Corporate Risk Register (CRR). and/or its impact. Risk management action • identify the Group’s most significant risks; The CRR includes a description of the risk, plans are managed within the relevant identifies the owner, the inherent probability operational plans of the divisions and • develop plans to mitigate and manage risks, and impact of that risk occurring, the Group’s corporate functions. with a clear owner assigned to each risk; current processes and internal control The Risk Review Committee typically • ensure that business growth plans are activities, remaining residual risk and the meets on a quarterly basis to review the properly supported by effective risk planned activities to further mitigate it. CRR and identify other risks that need to infrastructure; and Risk review process be incorporated. Each risk owner is required to review and demonstrate that residual risks • help executives improve the control Common business risks and company specific are being appropriately mitigated via the and co-ordination of risk taking across risks are examined for relevance to the Group. operational plans. A more detailed the business. Relevant risks are entered onto the CRR and explanation of the Risk Review Committee’s given an owner. Risks are classified against activities is included in the Governance section probability assessment criteria and impact A register is kept of corporate risks and is on page 70. monitored by the Risk Review Committee, assessment criteria. Internal audit assurance chaired by Mike Muller, Chief Technology The Group’s ongoing operations and internal Officer. The Audit Committee is responsible controls may mitigate the probability and/or ARM’s internal audit function regularly audits for ensuring that the risk management process the impact of the risk. However, there will be the Group’s compliance with its policies, is operating effectively. The Executive some level of residual risk, and the risk owner processes and procedures, including Committee and the Board review the risk determines the extent to which the residual international standards and regulations. register on a regular basis. risk is at an acceptable level, or whether The programme of audits is intended to further action is required. Residual risks that provide assurance that processes, internal are not at an acceptable level are required to controls, and policies are operating effectively.

Risk model Audit Committee

Executive Committee

Risk Review Committee

Corporate Risk Register Operational Plans Description Internal controls New risk Owner Residual Risk Residual risk Probability Action plan Impact Activities to mitigate risk

Internal Audit Programmes

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Our principal risks arise from our business model, technology and ecosystem.

The information below summarises the We depend largely on a small number We operate in the intensely principal risks and uncertainties that may have of customers and products competitive semiconductor industry a material impact on the Group’s operating Our revenues depend largely on a small The Group faces competition from a wide results, reputation and share price. These risks number of licensees and products. range of companies with different technologies, should be carefully considered in evaluating the business models and partners, from nimble Group’s business. This annual report contains Both licence and royalty revenues in a particular start-ups to very well resourced corporations. forward-looking statements that involve risks period are generally concentrated in a small Competition is based on a variety of factors and uncertainties. Our actual results could number of licensees. If we fail to achieve the including price, performance, features, product differ materially from those anticipated in the performance required under a single licence quality, software availability, marketing and forward-looking statements as a result of contract or if a single customer fails to make distribution capability, customer support, name many factors, including the risks set out below its milestone payments, our business, financial recognition and financial strength. Further, given and elsewhere in this annual report. condition and results of operations could be our reliance on our semiconductor Partners, materially adversely affected. Our business and future operating our competitive position is dependent on their results may be adversely affected In addition, any failure to develop successor competitive position. They operate in an intensely competitive market, that is by a challenging macroeconomic products which offer significant competitive characterised by rapid technological change, environment and other events advantages to these customers in a timely and they may lose their market position due outside of our control manner or any decrease in demand for ARM technology could materially adversely affect us. to stronger competitors using alternative We are subject to risks arising from adverse architectures. In addition, some of our changes in global economic conditions. Due to Changes in technology trends and/or semiconductor Partners also design, develop, economic uncertainties in many of our key economic conditions may cause companies manufacture and market microprocessors markets, many companies may delay or within the semiconductor industry to based on their own architectures or on reduce technology purchases and investments. consolidate further or for industry other non-ARM architectures. The impact of this on us is difficult to predict, concentration to intensify, thereby reducing but if businesses defer licensing our technology the number of customers that the Group may Some semiconductor companies have or if consumers defer purchases of new sell its technology to and potentially making developed their own proprietary architecture products which incorporate our technology, the Group more dependent on a smaller for specific markets or applications. our revenue could decline. number of customers. These companies may reuse their proprietary architecture to penetrate markets where ARM Mitigation Mitigation is currently the architecture of choice, or where ARM’s licence and royalty business model The Group has licensed its processor ARM may be used in the future, making it delivers revenues from diverse sources. Much technology to more than 300 semiconductor harder for ARM to penetrate those markets. of ARM’s licence revenues in 2012 came from companies, about half of which are now backlog, which is at a record high, and the paying royalty revenues. Much of our royalty Mitigation remainder came from licences signed in the and licence revenues are generated by the To improve their competitive advantage many year. Semiconductor companies license new top 20 semiconductor companies. semiconductor companies look to lower the ARM technology to develop chips that will be price of their chips by designing smaller chips sold approximately three years later, so are The Group typically develops 2–3 new and by reducing their own costs. ARM’s based on a company’s long-term view processors each year, reducing the impact technology has been designed to be small of their prospects. of a product failure. ARM has rigorous quality and efficient, and by using an ARM processor assurance, and verification and validation rather than developing their own, many Royalty revenues are driven by sales of processes to reduce the risk of faults or bugs. companies can reduce their R&D expenditure. consumer electronics and embedded devices. As consumer electronics become smarter, and ARM is exposed to multiple end-markets and as processors become more complex to build, a broad geographic spread. more companies are choosing to use ARM processors in their chip designs.

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Our business will be adversely affected We may have to defend ourselves A successful patent infringement claim if we do not efficiently manage the against third parties who claim that we or a significant damage award would significant changes in the number have infringed their proprietary rights adversely impact our operating results of our employees and the size of Whilst we take great care to establish The semiconductor industry is characterised our operations and maintain the integrity of our products, we by frequent litigation regarding patent and The number of our employees and the size may have to protect our intellectual property other intellectual property rights. From of our operations have grown both organically or defend our technology against claims that time-to-time, third parties, including our and by acquisition. If this growth continues it we have infringed others’ proprietary rights. competitors, may assert patent, copyright could place a strain on our management and and other intellectual property rights to Mitigation other resources. We face challenges inherent technologies that are important to our We focus on designing and implementing in efficiently managing an increased number business. We cannot be certain that we would our products without the use of intellectual of employees over large geographic distances, ultimately prevail in any dispute or be able to property belonging to third parties, except including the need to implement appropriate license any valid and infringed patents from under strictly maintained procedures and systems, policies, benefits and compliance third parties on commercially reasonable with the benefit of appropriate licence rights. programmes in different jurisdictions. terms. Any infringement claim brought against In the event that a third party successfully us or our Partners, could result in substantial Mitigation proves that it has intellectual property rights cost to us, divert management’s attention The Group has consistently grown its covering a product that we have licensed and resources, be time-consuming to defend, workforce by about 10% per year over the to customers, we will take steps to either result in substantial damage awards, harm last three years. purchase a licence to use the relevant the company’s reputation, cause product The Group is also investing in the technology or work around the technology shipment delays or require us to seek to enter infrastructure necessary to support larger by developing our own solution so as to avoid into royalty or other licensing agreements. engineering teams including buildings, IT infringement of that third party’s intellectual Any assertion of intellectual property rights systems and support staff. property rights. by a third party against our technology could Also, from time-to-time ARM enters into result in our licensees becoming the target of cross-licensing agreements and non-assert litigation and we may be bound to indemnify agreements with leading technology such licensees under the terms of our licence companies. In 2013, ARM was part of a agreements. In addition to the time and consortium of companies that acquired the expense required for us to satisfy our support patent portfolio of MIPS Technologies Inc. and indemnification obligations to our that removes the potential risk of future customers and strategic Partners, a licensee’s litigation from those patents. development, marketing and sales of ARM architecture-based products could be severely disrupted or discontinued as a result of litigation, which in turn could damage our relations with them. Mitigation The Group’s indemnification obligations are generally subject to a maximum amount, limiting any liability.

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We believe that effective governance is fundamental to successful management. Our processes enable us to connect leadership, ethical behaviour and collaboration; and to demonstrate transparent, consistent and effective governance to all our stakeholders.

In this section

Chairman’s introduction Read more on page 56

Board of directors Read more on page 59

Corporate governance Read more on page 62

Directors’ report Read more on page 73

Remuneration report Read more on page 78

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Chairman’s introduction “Good governance requires a clear understanding of roles in order to manage the business effectively, responsibly and with integrity, so that we demonstrate accountability and maintain the trust of all our stakeholders. We have a broad range of skills on the Board and I actively encourage all Board members to use their experience and knowledge to express their views in the spirit of constructive challenge.”

Introduction Directors and succession planning I was delighted to join ARM as Chairman As part of our planned and continuing in May 2012 and am very pleased to be evolution of the Board, there were a number Sir John Buchanan introducing the Corporate Governance report of changes in 2012 and there are some further Chairman for 2012. Governance is a very important changes scheduled for 2013. contributor to the success of the Group and we continue to take great pride not only As planned, Tudor Brown and Doug Dunn in what we do but also the way in which we retired from the Board on 3 May 2012 after do it. The Board leads this process and sets long and distinguished service to the Group. This section explains the the standards that we expect from all As previously announced, Young Sohn retired Board’s approach to corporate our employees. from the Board at the end of 2012 and Mike Inglis retires from the Board on 31 March 2013. governance and corporate This report explains how we comply with Simon Segars took on the role of President responsibility. We believe that good corporate governance principles, with effect from 1 January 2013 and will be describes how the Board and its committees taking on some of Mike Inglis’ commercial effective governance requires work and our approach to risk management responsibilities. I have paid tribute to Young leadership, ethical behaviour and internal control. Risk management and and Mike elsewhere in this report and wish and collaboration. principal risks are also covered on pages 52 them well for the future. to 54. The main function of the Board as a whole is the direction and oversight of the Reports from the various Board committees Group on behalf of the shareholders. and details of their current composition are Within this, the Board actively considers covered in more detail in the Corporate long-term strategy, monitors and supports Governance and Remuneration reports below. the work of the Executive Committee and The Board reflects a balance between is responsible for Board and executive financial, technology sector, commercial and management succession. My role as general business skills, with a highly Chairman is to provide the leadership to experienced international team leading the ensure high quality decision making in all areas business in both executive and non-executive of strategy, performance, responsibility and roles. Following the retirement of Young Sohn accountability. As a Board, we have ultimate from the Board at the end of 2012, the responsibility for the Group’s performance Nomination Committee is actively seeking and for overseeing the management of risk. new candidates as independent non-executive We seek to do this through a strong and directors with in-depth knowledge and effective governance system. experience of the technology sector.

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The Board played an important role in Development of strategy Remuneration successfully guiding ARM through the The Board’s work on defining our short- and ARM’s remuneration policy seeks to align challenging economic environment in 2012, long-term strategic priorities at this important the interests of executive directors and providing clear strategic direction and ensuring stage in the Group’s development is ongoing. shareholders and is structured to enable the that the Group’s performance and standards We undertook a detailed Strategy Review in Group to attract, motivate and retain the of conduct met its expectations. September and have organised an extra talent required to deliver the business strategy. The roles and specific expertise of the current strategy meeting in May 2013 in addition to The Remuneration Committee, under Philip members of the Board are set out in the our normal in-depth review in September. Rowley’s chairmanship, undertook a review of biographies section on pages 59 to 61. This meeting will focus on progress to date executive remuneration policy during 2012 in and future plans to take advantage of the conjunction with external advisers and has Diversity significant opportunities that have been been consulting with shareholders over the After the changes referred to above, the identified. These opportunities are in areas proposed new Long Term Incentive Plan which Board will comprise nine men (82%) and two that include the evolving Internet of Things, will be put to shareholders for approval at the women (18%) which reflects the gender efficient networking, ARM powered servers 2013 AGM. The changes, which will be diversity of ARM’s workforce as a whole. and security applications. More details are implemented in 2014, reflect the latest The gender split of engineering undergraduate included in the strategy and performance guidelines and the desire of shareholders for: entrants in the UK in 2012 was 84% men section earlier in this report. • simplification of incentive plans for executives; and 16% women. Corporate governance framework Gender split – Board and role of the Board • longer holding periods for shares; and The Group’s corporate governance • increased share ownership requirements. Men 82% framework is built around three pillars: Women 18%

• organisation and structure; The Board is cognisant of the general sensitivity relating to executive director • the internal control framework; and remuneration. We are committed to the principle that there should be no reward for • independent assurance. failure and believe that the increased emphasis on long-term performance-related pay is ARM has its primary listing on the London Gender split – Workforce appropriate and ensures that ARM’s Stock Exchange and is also listed on the remuneration policy does not encourage Men 83% NASDAQ Stock Market in the US. inappropriate risk taking. Full details are Women 17% Throughout 2012, the Group complied fully included in the Remuneration report and the with the UK Corporate Governance Code Circular to shareholders. We also include total and also with the Sarbanes-Oxley Act 2002 remuneration figures for executive directors (US). The Board values good corporate this year, in line with best practice. governance and this is reflected in our governance principles, policies and practices and our everyday working processes. This approach is backed The Board noted the publication of Lord by continuous improvement based on Davies’ Review into Women on Boards in measurement against internal objectives, February 2011 and the proposals published by external audits and benchmarking and a the European Commission in November 2012 rigorous approach to risk management. (which include an objective that 40% of non-executive directors should be women by 2020). We believe that diversity should be considered broadly, as well as focusing on gender. It is important to achieve the correct balance of skills, knowledge and experience on the Board. We are committed to continuing to increase the proportion of women on the Board. We will continue to make appointments on merit and also to value diversity in its broadest context.

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Ethics and values ARM’s technology is inherently low-power Awards received during 2012 include: All directors and employees are required to and enables smarter, more energy-efficient act fairly, honestly and with integrity and to products to be created. ARM is continuously • London Stock Exchange techMARK demonstrate that they have read and seeking to improve its own low carbon Innovation award 2012 for success in understand ARM’s Code of Business Conduct business operation and during 2010 we set commercialising new technologies; and Ethics, a copy of which is published on goals of: • certified as one of Britain’s Top Employers the corporate website at www.arm.com. in 2012 by the CRF Institute; • 30% emission reduction in tons of CO2 As part of our commitment to the highest emission per employee by 2020; and • finalist in the 2012 FTSE 100 Business of the standards of business conduct and ethics, Year in the UK National Business Awards; we have implemented an enhanced • 15% energy use reduction measured in communication and training programme KWh per employee by 2020. • Best Data Centre Project Award at the to ensure that all employees worldwide 2012 UK IT Industry Awards by the BCS understand the requirements of the Bribery Between 2009 and 2012 we achieved a (Chartered Institute for IT); Act 2010 and its global reach. The Compliance 7.6% reduction in tons of CO2 emission per • 8th in new Sociagility ranking of best- Committee reviews a range of activities across employee and a 10.9% reduction in KWh performing FTSE 100 companies and the the Group, sets appropriate policies and per employee across ARM globally. procedures and takes the lead in ensuring number one Tech/Telecoms company; compliance with them and encouraging good ARM increased its support for the • second highest YouTube channel score in the practice. It reports on its activities to the communities in which we operate during 2012. FTSE 100 and, measured on PRINT™ social Board through the Audit Committee. We have four particular areas of focus: attributes, the highest Receptiveness score; Corporate responsibility and • STEM education (Science, Technology, In 2012, ARM was again recognised for its Engineering and Mathematics); • Cortex-A50 series processors selected as commitment to environmental, social and one of Electronics Product Magazine’s governance issues through inclusion in the • Information and Communication Technology products of the year. FTSE4Good Index, designed to measure for Development; the performance of companies that meet • Environment; and I hope the following reports demonstrate that globally-recognised corporate responsibility setting the corporate governance framework standards. • Local Communities. continues to be a key focus for the Board. ARM also demonstrated leadership in We must always be conscious of the fact corporate responsibility by continuing its Employee involvement is encouraged through that the Board’s primary responsibility is participation in UN LEAD, which was set providing paid volunteer time, a Matching to promote the long-term success of the up by the United Nations Global Compact Gift Donation programme and a global Company for the benefit of customers, (“UNGC”). UN LEAD is a platform through teambuilding and fundraising group. More employees and shareholders and I believe which each participant is challenged to details about our charitable giving are included that we are well positioned to continue to implement the Blueprint for Corporate in the Directors’ report on page 74. provide value to all our stakeholders. Sustainability Leadership and share lessons learned with other UNGC companies. More details about our approach to corporate ARM’s Corporate Responsibility report responsibility are set out in the Corporate Sir John Buchanan contains details of how we have incorporated Responsibility report on page 40 and in the full the Blueprint into our reporting and Corporate Responsibility report which can be Chairman found at www.arm.com/reporting2012. communications. 27 February 2013

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Board of directors The experience of the team ARM’s Board has the breadth and depth of experience necessary to guide the Group as it seeks to take full advantage of new opportunities and contend with new challenges. Biographical details of the directors as at the date of this report are as follows:

Sir John Buchanan 69 Warren East 51 Simon Segars 45 Chairman Chief Executive Officer President

Committees Committees Committees Nomination Committee (Chairman) None None Current directorships Current directorships Current directorships Smith & Nephew plc (Chairman) De La Rue plc (Non-Executive Director and SOI Industry Consortium (Director) BHP Billiton plc (Senior Independent Director) Chairman of the Audit Committee) EDA Consortium (Director) International Chamber of Commerce (UK) Time on Board Time on Board (Chairman) 12 years 5 months 8 years 2 months Chairman of the UK Trustees for the Expertise Christchurch Earthquake appeal Expertise Warren East joined ARM in 1994 to set up ARM’s Simon Segars joined the Board in January 2005 Time on Board consulting business. He was Vice President, Business and was appointed President in January 2013, 10 months Operations from February 1998. In October 2000 continuing to lead the IP divisions and represent he was appointed to the Board as Chief Operating them on the Board. He was previously EVP and Expertise Officer and in October 2001 was appointed Chief General Manager of the Processor and Physical IP John Buchanan joined the Board as Chairman on Executive Officer. Before joining ARM he was with Divisions. Earlier senior roles included EVP, 3 May 2012. He has broad international experience Texas Instruments. He is a chartered engineer, Engineering, EVP, Worldwide Sales and EVP, gained in large and complex businesses. He has Fellow of the Institution of Engineering and Business Development. He joined ARM in early experience and knowledge of the international Technology, Fellow of the Royal Academy of 1991 and worked on many of the early ARM CPU investor community and has held various leadership Engineering and a Companion of the Chartered products. He led the development of the ARM7 roles in strategic, financial, operational and Management Institute. He has an honorary and ARM9 Thumb® families. He holds a number of marketing positions, including executive experience doctorate from Cranfield University. patents in the field of embedded CPU architectures. in different countries. He is a former Chief Financial Officer of BP plc and a former Deputy Chairman and senior independent director of Vodafone Group plc.

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Tim Score 52 Andy Green 57 Chief Financial Officer Independent Non‑Executive Director

Committees Committees Risk Review Committee Remuneration Committee Compliance Committee Nomination Committee Current directorships Current directorships National Express Group plc (Senior Independent Dock On AG (Chairman) Director and Chairman of the Audit Committee) Networking People (UK) Limited (Chairman) Time on Board ABESU (Trustee and Director) 11 year s Time on Board Expertise 2 years 1 month Tim Score joined ARM as Chief Financial Officer and director in March 2002. Before joining ARM, he Expertise was Finance Director of Rebus Group Limited. He Andy Green joined the Board in February 2011. was previously Group Finance Director of William He was CEO of Logica plc from 2008 to 2012. Baird plc, Group Controller at LucasVarity plc and He is a former CEO of BT Global Services and a Group Financial Controller at BTR plc. former CEO of Group Strategy and Operations at BT plc and was CEO of BT Openworld. He is Chair of e-Skills UK (the UK Sector Skills Council for Business and Information Technology), is on the Board and the President’s Committee of the CBI and is a Companion of the Chartered Management Institute.

Mike Muller 54 Kathleen O’Donovan 55 Chief Technology Officer Senior Independent Non‑Executive Director

Committees Committees Risk Review Committee (Chairman) Audit Committee (Chairman) Current directorships Nomination Committee Intelligent Energy Limited Current directorships Time on Board Invensys Pension Trustee Ltd (Chairman) 11 years 5 months Trinity Mirror plc (Non-Executive Director and Chairman of the Audit Committee) Expertise Mike Muller was one of the founders of ARM. D S Smith Plc (Non-Executive Director) Before joining the Group, he was responsible for Time on Board hardware strategy and the development of portable 6 years 3 months products at Acorn Computers. He was previously at Orbis Computers. At ARM he was VP, Marketing Expertise from 1992 to 1996 and EVP, Business Development Kathleen O’Donovan joined the Board in until October 2000 when he was appointed Chief December 2006. Previously she was a Technology Officer. In October 2001, he was non-executive director and Chairman of the appointed to the Board. Audit Committees of the Court of the Bank of England, Great Portland Estates plc, EMI Group plc and Prudential plc and a non-executive director of O2 plc. Prior to that, she was Chief Financial Officer of BTR plc and Invensys plc and before that she was a Partner at Ernst & Young.

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Larry Hirst 61 Mike Inglis 53 Independent Chief Commercial Officer Non‑Executive Director

Committees Committees Audit Committee None Remuneration Committee Current directorships Current directorships Pace plc (Non-Executive Director) MITIE Group plc (Non-Executive Director) Time on Board Time on Board 11 year s 2 years 2 months Expertise Expertise Mike Inglis joined ARM in 2002 and became Chief Larry Hirst joined the Board in January 2011. He is Commercial Officer in April 2012 having previously the former Chairman of IBM Europe, Middle East been EVP and General Manager of the Processor and Africa. He retired from IBM in 2010 having Division since July 2008. Prior to that he was EVP, previously held a wide range of senior positions Sales and Marketing. Before joining ARM, he since joining the company in 1977. He currently worked in management consultancy with A.T. chairs the Imperial College Digital Cities Exchange. Kearney and held a number of senior operational He is also an Ambassador to Monitise plc and on and marketing positions at Motorola, Texas the International Advisory Board for British Instruments, Fairchild and BIS Macintosh and gained Airways. Former roles include being a UK Business his initial industrial experience with GEC Ambassador, a Commissioner for the Commission Telecommunications. He is a chartered engineer for Employment and Skills and Chair of e-skills UK and a Member of the Chartered Institute of (the UK Sector Skills Council for Business and Marketing. As previously announced, he will be Information Technology). He was awarded a CBE retiring from the Board in March 2013. in 2006.

Janice Roberts 57 Philip Rowley 60 Independent Independent Non‑Executive Director Non‑Executive Director

Committees Committees Audit Committee Remuneration Committee (Chairman) Remuneration Committee Audit Committee Current directorships Nomination Committee Mayfield Fund (Managing Director) Current directorships RealNetworks, Inc. (Non-Executive Director) Promethean World plc (Non-Executive Director and Chairman of the Audit Committee) Time on Board 2 years 2 months Livestation Limited (Chairman) Pouncer Media Limited (Chairman) Expertise Janice Roberts joined the Board in January 2011. Time on Board She has been a Managing Director at Mayfield Fund 8 years 2 months since 2000, a Silicon Valley-based venture capital firm with approximately $3 billion under Expertise management, where she focuses on the mobile, Philip Rowley joined the Board in January 2005. wireless, communications and consumer technology He was Chairman and CEO of AOL Europe, the industries. Prior to that, she held various executive internet services and web brands provider until positions at 3Com Corporation including President February 2007. He is a qualified chartered accountant Palm Computing, President 3Com Ventures and and was Group Finance Director of Kingfisher plc Senior Vice President, Business Development from 1998 to 2000 and Deputy CEO and CFO and Global Marketing. She is a director of several of the General Merchandise Division until 2001. private technology companies in the US. Prior to that, his roles included EVP, Chief Financial Officer of EMI Music Worldwide. He recently resigned as Chairman of HMV Group plc.

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Corporate governance Corporate governance This section and the Remuneration report detail how the Group has applied the principles of good governance contained in the UK Corporate Governance Code 2010. The revisions to the Code published by the Financial Reporting Council in 2012 take effect for financial years beginning on or after 1 October 2012. We are voluntarily reporting on some of these changes in this report and will report fully in our 2013 annual report.

Compliance Statement Board The Group has complied with the provisions The Board is collectively responsible for the of the UK Corporate Governance Code 2010 overall conduct of the Group’s business. throughout 2012 and to the date of this document. The Group also achieved full The Board’s core activities include: compliance with the requirements of section 404 of the Sarbanes-Oxley Act 2002 (US) for • providing leadership for the Group; the seventh successive year. The Company’s • active engagement in developing the Group’s American Depositary Shares are listed on long-term strategy; NASDAQ and we are therefore subject to and comply fully with NASDAQ rules, • monitoring executive actions, standards of US Securities laws and Securities and Exchange conduct, performance against business plans Commission rules to the extent that they and budgets and ensuring that the necessary apply to foreign private issuers. We explain financial and human resources are in place in the reports below how we applied the for it to meet its objectives; provisions and principles of the FSA Listing Rules, the Disclosure and Transparency Rules • obtaining assurance that material risks to and the UK Corporate Governance Code the Group are identified and appropriate throughout the year. systems of risk management and control exist to mitigate such risks and defining the Group’s appetite for risk; • Board and executive management succession; • responsibility for the long-term success of the Group having regard to the interests of all stakeholders; and • responsibility for ensuring the effectiveness of and reporting on our system of corporate governance.

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The Board has a formal schedule of matters Independence Board meetings specifically reserved for its decision, which The Board reviews the independence of the Before each meeting, the Board is provided include: non-executive directors on appointment and at with information concerning the state of the appropriate intervals and considers each of the business and its performance in a form and of a • Group strategy and major business issues five non-executive directors to be independent quality appropriate for it to discharge its duties. including atypical licence agreements; in character, judgment and behaviour, based The non-executive directors are encouraged on both participation and performance at to suggest matters for Board discussions and • annual budgets and long-term finance plans; Board and committee meetings. There are in 2012 they were active in contributing to the • major capital expenditure, acquisitions, no relationships or circumstances which are agenda for the strategic review and ensuring disposals and investments; likely to affect the judgment of any of them. the amount of time spent on strategic and The Chairman was regarded as independent operational issues was appropriately balanced. • financial reporting, controls and financial at the time of his appointment. Through this process, an additional strategy structure; meeting has been scheduled during 2013. Non-executive directors’ expertise • shareholder communications; Kathleen O’Donovan has been the Senior Key senior executives attend Board meetings throughout the year which gives the • key policies; and Independent Director since January 2011. The Senior Independent Director provides non-executive directors greater visibility • key advisers. a communication channel between the of executive talent and potential Chairman and the non-executive directors management succession. and is available to discuss matters with In the event that directors are unable to attend Composition and operation shareholders, if required. During 2012, of the Board a meeting or a conference call they receive and she led the Nomination Committee through read the documents for consideration at that The UK Corporate Governance Code 2010 the process to identify and recommend the meeting and have the opportunity to relay requires that at least half of the Board, recruitment of the new Chairman. their comments and, if necessary, to follow excluding the Chairman, should comprise Janice Roberts (who is based in Silicon Valley), up with the Chairman or the Chief Executive independent non-executive directors. The Officer after the meeting. Board currently comprises five executive Larry Hirst and Andy Green all have a broad directors, five independent non-executive understanding of the Group’s technology and During 2012, the retiring Chairman and the directors and the Chairman. The number of the practices of major US-based technology new Chairman both held meetings with the executive directors will reduce to four when companies. Philip Rowley and Kathleen non-executive directors without the the Chief Commercial Officer, Mike Inglis, O’Donovan are both financial experts with executives present and the non-executive retires on 31 March 2013. strong financial backgrounds. Biographies of directors met on at least one occasion without the directors appear on pages 59 to 61. the Chairman being present. The continuing executive directors are the The beneficial interests of the directors in the Chief Executive Officer, the Chief Financial share capital of the Company are set out in the The table below shows directors’ attendance Officer, the President and the Chief Remuneration report. In the opinion of the at scheduled Board meetings and conference Technology Officer all of whom play significant Board, Philip Rowley’s modest shareholding calls or ad hoc meetings which they were roles in the day-to-day management of does not detract from his independent status. eligible to attend during the 2012 financial year: the business.

Authority is delegated to various committees Scheduled Board meetings Conference calls/ad hoc meetings that are constituted within written terms of reference and chaired by independent Number 6 10 non-executive directors where required by Sir John Buchanan (appointed 3 May 2012) 3/3 6/6 the UK Corporate Governance Code 2010. Warren East 6/6 10/10 Andy Green 6/6 10/10 Conflicts Larry Hirst 5/6 10/10 All directors have completed conflicts of Mike Inglis 6/6 10/10 interest questionnaires and any planned Mike Muller 6/6 10/10 changes in their directorships outside the Kathleen O’Donovan 6/6 10/10 Group are subject to prior approval by the Janice Roberts 6/6 10/10 Board. In order to avoid a potential conflict Philip Rowley 6/6 8/10 of interest, Young Sohn stood down from Tim Score 6/6 8/10 the Board on 31 December 2012 in order Simon Segars 6/6 10/10 to take up an executive position outside the Young Sohn (retired 31 December 2012) 6/6 8/10 Group. No conflicts of interest arose in 2012 Tudor Brown (retired 3 May 2012) 3/3 2/4 or to date in 2013 and no other situations were Doug Dunn (retired 3 May 2012) 3/3 4/4 or have since been identified that might lead to a conflict of interest.

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Chairman Main responsibilities of the Chairman include: Company Secretary The Chairman is also chairman of Smith & Patricia Alsop acts as Secretary to the Board Nephew plc and the International Chamber • leadership of the Board and creating the and Board committees and all Board members of Commerce (UK) and is Senior Independent conditions for overall Board and individual have individual access to her advice. She Director of BHP Billiton plc. He has attended director effectiveness and a constructive ensures that the Board receives all relevant all meetings and conference calls since the date relationship with good communications information in a timely manner, organises of his appointment and has attended several between the executive and non-executive induction and training programmes and induction sessions, meeting members of the directors; facilitates the Board evaluation in years when executive team and a range of senior managers this is conducted internally. She is also • ensuring that the Board as a whole plays a full to increase his knowledge and understanding responsible for ensuring that the correct and constructive part in the development of of the various parts of the business and its Board and committee procedures are strategy and overall commercial objectives; operations. He also participated with the followed and advises the Board on corporate Chairman of the Remuneration Committee • chairing the Nomination Committee which governance matters. The established in some meetings and discussions with major initiates succession planning to retain and procedure under which directors can, where shareholders over the proposed new Long build an effective and complementary Board; appropriate, obtain independent legal or other Term Incentive Plan, details of which are set professional advice at the Group’s expense is out in the Remuneration report and the • ensuring that there is effective communication also administered through her. Circular to shareholders. Further induction with shareholders and that members of the sessions are planned for 2013. Board develop an understanding of the views Annual report, information and of the major investors in the Group; communication with shareholders The Chairman has primary responsibility for and other stakeholders • promoting the highest standards of integrity, running the Board and the Chief Executive The ultimate responsibility for reviewing and probity and corporate governance throughout Officer has executive responsibility for the approving the annual report and accounts the Group, particularly at Board level; and operations and results of the Group and for and the quarterly earnings releases and making proposals to the Board in relation • ensuring that the performance of the Board for ensuring that they present a balanced to the strategic development of the Group. as a whole, its committees, and individual assessment of the Group’s position, lies There are clear and documented divisions of directors is formally and rigorously evaluated with the Board. accountability and responsibility for the roles at least once a year. of Chairman and Chief Executive Officer. The Board delegates day-to-day responsibility for managing the Group to the Executive Main responsibilities of the Chief Executive Approximate allocation of Board agenda time in 2012 Committee and has a number of other Officer include: committees, details of which are set out Strategy and risk 57% on the following pages. Business updates/ • proposing and developing the Group’s ﬁnancial reporting 23% Governance 9% strategy and overall commercial objectives in Division and conjunction with the Executive Committee; function updates 11% • day-to-day management of the Group; • managing the Executive Committee; • leading the communication programme with shareholders and analysts; and • fostering good relationships with key stakeholders.

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Investor relations AGM The overall conclusion was that individual The Board makes considerable efforts to The Board actively encourages participation at Board members are satisfied that the Board establish and maintain good relationships with the AGM, scheduled for 2 May 2013, which is works well and operates effectively in an shareholders and the wider investment the principal forum for dialogue with private environment where there is constructive community. There is regular dialogue with shareholders. A presentation is made outlining challenge from the non-executive directors. institutional investors during the year other recent developments in the business and an They are also satisfied with the contribution than during close periods. The main channel of open question-and-answer session follows to made by their colleagues and that Board communication continues to be through the enable shareholders to ask questions about committees operate properly and efficiently. Chief Executive Officer, the Chief Financial the business in general. In response to points raised in the evaluation, Officer and the VP of Investor Relations. there will in 2013 be increased Board time All resolutions proposed at the 2013 AGM will The Chairman, the Senior Independent and focus on: Director and the other directors are available be decided on a poll and the voting results will to engage in dialogue with major shareholders be published via RNS and the SEC and will be available on the Group’s website. • the strategy agenda – with an additional as appropriate. During 2012 the Chairman meeting scheduled for May 2013; of the Remuneration Committee and the Board evaluation Chairman consulted with shareholders on • succession planning; and the terms of the proposed new Long Term The Board undertakes an annual Board Incentive Plan, details of which are set out evaluation. During 2012, this exercise was • risk appetite. in the Remuneration report and the Circular conducted internally using a questionnaire and to Shareholders. was facilitated by the Company Secretary. An An externally facilitated board evaluation will external evaluation last took place in 2010 and take place during 2013. The Board also encourages communication the Board plans to continue with a cycle of with private investors and part of the Group’s external evaluations every three years and Induction website is dedicated to providing accurate and internal evaluations in between. A full, formal induction programme is arranged timely information for all investors, including The 2012 evaluation covered: for new directors, tailored to their specific responses to frequently asked questions, the requirements, the aim of which is to introduce investment case, product information, press them to key executives across the business releases, RNS and Securities and Exchange • strategic development, execution and monitoring; and to enhance their knowledge and Commission (SEC) announcements and an understanding of the Group and its activities. online version of the annual report. • risk management and control; In 2012, this included a programme for the At present, over 30 sell-side analysts write new Chairman and further meetings between • leadership development and succession the non-executive directors who joined in research reports on the Group and their planning; details appear on the Group’s website. 2011 and a range of senior employees. Shareholders can also obtain telephone • shareholder and stakeholder communication; Non-executive directors are encouraged to numbers from the website, enabling them to • performance management; spend time outside Board meetings with listen to earnings presentations and audio members of the Executive Committee and conference calls with analysts. In addition, • Board structure, committees and their the management team. All members of the webcasts or audiocasts of key presentations operation; Board are invited to attend the Annual Partner are made available through the website. Meeting in the UK which is the Group’s key • induction and development; and Members of the Board develop an customer event of the year and/or the ARM understanding of the views of major • assessment of the performance of individual TechCon in the US. Board members are shareholders through any direct contact that committees and the Chairman. also invited to attend the annual Analyst may be initiated by shareholders, or through and Investor Day. These events offer the analysts’ and brokers’ briefings. The Board also opportunity to understand more about receives feedback from the Group’s brokers the business, products, technology and financial PR advisers, who in turn obtain development roadmap, customer base feedback from analysts and brokers following and investor perspective. investor roadshows. All shareholders may register to receive the Group’s press releases via the internet.

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Training The Committee is also responsible for & Commercial Development, Marketing & Board members receive guidance on the ensuring that risks identified through the Business Development, Strategy, Human regulatory regimes and corporate governance Operational Planning process, particularly Resources, the General Counsel and the framework that the Group operates under. corporate level risks are managed and Company Secretary. Executive Committee In particular, during 2012 the Board received mitigated to the extent possible. meetings are attended by other senior operational personnel, as appropriate. an update from the Company Secretary on Three Executive Committee observers current governance topics including executive were appointed from the senior management Biographies of the members of the Executive remuneration and board diversity. The Group team in April 2012. Tom Cronk is responsible Committee appear on the Group’s website has a commitment to training and all directors, for the Processor Division, Dipesh Patel is at www.arm.com. executive or non-executive, are encouraged responsible for the Physical IP Division and to attend suitable training courses at the Pete Hutton is responsible for the Media Management structure Group’s expense. Processing Business Unit. They became full The Group has a traditional UK board The terms of reference of the Audit, members of the Committee with effect structure with a unitary Group board Remuneration and Nomination Committees from 1 January 2013. comprising the Chairman, executive and non-executive directors. The Audit and are published on the Group’s website at Variations from the budget and changes in www.arm.com. Remuneration Committees are made up of strategy require approval from the main Board independent non-executive directors and they, Executive Committee of the Group. The Executive Committee, together with the Nomination Committee, which meets monthly, now comprises the The Executive Committee is responsible for report to the Board. The divisions and Chief Executive Officer, Chief Financial Officer, developing and implementing the strategy functions report to the Executive Committee. the President, the Chief Commercial Officer, approved by the Board. In particular, the The Risk Review Committee reports the Chief Technology Officer, the Chief Committee is responsible for ensuring that periodically to the Executive Committee, Operating Officer, the EVPs and General the Group’s budget and forecasts are Audit Committee and the Board. The VP Managers of the Processor, Physical IP and properly prepared, that targets are met Business Assurance/Head of Internal Audit System Design Divisions and the Media and for generally managing and developing also has a separate reporting line to the Processing Business Unit, the EVPs of Regional the business within the overall budget. Chairman of the Audit Committee.

Management structure

Remuneration Committee Holdings Board Audit Committee Nomination Committee Board

Executive Disclosure Divisions Committee Committee

Energy Use & Business Travel Policy Operations Risk Review Compliance Climage Change Assurance / Committee Committee Committee Committee Committee Internal audit

Charitable Donations Organisational & Sustainability Development IT Committee Committee Committee Committees

Operations Management Customer Corporate Product Business Review Sales Commission Review Team System Team Satisfaction Team Approval Team Meeting Meeting

Security Estates Business Data Governance KPI Financial Review Team Review Team Continuity Team Team Sign Off Meeting Governance Review Teams Operational Review Meetings

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Audit Committee “The Committee’s key objective is to provide effective financial governance and to assist the Board in ensuring the integrity of the Group’s financial reporting. The Committee oversees the external and internal audit processes and reviews the appropriateness of the Group’s system of internal controls. The Committee will continue to evolve its activities in the light of guidance from regulators and prevailing economic conditions.” Audit Committee composition and meeting attendance during 2012 Name of director Position Meetings attended Kathleen O’Donovan Senior Independent Director, Committee Chairman 6/6 Larry Hirst Independent non-executive director 5/6 Janice Roberts Independent non-executive director 6/6 Philip Rowley Independent non-executive director 6/6

Kathleen O’Donovan has chaired the Principal activities during 2012: Committee since January 2011. She is qualified as the Audit Committee financial expert as • further work to enhance the Corporate defined in the Sarbanes-Oxley Act 2002 (US). Risk Register including increased linkage Philip Rowley is also qualified to fulfil this role. to operational and internal audit plans, Both have recent and relevant financial giving the Board greater visibility of risk expertise. The external auditors, Chief assessment and mitigation within the Group. Executive Officer, Chief Financial Officer, the This enhanced the Board’s understanding of VP Finance, ARM Group, the VP Business the level of residual risk and gave a greater Assurance/Head of Internal Audit, the Head level of assurance. It also enabled a better of Tax and the Company Secretary attend all comparison with the risks that are applicable meetings in order to ensure that all the to comparable companies. The Board was information required by the Audit Committee able to conclude from this that the steps for it to operate effectively is available. The being taken to mitigate risk are appropriate Group Chairman and other Board members and that the level of residual risk is at an also attend Audit Committee meetings from acceptable level; time to time. • reviewing the 2012 internal audit plans; Representatives of the Group’s external • reviewing the 2012 external audit plans and auditors have a private session with the Audit reports including overseas subsidiaries; Committee at the start of each meeting, without other management being present. • considering and approving the assumptions The Chairman of the Audit Committee also in the annual goodwill impairment review, has separate meetings with the VP Business prior to approval by the full Board; Assurance/Head of Internal Audit and the Chairman of the Risk Review Committee • reviewing the status of Sarbanes-Oxley during the year to discuss their ongoing compliance and testing; work and any areas of concern. • considering any whistleblowing reports and During 2012 the Chairman of the Audit following up on subsequent actions; Committee and the external audit partner • developing and implementing policy on the organised a meeting for the UK-based engagement of the external auditors to PricewaterhouseCoopers LLP audit and tax supply non-audit services and assessing teams and the ARM finance and tax teams their nature, extent and cost effectiveness; to give them some insights into how the Committee operates, the corporate • assessing the external auditors’ independence governance environment and the Group’s and objectivity, the effectiveness of the audit expectations from the internal and external process and fees; audit processes. • undertaking an assessment of the effectiveness of the Audit Committee (which took place early in 2013 and concluded that its performance was effective).

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• monitoring the integrity of the financial of expressing an opinion under section 404 of the safeguards in place, and the contents of statements of the Group and any formal the Sarbanes-Oxley Act. The results of those the Transparency Report, as well as noting announcements relating to the Group’s procedures were reported in January and the regular and recent rotation of the audit financial performance and reviewing any February 2013. No material misstatements partner, the Committee is satisfied that the significant financial reporting judgements; remained unadjusted in the financial statements. auditors’ procedures are sufficient to maintain their independence and objectivity. • reviewing the effectiveness of the Group’s The Committee has also considered the level Auditor effectiveness and internal controls over financial reporting; of non-audit fees and believes that these are partner rotation • providing oversight of the Group’s risk at a level which does not compromise their PricewaterhouseCoopers LLP have been the management process; objectivity or independence in any way. Group’s auditors since it listed on the London • making recommendations to the Board in Stock Exchange in April 1998. The external There are no contractual obligations restricting relation to the appointment, remuneration auditors are required to rotate the audit the Group’s choice of external auditor. The and resignation or dismissal of the Group’s partner responsible for the Group and Committee also keeps under review the value external auditors; and subsidiary audits every fifth year-end. The audit for money of the audit. partner rotation took place in accordance with Policy on auditors providing • considering compliance with legal this timetable after the conclusion of the 2011 non‑audit services requirements, accounting standards, the year-end audit, early in 2012. Listing Rules of the Financial Services To avoid the possibility of the auditors’ objectivity Authority and the requirements of the SEC. Following this rotation, PricewaterhouseCoopers and independence being compromised, there LLP’s internal review group undertook an is an agreed policy in place on the provision of assessment of audit process effectiveness. Financial reporting judgments: non-audit services by the auditors, which sets out This involved in-depth interviews with the arrangements for approving: Each quarter, the Audit Committee reviewed Group’s senior managers including the Group accounting papers prepared by management Chairman, the Chairman of the Audit • services that have general pre-approval on areas of financial reporting judgment. Committee, the Chief Executive Officer, the by the Audit Committee; These included: Chief Finance Officer and the Company Secretary. The resulting report was considered • services that require specific pre-approval • consideration of the accounting treatment by the Audit Committee in July 2012. by the Audit Committee before work of substantial transactions, including any commences; and judgemental matters in relation to revenue The Audit Committee considers that the recognition for major licence contracts relationship with the auditors is working well • services that cannot be provided by with customers; and remains satisfied with their objectivity the auditors. and effectiveness. • consideration of the judgments surrounding This non-audit services policy is reviewed the goodwill impairment review performed in This view was further supported by a review of annually. The Group’s tax advisory work is the fourth quarter of 2012. In light of the strong the effectiveness of the external audit process carried out by the auditors only in cases where performance of the PIPD business in the year which was undertaken early in 2013 involving they are deemed to be best suited to perform and a robust order backlog, the Committee Audit Committee members and senior was comfortable with management’s managers who interact with the auditors. It the work in a cost effective manner, given their assessment that no reasonable variation in key looked at the robustness of the audit, quality familiarity with the Group’s business. In other assumptions would impact the conclusion that of delivery and quality of people and service cases, the Group has engaged another no impairment in carrying value was required; and concluded that the services provided by independent firm of accountants to perform tax the auditors and their mode of delivery are advisory work. The Group does not normally • consideration of management’s judgment of effective. Accordingly, the Audit Committee has award general consulting work to the auditors. the level of provision required to be carried in not considered it necessary to date to require From time to time, however, the Group will relation to ongoing litigation involving either the the firm to tender for the audit work. This engage the auditors to perform work on matters Group or its licensees and in particular where situation will be kept under regular review. relating to benchmarking of the internal audit the Group may be required to indemnify its function, human resources, and royalty audits. licensees, including receiving regular updates Auditor independence A breakdown of fees paid to the auditors can from the Group’s General Counsel; and The auditors are required to and do be found in note 5 to the financial statements. • consideration of the key judgements made in communicate with the Committee at least estimating the Group’s tax charge. annually whether there are any threats to their independence and objectivity and, if there are, Kathleen O’Donovan what safeguards have been applied. The Audit Committee Chairman In July 2012, the external auditors explained Committee has also reviewed the auditors’ their programme of work to address the Transparency Report, paying particular significant risks of financial reporting attention to the sections covering internal misstatement, including the interaction with controls, independence policies and the results their work on internal control for the purposes of external regulator reviews. Having reviewed

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Nomination Committee “The Committee, led for this purpose by the Senior Independent Director, was active in the early part of 2012 in finalising arrangements for the appointment of a new Chairman and I was delighted to join the Group in May 2012. The Committee’s focus since then has been on defining the skills and attributes required for future non-executive director appointments and interviewing prospective candidates to replace Young Sohn, who retired at the end of 2012. Our key objective is to ensure that the Board is made up of individuals with the requisite skills, knowledge and experience to ensure that it is effective in discharging its duties.” Nomination Committee composition and meeting attendance during 2012 Name of director Position Meetings attended Sir John Buchanan Sir John Buchanan Chairman (appointed 3 May 2012) 4/4 Nomination Committee Chairman Kathleen O’Donovan Senior Independent Director 6/6 Philip Rowley Independent non-executive director 6/6 Young Sohn Independent non-executive director (retired 31 December 2012) 6/6 Doug Dunn Chairman (retired 3 May 2012) 2/2

During the year, the activities of the The Nomination Committee’s general Committee included: responsibilities include:

• identifying suitable candidates for the • leading the process for Board appointments role of Chairman, interviewing and and making recommendations to the Board recommending the appointment of in relation to new appointments of executive Sir John Buchanan to the Board; and non-executive directors; • engaging an external search firm to seek • reviewing succession planning, Board and introduce suitable candidates as a new composition and balance; and non-executive director and conducting interviews with a number of prospective • considering the roles and capabilities candidates; and required for each new appointment, based on an evaluation of the skills and experience • reviewing succession plans for the of the existing directors. executive team.

Kathleen O’Donovan, in her capacity as the Senior Independent Director, led the process Sir John Buchanan for the appointment of the new Chairman and Nomination Committee Chairman chaired relevant meetings of the Nomination Committee. The recruitment process involved a review by the Board of all aspects of the role of Chairman, its requirements, board dynamics and how best the new Chairman should interact with the Board, the Executive Committee, shareholders and other stakeholders. Andy Green joined the Committee in February 2013. His business and skills background will contribute valuable experience to our work.

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Corporate governance report Internal control/risk management issuers in 2006. This is reported on in more Risk Review Committee The Group fully complies with the UK detail in the annual report on Form 20-F that Membership of the Risk Review Committee Corporate Governance Code 2010’s is filed with the SEC. The processes and was widened during 2012 to include the Chief provisions on internal control, having procedures for identifying, evaluating and Operating Officer and now consists of the Chief established procedures to implement in full the managing the significant business, operational, Technology Officer, the Chief Financial Officer, Turnbull Guidance “Internal Control: Revised financial, compliance and other risks facing the the Chief Operating Officer, the VP Finance, Guidance for Directors on the Combined Group have been successfully integrated into ARM Group, the VP Business Assurance/Head Code”. The Group’s risks are managed within day-to-day business operations through our of Internal Audit and the Company Secretary. a systematic process of risk identification and internal control system. This is known as The Committee established a Corporate Risk assessment. The detailed risk management the ARM Management System and is Register (CRR) some years ago, within which process is explained in the Risk Management proven to provide a sustainable solution corporate risks are identified and assessed. section on pages 52 to 54. for ongoing compliance. The CRR includes a description of the risk, identifies the owner, the inherent probability The Audit Committee is responsible for The ARM Management System, which covers and impact of that risk occurring, the Group’s ensuring that the risk management process financial, compliance and operational controls, current processes and internal control is operating effectively. The Executive is fully documented and compliance is activities, remaining residual risk and the Committee and the Board review the risk monitored through periodic controls testing planned activities to further mitigate it. register on a regular basis. The Board confirms during each year. The effectiveness of individual that the necessary actions have been or are controls is also reviewed with their owners Common business risks and company specific being taken to remedy any significant failings within the divisions and functions to ensure risks are examined for relevance to the Group. or weaknesses identified from this process efficacy and relevance. The Business Assurance Relevant risks are entered onto the CRR and in a timely manner. function reports on the status of the ARM given an owner. Risks are classified against Management System to the Audit Committee probability assessment criteria and impact The Board has overall responsibility for ensuring assessment criteria. that the Group maintains an adequate system at least twice each year. The Compliance and of internal control and risk management and Audit Committees also monitor the The Group’s ongoing operations may mitigate for reviewing its effectiveness, while satisfactory remediation of any identified the probability and/or the impact of the risk. implementation of internal control systems is control issues with Group level significance. However, there will be some level of residual the responsibility of management. The Group The Board has reviewed and approved the risk, and the risk owner determines the extent has implemented an internal control system system of internal control, including internal to which the residual risk is at an acceptable designed to help ensure: controls over the consolidation process and level, or whether further action is required. financial reporting, which have been in place Residual risks that are not at an acceptable • the effective and efficient operation of for the year under review and up to the date level, are required to have an action plan that the Group and its divisions by enabling of approval of the Annual report and financial further reduces the probability of the risk management to respond appropriately to statements. These controls consist of extensive occurring and/or its impact. Risk management significant risks to achieving the Group’s reviews by qualified and experienced individuals action plans are managed within the relevant business objectives; underpinned by a system of checklists that operational plans of the divisions and ensures that all elements of the financial corporate functions. • the safeguarding of assets from inappropriate statements and appropriate disclosures are use or from loss and fraud and ensuring that The Risk Review Committee typically meets considered and accurately stated. liabilities are identified and managed; on a quarterly basis to review the CRR and Control systems are designed to manage identify other risks that need to be • the quality of internal and external reporting; rather than eliminate the risks inherent in a incorporated. Each risk owner is required to review and demonstrate that residual • compliance with applicable laws and fast-moving, high-technology business and can, risks are being appropriately mitigated regulations and with internal policies on therefore, provide only reasonable and not via the operational plans. the conduct of the Group’s business; and absolute assurance against material misstatement or loss. The divisions’ and corporate functions’ • the ability to recover in a timely manner operational plans are updated quarterly. from the effects of disasters or major Remuneration Committee Changes that could impact the CRR are accidents which originate outside the A description of the composition, reviewed by the Committee. Group’s direct control. responsibilities and operation of the Remuneration Committee is set out The Committee reports formally on the CRR Compliance with section 404 of the in the Remuneration report. to the Executive Committee twice a year where its findings are considered and Sarbanes-Oxley Act 2002 (US) has been The Group has a number of other committees challenged. It also reports to the Board and successfully achieved for each financial year and bodies which contribute to the overall to the Audit Committee at least once a year since it became effective for foreign private control environment. These include: and provides periodic updates to the Audit Committee. 70 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 Overview Our marketplace Strategy and Our partnership Our commitment Financials and risk Governance Financial statements performance approach

The Board and the Audit Committee receive Business Review Meeting chaired by the programme. The management system is copies of the minutes of Risk Review Chief Operating Officer, the purpose of audited externally by Lloyd’s Register Committee meetings. which is to monitor and control all main Quality Assurance for compliance with business activities, revenue forecasts and other the requirements of ISO 9001:2008, ISO This gives the Board greater visibility of the matters requiring approval. Through this 27001:2005, ISO 22301:2012 and as part of range of risks, the ways in which such risks structure management reviews (with its Business Assurance scheme supports the are mitigated and an assessment of the level representatives from the divisions and Sarbanes-Oxley compliance activity. and acceptability of residual risk. functions) revenues, orders booked, costs, product and project delivery dates and levels Any significant control failings identified through The Board reviewed its risk appetite during the internal audit function or the independent 2012 and confirmed that the level of residual risk of defects found in products in development. The outputs of these meetings are reviewed auditors are brought to the attention of the is regarded as acceptable and within normal Compliance Committee and undergo a detailed parameters for a company operating within by the Operations Committee which escalates relevant issues to the Executive Committee process of evaluation of both the failing and the ARM’s sphere of business. A further Board steps taken to remedy it. There is then a process review of risk appetite is scheduled for 2013. which, in turn, raises relevant issues with the Board of the Group. for communication of any significant control More information on industry trends and failures to the Audit Committee. There were associated risks and opportunities are included During 2012 the structure, process and no significant control failures during 2012 or up in the Risk Management section on pages 52 reporting arrangements for the committees, to 25 February 2013, being the latest practicable to 54 and in the Annual Report on Form 20-F eight Governance Review Teams and three date before the printing of this report. Operational Review meetings were improved for the year ended 31 December 2012 Whistleblowing procedures which is available on the Group’s website and formalised. These Governance Review at www.arm.com. Teams and Operational Review meetings all The Group operates a whistleblowing policy report to the Operations Committee which in which provides for employees to report Compliance Committee turn reports to the Executive Committee. concerns about any unethical business practices The Compliance Committee membership was to senior management in strict confidence or, Internal audit function widened during 2012 to include the VP if they prefer, anonymously through an Operations and now consists of the General The Group has an internal audit function independent third-party telephone line. Counsel, the Chief Operating Officer, the Chief that meets criteria set out in the key practice They can do so without fear of recrimination. Financial Officer, the EVP, Human Resources, standards prescribed by the Institute of The Audit Committee receives details of any the VP Business Assurance/Head of Internal Internal Auditors. The internal audit function such confidential reports from the Compliance Audit, the Chief Information Officer, the VP undertook a range of financial and operational Committee. There were two whistleblowing Operations and the Company Secretary. It audits in line with the plan agreed with the reports in 2012, neither of which was of a oversees compliance throughout the business Audit Committee. Additional resource was serious nature. Both were investigated with all relevant international regulations, provided by co-sourcing arrangements in 2012 thoroughly: one required no further action and trading requirements and standards, including and this will continue in 2013. the other was resolved by reinforcing existing direct oversight of financial, employment, health policies. There have been no whistleblowing At the start of 2012, the Group successfully reports in 2013 up to 25 February 2013, being and safety, environmental, business continuity achieved certification for ISO 27001, the and security processes and policies. the latest practicable date before the printing international standard for Information Security of this report. The third-party telephone line is Disclosure Committee Management and this was maintained tested to ensure that employees can use it if throughout the year. During 2012, the Group they have occasion to. The Disclosure Committee comprises the also successfully achieved certification for ISO Chief Executive Officer, the Chief Financial 22301, the international standard for Business Anti-bribery and anti-corruption Officer, the VP Finance, ARM Group, the Continuity Management. measures General Counsel, the VP Investor Relations and the Company Secretary. It is responsible The Group’s Management System documents The Group’s Code of Business Conduct and for ensuring that disclosures made by the processes and responsibilities across all Ethics, which is available on the Group’s Group to its shareholders and the investment business functions and operations. As an website, and the Company Rules incorporate community are accurate, complete and fairly autonomous part of this system, the internal appropriate provisions to meet our obligations present the Group’s financial condition in all audit function carries out a programme of under the UK Bribery Act 2010. An enhanced material respects. audits to assess its effectiveness and efficiency, training and communication programme was resulting in continuous maintenance and developed during 2012 and is in place to ensure Management structure improvement of the system, adapting to that employees understand the requirements In addition, there are various committees, changes in business operations as necessary. of the Act and the reporting procedures. Governance Review Teams and Operational This is targeted at employees in roles or Review Meetings that span the Group, as To demonstrate compliance with the working in countries that are regarded as shown in the management structure chart Sarbanes-Oxley Act, the internal audit higher risk. Arrangements with contractors on page 66. These include the regular function also maintains the documented and suppliers have been and will continue Executive Committee meetings chaired by controls over financial reporting and confirms to be reviewed and updated to reflect the the Chief Executive Officer and the weekly the operation of them either by direct testing requirements of the Act. The Compliance or through a monitored self assessment 71 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 ARM Holdings plc Annual Report & Accounts 2012

Committee oversees the reporting procedures The Group and our Partners are seeing the nominated for a number of other awards and monitors and escalates reports in benefits of our University Programme, as based on its environmental credentials. appropriate circumstances. There were no students graduate with experience in designing reports of concern during 2012 or up to with ARM products and as university The Group has also partnered with AquaMV, 25 February 2013, being the latest practicable engineering departments base their own Enlight and Photonstar to incorporate building date before the printing of this report. research around ARM technology. technologies into its offices in Cambridge to improve environmental performance and use Human rights and equal opportunities Environmental, social, corporate energy-efficient ARM technology. Areas such The Group has signed the Universal governance and ethical policies as lighting control and environmental Declaration of Human Rights and has While the Group is accountable to its monitoring of plant for improved building integrated relevant human rights principles shareholders, it also endeavours to take into efficiency are being developed with these into its policies for employees and contractors. account the interests of all its stakeholders, partners and will be extended to other key The Group strives for equal opportunities for including employees, customers and suppliers sites from 2013. The Group enhanced its all its employees and does not tolerate any and the local communities and environments environmental data collection and reporting harassment of, or discrimination against, its in which it operates. The Chief Executive ability during 2012 and this supports the work staff. The Group endeavours to be honest Officer and the Chief Financial Officer take of the new Energy Use and Climate Change and fair in its relationships with its customers responsibility for these matters, which are Committee that has been formed to drive and suppliers and to be a good corporate considered at Board level. improvements in environmental performance citizen respecting the laws of the countries and to provide recommendations on in which it operates. A Corporate Responsibility (CR) summary is improving the Group’s green credentials included in this report on pages 40 to 44 and a to the Executive Committee. University Programme more detailed report is available via the Group’s website www.arm.com/reporting2012. The Group’s environmental policy is published ARM’s University Programme is an important on its website within the CR report. In line initiative for the future of the Group and our The Group regularly monitors employees’ awareness of Group policies and procedures, with the Companies Act 2006, the articles relationships with business partners. The of association enable the Group to send Group engages with universities around the including its conduct and ethical policies. Employees and temporary contractors information to shareholders electronically world, developing the next generation of ARM and make documents available through the engineers, donating equipment and software, reconfirm their understanding of key policies each year to help reinforce awareness. website rather than in hard copy, which helping to design courses and textbooks and provide both environmental and cost benefits. providing technical support and training to The Group operates from a global portfolio of Shareholders can opt to continue receiving students and faculties. In 2012, following a offices with a total in excess of 500,000 sq ft a printed copy of the Annual Report, subject thorough selection process, the Group located in 13 countries. The portfolio is made to availability. appointed a new University Programme up entirely of offices since the Group has no manager with a strong UK University manufacturing activities. As such there are Health and safety background, who joined in January 2013. no hazardous substances nor complex waste The Group operates in an industry and in The Group is seeking to increase the scalability streams to be managed as part of our business environments which are considered low risk of the University Programme through operations. The Group’s principal activity from a health and safety perspective. partnership. This partnership strategy was involves the use of IT based engineering tools to However the safety and welfare of employees, a focus area in 2012 with exploratory create intellectual property. With the exception contractors and visitors is a priority in all discussions which will result in the addition of development systems products, the majority Group workplaces worldwide. The Group of industry partners during 2013. The of “products” sold by the Group comprise continues to improve its management partnership programme is supported by the microprocessor core and physical IP designs systems in this area with an audit programme development of high quality course materials that are delivered electronically to customers. that includes external auditing of processes and offices. during 2012, resulting in a more attractive The Group’s ongoing environmental impact offering to any members of the academic analysis informs management about key More detail about the Group’s approach to community wishing to migrate their courses to environmental factors and how it can reduce environmental matters and health and safety the ARM architecture during 2013. the impacts associated with them. As a is included in the CR report. business whose day-to-day activities require 2012 saw increased focus on universities in Business model China and India, resulting in some increase reliable and advanced compute resource, of ARM architecture adoption in course the Group commissioned a new state of the A detailed description of ARM’s business materials and increased donations by the art data centre at its Cambridge UK campus model is set out on page 6. in 2012. Specified to incorporate best practice Group of equipment and software to By order of the Board University labs. This regional focus is solutions, the data centre has been awarded continuing in 2013 with increased attention a gold CEEDA (Certified Energy Efficient Data to the role of Government in influencing the Centre Award) for its energy efficiency, with Patricia Alsop processor architecture choices of universities. a projected annualised efficiency ratio (PUE) of well below 1:1. It won European Data Company Secretary Centre of the Year 2012 and has been

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Directors’ report Directors’ report The following additional disclosures are made in compliance with the Companies Act 2006, the Disclosure and Transparency Rules and the UK Corporate Governance Code 2010.

Description of operations, principal Future developments activities and review of business The Group’s stated objective is to establish The principal operations and activities of the a global standard for its RISC architecture, Group and its subsidiaries are the licensing, physical IP and other products in the marketing, research and development of embedded microprocessor and RISC‑based microprocessors, fabric system IP, semiconductor markets. The directors graphics processors, physical IP and associated believe that, in order to achieve this goal, it is systems IP, software and tools. The nature important to expand the number and range of the global semiconductor industry is such of potential customers for its technology. that most of the Group’s business originates overseas and, to serve its customers better, The Group intends to enter into licence the Group has sales offices around the world. agreements with new customers and These include eight offices in the US and to increase the range of new technology offices in Shanghai, Shenzhen and Beijing, PR supplied to existing customers. Relationships China; Shin-Yokohama, Japan; Seoul, South will continue to be established with third-party Korea; Taipei, Taiwan; Kfar Saba, Israel; Paris, tools and software vendors to ensure that France; Grasbrunn, Germany and Bangalore, their products will operate with the Group’s India. Design offices are based in Cambridge, products. As a result of its position in the Sheffield and Blackburn, UK; Sophia Antipolis semiconductor industry, the Group is and Grenoble, France; Grasbrunn, Germany; presented with many opportunities to acquire Trondheim, Norway; Sentjernej, Slovenia; complementary technology or resources and Lund, Sweden; Austin, Texas; Olympia, it intends to continue to make appropriate Washington and San Jose, California in the investments and acquisitions from US; Shanghai, PR China; Hsinchu, Taiwan time-to-time. and Bangalore, India. Going concern More information about the business, its After dividend payments of £51.8 million operations and key performance indicators and the contribution of $167.5 million to are set out in the Overview and Our the consortium to acquire rights to MIPS marketplace sections on pages 1 to 10, the Technologies, Inc’s portfolio of patents in 2012, Financial review incorporating a section on the highly cash generative nature of the Risk management on pages 52 to 54, and in the business enabled the Group to increase Corporate responsibility summary on pages its cash, cash equivalents and deposits to 40 to 44. The Group’s statement on corporate £520.2 million (net of accrued interest governance can be found in the Corporate of £7.4 million) at the end of 2012. This was governance report on pages 62 to 72 of these an increase from £424.0 million (net of accrued financial statements. The Risk management interest of £5.0 million) at the start of the year. section of the Financial review and the The consortium transaction received MIPS Corporate Governance report form part of Technologies, Inc’s shareholder approval on this section and are incorporated into it by 6 February 2013. After reviewing the 2013 cross reference. budget and longer term plans and considering any reasonably likely scenarios that may occur, the directors are satisfied that, at the time of approving the financial statements, it is appropriate to adopt the going concern basis in preparing the financial statements of both the Group and the parent Company.

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Dividends Donations Re-election of directors The directors recommend payment of During the year the Group made donations As previously announced, Mike Inglis is retiring a final dividend in respect of the year to for charitable purposes of £276,811 from the Board on 31 March 2013. All of the 31 December 2012 of 2.83 pence per share (2011: £108,546). The total amounts given for other directors will be standing for re-election which, subject to approval at the AGM on each such purpose were: at the 2013 AGM. In line with the provisions 2 May 2013, will be paid on 17 May 2013 to of the UK Corporate Governance Code 2010, £ shareholders on the register on 19 April 2013. all directors will present themselves for This final dividend, combined with the interim Promotion of education 141,954 re-election annually (if eligible) unless the dividend of 1.67 pence per share paid in Relief of poverty 55,268 directors have agreed otherwise. October 2012, makes a total of 4.5 pence per Other 39,046 share for the year, an increase of 29% on the Medical research 26,546 See pages 59 to 61 for the biographies total dividend of 3.48 pence per share for 2011. Local charities 13,997 of the directors at the date of this report. Total 276,811 Share buyback programme The interests of the directors in the Company’s ordinary shares of 0.05 pence, No share buybacks were undertaken in 2012 ARM’s investment of £2.5 million in an all of which were beneficially held, are and no shares have been re-purchased to date interest-free charitable bond in Future disclosed in the Remuneration report. in 2013. The rolling authority to buyback Business, made in 2010, remains in place. shares given by the shareholders at the AGM Future Business is a Cambridge-based social The directors have the benefit of directors’ in May 2012 remains in place and a resolution enterprise, which provides business advice, and officers’ liability insurance. to authorise the directors to make purchases coaching and affordable workspace to in appropriate circumstances will be proposed entrepreneurs, start-up businesses, charities Appointment of directors at the 2013 AGM. and voluntary organisations. ARM shareholders may by ordinary resolution appoint any person to be a director. ARM Research and development (R&D) ARM employees are encouraged to offer must have not less than two and no more than R&D is of major importance and, as part of their time and expertise to help charities 16 directors holding office at all times. ARM its research activities, the Group collaborates and other groups in need. The Group may by ordinary resolution from time to time closely with universities worldwide and plans operates a Matching Gift Donation vary the minimum and/or maximum number to continue its successful engagement with programme for individual employees’ of directors. Michigan University. Key areas of product fundraising efforts. The Group does not development for 2013 include the make any political donations. The directors may appoint a director to fill a casual vacancy or as an additional director development of further energy-efficient, Directors in the year high-performance processors such as ARM to hold office until the next AGM, who shall cores based on symmetric multicore and The following served as directors of then be eligible for election. superscalar technology. The Group is investing the Company during the year ended in future physical IP development including 31 December 2012: low-power, low-leakage technologies for both Sir John Buchanan (Chairman – appointed bulk CMOS (complementary metal oxide 3 May 2012) semiconductor) and SOI (silicon on insulator) Warren East (Chief Executive Officer) processes to ensure leadership in this market. Tim Score (Chief Financial Officer) In addition, the Group will continue to develop Mike Muller (Chief Technology Officer) and deliver tools, graphics processors and Mike Inglis (Chief Commercial Officer) system IP to enable its customers to design Simon Segars (President) and programme SoCs. Andy Green (independent non-executive The Group incurred R&D expenses director) of £166.3 million in 2012, representing 29% Larry Hirst CBE (independent non-executive of revenues, compared with £165.4 million director) in 2011, representing 34% of revenues. R&D Kathleen O’Donovan (Senior Independent expenses have been charged in full to the Director and financial expert) income statement since the requirements for Janice Roberts (independent non-executive capitalisation were not met. The requirements director) for capitalisation are considered in more detail Philip Rowley (independent non-executive in note 1 to the financial statements. director and financial expert) Doug Dunn (former Chairman – retired 3 May 2012) Tudor Brown (former President – retired 3 May 2012) Young Sohn (former independent non‑executive director – retired 31 December 2012) 74 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 Overview Our marketplace Strategy and Our partnership Our commitment Financials and risk Governance Financial statements performance approach

Share capital There are no restrictions on the transfer Articles of association At 31 December 2012, ARM’s share capital of ordinary shares in ARM other than: ARM’s articles of association may be amended comprised a single class of ordinary shares only by a special resolution at a general of 0.05 pence each and there were • restrictions that may from time to time meeting of shareholders. 1,380,768,350 ordinary shares in issue, none be imposed by laws and regulations (for of which were held in treasury (2011: no example, those relating to market abuse Directors’ authority shares held in treasury). The rights attached and insider dealing); The directors are responsible for the to treasury shares are restricted in accordance management of the business of ARM and • restrictions that may be imposed pursuant with the Companies Act. may exercise all powers of ARM subject to to the Listing Rules of the Financial Services applicable legislation and regulation and the The rights attached to ordinary shares are Authority under which certain employees of articles of association. as follows: ARM require the approval of the Company to deal in shares; At the 2012 AGM, the directors were given 1. On a show of hands at a general meeting, authority to buyback a maximum number every shareholder present in person • restrictions on the transfer of shares that of 137,579,000 ordinary shares at a minimum (or, in the case of a corporation, present at may be imposed under article 61.2 of ARM’s price of 0.05 pence each. The maximum price the meeting by way of a representative) and articles of association or under Part 22 of the was an amount equal to 105% of the average entitled to vote shall have one vote and every Companies Act 2006, in either case following of the closing mid-market prices of ARM’s proxy present who has been duly appointed a failure to supply information required to be ordinary shares as derived from the London by a shareholder entitled to vote on the disclosed following service of a request under Stock Exchange Daily Official List for the five resolution shall have one vote; section 793 of the Companies Act 2006; and business days immediately preceding the day 2. On a poll, every shareholder present • restrictions on transfer of shares held under on which such ordinary shares are contracted in person (or in the case of a corporation, certain of the Company’s employee share to be purchased. This authority will expire at present at the meeting by way of a plans while they remain subject to the plan. the earlier of the conclusion of the 2013 AGM representative) or by proxy and entitled or 30 June 2013. to vote shall have one vote for every ordinary Substantial shareholdings Accordingly, resolution 19 will be proposed share held; The directors are aware of the following as a special resolution at the 2013 AGM 3. Shareholders are entitled to a dividend substantial interests in the issued share capital to give ARM authority to acquire up to where declared or paid out of profits available of the Company as at 25 February 2013: 139,650,000 ordinary shares following expiry of the current authority. The directors will use for such purposes; and Percentage of issued ordinary this authority only after careful consideration, 4. Shareholders are entitled to participate share capital taking into account market conditions in a return of capital on a winding-up. The Capital Group Companies, Inc 6.9 prevailing at the time, other investment opportunities, appropriate gearing levels and The notice of the AGM specifies deadlines Blackrock, Inc 5.0 Thornburg Investment Management 5.0 the overall position of ARM. In particular, this for exercising voting rights and appointing authority will be exercised only if the directors a proxy or proxies to vote in relation to Fidelity Management and Research Corporation 5.0 believe that it is in the best interests of resolutions to be passed at the AGM. All shareholders generally and will increase proxy votes are counted and the numbers Legal and General Investment Management 3.8 earnings per share. for, against or withheld in relation to each Janus Capital Management LLC 3.6 resolution are announced at the AGM and published on ARM’s website after the meeting. Save for the above, the Company has not been notified, as at 25 February 2013, of any material interest of 3% or more or any non-material interest exceeding 10% of the issued share capital of the Company.

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Resolution 17 to be proposed at the 2013 Diversity Financial instruments AGM will authorise the directors generally to The Group is committed to employment The Group’s financial risk management and allot up to £230,424 in nominal amount of policies, which follow best practice, based policies and exposure to risks in relation to ordinary shares and, in addition, will authorise on equal opportunities for all employees, financial instruments are detailed in note 1c. the directors to allot up to a further £230,424 irrespective of sex, race, colour, disability in nominal amount of ordinary shares in or marital status. The Group has a strong Essential contracts connection with a rights issue (as defined in demand for highly qualified staff and disability There are a large number of contracts in place resolution 17). Further, resolution 18 will is not seen to be an inhibitor to employment with the Group’s Partners, some of which authorise the directors to allot ordinary shares or career development. Appropriate are described in more detail in the “Our (or sell treasury shares) for cash (i) otherwise arrangements are made for the continued partnership approach” section starting on than in connection with a “pre-emptive offer” employment and training, career development page 21. There are no parties with whom (as defined in resolution 18) up to an aggregate and promotion of disabled persons employed the Group has contractual or other nominal amount of £34,912 or (ii) in connection by the Group. In the event of any staff becoming arrangements which are essential to the with a pre-emptive offer up to an aggregate disabled while with the Group, their needs and business of the Group. nominal amount of £34,912, or (iii) in abilities would be assessed and the Group connection with a rights issue up to a further would, where possible, seek to offer alternative There is one Company which accounted for nominal amount of £34,912, in each case as employment to them if they were no longer 15% of Group revenues in 2012 (2011: 11%), if section 561(1) of the Companies Act 2006 able to continue in their current role. which is referred to in note 2 on page 116. did not apply to such allotment (or sale). Annual General Meeting (AGM) The period of authorisation will in each case Employee involvement expire at the earlier of the conclusion of the As the Group is an IP enterprise, it is vital that The AGM will be held at 110 Fulbourn Road, 2014 AGM or on 30 June 2014. all levels of staff are consulted and involved Cambridge CB1 9NJ, UK, on 2 May 2013 at in its decision-making processes. To this end, 2.00pm. A presentation will be made at this Qualifying indemnity provision internal conferences and communications meeting outlining recent developments in Article 139 of the Company’s articles of meetings are held regularly which involve the business. All voting at the meeting will be association provides for the indemnification employees from all parts of the Group conducted on a poll where every shareholder of directors of the Company against liability in discussions on future strategy and present in person or by proxy will have one incurred by them in certain situations, and is developments. Furthermore, employee share vote for each share of which they are the a “qualifying indemnity provision” within the ownership is encouraged and all employees owner. The Group will convey the results meaning of section 236 of the Companies are able to participate in one of the Group’s of the poll on the website after the AGM. Act 2006. schemes to encourage share ownership. Shareholders are invited to submit written questions in advance of the meeting. The qualifying indemnity was in force during The Group has an informal and delegated organisation structure. It does not presently Questions should be sent to The Company the financial year and up to the date of signing Secretary, ARM Holdings plc, 110 Fulbourn the Annual Report. operate any collective agreements with any trade unions. Road, Cambridge CB1 9NJ, UK. Change of control Information about the Group’s employees and A resolution to reappoint All of ARM’s equity-based plans contain policies are contained in the Remuneration PricewaterhouseCoopers LLP as auditors provisions relating to a change of control. report, the “Our commitment” section to the Group will be proposed at the AGM. Outstanding awards and options would and the Corporate Governance report. Details of other resolutions to be proposed normally vest and become exercisable on Information about environmental matters, at the meeting are set out in the Circular a change of control, subject to the satisfaction social and community policies and their and Notice of AGM 2013 which will be made of any performance conditions at that time. effectiveness is contained in the “Our available to all shareholders together with a proxy card. There are no significant agreements to which commitment” section and in the full ARM is a party that take effect, alter or Corporate Responsibility report available terminate upon a change of control. on our website. Policy on payment of creditors The Group’s policy is to pay suppliers before the end of the month following the month of receipt of the invoice, unless alternative terms have been specifically agreed in advance. This policy and any specific terms agreed with suppliers are made known to the appropriate staff and to suppliers on request. Trade creditors of the Group at 31 December 2012 were equivalent to 15 days’ purchases for the Group (2011: 27 days) and nil days for the Company (2011: nil).

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Statement of directors’ responsibilities The directors are responsible for keeping Disclosure of information to auditors The directors are responsible for preparing adequate accounting records that are sufficient In the case of each director in office at the date the annual report, the Remuneration report to show and explain the Company’s the Directors’ report is approved, that: and the financial statements in accordance transactions and disclose with reasonable with applicable law and regulations. accuracy at any time the financial position (a) so far as the director is aware, there is of the Company and the Group and enable no relevant audit information of which the Company law requires the directors to them to ensure that the financial statements Company’s auditors are unaware; and prepare financial statements for each financial and the Remuneration report comply with (b) the director has taken all the steps that year. Under that law the directors have the Companies Act 2006 and, as regards he or she ought to have taken as a director prepared the Group financial statements in the Group financial statements, Article 4 of the in order to make themselves aware of any accordance with International Financial IAS Regulation. They are also responsible for relevant audit information and to establish Reporting Standards (IFRSs) as adopted by safeguarding the assets of the Company and that the Company’s auditors are aware of the European Union, and the parent Company the Group and hence for taking reasonable that information. financial statements in accordance with United steps for the prevention and detection of fraud Kingdom Generally Accepted Accounting and other irregularities. Practice (United Kingdom Accounting Standards and applicable law). Under company The directors are responsible for the By order of the Board law the directors must not approve the maintenance and integrity of the Annual financial statements unless they are satisfied Report included on the Group’s website in accordance with the United Kingdom that they give a true and fair view of the state Patricia Alsop legislation governing the preparation and of affairs of the Group and the Company and Company Secretary of the profit or loss of the Group for that dissemination of financial statements. period. In preparing these financial statements, Legislation in the United Kingdom governing ARM Holdings plc the directors are required to: the preparation and dissemination of financial Company Number: 2548782 statements may differ from legislation in • select suitable accounting policies and then other jurisdictions. apply them consistently; Each of the directors, whose names and • make judgments and accounting estimates functions are listed in the biographies on that are reasonable and prudent; pages 59 to 61 confirm that, to the best of their knowledge: • state whether IFRSs as adopted by the European Union and applicable UK • the Group financial statements, which have Accounting Standards have been followed, been prepared in accordance with IFRSs as subject to any material departures disclosed adopted by the EU, give a true and fair view and explained in the Group and parent of the assets, liabilities, financial position and Company financial statements profit of the Group; and respectively; and • this Directors’ report on pages 73 to 77 • prepare the financial statements on the going and the Financial review and the Risk concern basis unless it is inappropriate to management sections on pages 46 to 54 presume that the Company will continue includes a fair review of the development in business. and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

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Remuneration report

Remuneration Committee design company, and also to tie pay to Executive pay is rightly the subject of increased performance. At the same time the focus both for shareholders and the wider Committee worked to ensure that the public and ARM’s Remuneration Committee Group’s overall remuneration packages will be is mindful of this and of the consultation papers able to attract, retain and motivate people. issued during 2012 by the UK Government’s Key decisions on remuneration taken in department of Business Innovation and Skills relation to 2012 include: (“BIS”). The final BIS regulations are expected in April 2013 and we will review these carefully. • approval of an average executive team base We have changed the format of this report a pay increase of 4.0% for 2012 and 3.85% little this year to provide increased transparency for 2013 compared to the average increases and clarity on past pay and future policy. for the workforce as a whole of 4.7% for Philip Rowley We have also given full consideration to 2012 and 4.7% for 2013; Remuneration Committee Chairman the principles set out in the UK Corporate • continuing the practice of setting stretching Governance Code 2010, the Listing Rules of performance targets for the LTIP and DAB the Financial Services Authority and the ABI Plan which will operate for the last time in Principles of Remuneration published in 2013 and, subject to shareholder approval, November 2012. will be replaced by the new Long Term The main activity for the Committee during Incentive Plan in 2014; 2012 was the development of the proposed • approval of increased disclosure new Long Term Incentive Plan (“LTIP”) and arrangements in circumstances where an consultation thereon with major shareholders executive retires (to ensure that vesting of and representative bodies. This will be put to accrued benefits under the current DAB Plan shareholders for approval at the 2013 AGM and LTIP happens only on genuine retirement and is planned to take effect in 2014 and for from full time commercial employment); and any new hires after May 2013. The consultation involved physical meetings, telephone • approval of the structure of the new LTIP conference calls and written responses and we and consultation with major shareholders. were heartened by the positive feedback and general support for the proposals. Above all Notwithstanding the tough market conditions the new plan, which will replace both the that continued during 2012, the minimum existing LTIP and the Deferred Annual Bonus targets, established three years ago under Plan (“DAB Plan”), is intended to provide both the LTIP and DAB Plan were exceeded greater simplicity, a longer holding period and our teams have been rewarded for their for shares and an increased individual performance as detailed in the following shareholding requirement for participants. report. It is encouraging that shareholders A detailed description of these proposals is have been supportive of our remuneration set out in this report and in the accompanying policies to date and the Remuneration report Circular to Shareholders. received a 97.4% vote in favour at the 2012 The approach of the Committee in preparing AGM. We take an active interest in investors’ for the work of developing the new LTIP was views, which we have been able to discuss to spend time understanding the key elements directly with the larger shareholders through of the developing debate about executive pay, the new LTIP consultation and we have sought and also considering other research, for to accommodate their feedback as far as example into understanding how executives possible and to follow best practice in the value long-term rather than short-term pay. design of the proposed new LTIP. It was generally considered that the current LTIP had served the Group well, and one option could have therefore been to continue Philip Rowley with a similar structure. However the Remuneration Committee Chairman Committee wanted to ensure that certain objectives were met, including simplicity, matching the payment cycle to the business cycle, which is quite long as a semiconductor 78 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 Overview Our marketplace Strategy and Our partnership Our commitment Financials and risk Governance Financial statements performance approach

Remuneration Committee Operation of the Remuneration In this section we describe the composition Committee and activities of the Committee during 2012. The Chief Executive Officer and the EVP, Human Resources attend each meeting for Remuneration Committee composition at least part of the time to ensure that the and meeting attendance during 2012 Committee is able to obtain their views on the Name of director Position Total number level of compensation for executive directors of Meetings/ and other senior executives, although they are Meetings attended not present when their own remuneration is Philip Rowley Independent 5/5 discussed. The Company Secretary advises non-executive director the Committee on corporate governance (Committee Chairman) guidelines and acts as Secretary to Andy Green Independent 5/5 the Committee. non-executive director Larry Hirst Independent 5/5 The principal items of business discussed at the non-executive director five Committee meetings during 2012 were: Young Sohn Independent 5/5 non-executive director • reviewing total compensation packages for (retired 31 December 2012) the executive directors and senior executives of the Group including approval of 2012 base Given their diverse business experience, the salaries and vesting of 2009 LTIP and DAB independent non-executive directors who Plan awards. This included oversight of the made up the Committee in 2012 offer a Group’s salary review process for senior balanced view and international expertise executives to ensure consistency of in relation to remuneration matters for the application. The Committee also reviews Group. Janice Roberts joined the Committee in executive remuneration in the context of pay February 2013 and will add valuable expertise, and benefits for the workforce as a whole; particularly on US compensation matters. • development of the new LTIP proposals, External advisers consultation with major shareholders The Committee has access to independent and representative bodies and feedback professional advice and Towers Watson were to the Board; appointed as advisers to the Committee in • approval of retirement arrangements under 2010 and advised on current market practice, the LTIP and DAB Plan for individuals wishing in particular in connection with the proposed to retire, in particular Tudor Brown and Mike new LTIP. Other advisers who provided Inglis. For retirements in 2013 onwards, these services during 2012 were: include disclosure of future intentions to the Committee, non-competition undertakings • KPMG who provided general advice on and clawback arrangements in order to be remuneration and benefits, including tax treated as good leavers on retirement; advice for employees who are seconded overseas. They also provided royalty • agreeing the remuneration of the audit services; new Chairman; • Linklaters, Norton Rose and Slaughter and • setting the 2012 LTIP and DAB Plan May who provided legal services in relation performance measures and targets; and to equity plans and corporate matters; • reviewing the Remuneration report to • Deloitte who provided salary survey data, shareholders, prior to its approval by the royalty audit services and tax training; and Board and by shareholders at the AGM.

• Kepler Associates who provided The Committee’s terms of reference independent verification of Total Shareholder are published on the corporate website Return (TSR) calculations for the LTIP. at www.arm.com.

Advisers are usually appointed by the EVP, Human Resources and are reviewed and approved by the Committee. The EVP, Human Resources also provided advice to the Committee in 2012. 79 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 ARM Holdings plc Annual Report & Accounts 2012

Remuneration policy The Committee believes that it is important The Group operates a remuneration policy to select an appropriate peer group and and framework for executive directors methodology for comparator group purposes. designed to ensure that it attracts, retains and For the existing and new LTIPs, TSR motivates high calibre people with the skills calculations are based on comparisons necessary to achieve its goal of sustained with the FTSE 350 and the FTSE All World growth in corporate performance. We believe Technology Index. It is recognised that there that this sustained growth can be successfully are differing views among shareholders and achieved only with a high level of employee representative bodies on whether one or engagement and motivation. Our policy seeks two indices should be used and, after due to provide rewards and incentives for the consideration, the Committee believes that remuneration of executive directors that there is merit in the continued use of these reflect their performance and align with the two indices. The FTSE All World Technology objectives of the Group. These comprise Index is not a perfect comparator for ARM a mix of performance-related and due to the fairly unique nature of our business non-performance-related remuneration. model in the technology world and the FTSE The Committee believes that a director’s total 350 is a better UK comparator index due to remuneration should be monitored against the small number of technology companies in their worth in the external market and, to this the FTSE 100. end, obtains information from independently Proposed changes to executive published remuneration surveys, benchmarks directors’ remuneration from 2014 the total remuneration package and applies the following principles: The existing LTIP approved in 2003 is due to expire in 2013. Therefore the Committee took • base salaries are set at a relatively the opportunity in 2012 to review its entire modest level; approach to executive pay, where the current arrangements have been in place since 2006 • a significant amount (i.e. more than 80%) when the DAB Plan was introduced. of total potential remuneration is The objective of the review was to ensure performance-related; that ARM’s approach remains fit for purpose over the next phase of its development. • there should be reward for performance The Committee concluded that a number but not for failure with an opportunity for of modifications would be appropriate in an upside for exceptional performance; effort to both simplify the elements of total • benchmarking provides a useful reference remuneration and more closely align the point but not a target range for salaries arrangements with ARM’s longer term or other benefits; business cycle. • a significant element of performance-related The proposed changes (which are planned to remuneration is provided in the form of take effect in 2014 and for any new hires after shares; May 2013) will not result in any increases to the maximum quantum of reward delivered via • elements of performance-related variable the new LTIP. remuneration are subject to deferral; and • the performance of divisional general managers is measured both at division and Group level.

The Committee is able to consider corporate performance on environmental, social and corporate governance issues when setting the remuneration of executive directors.

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Pay element Current policy Proposed policy from 2014 Linkage to strategy Base salary Conservative approach relative No change The structure of lower base salaries to companies of similar and higher potential incentives has proved market capitalisation motivational and successful in achieving strong business performance

Pension allowance 10% of base salary either into the No change Group Personal Pension Plan or as a cash allowance for those in excess of the lifetime allowance

Annual bonus • Maximum and target bonus opportunity • Maximum and target bonus opportunity • Delivery of revenue and profit growth are of 150% and 100% of salary respectively reduced to 125% and 85% of salary regarded as the best drivers to increase • Bonus split 50/50 cash and deferred respectively market share and continue the Group’s shares based on normalised operating • All bonus to be paid in cash outperformance of semiconductor profit (NOP), total revenue and • Deferred bonus share awards will cease market growth individual performance • No change to performance metrics • Individual performance measures are • Compulsory deferral into shares which will continue to be NOP, focused on objectives that are specific for three years total revenue and individual performance to each executive director

Bonus matching shares • 0.3 to 2 for 1 match on any deferred bonus • The final award under the DAB Plan will shares subject to three year EPS growth of be made in respect of 2013 performance CPI + 4% to CPI +12% p.a., respectively • Sliding scale vesting

LTIP • Annual awards normally at 100% of salary • Annual awards under the revised plan will • From 2014, long-term incentives will have for senior executives with the potential increase to a maximum potential of 375% performance conditions that incorporate to vest at 200% of salary for upper decile of salary from 2014 onwards with a both relative TSR and EPS growth performance and with a maximum limit maximum limit in exceptional circumstances in exceptional circumstances of 400% of 600% of salary of salary • Vesting based on: • Vesting based on three year o three year relative TSR growth relative relative TSR versus to the FTSE All World Technology Index FTSE All World Technology Index (25% of the award); and FTSE 350 (50/50) o three year relative TSR growth relative • Threshold vesting to the FTSE 350 (25% of the award); and commencing at median ranking o three year EPS growth (50% of the award) of TSR group (25% of award) • Targets to be determined ahead of the rising to 100% vesting first annual awards in 2014 for an upper decile ranking • Full vesting of the TSR components on a straight-line basis for upper quintile performance

Holding period beyond None 50% of the vested shares will be subject to These additional holding periods align the three years additional holding periods with 25% vesting interests of executives and shareholders after four years and the remaining 25% vesting more closely and require sustained long-term after five years. During these new holding performance periods shares may not be sold even if the participant has left the Group

Share 100% of salary over a five year period 200% of base salary to be achieved through Increased individual holding requirements ownership guidelines retention of at least 50% of all net vested align executive and investor interests awards

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Before pension, the current total aggregate We are aware that this is higher than the limit Current incentive arrangements package assuming maximum performance can of 5% over ten years in respect of discretionary and their operation for 2012 deliver a total incentive opportunity of up to awards and 10% over ten years in respect of For 2012 there were four key incentive five times salary for superior performance. all schemes adopted by many UK companies schemes in operation across the workforce Assuming an on-target bonus and LTIP vesting and preferred by many institutional investors. as a whole. These are the annual bonus under at 50% of maximum, the package delivers The reasons for this higher limit, which was the DAB Plan and an annual conditional award around 2.5 times salary after three years. approved by shareholders when the LTIP under the LTIP for executive directors and As mentioned above, this long-standing was introduced, are at least as strong today. senior managers and awards under the arrangement has been effective at aligning pay These are the broad based nature of our Employee Equity Plan and Annual Bonus Plan with performance. However, the expiry of the schemes which cover all employees and for all other employees. Option grants to LTIP in 2013 has given the Committee the the need to be able to compete with US executive directors ceased in 2006 opportunity to re-visit the Group’s executive companies worldwide for the high calibre (although the facility to grant options exists reward objectives to ensure that they are the engineers and executives required to secure in exceptional circumstances) and the move most appropriate ones for the next phase in the Group’s future success. The Committee away from options to restricted shares for all the Group’s development. is keenly aware of this issue, and will continue employees reduces potential dilution and has to keep well below the 10% upper limit. The Committee believes that the revised simplified remuneration arrangements. arrangements provide a much simpler package Shareholding guideline We significantly out-performed our (similar to the approach adopted in a largely Share ownership is considered important in international peer group over the last three US dominated sector) and one that rewards aligning the interests of the senior management years which resulted in full vesting of both the only sustained longer term performance. The team with other ARM shareholders. In LTIP and DAB Plan awards made in 2010, chart below highlights the proposed change. addition to reducing the proportion of shares when the share price was 205 pence per released to participants under the new LTIP share. To put the awards that are currently Potential maximum bonus % of salary after three years, it is proposed that the outstanding under the LTIP and DAB Plan into 600 shareholding guideline will increase from 100% context, the share price was 611 pence per 500 to 200% of base salary for executive directors share at the time awards were made in 2011 400 and Executive Committee members with and 568 pence per share for the 2012 awards. effect from the first grants under the new LTIP. 300 The share price was 924.5 pence per share For other participants in the new LTIP, the on 7 February 2013, being the day before the 491.8 200 shareholding guideline will increase from 50% 2013 LTIP and DAB Plan awards were made. 100 to 100%576.9 of base salary. Until these levels are Following the subsequent sustained increase Current Proposed achieved, no more than 50% of shares in share price, the number of shares awarded Base Cash bonus Potential DAB received through the DAB Plan and LTIP under these plans in 2011, 2012 and 2013 are Potential DAB match LTIP (after the automatic sale of shares to satisfy tax at much lower levels. liabilities) can be disposed of by participants. Impact of proposed changes At the present share price, all of the executive Deferred Annual Bonus Plan (DAB Plan) for 2012 The impact of the proposed changes is to directors currently meet the 200% of base rebalance the package towards long-term salary shareholding guideline. As demonstrated in the table earlier in this report, there is a high variable element to performance and materially reduce the total Collectively the Executive Committee, quantum released under the package after executive directors’ remuneration. For 2012 including the executive directors, held target and maximum bonus of 100% and 150% three years. In addition, the introduction of the 5.0 million shares with a value of £47.3 million new holding periods and increased share of base salary respectively (after application of at 25 February 2013. This currently equates a personal performance multiplier which flexes ownership guidelines will result in longer term to a multiple of 12 times base salaries. performance alignment. Therefore, if share the payment by 0.75 to 1.25) could be earned price performance is sustained during the Base salary increase for 2012 and 2013 through the DAB Plan if all targets were met. holding period, then participants are For 2012, the average increase in base salaries The strong performance of the Group in 2012 rewarded. If share price performance is not for the executive directors was 4.0% and the resulted in partial achievement of both of the sustained during the holding period then average increase for the workforce as a whole equally weighted bonus targets, as set out below: participants are worse off than under the old was 4.7%. For 2013 the average increases are arrangements. Bonus % 3.85% for the executive directors and 4.7% for achieved Share dilution the workforce as a whole. Within the overall of base increase for 2013, the range was 3.6% for the 2012 Bonus targets Target Actual salary It is proposed that the Group will continue US rising to 8.9% in Asia reflecting local market Revenue US$917.0m US$913.1m 48.3% to manage dilution within the context of conditions and salary inflation. The higher Normalised maintaining award levels within a 10% limit increase of 7.1% for Simon Segars reflects operating profit* £253.1m £257.7m 57.6% over five years (excluding rolled over Artisan increased responsibilities in his new role as Total 105.9% options), the limit that has applied since 2003. President of the Group. * Normalised operating profit for bonus purposes is calculated using the Group budget exchange rate of £1:US$1.60 for 2012. 82 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 Overview Our marketplace Strategy and Our partnership Our commitment Financials and risk Governance Financial statements performance approach

Each of the executive directors achieved a Linkage of bonus targets to business Awards under the DAB Plan will be made for personal performance multiplier of at least 1.2 strategy the last time in respect of 2013, subject to for 2012 which means bonus received was in The personal performance multiplier depends approval of the new LTIP at the 2013 AGM. the range 127% to 132% of salary half of which on the achievement of pre-determined The Committee has decided to adopt the was compulsorily deferred into shares for objectives which are reviewed and approved same bonus target arrangement for 2013 as three years. Actual bonuses are detailed in by the Committee each year. These include applied in 2012 so that 50% of bonus will be the table on page 90. key strategic objectives related to each dependent on achieving a US dollar revenue target and 50% on achieving a NOP target The revenue target is set in US dollars to director’s role and responsibilities including compliance with the Management Charter calculated at the Group budget exchange rate reflect the main currency in which revenues of £1:US$1.60. The Committee believes that are earned. which is designed to foster employee development, understanding of the overall these targets have been set at levels that are The normalised operating profit (NOP) target vision and strategy of the Group and good challenging but achievable at high rates of range was from zero payout at £218.8 million governance. There is compulsory deferral into performance. up to 25% at £233.8 million and 50% at shares of 50% of the bonus earned and an Long Term Incentive Plan £253.1 million, all at the Group budget opportunity to earn an equity match of up to exchange rate of £1:US$1.60. 2:1, subject to achievement of an EPS Annual grants to executive directors are performance condition. At the end of the normally made at a level equivalent to base Shares representing the deferred element of three year deferral period the shares and any salary. Conditional awards vest to the extent bonus earned in 2009 and awarded in 2010 matching shares earned are satisfied through that the performance criteria are satisfied vested in February 2013, with the maximum the issue of new shares (any treasury shares over a three year performance period from 2:1 ratio of matching shares being triggered. available would be used first). 1 January of the year of award, with no This ratio was achieved because EPS growth subsequent retesting permitted. The was 170% which is greater than CPI plus 12% At EPS growth equal to the increase in the performance conditions are based on per annum on average for the three years Consumer Prices Index (CPI) plus 4% per the Company’s TSR when measured against making up the performance period. annum, the deferred shares will be matched that of two comparator groups (each testing on a 0.3:1 basis, rising to 2:1 when EPS growth half of the shares comprised in the award). The targets set by the Committee for the is in excess of CPI plus 12% per annum. These The first index comprises UK companies DAB Plan each year are intended to be targets are directly related to the Group’s across all sectors (FTSE 350) and the second stretching but motivational and average bonus financial results and encourage achievement comprises predominantly US companies paid to the executive directors over the past of the Group’s short-term financial goals, while within the hi-tech sector (FTSE All World five years was 112% of salary (with a range the deferral and matching elements encourage Technology Index). from 70% payout for 2008 to 150% for 2011) a longer term view of the success of the as shown below: Group. The deferred shares can be forfeited For each comparator group, the number of in the event of gross misconduct and the shares that may vest may be up to a maximum matching shares are subject to forfeiture of 200% of the relevant half of the shares for “bad leavers”. comprised in the conditional award if the Company’s TSR ranks in the upper decile, 50% of the relevant half of the shares will vest in the event of median performance and between median and upper decile performance vesting will increase on a straight-line basis. Additional shares may vest to cover dividends paid by the Company during the performance period. No shares will be received for below-median Average percentage bonus paid over the past ﬁve years to executive directors performance. In addition, no shares will vest 150% unless the Committee is satisfied that there has been a sustained improvement in the underlying financial performance of the Group. 100% The vesting of the 2010 LTIP awards in February 2013 was at the maximum level as a % of base% of salary 50% 491.8 result of our significant out-performance 576.9 compared to our international peer group 0% 2008 2009 2010 2011 2012 over the past three years.

Notes Awards under the existing LTIP are being 2010 bonus was limited to 125% of base salary under the DAB Plan rules applicable at that time made for the last time in 2013, anticipating approval of the new LTIP at the 2013 AGM. All bonuses are subject to a performance multiplier on an individual basis but remain subject to the overall limit of 150%

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Former share option schemes Performance graphs to six months following termination of The remaining shares of the final option grant A performance graph showing the Company’s employment relating to non-competition, to executive directors made in 2006 vested TSR together with the TSRs for the FTSE non-solicitation of the Group’s customers, in accordance with the rules of the scheme in All-World Technology Index and the FTSE 350 non-dealing with customers and non- February 2013. The performance conditions from 31 December 2007 is shown below. The solicitation of the Group’s suppliers and relating to this option grant are set out in more TSR has been calculated in accordance with employees. In addition, each service contract detail in the table later in this report. the Directors’ Remuneration Report contains an express obligation of confidentiality Regulations 2002. in respect of the Group’s trade secrets and Pensions confidential information and provides for The Group does not operate its own pension The TSR for the Company’s shares was 558% the Group to own any intellectual property scheme but makes payments into a group over this period compared with 8% for the rights created by the directors in the course personal pension plan, which is a money FTSE All-World Technology Index for the of their employment. purchase scheme. For executive directors, the same period. The dates of the service contracts of each normal rate of Group contribution is 10% of The Committee considers the FTSE All-World person who served as an executive director the executive’s basic salary plus additional Technology Index to be an appropriate choice during the financial year are as follows: amounts in accordance with the Group’s salary as the Index contains companies from the US, sacrifice scheme. Full details of Group Asia and Europe and therefore reflects the Director Date contributions are set out in the directors’ global environment in which the Group Warren East 29 January 2001 emoluments table later in this report. operates. In addition, the Index includes many Tim Score 1 March 2002 Since 2011, to the extent that contributions companies that are currently the Group’s Mike Inglis 17 July 2002 cannot be made in a tax efficient way at the customers, as well as companies which use Mike Muller 31 January 1996 10% of basic salary level, the difference is paid ARM technology in their end products. Simon Segars 4 January 2005 as an additional cash allowance (and subject Tudor Brown (retired 3 May 2012) 3 April 1996 to appropriate tax and other deductions). Service contracts Executive directors have service contracts Where notice is served to terminate the Executive Directors’ remuneration 2012 % of salary that may be terminated by either party on appointment, whether by the Group or the 1,500 one year’s notice. These agreements provide executive director, the Group in its absolute for each of the directors to provide services discretion is entitled to terminate the 1,000 to the Group on a full-time basis and contain appointment by paying to the executive restrictive covenants for periods of three director his salary in lieu of any required period of notice. 500 491.8 576.9 Base Cash bonus DAB bonus Option gains DAB match LTIP

ARM total shareholder return performance from 31 December 2007 to 31 December 2012 700

600

500

400

300

200

100

0 Jun 08 Jun 09 Jun 10 Jun 11 Jun 12 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 ARM FTSE All-World Technology FTSE 350

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Non-executive directors Directors’ shareholdings During 2012, the Chairmen of the Audit and in the Company Remuneration Committees each received a The directors’ beneficial interests in the total fee of £65,000 per annum and the other Company’s ordinary shares of 0.05 pence, non-executive directors each received a total which exclude interests under its share option fee of £52,000 per annum. The remuneration schemes, Long Term Incentive Plan and of the non-executive directors was reviewed Deferred Annual Bonus Plan, are set out below. following the appointment of the new 31 December 2012 Chairman. In line with fee arrangements in At date of or date of retirement place in other companies of similar size and report if earlier 31 December 2011 complexity the executive directors have Director Number Number Number implemented new arrangements from Sir John Buchanan (appointed 3 May 2012) – – – 1 January 2013 as follows: Warren East 1,418,465 1,289,522 1,194,914 Tim Score 739,094 654,297 289,151 • standard fee £55,000 per annum; and Mike Inglis 99,857 101,238 101,007 Mike Muller 1,338,367 1,343,625 1,158,163 • additional fee for Committee Chairmen Simon Segars 478,568 356,956 265,846 and Senior Independent Director £15,000 Andy Green – – – per annum. Larry Hirst – – – Kathleen O’Donovan – – – This is believed to more fairly reflect the Janice Roberts – – – workload undertaken by Committee Philip Rowley 50,000 50,000 50,000 Chairmen and the Senior Independent Tudor Brown (retired 3 May 2012) N/A 895,814 542,617 Director. The additional fee of $2,500 per Doug Dunn (retired 3 May 2012) N/A 48,000 48,000 meeting which is paid to non-executive Young Sohn (retired 31 December 2012) N/A – 84,000 directors who are based in the US and travel to the UK for Board meetings will continue at In addition to the interests disclosed above, this level. This is to reflect their additional time the executive directors have interests in commitment. The term of appointment for dividend shares that could be awarded non-executive directors is three years, which under the Long Term Incentive Plan and the can be rolled forward for a further period of Deferred Annual Bonus Plan, the amount three years and is subject to annual review. of which will depend on the extent to which Fees paid to non-executive directors are the performance criteria are satisfied and the reviewed annually with effect from 1 January. dividends declared during the performance period. Changes in directors’ interests in the The Chairman’s fee for 2012 and 2013 Company’s shares that have taken place in is at the rate of £390,000 per annum. the period from 31 December 2012 to the Non-executive directors do not have service date of approval of the Remuneration report contracts and are not eligible to participate in are shown above. bonus or share incentive arrangements. Their Audited information service does not qualify for pension purposes or other benefits and no element of their fees The following information has been is performance-related. audited by the Company’s auditors, PricewaterhouseCoopers LLP, as required by the Companies Act 2006.

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Interests in share options Details of discretionary options beneficially held by directors are set out below:

As at As at 31 December Exercise Earliest 1 January 2012 Granted Exercised Lapsed 2012 price date of Expiry Director Number Number Number Number Number £ exercise date Warren East 62,559 – 62,559 – – 1.055 04/02/08 06/02/12* 136,513 – – – 136,513 1.325 01/02/09 06/02/13* 199,072 – 62,559 – 136,513 Tim Score 50,047 – 50,047 – – 1.055 04/02/08 06/02/12* 114,959 – – – 114,959 1.325 01/02/09 06/02/13* 165,006 – 50,047 – 114,959 Mike Inglis 40,038 – 40,038 – – 1.055 04/02/08 06/02/12* 80,830 – – – 80,830 1.325 01/02/09 06/02/13* 120,868 – 40,038 – 80,830 Mike Muller 42,040 – 42,040 – – 1.055 04/02/08 06/02/12* 80,830 – – – 80,830 1.325 01/02/09 06/02/13* 122,870 – 42,040 – 80,830 Simon Segars 36,034 – 36,034 – – 1.055 04/02/08 06/02/12* 75,441 – – – 75,441 1.325 01/02/09 06/02/13* 111,475 – 36,034 – 75,441 Tudor Brown 46,044 – 46,044 – – 1.055 04/02/08 06/02/12* (retired 3 May 2012) 93,404 – 93,404 – – 1.325 01/02/09 06/02/13* 139,448 – 139,448 – – * Denotes share options issued under the Group’s Unapproved Share Option Scheme with performance conditions attached.

For options granted in 2005 the performance conditions were satisfied to the extent that 89.44% of the options vested on 8 February 2008 and the balance vested on 6 February 2012. For the final grant of options in 2006 the performance conditions were satisfied to the extent that 76.2% of the options vested on 8 February 2009 and the balance vested on 6 February 2013. The expiry date was extended to the first day of the open period in accordance with the rules of the Scheme. Details of options held by directors under the Group’s Save As You Earn option schemes are set out below:

As at As at 31 December Exercise Earliest 1 January 2012 Granted Exercised 2012 price date of Expiry Director Number Number Number Number £ exercise date Warren East 4,620 – – 4,620 1.948 01/08/13 31/01/14 Tim Score 18,208 – – 18,208 0.854 01/08/14 31/01/15 Mike Inglis 10,626 – 10,626 – 0.854 01/08/12 31/01/13

Options issued under this scheme are issued at a 20% discount to market value. Details of options exercised by directors during the year are as follows:

Market price Exercise on date of Gains on Number price exercise exercise Director of shares £ £ £ Warren East 62,559 1.055 5.77 294,966 Tim Score 50,047 1.055 5.77 235,972 Tudor Brown (retired 3 May 2012) 46,044 1.055 5.77 217,097 93,404 1.325 5.833 421,065 Tudor Brown 139,448 638,162 Mike Inglis 40,038 1.055 5.77 188,779 10,626 0.854 7.725 73,011 Mike Inglis 50,664 261,790 Mike Muller 42,040 1.055 5.77 198,219 Simon Segars 36,034 1.055 5.77 169,900 Total 380,792 1,799,009

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Details of options exercised by directors after the year end are as follows:

Market price Exercise on date of Gains on Number price exercise exercise Director of shares £ £ £ Warren East 136,513 1.325 9.2943 1,0 87,911 Tim Score 114,959 1.325 9.2213 907,749 Mike Inglis 80,830 1.325 9.3014 644,736 Mike Muller 80,830 1.325 9.2211 638,241 Simon Segars 75,441 1.325 9.2168 595,362 Total 488,573 3,873,999

Long Term Incentive Plan A Long Term Incentive Plan was approved by shareholders at the 2003 AGM. Conditional share awards held by directors are as follows:

Performance Market price at As at Awarded As at period ending Award date of award 1 January in year Vested Lapsed 31 December Vesting Director 31 December date £ Number Number Number Number Number date Warren East 2011 8 February 2009 0.9975 416,040 – 416,040 – – February 2012* 2012 8 February 2010 2.05 209,756 – – – 209,756 February 2013** 2013 8 February 2011 6.11 77,741 – – – 77,741 February 2014 2014 8 February 2012 5.68 – 86,267 – – 86,267 February 2015 703,537 86,267 416,040 – 373,764 Tim Score 2011 8 February 2009 0.9975 360,902 – 360,902 – – February 2012* 2012 8 February 2010 2.05 180,487 – – – 180,487 February 2013** 2013 8 February 2011 6.11 62,684 – – – 62,684 February 2014 2014 8 February 2012 5.68 – 70,422 – – 70,422 February 2015 604,073 70,422 360,902 – 313,593 Mike Inglis 2011 8 February 2009 0.9975 250,627 – 250,627 – – February 2012* 2012 8 February 2010 2.05 126,829 – – – 126,829 February 2013** 2013 8 February 2011 6.11 44,190 – – – 44,190 February 2014 2014 8 February 2012 5.68 – 49,295 – – 49,295 February 2015 421,646 49,295 250,627 – 220,314 Mike Muller 2011 8 February 2009 0.9975 245,614 – 245,614 – – February 2012* 2012 8 February 2010 2.05 124,390 – – – 124,390 February 2013** 2013 8 February 2011 6.11 43,372 – – – 43,372 February 2014 2014 8 February 2012 5.68 – 48,415 – – 48,415 February 2015 413,376 48,415 245,614 – 216,177 Simon Segars 2011 8 February 2009 0.9975 250,627 – 250,627 – – February 2012* 2012 8 February 2010 2.05 125,853 – – – 125,853 February 2013** 2013 8 February 2011 6.11 43,863 – – – 43,863 February 2014 2014 8 February 2012 5.68 – 49,295 – – 49,295 February 2015 420,343 49,295 250,627 – 219,011 Tudor Brown 2011 8 February 2009 0.9975 214,286 – 214,286 – – February 2012* (retired 3 May 2012 8 February 2010 2.05 106,341 – 106,341 – – February 2013** 2012) 2013 8 February 2011 6.11 36,007 – 27,649 8,358 – February 2014 356,634 – 348,276 8,358 –

* The performance conditions applicable to the 2009 conditional awards were satisfied to the extent of 200% plus dividend shares. ** The performance conditions applicable to the 2010 conditional awards were satisfied to the extent of 200% plus dividend shares.

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LTIP vesting in 2012 As detailed in the 2011 annual report the performance conditions applicable to the conditional awards granted on 8 February 2009 were satisfied in respect of the performance period ended 31 December 2011 to the extent of 200% plus dividend shares which vested on 8 February 2012, as follows:

Conditional Vested Dividend Total Market value award award shares award at vesting Director Number Number Number Number £ Warren East 416,040 832,080 27,348 859,428 4,868,660 Tim Score 360,902 721,804 23,724 745,528 4,223,416 Mike Inglis 250,627 501,254 16,475 517,729 2,932,935 Mike Muller 245,614 491,228 16,145 507,373 2,874,268 Simon Segars 250,627 501,254 16,475 517,729 2,932,935 Tudor Brown (retired 3 May 2012) 214,286 428,572 14,086 442,658 2,507,658 Total 1,738,096 3,476,192 114,253 3,590,445 20,339,872

The amount vested above represents the maximum award under the LTIP. This is based on the total shareholder return as calculated below:

Comparator Group ARM TSR percentile rank Implied vesting FTSE 350 index 99.6% 200% FTSE All World Technology Index 99.5% 200% Overall 200%

LTIP vesting in 2013 The performance conditions applicable to the conditional awards granted on 8 February 2010 were satisfied in respect of the performance period ended 31 December 2012 to the extent of 200% plus dividend shares which vested on 8 February 2013, as follows:

Conditional Vested Dividend Total Market value award award shares award at vesting Director Number Number Number Number £ Warren East 209,756 419,512 8,911 428,423 3,960,771 Tim Score 180,487 360,974 7,667 368,641 3,408,086 Mike Inglis 126,829 253,658 5,388 259,046 2,394,880 Mike Muller 124,390 248,780 5,284 254,064 2,348,822 Simon Segars 125,853 251,706 5,346 257,052 2,376,446 Total 767,315 1,534,630 32,596 1,567,226 14,489,005

The amount vesting above represents the maximum award under the LTIP. This is based on the total shareholder return as calculated below:

Comparator Group ARM TSR percentile rank Implied vesting FTSE 350 index 99.4% 200% FTSE All World Technology Index 100% 200% Overall 200%

In accordance with the rules of the LTIP, on his retirement on 3 May 2012, Tudor Brown received the following shares under the Plan calculated on a pro rata basis and reflecting the extent to which the performance conditions were satisfied at that date:

Conditional Vested Dividend Total Market value award award shares award at vesting Grant Number Number Number Number £ 8 February 2010 106,341 165,679 – 165,679 796,088 8 February 2011 36,007 27,649 – 27,649 132,853

The following conditional awards over ordinary shares were made under the LTIP on 8 February 2013: Warren East 54,083; Tim Score 44,889; Mike Muller 30,827 and Simon Segars 32,449. The mid-market closing price of an ordinary share on 7 February 2013, being the business day prior to the date of these conditional awards, was 924.5 pence.

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Deferred Annual Bonus Plan (DAB Plan) As described above, there is a compulsory deferral of 50% of the annual bonus earned by executive directors in the year. The emoluments detailed below include the full bonus earned for 2012, although only half has been settled in cash and the deferred elements will be settled in shares after three years. The total number of deferred shares held under the DAB Plan by the directors following confirmation of 2012 bonus is:

Shares Shares Shares deferred as deferred as deferred as part of the part of the part of the Total 2010 bonus 2011 bonus 2012 bonus awards Director Number Number Number Number Warren East 43,985 62,720 33,677 140,382 Tim Score 37,847 50,572 28,637 117,056 Mike Inglis 26,595 35,651 19,244 81,490 Mike Muller 26,084 34,991 18,900 79,975 Simon Segars 26,391 35,387 20,045 81,823 Total 160,902 219,321 120,503 500,726

The performance conditions applicable to the matching awards relating to the deferred elements of the annual bonus for 2009 were satisfied to the extent of 200% matching shares plus dividend shares which vested on 8 February 2013, as follows:

Shares deferred as part of the Matching Dividend Total 2009 bonus shares shares award Director Number Number Number Number Warren East 85,024 170,048 1,804 256,876 Tim Score 74,370 148,740 1,578 224,688 Mike Inglis 51,219 102,438 1,087 154,744 Mike Muller 50,195 100,390 1,065 151,650 Simon Segars 51,006 102,012 1,082 154,100 Total 311,814 623,628 6,616 942,058

The market value of an ARM share on the date of vesting was 924.5 pence. The matching shares vesting above represent the maximum award under the DAB Plan. This award is based on an EPS growth rate before inflation of 170% per annum compared with a target growth rate of CPI plus 12% per annum on average for the three years making up the performance period. In accordance with the rules of the DAB Plan, on his retirement on 3 May 2012, Tudor Brown received the following shares calculated on a pro rata basis and reflecting the extent to which the performance conditions were satisfied at that date:

Shares deferred as part of the Matching Dividend Total bonus shares shares award Grant Number Number Number Number 2010 43,427 67,659 – 111,0 86 2011 22,299 19,875 – 42,174 2012 29,049 6,527 – 35,576

Except as described above, there have been no changes in directors’ interests under the Group’s equity schemes since the end of the 2012 financial year up to the date of approval of the Remuneration report. The Company’s register of directors’ interests contains full details of directors’ shareholdings and options to subscribe and conditional awards under the LTIP. Share prices The market value of the shares of the Company as at 31 December 2012 was 768 pence. The closing mid-price ranged from 469 pence to 782.5 pence during the year.

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Directors’ emoluments The emoluments of the executive and non-executive directors of the Group in respect of services to the Group were paid through its wholly owned subsidiary, ARM Limited with the exception of Simon Segars, Janice Roberts and Young Sohn who were paid through ARM Inc., and were as follows:

Pension Basic Bonus Pension Total Subtotal contributions Total Fees salary Benefits* payments** Subtotal contributions 2012 2011 2011 2011 Director £ £ £ £ £ £ £ £ £ £ Executive Warren East – 490,000 64,087 622,617 1,176,704 – 1,176,704 1,238,179 13,557 1,251,736 Tim Score – 400,000 25,178 529,436 954,614 42,560 997,174 982,736 40,703 1,023,439 Mike Inglis – 280,000 38,025 355,781 673,806 5,085 678,891 689,673 29,827 719,500 Mike Muller – 275,000 15,087 349,428 639,515 31,020 670,535 677,554 29,826 707,380 Simon Segars – 280,000 93,284 370,605 743,889 30,800 774,689 858,949 29,480 888,429 Tudor Brown (retired 3 May 2012) – 77,586 13,491 – 91,077 6,417 97,494 561,554 38,328 599,882 Total 1,802,586 249,152 2,227,867 4,279,605 115,8 82 4,395,487 5,008,645 181,721 5,190,366 Non-executive Sir John Buchanan (appointed 3 May 2012) 258,879 – – – 258,879 – 258,879 – – – Andy Green 52,000 – – – 52,000 – 52,000 42,816 – 42,816 Larry Hirst 52,000 – – – 52,000 – 52,000 46,791 – 46,791 Kathleen O’Donovan 65,000 – – – 65,000 – 65,000 60,000 – 60,000 Janice Roberts 58,314 – – – 58,314 – 58,314 53,084 – 53,084 Philip Rowley 65,000 – – – 65,000 – 65,000 60,000 – 60,000 Doug Dunn (retired 3 May 2012) 62,069 – – – 62,069 – 62,069 175,000 – 175,000 John Scarisbrick (retired 12 May 2011) – – – – – – – 18,391 – 18,391 Jeremy Scudamore (retired 31 January 2011) – – – – – – – 5,000 – 5,000 Young Sohn (retired 31 December 2012) 59,906 – – – 59,906 – 59,906 56,324 – 56,324 Total 673,168 – – – 673,168 – 673,168 517,406 – 517,406 Total 673,168 1,802,586 249,152 2,227,867 4,952,773 115,882 5,068,655 5,526,051 181,721 5,707,772 * All the executive directors receive family healthcare and annual travel insurance as part of their benefits in kind. In addition, Tim Score has the use of a company car with fuel benefit and Warren East, Tudor Brown, Mike Inglis and Mike Muller received a car and petrol allowance. Simon Segars receives living, transportation and other allowances as part of his placement in the US. Warren East, Mike Inglis and Tudor Brown received an additional cash allowance in place of Group pension contributions that can no longer be contributed in a tax-efficient way. ** The bonus payments above represent the full bonus earned during 2012. According to the terms of the DAB Plan, 50% of this bonus is not paid in cash, but is deferred and becomes payable in shares after three years. Details of the awards made in February 2012 in respect of these deferrals are detailed above.

Warren East is the highest paid employee in the Company. The following information is unaudited. Total directors’ pay The Group has defined total directors’ pay as the total of basic salary, benefits, bonus and pension contributions during 2012, plus the gains made on share options exercised during the year and the value of shares vesting under the LTIP and the DAB Plan in respect of that year. The LTIP and DAB shares that vested in February 2013 have been included since 31 December 2012 is the end of the three year performance period for these awards. The amount previously reported in the 2009 Annual Report as part of 2009 bonus has been deducted, as this is included within the value of the DAB shares awarded.

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The total directors’ pay for 2012 for each of the executive directors was as follows: Salary, benefits, Market value of Market value of Less DAB Plan bonus and Share option LTIP awards DAB Plan awards previously disclosed Total pension for gains during relating to 2012 relating to 2012 in 2009 Report as director 2012 2012 (received 2013) (received 2013) part of 2009 bonus pay Director £ £ £ £ £ £ Warren East 1,176,704 294,966 3,960,771 2,374,819 (174,300) 7,632,960 Tim Score 997,174 235,972 3,408,086 2,077,241 (152,460) 6,566,013 Mike Inglis 678,891 261,790 2,394,880 1,430,608 (105,000) 4,661,169 Mike Muller 670,535 198,219 2,348,822 1,402,004 (103,400) 4,516,180 Simon Segars 774,689 169,900 2,376,446 1,424,655 (104,563) 4,641,127 Tudor Brown 97,494 638,162 928,941* 907,357* (89,027) 2,482,927 Total 4,395,487 1,799,009 15,417,946 9,616,684 (728,750) 30,500,376 * These represent gains made by Tudor Brown on LTIP and DAB plans on his retirement on 3 May 2012. The total directors’ pay for 2011 for each of the executive directors was as follows:

Less DAB Plan previously disclosed Salary, benefits, Share option LTIP gains DAB Plan gains in 2008 report Total bonus and gains during relating to 2011 relating to 2011 as part of director pension for 2011 2011 (received 2012) (received 2012) 2008 bonus pay Director £ £ £ £ £ £ Warren East 1,251,736 1,068,619 4,868,660 2,463,567 (143,251) 9,509,331 Tim Score 1,023,439 – 4,223,416 2,189,613 (127,322) 7,309,146 Mike Inglis 719,500 – 2,932,935 1,520,565 (88,282) 5,084,718 Mike Muller 707,380 5,416 2,874,268 1,454,381 (85,570) 4,955,875 Simon Segars 888,429 16,980 2,932,935 1,520,565 (88,418) 5,270,491 Tudor Brown 599,882 5,071 2,507,658 1,480,344 (86,080) 4,506,875 Total 5,190,366 1,096,086 20,339,872 10,629,035 (618,923) 36,636,436

2013 Salary Review The Committee has approved the following increases in basic salary with effect from 1 January 2013:

Basic salary £ % increase Warren East 500,000 2.04 Tim Score 415,000 3.75 Mike Inglis 285,000 1.79 Mike Muller 285,000 3.64 Simon Segars 300,000 7.14 It is the Company’s policy to allow executive directors to hold non-executive positions at other companies and to receive remuneration for their services. The Board believes that experience of the operations of other companies and their boards and committees is valuable to the development of the executive directors. Details of executive directors’ roles within other companies and their remuneration are as follows: Warren East is a non-executive director of De La Rue plc and he received remuneration totalling £49,000 up to 31 December 2012 (2011: £47,000). Mike Inglis is a non-executive director of Pace plc and he received remuneration totalling £42,000 up to 31 December 2012 (2011: £42,000). Tim Score is a non-executive director of National Express Group plc and he received remuneration totalling £60,500 up to 31 December 2012 (2011: £60,500). Mike Muller became a non-executive director of Intelligent Energy Limited in July 2012 and he received fees totalling £16,666 up to 31 December 2012. Tudor Brown was a non-executive director of ANT plc and he received remuneration totalling £4,000 up to his retirement on 3 May 2012 (2011: £12,000 for the full year). All of the executive directors are accruing benefits under a money purchase pension scheme as a result of their services to the Group. Contributions to the scheme or the alternative cash allowance as described in the Pensions section above were fully paid during the year. By order of the Board

Philip Rowley Remuneration Committee Chairman

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Independent auditors’ report to the members of ARM Holdings plc We have audited the Group financial statements of ARM Holdings plc for the year ended 31 December 2012 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated cash flow statement, the consolidated statement of changes in shareholders’ equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. Respective responsibilities of directors and auditors As explained more fully in the Statement of directors’ responsibilities included in the Directors’ report, the directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, 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. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the Group financial statements: • give a true and fair view of the state of the Group’s affairs as at 31 December 2012 and of its profit and cash flows for the year then ended; • have been properly prepared in accordance with IFRSs as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.

Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: • the directors’ statement in the Directors’ report in relation to going concern; • the part of the Corporate Governance statement relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our review; and • certain elements of the report to shareholders by the Board on directors’ remuneration.

Other matter We have reported separately on the parent company financial statements of ARM Holdings plc for the year ended 31 December 2012 and on the information in the Remuneration report that is described as having been audited.

Charles Bowman (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London, 27 February 2013

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In this section

Consolidated income statement Read more on page 94 Consolidated statement of comprehensive income Read more on page 94

Consolidated balance sheet Read more on page 95

Consolidated cash flow statement Read more on page 96 Consolidated statement of changes in shareholders’ equity Read more on page 97

Notes to the financial statements Read more on page 98

Company balance sheet/UK GAAP Read more on page 142 Notes to the financial statements/ UK GAAP Read more on page 143 Independent auditors’ report to the members of ARM Holdings plc Read more on page 149

Glossary Read more on page 150

Group directory Read more on page 151

Key shareholder information Read more on page 152

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Consolidated income statement

2012 2011 For the year ended 31 December Note £m £m Revenues 2 576.9 491.8 Cost of revenues (31.9) (27.7) Gross profit 545.0 464.1 Operating expenses Research and development (166.3) (165.4) Sales and marketing (72.9) (72.6) General and administrative (97.7) (77.2) Total operating expenses (336.9) (315.2) Profit from operations 208.1 148.9 Investment income 13.9 8.0 Interest payable and similar charges (0.3) – Share of results in joint venture 29 (0.7) – Profit before tax 2, 5 221.0 156.9 Tax 6 (60.3) (44.3) Profit for the year 2 160.7 112.6 Earnings per share Basic and diluted earnings 160.7 112.6 Number of shares (millions) Basic weighted average number of shares 1,375.1 1,345.0 Effect of dilutive securities: Employee incentive schemes 20.7 31.0 Diluted weighted average number of shares 1,395.8 1,376.0 Basic EPS 8 11.7p 8.4p Diluted EPS 8 11.5p 8.2p All the profit for the year is attributable to the owners of the Company. The Company has opted to present its own accounts under UK GAAP as shown on pages 142 to 148. Details of dividends paid and proposed are in notes 7 and 28 of the financial statements respectively.

Consolidated statement of comprehensive income

2012 2011 For the year ended 31 December Note £m £m Profit for the year 160.7 112.6 Other comprehensive income: Unrealised holding (loss)/gain on available-for-sale financial assets (net of tax of £0.1m (2011: £0.1m)) 13 (0.3) 0.3 Currency translation adjustment (26.8) 1.2 Other comprehensive (loss)/income for the year (27.1) 1.5 Total comprehensive income for the year 133.6 114.1 The accompanying notes are an integral part of the financial statements.

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Consolidated balance sheet

2012 2011 At 31 December Note £m £m Assets Current assets: Cash and cash equivalents 9, 19 46.3 26.8 Short-term deposits 19 340.0 319.1 Fair value of currency exchange contracts 19 1.4 – Embedded derivatives 19 – 1.2 Accounts receivable 10 124.5 119.6 Prepaid expenses and other assets 11 135.6 30.7 Current tax assets 13.9 6.2 Inventories 12 2.3 2.5 Total current assets 664.0 506.1 Non-current assets: Long-term deposits 19 141.3 83.1 Loans and receivables 19 2.1 2.0 Available-for-sale financial assets 13, 19 13.8 27.3 Investment in joint venture 29 6.8 – Prepaid expenses and other assets 11 2.0 2.3 Property, plant and equipment 14 36.1 18.1 Goodwill 15 519.4 542.5 Other intangible assets 16 11.2 12.5 Deferred tax assets 6 70.1 105.9 Total non-current assets 802.8 793.7 Total assets 1,466.8 1,299.8 Liabilities and shareholders’ equity Current liabilities: Accounts payable 19 5.9 8.7 Fair value of currency exchange contracts 19 – 1.5 Embedded derivatives 19 2.5 – Accrued and other liabilities 17 79.3 84.9 Finance lease liabilities 18 2.9 – Current tax liabilities 16.6 26.7 Deferred revenue 126.4 102.2 Total current liabilities 233.6 224.0 Non-current liabilities: Finance lease liabilities 18 2.9 – Deferred revenue 24.2 14.6 Total non-current liabilities 27.1 14.6 Total liabilities 260.7 238.6 Net assets 1,206.1 1,061.2 Capital and reserves attributable to owners of the Company Share capital 20 0.7 0.7 Share premium account 12.2 6.6 Capital reserve 354.3 351.6 Share option reserve 61.4 61.4 Retained earnings 703.3 539.6 Revaluation reserve – 0.3 Cumulative translation adjustment 74.2 101.0 Total equity 1,206.1 1,061.2 The accompanying notes are an integral part of the financial statements. The financial statements on pages 94 to 141 were approved by the Board of directors on 27 February 2013 and were signed on its behalf by: Sir John Buchanan,

Chairman 95 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 ARM Holdings plc Annual Report & Accounts 2012

Consolidated cash flow statement

2012 2011 For the year ended 31 December Note £m £m Profit before tax 221.0 156.9 Investment income (net of interest payable and similar charges) (13.6) (8.0) Share of results in joint venture 0.7 – Profit from operations 208.1 148.9 Adjustments for: Depreciation and amortisation of property, plant and equipment and intangible assets 17.4 13.2 Compensation charge in respect of share-based payments 37.1 40.5 Impairment of available-for-sale financial assets 1.4 1.6 (Profit)/loss on disposal of available-for-sale financial assets (0.8) 0.1 Provision for doubtful debts 0.4 – Non-cash foreign currency gains (0.7) (2.2) Movement in fair value of currency exchange contracts (2.9) 1.3 Movement in fair value of embedded derivatives 3.7 1.2 Changes in working capital Accounts receivable (5.7) (13.4) Inventories 0.1 (0.6) Prepaid expenses and other assets 11 (104.8) (12.3) Accounts payable (2.8) 4.3 Deferred revenue 37.3 23.3 Accrued and other liabilities (4.8) 10.2 Cash generated by operations before tax 183.0 216.1 Income taxes paid (26.1) (22.3) Net cash from operating activities 156.9 193.8 Investing activities Interest received 11.5 4.2 Interest paid (0.3) – Purchases of property, plant and equipment (20.2) (12.1) Purchases of other intangible assets 16 (5.4) (0.8) Purchases of available-for-sale financial assets 13 (3.0) (8.3) Proceeds on disposal of available-for-sale financial assets 11.8 – Purchase of short- and long-term deposits, net (76.8) (136.4) Purchase of subsidiaries, net of cash acquired 22 – (9.0) Investment in joint venture 29 (7.5) – Net cash used in investing activities (89.9) (162.4) Financing activities Proceeds from borrowings 99.8 – Proceeds received on issuance of shares from treasury – 1.9 Proceeds received on issuance of shares 20 5.6 6.6 Refund of costs related to share issue 2.7 – Dividends paid to shareholders 7 (51.8) (42.2) Repayment of borrowings (99.8) – Repayment of finance lease liabilities (3.3) – Net cash used in financing activities (46.8) (33.7) Net increase/(decrease) in cash and cash equivalents 20.2 (2.3) Cash and cash equivalents at beginning of the year 9 26.8 29.4 Effect of foreign exchange rate changes (0.7) (0.3) Cash and cash equivalents at end of the year 9 46.3 26.8 The accompanying notes are an integral part of the financial statements.

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Consolidated statement of changes in shareholders’ equity

Attributable to the owners of the Company Share Share Cumulative Share premium Capital option Retained Revaluation translation capital account reserve* reserve** earnings reserve*** adjustment Total For the year ended 31 December £m £m £m £m £m £m £m £m Balance at 1 January 2011 0.7 – 351.6 61.4 381.4 – 99.8 894.9 Profit for the year – – – – 112.6 – – 112.6 Other comprehensive income: Unrealised holding gain on available-for-sale financial assets (net of tax of £0.1 million) – – – – – 0.3 – 0.3 Currency translation adjustment – – – – – – 1.2 1.2 Total comprehensive income for the year – – – – 112.6 0.3 1.2 114.1 Shares issued on exercise of share options and awards (note 20) – 6.6 – – – – – 6.6 Dividends (note 7) – – – – (42.2) – – (42.2) Credit in respect of employee share schemes – – – – 40.5 – – 40.5 Movement on tax arising on share options and awards – – – – 45.4 – – 45.4 Proceeds from sale of own shares – – – – 1.9 – – 1.9 – 6.6 – – 45.6 – – 52.2 Balance at 31 December 2011 0.7 6.6 351.6 61.4 539.6 0.3 101.0 1,061.2 Profit for the year – – – – 160.7 – – 160.7 Other comprehensive income: Unrealised holding loss on available-for-sale financial assets (net of tax of £0.1 million) – – – – – (0.3) – (0.3) Currency translation adjustment – – – – – – (26.8) (26.8) Total comprehensive income for the year – – – – 160.7 (0.3) (26.8) 133.6 Shares issued on exercise of share options and awards (note 20) – 5.6 – – – – – 5.6 Dividends (note 7) – – – – (51.8) – – (51.8) Credit in respect of employee share schemes – – – – 37.1 – – 37.1 Movement on tax arising on share options and awards – – – – 17.7 – – 17.7 Refund of costs related to share issue **** – – 2.7 – – – – 2.7 – 5.6 2.7 – 3.0 – – 11.3 Balance at 31 December 2012 0.7 12.2 354.3 61.4 703.3 – 74.2 1,206.1 * Capital reserve. In 2004, the premium on the shares issued in part consideration for the acquisition of Artisan Components Inc. was credited to reserves on consolidation in accordance with Section 131 of the Companies Act 1985. The reserve has been classified as a capital reserve to reflect the nature of the original credit to equity arising on acquisition. This capital reserve is clearly distinguished from the share premium arising on share issues. ** Share option reserve. This represents the fair value of options granted on the acquisition of Artisan Components Inc. in 2004. *** Revaluation reserve. The Group includes on its balance sheet equity investments that are not publicly traded, which are classified as available-for-sale financial assets. These are carried at fair value plus transaction costs. Unrealised holding gains or losses on such investments are included, net of related taxes, within the revaluation reserve (except where there is evidence of permanent impairment, in which case losses would be recognised within the income statement). Any unrealised gains within this reserve are undistributable. **** Refund of costs related to share issue. During 2012, it was confirmed by HMRC that they would not challenge a ruling that the stamp duty incurred on the issue of shares of a UK company to a depositary or clearance system outside the EU was in breach of EU law. The Group has therefore been able to claim a full refund of £2.7 million for stamp duty incurred on the issue of shares for the acquisition of Artisan Components Inc. in 2004.

The accompanying notes are an integral part of the financial statements.

97 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 ARM Holdings plc Annual Report & Accounts 2012

Notes to the financial statements

1 The Group and a summary of its significant accounting policies and financial risk management 1a General information about the Group The business of the Group ARM Holdings plc and its subsidiary companies (“ARM” or “the Group”) designs microprocessors, physical IP and related technology and software, and sells development tools, to enhance the performance, cost-effectiveness and energy-efficiency of high-volume embedded applications. The Group licenses and sells its technology and products to leading international electronics companies, which in turn manufacture, market and sell microcontrollers, application-specific integrated circuits (ASICs) and application-specific standard processors (ASSPs) based on ARM’s technology to systems companies for incorporation into a wide variety of end products. By creating a network of Partners, and working with them to best utilise ARM’s technology, the Group is establishing its processor architecture and physical IP for use in many high-volume embedded microprocessor applications, including mobile phones, tablets, digital televisions and PC peripherals and for use in many growing markets, including smart cards and microcontrollers. The Group also licenses and sells development tools direct to systems companies and provides support services to its licensees, systems companies and other systems designers. The Group’s principal geographic markets are Europe, the US and Asia Pacific. Incorporation and history ARM is a public limited company incorporated and domiciled under the laws of England and Wales. The registered office of the Company is 110 Fulbourn Road, Cambridge, CB1 9NJ, UK. The Company was formed on 16 October 1990, as a joint venture between Apple Computer (UK) Limited and Acorn Computers Limited, and operated under the name Advanced RISC Machines Holdings Limited until 10 March 1998, when its name was changed to ARM Holdings plc. Its initial public offering was on 17 April 1998. Group undertakings include ARM Limited (incorporated in the UK), ARM Inc. (incorporated in the US), ARM KK (incorporated in Japan), ARM Korea Limited (incorporated in South Korea), ARM France SAS (incorporated in France), ARM Germany GmbH (incorporated in Germany), ARM Norway AS (incorporated in Norway), ARM Sweden AB (incorporated in Sweden), ARM Embedded Technologies Pvt. Limited (incorporated in India), ARM Taiwan Limited (incorporated in Taiwan) and ARM Consulting (Shanghai) Co. Limited (incorporated in PR China). 1b Summary of significant accounting policies The principal accounting policies applied in the presentation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention as modified by: the revaluation to fair value of available- for-sale financial assets; financial assets and liabilities (including derivative instruments) at fair value through the income statement; and embedded derivatives. Critical accounting estimates and judgments The preparation of these financial statements requires the directors to make critical accounting estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates and judgments are summarised in note 1d.

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1b Summary of significant accounting policies continued New standards, amendments and interpretations Standards, amendments and interpretations that are not yet effective and have not been early adopted IFRS 9 “Financial instruments on classification and measurement” This is the first part of a new standard to replace IAS 39. IFRS 9 has two measurement categories: amortised cost and fair value. All equity instruments are measured at fair value. A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. Otherwise it is measured at fair value through the income statement. This standard is not expected to have a material impact on the results of the Group. Published by the IASB in November 2009, this is effective for accounting periods beginning on or after 1 January 2015. This standard is not yet endorsed by the EU. IFRS 10 “Consolidated financial statements” IFRS 10 replaces the guidance on control and consolidation in IAS 27 “Consolidated and separate financial statements”, and SIC-12 “Consolidation – special purpose entities” and changes the definition of control so that the same criteria are applied to all entities. The revised definition of control focuses on the need to have both power and variable returns before control is present. Power is the current ability to direct the activities that significantly influence returns. Returns must vary and can be positive, negative or both. This standard is not expected to have a material impact on the results of the Group. The standard is effective for annual periods beginning on or after 1 January 2013 and was endorsed by the EU in December 2012. IFRS 11 “Joint arrangements” Changes in the definitions have reduced the “types” of joint arrangements to two: joint operations and joint ventures. The existing policy choice of proportionate consolidation for jointly controlled entities has been eliminated. Equity accounting is mandatory for participants in joint ventures. Entities that participate in joint operations will follow accounting much like that for joint assets or joint operations today, whereby a joint operator will recognise its interest based on its involvement in the joint operation (that is, based on its direct rights and obligations) rather than on the participation interest it has in the joint arrangement. In contrast, a joint venture does not have rights to individual assets or obligations for individual liabilities of the joint venture. Instead, joint venturers share in the net assets and, in turn, the outcome (profit or loss) of the activity undertaken by the joint venture. This standard is not expected to have a material impact on the results of the Group. This standard is effective for annual periods beginning on or after 1 January 2013 and was endorsed by the EU in December 2012. IFRS 12 “Disclosure of interests in other entities” IFRS 12 sets out the required disclosures for entities reporting under the two new standards, IFRS 10 “Consolidated financial statements”, and IFRS 11 “Joint arrangements”. The new standard, IFRS 12, requires entities to disclose information that helps financial statement readers to evaluate the nature, risks and financial effects associated with the entity’s interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities. This standard is not expected to have a material impact on the results of the Group. The standard is effective for annual periods beginning on or after 1 January 2013 and was endorsed by the EU in December 2012. IFRS 13 “Fair value measurement” The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards. IFRS 13 aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. This standard is not expected to have a material impact on the results of the Group. The standard is effective for annual periods beginning on or after 1 January 2013 and was endorsed by the EU in December 2012. IAS 28 (Revised) “Investments in associates and joint ventures” IAS 28 defines “significant influence” and the “equity method” and provides guidance on their practical application. The revised standard incorporates the accounting for joint ventures as well as the consensus from SIC-13 “Jointly controlled entities”. The disclosure requirements have now been relocated to IFRS 12. This new guidance may impact the classification of investments acquired in the future. This standard is not expected to have a material impact on the results of the Group. This standard is effective for annual periods beginning on or after 1 January 2013 and was endorsed by the EU in December 2012. Amendment to IAS 1 “Financial statement presentation” The main change resulting from this amendment is a requirement for entities to group items presented in other comprehensive income (OCI) on the basis of whether they are potentially reclassifiable to the income statement subsequently (reclassification adjustments). This standard is effective for accounting periods beginning on or after 1 July 2012 and was endorsed by the EU in June 2012. It is not expected to have a material impact on the Group.

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Notes to the financial statements continued

1b Summary of significant accounting policies continued New standards, amendments and interpretations continued IAS 27 (revised 2011) “Separate financial statements” This standard includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10. This standard is effective for accounting periods beginning on or after 1 January 2013 and was endorsed by the EU in December 2012. It is not expected to have a material impact on the Group. Amendment to IAS 32 “Financial instruments: Presentation” This amendment updates the application guidance in IAS 32 to clarify some of the requirements for offsetting financial assets and financial liabilities on the balance sheet. This standard is effective for accounting periods beginning on or after 1 January 2014 and was endorsed by the EU in December 2012. It is not expected to have a material impact on the Group. Annual improvements 2011 This set of amendments includes changes to five standards. These amendments are not yet endorsed by the EU and are not expected to have a material impact on the Group when they become effective for accounting periods beginning on or after 1 January 2013. Segment reporting At 31 December 2012, the Group was organised on a world-wide basis into three business segments, namely the Processor Division (PD), the Physical IP Division (PIPD) and the System Design Division (SDD). This is based upon the Group’s internal organisation and management structure and is the primary way in which the Chief Operating Decision Maker (CODM) and the rest of the Board are provided with financial information. The directors believe that the CODM is the Chief Executive Officer of the Group. Segment expenses are expenses that are directly attributable to a segment together with the relevant portion of other expenses that can reasonably be allocated by segment. Foreign exchange gains or losses, investment income, interest payable and similar charges, share of joint venture results, and tax are not allocated by segment. Segment assets and liabilities include items that are directly attributable to a segment plus an allocation on a reasonable basis of shared items. Corporate assets and liabilities are not included in business segments and are thus unallocated. At 31 December 2012 and 2011, these comprised cash and cash equivalents, short- and long-term deposits, available-for-sale financial assets, loans and receivables, embedded derivatives, and the fair value of currency exchange contracts. Current and deferred tax assets and liabilities and VAT are also not included in business segments and are thus unallocated. Principles of consolidation The consolidated financial statements incorporate the financial statements of the Company and all its subsidiaries. Intra-group transactions, including sales, profits, receivables and payables, have been eliminated on consolidation. All subsidiaries use uniform accounting policies. Business combinations The results of subsidiaries acquired are included in the income statement from the date of acquisition. Assets and liabilities existing at the date of acquisition are recorded at their fair values reflecting their condition at that date. Earn-outs paid as part of an acquisition are assessed on an individual basis and treated as either part of the acquisition consideration or as employee compensation depending on the nature of the agreement. Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the Group’s share of the profit or loss of the investee after the date of acquisition. Joint ventures Joint ventures are all entities in which the Group has joint control with one or more other parties, whereby each party has a right to a share of the net assets of the entity. Investments in joint ventures are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the Group’s share of the profit or loss of the investee after the date of acquisition.

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1b Summary of significant accounting policies continued Foreign currency translation (a) Functional and presentation currency The functional currency of each Group entity is the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in sterling, which is the presentation currency of the Group. (b) Transactions and balances Transactions denominated in foreign currencies have been translated into the functional currency of each Group entity at actual rates of exchange at the date of transaction. Monetary assets and liabilities denominated in foreign currencies have been translated at closing rates of exchange at the balance sheet date. Exchange differences have been included in general and administrative expenses. (c) Group companies The results and financial positions of all Group entities (none of which has the currency of a hyper-inflationary economy) not based in the UK are translated into sterling as follows: (i) assets and liabilities for each balance sheet presented are translated at the closing rates of exchange at the balance sheet date; (ii) income and expenses for each income statement presented are translated at the rates of exchange at the time of each transaction during the period; and (iii) all resulting exchange differences are recognised as a separate component of equity, being taken through other comprehensive income via the cumulative translation adjustment. When a foreign operation is partially disposed of or sold, exchange differences that were recognised through other comprehensive income are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rates of exchange. Revenue recognition The Group follows the principles of IAS 18, “Revenue recognition”, in determining appropriate revenue recognition policies. In principle, therefore, revenue associated with the sale of goods is recognised when all of the following conditions have been satisfied: • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; • the Group does not retain either continuing managerial involvement to the degree usually associated with ownership or effective control over the goods sold; • the amount of revenue can be measured reliably; • it is probable that the economic benefits associated with the transaction will flow to the Group; and • the costs incurred or to be incurred in respect of the sale can be measured reliably. Revenue associated with the rendering of services is recognised when all of the following conditions have been satisfied: • the amount of revenue can be measured reliably; • it is probable that the economic benefits associated with the transaction will flow to the Group; • the stage of completion of the transaction at the end of the reporting period can be measured reliably; and • the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. Revenue is shown net of value added tax, returns, rebates and discounts, and after eliminating sales within the Group. Revenue comprises the value of sales of licences to ARM technology, royalties arising from the resulting sale of licensees’ ARM technology-based products, revenues from support, maintenance and training, consulting contracts and the sale of development boards and software toolkits. Revenue from standard licence products which are not modified to meet the specific requirements of each customer is recognised when all of the conditions relevant to revenue associated with the sale of goods have been satisfied: • the significant risks and rewards of ownership are transferred when a licence arrangement has been agreed and the goods have been delivered to the customer; • continuing managerial involvement and effective control over goods sold is relinquished at the point at which goods are delivered to the customer; • the amount of revenue can be measured reliably; any consideration due under the licensing arrangement that is not deemed to be reliably measurable is deferred until it can be measured reliably; and

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Notes to the financial statements continued

1b Summary of significant accounting policies continued Revenue recognition continued • it is probable that the economic benefits associated with the transaction will flow to the Group; any economic benefits of the transaction that are deemed unlikely to flow to the Group are deferred until it becomes probable that they will flow to the Group. The majority of the Group’s revenues come from the licensing of intellectual property and subsequent receipt of royalty revenues and there are therefore very few direct costs associated with the sale of goods; where there are direct costs of revenues, these are measured with reference to the purchasing agreements in place with the Group’s suppliers. Many licence agreements are for products which are designed to meet the specific requirements of each customer. Revenue from the sale of such licences is recognised on a percentage-of-completion basis over the period from signing of the licence to customer acceptance. Under the percentage- of-completion method, provisions for estimated losses on uncompleted contracts are recognised in the period in which the likelihood of such losses is determined. The percentage-of-completion is measured by monitoring progress using records of actual time incurred to date in the project compared with the total estimated project requirement, which approximates to the extent of performance. Where invoicing milestones in licence arrangements are such that the receipts fall due significantly outside the period over which the customisation is expected to be performed or significantly outside its normal payment terms for standard licence arrangements, the Group evaluates whether it is probable that economic benefits associated with these milestones will flow to the Group and therefore whether these receipts should initially be included in the arrangement consideration. In particular, it considers: • whether there is sufficient certainty that the invoice will be raised in the expected timeframe, particularly where the invoicing milestone is in some way dependent on customer activity; • whether it has sufficient evidence that the customer considers that the Group’s contractual obligations have been, or will be, fulfilled; • whether there is sufficient certainty that only those costs expected to be incurred will indeed be incurred before the customer will accept that a future invoice may be raised; and • the extent to which previous experience with similar product groups and similar customers supports the conclusions reached. Where the Group considers that there is insufficient evidence that it is probable that the economic benefits associated with such future milestones will flow to the Group, taking into account these criteria, such milestones are excluded from the arrangement consideration until there is sufficient evidence that it is probable that the economic benefits associated with the transaction will flow to the Group. The Group does not discount future invoicing milestones, as the effect of so doing would be immaterial. Where agreements involve several components, the entire fee from such arrangements is allocated to each of the individual components based on each component’s fair value, where fair value is the price that is regularly charged for an item when sold separately. Where a component in a multiple- component agreement has not previously been sold separately, the assessment of fair value for that component is based on other factors including, but not limited to, the price charged when it was sold alongside other items and the book price of the component relative to the book prices of the other components in the agreement. If fair value of one or more components in a multiple-component agreement is not determinable (where such component is not considered incidental to the overall arrangement), the entire arrangement fee is deferred until such fair value is determinable, or the component has been delivered to the licensee. Where, in substance, two or more elements of a contract are linked and fair values cannot be allocated to the individual components, the revenue recognition criteria are applied to the elements as if they were a single element. Agreements including rights to unspecified future products (as opposed to unspecified upgrades and enhancements) are accounted for using subscription accounting, with revenue from the arrangement being recognised on a straight-line basis 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 addition to licence fees, contracts generally contain an agreement to provide post-delivery service support, in the form of support, maintenance and training which consists of the right to receive services and/or unspecified product upgrades or enhancements that are offered on a when-and-if-available basis. Fees for post-delivery service support are generally specified in the contract. Revenue related to post-delivery service support is recognised based on fair value, which is determined with reference to contractual renewal rates. If no renewal rates are specified, and fair value of the post-delivery support service cannot be determined by other methods, the entire fee under the transaction is amortised and recognised on a straight-line basis over the contractual post-delivery service support period. Where renewal rates are specified, revenue for post-delivery service support is recognised on a straight-line basis over the period for which support and maintenance is contractually agreed by the Group with the licensee.

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1b Summary of significant accounting policies continued Revenue recognition continued Sales of software, including development systems, which are not specifically designed for a given licence (such as off-the-shelf software) are recognised upon delivery, when the significant risks and rewards of ownership have been transferred to the customer. At that time, the Group has no further obligations except that, where necessary, the costs associated with providing post-delivery service support have been accrued. Services (such as training) that the Group provides which are not essential to the functionality of the IP are separately stated and priced in the contract and, therefore, accounted for separately. Revenue is recognised as services are performed and it is probable that the economic benefits associated with the transaction will flow to the Group. Royalty revenues are earned on sales by the Group’s customers of products containing ARM technology. Royalty revenues are recognised when it is probable that the economic benefits associated with the transaction will flow to the Group and the amount of revenue can be reliably measured. Revenues are recognised when the Group receives notification from the customer of product sales, or when the Group invoices any fixed royalties. Notification is typically received in the quarter following shipment of the products by the customer. If the amount of revenue recognised exceeds the amounts invoiced to customers, the excess amount is recorded as amounts recoverable on contracts within accounts receivable. The excess of licence fees and post-delivery service support invoiced over revenue recognised is recorded as deferred revenue. As disclosed above, in accordance with IAS 8, “Accounting policies, changes in accounting estimates and errors”, the Group makes significant estimates in applying its revenue recognition policies. In particular, as discussed in detail above, estimates are made in relation to the use of the percentage-of- completion accounting method, which requires that the extent of progress toward completion of contracts may be anticipated with reasonable certainty. The use of the percentage-of-completion method is itself based on the assumption that, at the outset of licence agreements, there is an insignificant risk that customer acceptance is not obtained. The Group also makes assessments, based on prior experience, of the extent to which future milestone receipts represent a probable future economic benefit to the Group. In addition, when allocating revenue to various components of arrangements involving several components, it is assumed that the fair value of each element is reflected by its price when sold separately. The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent with the application of the revenue recognition policies affect the amounts reported in the financial statements. If different assumptions were used, it is possible that different amounts would be reported in the financial statements. Research and development expenditure All ongoing research expenditure is expensed in the period in which it is incurred. Where a product is technically feasible, production and sale are intended, a market exists, expenditure can be measured reliably, and sufficient resources are available to complete the project, development costs are capitalised and amortised on a straight-line basis over the estimated useful life of the respective product. The Group believes its current process for developing products is essentially completed concurrently with the establishment of technological feasibility which is evidenced by a working model. Accordingly, development costs incurred after the establishment of technological feasibility have not been significant and, therefore, no costs have been capitalised to date. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred. Any collaborative agreement whereby a third party agrees to partially fund the Group’s research and development is recognised over the period of the agreement as a credit within research and development expenses. Retirement benefit costs The Group contributes to defined contribution plans substantially covering all employees in Europe and the US and to government pension schemes for employees in Japan, South Korea, Taiwan, PR China, Israel and India. The Group contributes to these plans based upon various fixed percentages of employee compensation, and such contributions are expensed as incurred. Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Costs, net of any lease incentives, in respect of operating leases are charged on a straight-line basis over the lease term even if payments are not made on such a basis. Finance leases Leases in which substantially all of the risks and rewards of ownership are transferred to the lessee are classified as finance leases. Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease liability. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the income statement.

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Notes to the financial statements continued

1b Summary of significant accounting policies continued Investment income, and interest payable and similar charges Investment income, and interest payable and similar charges relate to interest income and expense, which is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Dividends Distributions to owners of the Company are not recognised in the income statement under IFRS, but are disclosed as a component of the movement in shareholders’ equity. A liability is recorded for a dividend when the dividend is approved by the Company’s shareholders. Interim dividends are recognised as a distribution when paid. Earnings per share Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period, excluding treasury shares, 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. Property, plant and equipment Property, plant and equipment is stated at historic cost less accumulated depreciation. The cost of property, plant and equipment is their purchase cost, together with any costs directly attributable to bringing the asset to its working condition for its intended use. External costs and internal costs are capitalised to the extent they enhance the future economic benefit of the asset. Assets in the course of construction are carried at cost less any recognised impairment loss. Depreciation of these assets commences when the assets are ready for their intended use. Depreciation is calculated so as to write off the cost of property, plant and equipment, less their estimated residual values, which are adjusted, if appropriate, at each balance sheet date, on a straight-line 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 to ten years or term of lease, whichever is shorter Computer equipment Three to five years Fixtures and fittings, and motor vehicles Three to five years Provision is made against the carrying value of property, plant and equipment where an impairment in value is deemed to have occurred. Asset lives and residual values are reviewed on an annual basis. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within general and administrative expenses in the income statement. Intangible assets (a) Goodwill Goodwill represents the excess of the fair value of the consideration paid on acquisition of a business over the fair value of the assets, including any intangible assets identified, and liabilities acquired. Goodwill is not amortised but is measured at cost less impairment losses. In determining the fair value of consideration, the fair value of equity issued is the market value of equity at the date of completion, the fair value of share options is calculated using the Black-Scholes valuation model, and the fair value of contingent consideration is based upon whether the directors believe any performance conditions will be met and thus whether any further consideration will be payable. (b) Other intangible assets Computer software, purchased patents and licences to use technology are capitalised at cost and amortised on a straight- line basis over an estimate of the time that the Group is expected to benefit from them. Costs that are directly attributable to the development of new business application software and which are incurred during the period prior to the date that the software is placed into operational use, are capitalised. External costs and internal costs are capitalised to the extent they enhance the future economic benefit of the asset. Although an independent valuation is made of any intangible assets purchased as part of a business combination, the directors are primarily responsible for determining the fair value of intangible assets.

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1b Summary of significant accounting policies continued Intangible assets continued In-process research and development projects purchased as part of a business combination may meet the criteria set out in IFRS 3 (revised), “Business combinations”, for recognition as intangible assets other than goodwill. Management tracks the status of in-process research and development intangible assets such that their amortisation commences when the assets are brought into use. Amortisation is calculated so as to write off the cost of intangible assets, less their estimated residual values, which are adjusted, if appropriate, at each balance sheet date, on a straight-line basis over the expected useful economic lives of the assets concerned. The principal economic lives used for this purpose are: Computer software Three to five years Patents and licences Three to ten years In-process research and development One to five years Developed technology One to five years Existing agreements and customer relationships One to six years Core technology Five years Trademarks and tradenames One to five years Order backlog One year Impairment of non-financial assets Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation but are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (each a cash generating unit, “CGU”). Where the recoverable amount of a CGU is measured based on a value-in-use calculation, all cash inflows and outflows associated with the CGU are taken into account whether these are explicitly charged or not. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. The annual impairment tests in 2012 and 2011 showed there was no impairment with respect to goodwill. Furthermore, no trigger events have been identified that would suggest the impairment of any of the Group’s other intangible assets. Financial assets The Group classifies its financial assets in the following categories: at fair value through the income statement, loans and receivables, and available-for- sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of financial assets at initial recognition. (a) Financial assets at fair value through the income statement Financial assets at fair value through the income statement are financial assets held for trading – that is, assets that have been acquired principally for the purpose of selling in the short term. Assets in this category are classified as current assets. They are initially recognised at fair value with transaction costs being expensed in the income statement. Specifically, the Group’s currency exchange contracts and embedded derivatives fall within this category. Gains or losses arising from changes in the fair value of “financial assets at fair value through the income statement” are presented in the income statement within general and administrative expenses in the period in which they arise. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non- current assets. “Accounts receivable”, “cash and cash equivalents”, and “short- and long-term deposits” are classified as “Loans and receivables” (see note 19). Loans and receivables are measured initially at fair value and then subsequently measured at amortised cost.

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Notes to the financial statements continued

1b Summary of significant accounting policies continued (c) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the assets within 12 months of the balance sheet date. Equity investments that are not publicly traded are also classified as available-for-sale and are initially recorded at fair value plus transaction costs. Given that the markets for these assets are not active, the Group establishes fair value by using valuation techniques. The estimated fair value of these investments approximated to cost less any permanent diminution in value (based on estimates determined by management), except where independent valuation information is obtained. Unrealised holding gains or losses on such securities are recognised, net of related taxes, through other comprehensive income via a revaluation reserve, except where there is evidence of permanent impairment (in which case the loss is recognised through the income statement within general and administrative expenses). Impairment of financial assets The Group considers at each reporting date whether there is any indication that financial assets are impaired. If there is such an indication, the Group carries out an impairment test by measuring the assets’ recoverable amounts, which are the higher of the assets’ fair values less costs to sell and their values in use. If the recoverable amounts are less than the carrying amounts an impairment loss is recognised, and the assets are written down to their recoverable amounts. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are permanently impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any permanent impairment loss on that financial asset previously recognised in the income statement – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. When securities classified as available-for-sale are sold or permanently impaired, the accumulated fair value adjustments recognised through other comprehensive income are recycled through the income statement. Impairment testing of trade receivables is described under “Accounts receivable” below. Derivative financial instruments The Group utilises currency exchange contracts to manage the exchange risk on actual transactions related to accounts receivable, denominated in a currency other than the functional currency of the business. The Group’s currency exchange contracts do not subject the Group to risk from exchange rate movements because the gains and losses on such contracts offset losses and gains, respectively, on the transactions being hedged. The currency exchange contracts are recorded at fair value and the related foreign currency accounts receivable are revalued to spot rates at each period end. The fair value of forward exchange contracts is determined using quoted forward exchange rates at the balance sheet date. The fair value of foreign currency options is based upon valuations performed by management and the respective banks holding the currency instruments. All recognised gains and losses resulting from the settlement of the contracts are recorded within general and administrative expenses in the income statement. The Group does not enter into currency exchange contracts for the purpose of hedging anticipated transactions. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held with banks and other short-term highly liquid investments with original maturities of three months or less. Short- and long-term deposits The Group considers all highly-liquid investments with original maturity dates of greater than three months and maturing in less than one year to be short-term deposits. Deposits with a maturity date of greater than one year from the balance sheet date are classified as long-term.

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1b Summary of significant accounting policies continued Accounts receivable Accounts receivable are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Accounts receivable are first assessed individually for impairment. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 90 days overdue) are considered indicators that the trade receivable may be impaired. Where there is no objective evidence of impairment for an individual receivable, it is included in a group of receivables with similar credit risk characteristics and these are collectively assessed for impairment. In the case of impairment, the carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within general and administrative expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against general and administrative expenses in the income statement. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined on a first-in, first-out basis and includes transport and handling costs. Where necessary, provision is made for obsolete, slow-moving and defective inventory. Accounts payable Accounts payable are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Income taxes The current income tax charge is calculated on the basis of tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income taxes are computed using the liability method. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted rates and laws that will be in effect when the differences are expected to reverse. The deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will arise against which the temporary differences will be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets and liabilities arising in the same tax jurisdiction are offset. In the UK and the US, the Group is entitled to a tax deduction for amounts treated as compensation on exercise of certain employee share options or vest of share awards under each jurisdiction’s tax rules. As explained under “Share-based payments” below, a compensation expense is recorded in the Group’s income statement over the period from the grant date to the vesting date of the relevant options and awards. As there is a temporary difference between the accounting and tax bases, a deferred tax asset is recorded. The deferred tax asset arising is calculated by comparing the estimated amount of tax deduction to be obtained in the future (based on the Company’s share price at the balance sheet date) with the cumulative amount of the compensation expense recorded in the income statement. If the amount of estimated future tax deduction exceeds the cumulative amount of the compensation expense at the statutory rate, the excess is recorded directly in equity, against retained earnings. Provisions Provisions for restructuring costs and legal claims are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount of the outflow can be reliably estimated.

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Notes to the financial statements continued

1b Summary of significant accounting policies continued Embedded derivatives In accordance with IAS 39, “Financial instruments: recognition and measurement”, the Group has reviewed all its contracts for embedded derivatives that are required to be separately accounted for if they do not meet certain requirements set out in the standard. From time to time, the Group may enter into contracts denominated in a currency (typically US dollars) that is neither the functional currency of the Group entity nor the functional currency of the customer or the collaborative partner. Where there are uninvoiced amounts on such contracts, the Group carries such derivatives at fair value. The resulting gain or loss is recognised in the income statement under general and administrative expenses. Share-based payments The Group issues equity-settled share-based payments to certain employees. In accordance with IFRS 2, “Share based payments”, equity-settled share- based payments are measured at fair value at the date of grant. Fair value is measured by use of the Black-Scholes pricing model. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the number of shares that will eventually vest. The Group operates Save As You Earn (SAYE) schemes in the UK and an Employee Share Purchase Plan (ESPP) in the US and India. Options under the SAYE schemes are granted at a 20% discount to the market price of the underlying shares on the date of announcement of the scheme and at a 15% discount to the lower of the market prices at the beginning and end of the scheme for the ESPP. The UK SAYE schemes are approved by the UK tax authorities, which stipulates that the saving period must be at least 36 months. The Group has recognised a compensation charge in respect of the SAYE plans and ESPPs. The charges for these are calculated as detailed above. The Group also has a Long Term Incentive Plan (LTIP) on which it is also required to recognise a compensation charge under IFRS 2, calculated as detailed above. The share-based payments charge is allocated to cost of sales, research and development expenses, sales and marketing expenses and general and administrative expenses on the basis of headcount. Employer’s taxes on share options Employer’s National Insurance in the UK and equivalent taxes in other jurisdictions are payable on the exercise of certain share options and vesting of share awards. In accordance with IFRS 2, this is treated as a cash-settled transaction. A provision is made, calculated using the intrinsic value of the relevant options and awards at the balance sheet date, and pro-rated over the vesting period of the options and awards. Treasury shares Where the Company purchases its own equity share capital (treasury shares), the consideration paid, including any directly attributable incremental transaction costs is deducted from equity attributable to the owners of the Company until the shares are cancelled or reissued. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to owners of the Company. Share capital Ordinary shares issued by the Company are recorded at the proceeds received, net of direct issue costs.

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1c Financial risk management The Group operates in the intensely competitive semiconductor industry which has been characterised 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. The Group’s operations expose it to a variety of financial risks that include currency risk, interest rate risk, securities price risk, credit risk and liquidity risk. Given the size of the Group, the directors have not delegated the responsibility for monitoring financial risk management to a sub-committee of the Board. The policies set by the directors are implemented by the Group’s finance and treasury departments. The Group has a treasury policy that sets out specific guidelines to manage currency risk, interest rate risk, credit risk and liquidity risk and also sets out circumstances where it would be appropriate to use financial instruments to manage these. Currency risk The Group’s earnings and liquidity are affected by fluctuations in foreign currency exchange rates, principally in respect of the US dollar, reflecting the fact that most of its revenues and cash receipts are denominated in US dollars, while a significant proportion of its costs are settled in sterling. The Group seeks to use currency exchange contracts and currency options to manage the US dollar/sterling risk as appropriate, by monitoring the timing and value of anticipated US dollar receipts (which tend to arise from low-volume, high-value licence deals and royalty receipts) in comparison with its requirement to settle certain expenses in US dollars. The Group reviews the resulting exposure on a regular basis and hedges this exposure using currency exchange contracts and currency options for the sale of US dollars as appropriate. Such contracts are entered into with the objective of matching their maturity with projected US dollar cash receipts. The Group is also exposed to currency risk in respect of the foreign currency denominated assets and liabilities of its overseas subsidiaries. At present, the Group does not consider this to be a significant risk since the Group does not intend to move assets between group companies. At 31 December 2012, the Group had outstanding currency exchange contracts to sell $71 million (2011: $54 million) for sterling. In addition, the Group utilises option instruments which have various provisions that, depending on the spot rate at maturity, give either the Group or the counterparty the option to exercise. At 31 December 2012, the Group had outstanding currency options under which the Group may, under certain circumstances, be required to sell up to $90 million (2011: $207 million) for sterling. A common scenario with options of this type is that the spot price at expiry is such that neither the Group nor the counterparty chooses to exercise the option. At 31 December 2012, the Group had $190 million (2011: $178 million) of accounts receivable denominated in US dollars at that date, and US dollar cash and cash equivalents, and short-term deposits of $22 million (2011: $13 million). Thus the Group’s US dollar assets exceeded its currency exchange contracts and currency options at the year end. Management assesses the volume and timing of currency exchange contracts taking into consideration both the current and expected future level of US dollar assets. Based on the predictable nature of the Group’s cash flows, the Group typically has a greater value of currency exchange contracts outstanding than US dollar assets held. As such, after the balance sheet date, the Group has entered into additional currency exchange contracts, returning the Group to its usual position in this regard, at the date of this report. The Group has elected not to apply hedge accounting, and all movements in the fair value of derivative foreign exchange instruments are recorded in the income statement, offsetting the foreign exchange movements on the accounts receivable, cash and cash equivalents, and short-term deposits balances being hedged. In addition, certain customers remit royalties and licence fees in other currencies, primarily the Euro and Japanese yen. The Group is also required to settle certain expenses in these currencies, primarily in its French, German and Japanese subsidiaries, and as the net amounts involved are not considered significant, the Group does not take out forward-settling currency exchange contracts in these currencies. At 31 December 2012, if sterling had strengthened by 10% against foreign currencies with all other variables held constant, post-tax profit for the year would have been £12.1 million lower (2011: £4.7 million lower), mainly as a result of the mix of financial instruments at respective year ends.

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Notes to the financial statements continued

1c Financial risk management continued Interest rate risk At 31 December 2012, the Group had £523.6 million (2011: £442.2 million) of interest-bearing assets. At 31 December 2012, 91% (2011: 92%) of interest-bearing assets (comprising cash and cash equivalents, short- and long-term deposits, loans and receivables, and the Group’s convertible loan notes) are at fixed rates and are therefore exposed to fair value interest rate risk. Floating rate cash earns interest based on relevant national LIBID or base rate equivalents and is therefore exposed to cash flow interest rate risk. The proportion of funds held in fixed rather than floating rate deposits is determined in accordance with the policy outlined under “Liquidity risk” below. Other financial assets, such as available-for-sale financial assets, are not directly exposed to interest rate risk. Had interest rates been 1% (100 basis points) lower throughout the year, interest receivable would have reduced by approximately £5.3 million (2011: £3.4 million) and profit after tax by £4.0 million (2011: £2.6 million). During 2012, the Group entered into a number of lease agreements for IT equipment which have been classified as finance leases. Furthermore, the Group entered into a three-month fixed-rate debt facility for $160 million (£99.8 million) to facilitate the contribution to acquire rights to MIPS Technologies, Inc’s portfolio of patents (see note 11). This facility was fully settled by 31 December 2012. The Group had no borrowings during 2011. The Group had no derivative financial instruments to manage interest rate fluctuations in place at the year end since the level of financing was not considered significant, and as such no hedge accounting is applied. The Group’s cash flow is carefully monitored on a daily basis. Excess cash, considering expected future cash flows, is placed on either short-term or long-term deposits to maximise the interest income thereon. Daily surpluses are swept into higher-interest earning accounts overnight. Securities price risk The Group is exposed to equity securities price risk on available-for-sale financial assets. As there can be no guarantee that there will be a future market for securities (which are generally unlisted at the time of investment) or that the value of such investments will rise, the directors evaluate each investment opportunity on its merits before committing the Group’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 limited in order that the financial effect of any potential decline of the value of investments will not be substantial in the context of the Group’s financial results. (i) Listed investments At 31 December 2012 and 2011, the Group had no listed investments. (ii) Unlisted investments The Group had unlisted investments (including convertible loan notes) with a carrying value as at 31 December 2012 of £13.8 million (2011: £27.3 million). A permanent 10% fall in the underlying value of these companies as at 31 December 2012 would therefore have reduced the Group’s post-tax profit by £1.0 million (2011: £1.9 million) and resulted in a £nil (2011: £0.1 million) reduction in other components of equity. Credit risk Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. At 31 December 2012 and 2011, the Group had no significant concentrations of credit risk. The amount of exposure to any individual counterparty is subject to a limit, which is reassessed periodically by the directors. Financial instrument counterparties are subject to pre-approval by the directors and such approval is limited to financial institutions with a Moody’s rating of at least A2/P-1, a Fitch rating of at least A/F1, or UK building societies with over £2 billion in assets, except in certain jurisdictions where the cash holding concerned is immaterial. At 31 December 2012 and 2011, the majority of the Group’s cash and cash equivalents, and short- and long-term deposits were deposited with major clearing banks and building societies in the UK and US in the form of money market deposits and corporate bonds for varying periods of up to two years.

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1c Financial risk management continued Credit risk continued At 31 December 2012, 93% of the Group’s cash and cash equivalents, and short- and long-term deposits were held with global financial institutions fulfilling the criteria noted above (2011: 90%). The majority of the Group’s cash currently falling outside of the counterparty criteria is held with building societies that were within criteria when the deposits were placed, with the Group having raised the criteria threshold for them during 2012. The Group has implemented policies that require appropriate credit checks on potential customers before sales commence. The Group generally does not require collateral on accounts receivable, as many of its customers are large, well-established companies. The Group has not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area. The Group markets and sells to a relatively small number of customers with individually large value transactions. At 31 December 2012, one (2011: two) customer accounted for over 10% of accounts receivable. This customer (for which some balances have been received since the year end and the outstanding balances are not yet due) is one of the many large companies that account in total for approximately 90% of the year end accounts receivable balance, where the risk of default on monies owed is deemed negligible. The Group performs credit checks on all customers (other than those paying in advance) in order to assess their creditworthiness and ability to pay its invoices as they become due. As such, the balance of accounts receivable not owed by large companies is still deemed by the directors to be of low risk of default due to the nature of the checks performed on them, and accordingly a relatively small allowance against these receivables is in place to cover this low risk of default. No credit limits were exceeded during the reporting period and the directors do not expect any significant losses from non-performance by these counterparties. Liquidity risk The Group’s policy is to maintain balances of cash and cash equivalents, and short- and long-term deposits, such that highly liquid resources exceed the Group’s projected cash outflows at all times. Surplus funds are placed on fixed- or floating-rate deposits depending on the prevailing economic climate at the time (with reference to forward interest rates) and also on the required maturity of the deposit (as driven by the expected timing of the Group’s cash receipts and payments over the short- to medium-term). Management monitors rolling forecasts of the Group’s short- and medium-term expected cash flows. This is carried out at both a local and a Group level, with the local subsidiaries being funded by the Group as required. The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period from the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

Between Between Less than six months and one and Over six months one year two years two years £m £m £m £m At 31 December 2012: Accounts payable 5.9 – – – Accrued and other liabilities 46.8 – – – Finance lease liabilities 0.8 2.1 2.2 0.7

At 31 December 2011: Accounts payable 8.7 – – – Accrued and other liabilities 45.7 1.7 0.9 – The table on the next page analyses the Group’s derivative financial instruments into relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Amounts due within 12 months equal their carrying balances as the impact of discounting is not significant.

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Notes to the financial statements continued

1c Financial risk management continued Liquidity risk continued

Over three months Between Less than three but less than six months and months six months one year m m m Foreign exchange forward contracts – held-for-trading at 31 December 2012 Outflow $51.0 $8.0 $12.0 Inflow £31.9 £5.0 £7.5 Foreign exchange options – held-for-trading at 31 December 2012 Outflow (maximum) $38.9 $37.3 $13.5 Inflow (maximum) £25.3 £24.3 £8.6 Foreign exchange forward contracts – held-for-trading at 31 December 2011 Outflow $54.0 – – Inflow £34.7 – – Foreign exchange options – held-for-trading at 31 December 2011 Outflow (maximum) $76.5 $69.0 $61.5 Inflow (maximum) £49.2 £44.6 £40.3 Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an appropriate capital structure. The capital structure of the Group consists of cash and cash equivalents, short- and long-term deposits and capital and reserves attributable to owners of the Company, as disclosed on the consolidated balance sheet. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, sell assets to raise cash or take on debt. The Group’s strategy is to have a capital structure that takes into account opportunities to invest in long-term profitable growth, prevailing trading conditions and the desire to improve balance sheet efficiency over time. The Group introduced a dividend in 2004 which has grown each year since. Between 2005 and 2008, an ongoing share buyback programme was in place whereby 16% of the issued share capital was bought back at an average price of £1.22. In 2012, the interim dividend was increased by 20% and the directors are proposing a 35% increase in the final dividend, reflecting the Board’s long-term confidence in the business. No share buybacks were made in the year, though the programme remains in place and will be used as and when the Board believe it is appropriate to do so. The capital structure is continually monitored by the Group. Fair value of currency exchange contracts The fair value of currency exchange contracts is estimated using the settlement rates. The estimation of the fair value of the asset in respect of currency exchange contracts was £1.4 million at 31 December 2012 (2011: liability of £1.5 million). The resulting gains and losses on the movement of the fair value of currency exchange contracts is recognised in the income statement under general and administrative expenses, as shown below:

2012 2011 £m £m Gain in income statement 8.3 2.7

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1c Financial risk management continued Valuation hierarchy The table below shows the financial instruments carried at fair value by valuation method:

Level 1* Level 2* Level 3* Total At 31 December 2012 £m £m £m £m Assets Fair value through the income statement: Currency exchange contracts – 1.4 – 1.4 – 1.4 – 1.4 Available-for-sale: Other long-term financial assets – – 13.8 13.8 – – 13.8 13.8 Total assets – 1.4 13.8 15.2 Liabilities Embedded derivatives – (2.5) – (2.5) Total liabilities – (2.5) – (2.5) * Level 1 valued using unadjusted quoted prices in active markets for identical instruments. Level 2 valued using techniques based significantly on observable market data. Level 3 valued using information other than observable market data.

Level 1* Level 2* Level 3* Total At 31 December 2011 £m £m £m £m Assets Fair value through the income statement: Embedded derivatives – 1.2 – 1.2 – 1.2 – 1.2 Available-for-sale: Other long-term financial assets – – 27.3 27.3 – – 27.3 27.3 Total assets – 1.2 27.3 28.5 Liabilities Currency exchange contracts – (1.5) – (1.5) Total liabilities – (1.5) – (1.5)

Level 3 financial assets

2012 2011 £m £m At1 January 27.3 20.3 Additions 3.2 8.3 Revaluation recognised through other comprehensive income (0.4) 0.4 Disposals (14.9) (0.1) Impairment recognised through income statement (1.4) (1.6) At 31 December 13.8 27.3

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Notes to the financial statements continued

1d Critical accounting estimates and judgments The preparation of financial statements in accordance with International Financial Reporting Standards requires the directors to make critical accounting estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates and judgments are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Impairment of goodwill The Group tests goodwill for impairment at least annually. This requires an estimation of the value in use of the cash generating units (CGUs) to which goodwill is allocated. As discussed in detail in note 15, estimating the value in use requires the Group to make an estimate of the expected future cash flows from the CGUs and also to choose a suitable discount rate in order to calculate the present values of those cash flows. The discount rate is based on an estimate of the Group’s weighted average cost of capital. The Group uses a post-tax discount rate of 10% (2011: 10%) (pre-tax discount rate of approximately 11% (2011: 11%)). Revenue recognition Revenue from the sale of licence agreements which are designed to meet the specific requirements of each customer is recognised on a percentage-of- completion basis. Use of this method requires the directors to estimate the total project resource requirement and also any losses on uncompleted contracts. In addition, there are other areas of revenue recognition requiring estimates and judgments, the details of which can be found in the revenue recognition accounting policy on page 103. Provisions for income taxes The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the world-wide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Provision for impairment of trade receivables The Group assesses trade receivables for impairment which requires the directors to estimate the likelihood of payment forfeiture by customers. Legal settlements and other contingencies Determining the amount to be accrued for legal settlement requires the directors to estimate the committed future legal and settlement fees the Group is expecting to incur, either where suits are filed against the Group for infringement of patents, or where the Group may be required to indemnify a licensee. The directors assess the extent of any potential infringement based on legal advice and written opinions received from external counsel and then estimate the level of accrual required. Contingent consideration for an acquisition is recognised as part of the purchase consideration if the contingent conditions are expected to be satisfied. This requires the directors to estimate the acquiree’s future financial performance, typically more than one year post-acquisition.

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2 Segmental reporting At 31 December 2012 the Group was organised on a world-wide basis into three main business segments: Processor Division (PD), encompassing those resources that are centred around microprocessor cores, including specific functions such as graphics IP, system IP, embedded software and configurable digital signal processing (DSP) IP. Physical IP Division (PIPD), concerned with the building blocks necessary for translation of a circuit design into actual silicon. System Design Division (SDD), focused on the tools and models used to create and debug software and system-on-chip (SoC) designs. This is based upon the Group’s internal organisation and management structure and is the primary way in which the CODM is provided with financial information. Whilst revenues are also reported into four main revenue streams (namely licensing, royalties, development systems and services), the costs, operating results and balance sheets are only analysed into these three divisions. Further, the information provided to the CODM is based on normalised profit before tax and therefore this information is provided as well as the equivalent profit stated under IFRS. The reconciling items: intangible amortisation; acquisition-related charges; share-based payment costs including payroll taxes; disposal/impairment of investments; share of results in joint venture; and Linaro-related charges are analysed below in addition to an analysis of revenues; operating costs; investment income, net of interest payable and similar charges; profit/(loss) before tax; tax; profit/(loss) after tax; depreciation; capital expenditure; total assets and liabilities; net assets and goodwill for each segment and the Group in total. Business segment information

Processor Physical IP System Design Division Division Division Unallocated Group For the year ended 31 December 2012 £m £m £m £m £m Segmental income statement Revenues 473.9 68.3 34.7 – 576.9 Operating costs (243.3) (82.8) (40.1) (2.6) (368.8) Investment income, net of interest payable and similar charges – – – 13.6 13.6 Share of results in joint venture – – – (0.7) (0.7) Profit/(loss) before tax 230.6 (14.5) (5.4) 10.3 221.0 Tax – – – (60.3) (60.3) Profit/(loss) for the year 230.6 (14.5) (5.4) (50.0) 160.7 Reconciliation to normalised profit/(loss) before tax: Intangible amortisation 2.4 0.8 – – 3.2 Acquisition-related charges 3.1 1.7 – 0.8 5.6 Share-based payment costs including payroll taxes 30.0 8.6 6.8 – 45.4 Profit on sale of investments, net of impairment 0.6 – – – 0.6 Share of results in joint venture – – – 0.7 0.7 Normalised profit/(loss) before tax 266.7 (3.4) 1.4 11.8 276.5 Segmental balance sheet Total assets 284.6 409.2 32.5 740.5 1,466.8 Total liabilities (182.6) (43.9) (15.1) (19.1) (260.7) Net assets 102.0 365.3 17.4 721.4 1,206.1 Other segmental items Depreciation 6.7 2.5 1.6 – 10.8 Capital expenditure 22.4 6.3 4.5 – 33.2 Goodwill 138.0 367.0 14.4 – 519.4 Revenues (USD millions) 749.8 108.4 54.9 – 913.1

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2 Segmental reporting continued

Processor Physical IP System Design Division Division Division Unallocated Group For the year ended 31 December 2011 £m £m £m £m £m Segmental income statement Revenues 397.6 61.3 32.9 – 491.8 Operating costs (223.8) (81.1) (41.2) 3.2 (342.9) Investment income – – – 8.0 8.0 Profit/(loss) before tax 173.8 (19.8) (8.3) 11.2 156.9 Tax – – – (44.3) (44.3) Profit/(loss) for the year 173.8 (19.8) (8.3) (33.1) 112.6 Reconciliation to normalised profit/(loss) before tax: Intangible amortisation 2.2 1.0 – – 3.2 Acquisition-related charges 2.4 0.6 0.2 – 3.2 Share-based payment costs including payroll taxes 36.9 12.1 8.7 – 57.7 Disposal/impairment of investments – 1.7 0.1 – 1.8 Linaro-related charges 6.9 – – – 6.9 Normalised profit/(loss) before tax 222.2 (4.4) 0.7 11.2 229.7 Segmental balance sheet Total assets 274.6 419.9 30.9 574.4 1,299.8 Total liabilities (155.3) (40.1) (15.0) (28.2) (238.6) Net assets 119.3 379.8 15.9 546.2 1,061.2 Other segmental items Depreciation 4.2 2.6 0.7 – 7.5 Capital expenditure 7.7 4.1 1.2 – 13.0 Goodwill 143.7 383.9 14.9 – 542.5 Revenues (USD millions) 634.7 97.9 52.4 – 785.0 There are no inter-segment revenues. Unallocated operating costs consist of foreign exchange gains and losses. Unallocated assets and liabilities include: cash and cash equivalents; short- and long-term deposits; available-for-sale financial assets; loans and receivables; embedded derivatives; fair value of currency exchange contracts; deferred tax balances; current tax; and VAT. Capital expenditure comprises additions to property, plant and equipment and computer software intangible assets. During the year ended 31 December 2012 one customer (within all three business segments) accounted for 15% of the Group’s total revenues amounting to £84.0 million (2011: one customer accounted for 11%). The results of each segment have been prepared using accounting policies consistent with those of the Group as a whole.

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2 Segmental reporting continued Geographical information The Group manages its business segments on a global basis. The operations are based in three main geographical areas. The UK is the home country of the parent company. The main operations are in the following principal territories: • Europe • United States • Asia Pacific Analysis of revenue by destination*:

2012 2011 £m £m United States 215.9 187.7 South Korea 95.0 63.8 China 71.2 47.6 Taiwan 69.2 63.6 Japan 46.6 50.0 Netherlands 15.8 15.4 Germany 15.4 21.7 Switzerland 14.0 11.7 Rest of Europe 19.0 12.2 Rest of Asia Pacific 13.6 16.3 Rest of North America 1.2 1.8 576.9 491.8 * Destination is defined as the location of the Group’s customers’ operations. The Group’s revenue within the home country of the parent company amounted to £5.5 million and £1.5 million for the years ended 31 December 2012 and 2011 respectively. The Group’s exports from the UK were £560.3 million and £480.1 million for the years ended 31 December 2012 and 2011 respectively. Analysis of revenue by origin:

2012 2011 £m £m Europe* 567.8 483.5 United States 9.1 8.2 Asia Pacific – 0.1 576.9 491.8 * Includes the UK which had total revenues of £565.8 million in 2012 (2011: £481.6 million). Analysis of revenue by revenue stream:

2012 2011 £m £m Royalties 299.8 252.4 Licensing 214.0 180.5 Development systems 34.7 32.9 Services 28.4 26.0 576.9 491.8

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2 Segmental reporting continued Geographical information continued Analysis of non-current assets (excluding deferred tax assets, goodwill and other intangible assets):

2012 2011 £m £m Europe* 193.8 122.9 United States 5.2 6.9 Asia Pacific 3.1 3.0 202.1 132.8 * Includes the UK which had non-current assets (excluding deferred tax assets, goodwill and other intangible assets) of £192.8 million in 2012 (2011: £122.4 million), of which long-term deposits accounted for £141.3 million (2011: £83.1 million). 3 Key management compensation and directors’ emoluments Key management compensation The directors are of the opinion that the key management of the Group comprises the executive and non-executive directors of ARM Holdings plc together with the Executive Committee (comprising all directors of ARM Limited and certain senior management). These persons have authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly. At 31 December 2012, key management comprised 19 people (2011: 22). On 1 January 2013 three new members of the Executive Committee were appointed bringing the total number to 22. The aggregate amounts of key management compensation are set out below:

2012 2011 £m £m Salaries and short-term employee benefits 8.9 9.9 Share-based payments 3.4 3.5 Post-employment benefits 0.2 0.4 12.5 13.8 Directors’ emoluments The aggregate emoluments of the directors of the Company are set out below:

2012 2011 £m £m Aggregate emoluments in respect of qualifying services 5.0 5.5 Aggregate Group pension contributions to money purchase schemes 0.1 0.2 Aggregate gains on exercise of share options 1.8 1.1 Aggregate amounts receivable under the Long Term Incentive Plan 21.2 24.2 28.1 31.0 Detailed disclosures of directors’ emoluments are shown on page 90. Details of directors’ interests in share options and awards are shown on pages 85 to 89 which form part of the financial statements.

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4 Employee information The average monthly number of persons, including executive directors, employed by the Group during the year was:

2012 2011 Number Number By segment Processor Division 1,398 1,225 Physical IP Division 557 488 System Design Division 306 283 2,261 1,996

2012 2011 Number Number By activity Research and development 1,581 1,366 Sales and marketing 367 349 General and administrative 313 281 2,261 1,996

2012 2011 £m £m Staff costs (for the above persons) Wages and salaries 161.5 142.2 Medical care costs 5.0 4.4 Share-based payments (note 23) 37.1 40.5 Social security costs 30.2 26.2 Provision for social security costs on share awards (6.1) 4.9 Other pension costs 8.0 6.8 235.7 225.0

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5 Profit before tax: analysis of expenses by nature The following items have been charged/(credited) to the income statement in arriving at profit before tax:

2012 2011 £m £m Staff costs, including share-based payments (note 4) 235.7 225.0 Cost of inventories recognised as an expense 3.2 2.8 Depreciation of property, plant and equipment – owned assets (note 14) 9.5 7.5 Depreciation of property, plant and equipment – under finance leases (note 14) 1.3 – Amortisation of other intangible assets (note 16) – Cost of revenues 0.3 0.3 – Research and development expenses 2.3 2.4 – Sales and marketing expenses 0.9 0.8 – General and administrative expenses 3.1 2.2 Impairment of available-for-sale financial assets (note 13) 1.4 1.6 (Profit)/loss on disposal of available-for-sale financial assets (0.8) 0.1 Other operating lease rentals payable – Plant and machinery 24.0 24.9 – Property 7.6 6.8 Accounts receivables impairment (including movement in provision) 0.4 – Fair value movement on embedded derivatives 3.7 1.2 Other foreign exchange gains (1.9) (4.2) Services provided by the Group’s auditor and its associates During the year the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditor and its associates:

2012 2011 £m £m Fees payable to the Group’s auditor and its associates for the audit of the Company and consolidated financial statements 0.3 0.3 Fees payable to the Group’s auditor and its associates for other services: – The audit of the Group’s subsidiaries 0.2 0.2 – Audit-related assurance services (services pursuant to section 404 of the Sarbanes-Oxley Act) 0.3 0.2 – Other assurance services 0.1 0.1 Statutory audit, financial reporting and other related services 0.9 0.8 – Tax advisory services 0.2 0.1 – Tax compliance services 0.1 0.1 – All other non-audit services* 0.1 0.1 1.3 1.1 * All other non-audit services consist predominantly of fees for the performance of royalty audits.

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6 Tax Analysis of charge in the year:

2012 2011 £m £m Current tax: Current tax on profits for the year 47.5 45.7 Adjustments in respect of prior years (0.5) (0.1) Total current tax 47.0 45.6 Deferred tax 13.3 (1.3) Income tax expense 60.3 44.3 Analysis of tax on items charged to equity:

2012 2011 £m £m Deferred tax charge/(credit) on outstanding share options and awards 9.7 (23.2) Current tax benefit on share options and awards (27.4) (22.2) Deferred tax (credit)/charge on available-for-sale financial assets (0.1) 0.1 The tax charge for the year was different from the standard rate of corporation tax in the UK, as explained below:

2012 2011 £m £m Profit before tax 221.0 156.9 Profit before tax at the corporation tax rate of 24.5% (2011: 26.5%) 54.2 41.6 Effects of: Adjustments in respect of prior years (0.5) (0.1) Adjustments in respect of foreign tax rates 5.0 2.9 Research and development tax credits* (5.5) (10.2) Permanent differences – other** 2.4 (1.1) Permanent differences – derecognition of US deferred tax assets*** 3.4 – Foreign withholding tax 1.0 10.4 Amortisation of other intangible assets – (0.1) Impact of share-based payments 0.3 0.9 Total taxation 60.3 44.3 * The provisions extending the US federal R&D tax credits into 2012 were signed on 2 January 2013. However, since the provisions were not enacted until after the year end, the benefit of the 2012 R&D tax credits will be accounted for in 2013. ** Includes expenditure disallowable for tax purposes and remeasurement of deferred tax assets due to reduction in UK and US tax rates. *** On 6 November 2012, California enacted legislation which changed the way in which US based companies identify the amount of income and profit which is subject to California state tax. The impact of this change has been to reduce the Group's expected future California tax and a partial valuation allowance has been made against the California R&D tax credits deferred tax asset, as they are now unlikely to be fully utilised.

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6 Tax continued Deferred tax Deferred tax is calculated in full on temporary differences under the liability method using the tax rate relevant to each tax jurisdiction. The movement on the deferred tax account is shown below:

2012 2011 £m £m At 1 January 105.9 78.3 Income statement (charge)/credit (13.3) 1.3 Adjustment in respect of share-based payments (9.7) 23.2 Prior year movement (to)/from current tax assets (11.6) 2.6 Exchange differences (1.3) 0.6 Revaluation of available-for-sale financial asset 0.1 (0.1) At 31 December 70.1 105.9 Deferred tax assets have been partially recognised in respect of tax losses and other temporary differences giving rise to deferred tax assets because it is not probable that the unrecognised portion of these assets will be recovered. The amount of deferred tax assets unrecognised at 31 December 2012 was £4.4 million (2011: £1.2 million). The unrecognised deferred tax asset relates to historic losses of an overseas subsidiary that may remain unutilised due to restrictions imposed by local tax legislation and California R&D tax credits referred to above. No deferred tax has been recognised in respect of a further £35.0 million (2011: £65.0 million) of unremitted earnings of overseas subsidiaries because the Group is in a position to control the timing of the reversal of the differences and either it is probable that such differences will not reverse in the foreseeable future or no tax is payable on the reversal. The March 2012 Budget included changes to the main rates of tax for UK companies. The main rate of corporation tax decreased from 26% to 24% from 1 April 2012. The Budget also announced the reduction in the main rate of corporation tax from 24% to 23% from 1 April 2013. This was substantively enacted on 3 July 2012. These changes have not had a material impact on the deferred tax balances as at 31 December 2012. The introduction of the new patent box regime is likely to have a significant impact on the Group from a UK tax perspective. The new regime looks to tax all relevant profits attributable to patented technology at a reduced rate of 10%. The rules are to be phased in over 5 years from 1 April 2013 – a company will be entitled to only 60% of the deduction in financial year 2013/14, rising to 100% by 2017/18. All deferred tax balances at 31 December 2012 are calculated using statutory corporation tax rates. The movements in deferred tax assets and liabilities (prior to offsetting of balances within the same tax jurisdiction as permitted by IAS 12) during the year are shown below. Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net.

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6 Tax continued Deferred tax assets

Amounts Temporary Tax losses relating to differences and R&D tax share-based relating to credits carried Non-deductible payments fixed assets forward reserves Other Total £m £m £m £m £m £m At 1 January 2012 59.5 4.6 30.9 12.7 – 107.7 Prior year movement to current tax assets – – (11.6) – – (11.6) Income statement (charge)/credit (0.1) (2.0) (9.1) (3.2) 0.6 (13.8) Movement on deferred tax arising on outstanding share options and awards (15.9) – – – – (15.9) Unutilised current year share option deductions – – 6.2 – – 6.2 Exchange differences – – (1.3) – – (1.3) At 31 December 2012 (prior to offsetting) 43.5 2.6 15.1 9.5 0.6 71.3 Offsetting of deferred tax liabilities (1.2) At 31 December 2012 (after offsetting) 70.1 At 1 January 2011 45.2 5.9 19.9 9.6 – 80.6 Prior year movement from current tax assets – – 2.6 – – 2.6 Income statement credit/(charge) 4.3 (1.0) (4.5) 1.9 – 0.7 Movement on deferred tax arising on outstanding share options and awards 9.1 – – – – 9.1 Unutilised current year share option deductions – – 14.1 – – 14.1 Reclassification 0.9 (0.3) (1.8) 1.2 –– Exchange differences – – 0.6 – – 0.6 At 31 December 2011 (prior to offsetting) 59.5 4.6 30.9 12.7 – 107.7 Offsetting of deferred tax liabilities (1.8) At 31 December 2011 (after offsetting) 105.9

Deferred tax liabilities

Amounts relating to Temporary difference intangible assets on available-for-sale arising on acquisition financial assets Other Total £m £m £m £m At 1 January 2012 1.3 0.1 0.4 1.8 Movement in respect of amortisation of intangible assets (0.2) – – (0.2) Movement through reserves – (0.1) – (0.1) Other short-term differences – – (0.3) (0.3) At 31 December 2012 (prior to offsetting) 1.1 – 0.1 1.2 Offsetting of deferred tax assets (1.2) At 31 December 2012 (after offsetting) – At 1 January 2011 1.5 – 0.8 2.3 Movement in respect of amortisation of intangible assets (0.2) – – (0.2) Movement through reserves – 0.1 – 0.1 Other short-term differences – – (0.4) (0.4) At 31 December 2011 (prior to offsetting) 1.3 0.1 0.4 1.8 Offsetting of deferred tax assets (1.8) At 31 December 2011 (after offsetting) – The deferred tax liability due after more than one year prior to offsetting is £0.8 million (2011: £1.0 million).

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7 Dividends

2012 2011 £m £m Final 2010 paid at 1.74 pence per share – 23.4 Interim 2011 paid at 1.39 pence per share – 18.8 Final 2011 paid at 2.09 pence per share 28.8 – Interim 2012 paid at 1.67 pence per share 23.0 – 51.8 42.2 In addition, the directors are proposing a final dividend in respect of the financial year ended 31 December 2012 of 2.83 pence per share which will absorb an estimated £40 million of shareholders’ funds. Subject to approval at the 2013 AGM, it will be paid on 17 May 2013 to shareholders who are on the register of members on 19 April 2013. 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 as treasury stock which are treated as cancelled. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Company had two categories of dilutive potential ordinary shares during the year: those being share options granted to employees and directors where the exercise price is less than the average market price of the Company’s ordinary shares during the year and the awards made under the Company’s Restricted Stock Unit (RSU), Deferred Annual Bonus Plan (DAB) and Long Term Incentive Plan (LTIP) schemes. For 2012 and 2011, no shares that were allocated for awards under the LTIP were included in the diluted EPS calculation as the performance criteria could not be measured until the conclusion of the performance period. Reconciliations of the earnings and weighted average number of shares used in the calculations are shown on the face of the consolidated income statement. 9 Cash and cash equivalents

2012 2011 £m £m Cash at bank and in hand 46.3 26.8 The carrying amount approximates to fair value because of the short-term maturity of these instruments, being no greater than three months. 10 Accounts receivable

2012 2011 £m £m Trade debtors (including receivables from related parties – see note 27) 119.1 116.4 Less: Provision for impairment of trade debtors (2.4) (1.7) Trade debtors, net 116.7 114.7 Amounts recoverable on contracts 7.8 4.9 Current accounts receivable 124.5 119.6 Movements in the Group’s provision for impairment of trade debtors are as follows:

2012 2011 £m £m At 1 January (1.7) (2.1) Charge to income statement (0.4) – (Reclassification)/utilised (0.4) 0.4 Foreign exchange 0.1 – At 31 December (2.4) (1.7) See also note 19 for further disclosure regarding the credit quality of the Group’s gross trade debtors.

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11 Prepaid expenses and other assets

2012 2011 £m £m Other receivables 10.4 9.3 Prepayments and accrued income 125.2 21.4 Current prepaid expenses and other assets 135.6 30.7 Plus: non-current prepayments and accrued income 2.0 2.3 Total prepaid expenses and other assets 137.6 33.0 Included within prepayments and accrued income is a prepayment amounting to £103.7 million which is the Group’s contribution to a consortium to acquire rights to MIPS Technologies, Inc’s portfolio of patents. This transaction received MIPS shareholder approval on 6 February 2013. 12 Inventories

2012 2011 £m £m Finished goods 2.5 2.7 Less: Provision for obsolescence of inventories (0.2) (0.2) 2.3 2.5

13 Available-for-sale financial assets

2012 2011 Long-term investments £m £m Net book value At 1 January 27.3 20.3 Additions (including capitalised interest in 2012 of £0.2 million) 3.2 8.3 Revaluation recognised through other comprehensive income (0.4) 0.4 Disposals (14.9) (0.1) Impairment recognised through income statement (general and administrative expenses) (1.4) (1.6) At 31 December 13.8 27.3

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13 Available-for-sale financial assets continued Long-term investments Those unlisted companies in which the Group has invested are generally early-stage development enterprises, which are generating value for shareholders through research and development activities, and most do not currently report profits. The fair value of these investments is considered to approximate to cost or is determined using independent valuation information where available. The Group’s investments include the following companies: • Amantys Limited • Ambiq Micro Inc. • Arteris Holdings Inc. • Calxeda Inc. • Carbon Design Systems Inc. • Cyclos Semiconductor Inc. • eSol Co. Ltd • Ideaworks 3D Limited • Shanghai Walden Venture Capital Enterprise • Thunder Software Technology Co. Ltd • Triad Semiconductor Inc During the year the Group disposed of its investments in Cognovo Limited and Nethra Imaging Inc. Available-for-sale financial assets include the following:

2012 2011 £m £m Unlisted equity securities – UK 3.7 1.7 Unlisted equity securities – China 2.0 2.0 Unlisted equity securities – Japan 0.9 0.9 Unlisted equity securities – US 5.9 8.6 Convertible loan notes – UK 1.3 13.3 Convertible loan notes – US – 0.8 Total non-current financial assets 13.8 27.3 Available-for-sale financial assets are denominated in the following currencies:

2012 2011 £m £m Sterling 12.5 26.5 US dollars 1.3 0.8 Total financial assets 13.8 27.3

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14 Property, plant and equipment

Fixtures, fittings Assets in the Freehold Leasehold Computer and motor course of buildings improvements equipment vehicles construction Total £m £m £m £m £m £m Cost At 1 January 2012 0.2 18.0 32.5 5.7 0.9 57.3 Additions – 1.7 14.0 1.1 12.4 29.2 Transfers – 4.9 4.9 – (9.8) – Disposals – (1.1) (1.8) (0.2) – (3.1) Exchange differences – (0.4) (0.8) (0.2) – (1.4) At 31 December 2012 0.2 23.1 48.8 6.4 3.5 82.0 Accumulated depreciation At 1 January 2012 0.1 13.5 21.8 3.8 – 39.2 Charge for the year – 1.8 8.1 0.9 – 10.8 Disposals – (1.1) (1.8) (0.2) – (3.1) Exchange differences – (0.3) (0.6) (0.1) – (1.0) At 31 December 2012 0.1 13.9 27.5 4.4 – 45.9 Net book value At 31 December 2012 0.1 9.2 21.3 2.0 3.5 36.1

Fixtures, fittings Assets in the Freehold Leasehold Computer and motor course of buildings improvements equipment vehicles construction Total £m £m £m £m £m £m Cost At 1 January 2011 0.2 17.7 25.9 5.3 – 49.1 Additions – 0.6 10.0 0.7 0.9 12.2 Disposals – (0.2) (2.7) (0.2) – (3.1) Exchange differences – (0.1) (0.7) (0.1) – (0.9) At 31 December 2011 0.2 18.0 32.5 5.7 0.9 57.3 Accumulated depreciation At 1 January 2011 0.1 12.2 19.7 3.3 – 35.3 Charge for the year – 1.5 5.2 0.8 – 7.5 Disposals – (0.1) (2.7) (0.2) – (3.0) Exchange differences – (0.1) (0.4) (0.1) – (0.6) At 31 December 2011 0.1 13.5 21.8 3.8 – 39.2 Net book value At 31 December 2011 0.1 4.5 10.7 1.9 0.9 18.1 Net book value at 1 January 2011 0.1 5.5 6.2 2.0 –13.8 Included within computer equipment are assets with net book value of £7.7 million (2011: £nil) held under finance leases.

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15 Goodwill

£m At 1 January 2011 532.3 Exchange differences 3.7 Acquisition - Obsidian 3.2 Acquisition - Prolific 3.3 At 31 December 2011 542.5 Exchange differences (23.1) At 31 December 2012 519.4 During the fourth quarter of 2012, the Group tested its balance of goodwill for impairment in accordance with IAS 36,“Impairment of assets”. No impairment charge was recorded as a result of this annual impairment test. Goodwill is allocated to the Group’s CGUs according to business segment. The carrying amounts of goodwill by CGU at 31 December 2012 are summarised below:

Processor Physical IP System Design Division Division Division Group £m £m £m £m Goodwill relating to Artisan 121.3 363.9 – 485.2 Goodwill relating to Falanx 9.4 – – 9.4 Goodwill relating to Axys – – 7.5 7.5 Goodwill relating to KEG and KSI – – 6.9 6.9 Goodwill relating to Prolific – 3.1 – 3.1 Goodwill relating to Obsidian 3.1 – – 3.1 Goodwill relating to Logipard 2.1 – – 2.1 Goodwill relating to other acquisitions 2.1 – – 2.1 Goodwill at 31 December 2012 138.0 367.0 14.4 519.4 Goodwill at 31 December 2011 143.7 383.9 14.9 542.5 The recoverable amount for each CGU has been measured based on a value-in-use calculation. Allocation of goodwill relating to Artisan The directors believed that, in addition to forming the basis of the Physical IP Division (PIPD), the Group’s acquisition of Artisan in 2004 would provide a benefit to the Processor Division (PD) for the following reasons: • The development of faster and more power-efficient microprocessors as a result of collaboration between PD and PIPD engineering teams. This is expected to generate more PD licensing deals at higher values; and • The potential for PD to win more microprocessor licensing business as a result of ARM being able to offer both processor and physical IP in-house. The goodwill relating to Artisan was allocated between the two divisions accordingly. Processor Division (PD) The Processor Division encompasses those resources that are centred around microprocessor cores, including specific functions such as graphics IP, system IP, embedded software IP and configurable DSP IP. The key assumptions in the value-in-use calculations were: Period of projected cash flows The directors have used a ten-year forecast period with an assumed terminal growth rate after 2022 of 3% per annum. Given the long-term nature of the ARM licensing and royalty business model, it is considered appropriate to use a ten-year forecast period to assess the expected future cash flows to be generated from the assets under review. Revenue growth Revenue growth assumptions are based on financial budgets and forecasts approved by senior management, taking into account typical semiconductor industry growth rates and ARM’s historical experience in the context of wider industry and economic conditions.

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15 Goodwill continued Operating margins Operating margins have been assumed to grow steadily over the period of the calculation. Discount rate Future cash flows are discounted at a rate of 10% per annum post tax. The directors are confident that the amount of goodwill allocated to PD is appropriate and that the assumptions used in estimating its fair value are appropriate. Whilst it is conceivable that a key assumption in the calculation could change, the directors believe that no reasonably foreseeable changes to key assumptions would result in an impairment of goodwill, such is the margin by which the estimated fair value exceeds the carrying value. Physical IP Division (PIPD) The Physical IP Division is concerned with the building blocks necessary for translation of a circuit design into actual silicon. The key assumptions in the value-in-use calculations were: Period of projected cash flows The directors have used a ten-year forecast period with an assumed terminal growth rate after 2022 of 3% per annum. Given the long-term nature of the ARM licensing and royalty business model, it is considered appropriate to use a ten-year forecast period to assess the expected future cash flows to be generated from the assets under review. This timescale is consistent with ARM’s experience in developing the processor licensing and royalty model. ARM has signed around 960 processor licences with more than 320 customers over the last 20 years with less than half of these paying royalties thus far. As royalty revenues are a function of cumulative licensing, royalty growth gathers momentum as the licensing base grows – ARM processor royalties have increased from $38 million in 2002 to $418 million in 2012. Revenue growth Revenue growth assumptions are based on financial budgets and forecasts approved by senior management, taking into account typical semiconductor industry growth rates and ARM’s historical experience in the context of wider industry and economic conditions. Since the acquisition of Artisan at the end of 2004, PIPD has accelerated the development of leading-edge physical IP technology. As semiconductor process geometries shrink, PIPD is expected to have more licensing opportunities across a broader range of foundries and other semiconductor companies. US dollar licence revenues increased by 6% year-on-year in 2012 and royalty revenues increased by 15%. The increase in revenues was due mainly to further success in signing licences for leading edge physical IP technology. As a result, backlog increased by 50% in 2012 compared with the beginning of the year. This uplift in licensing activity is expected to translate into growth in royalty revenues in future years. The directors believe that the investment in the physical IP technology portfolio in recent years will not only generate growth in physical IP revenue in future years, but also contribute significantly to the success of PD due to the synergistic benefits of the combined technologies. An estimate of the increased benefits to PD arising as a result of the combination with physical IP products is taken in to account in calculating the value-in-use for PIPD. Demand for Processor Optimisation Packs (POPs) continued to be strong in 2012 with a number of partners taking licences alongside PD processors. POPs enable an enhanced and deterministic outcome for licensees when implementing ARM processors. Operating margins Operating margins are assumed to increase gradually over time to in excess of 20% by the end of the forecast period. In 2012, PIPD continued to make progress and recorded a smaller loss on a normalised basis than for the previous year. This was mostly as a result of increased revenues offset by continued investment in the development of leading-edge technology. Margins are expected to improve significantly in future years as licence revenues from leading-edge products gather pace. Growth in high margin royalty revenues will further improve profitability. Costs are expected to grow relatively slowly in real terms. Discount rate Future cash flows are discounted at a rate of 10% per annum post tax. The directors are confident that the amount of goodwill allocated to PIPD and the assumptions used in estimating its fair value are appropriate. Whilst it is conceivable that a key assumption in the calculation could change, the directors believe that no reasonably foreseeable changes to key assumptions would result in an impairment of goodwill, such is the margin by which the estimated fair value exceeds the carrying value. The overall assessment is most sensitive to changes in the assumed revenues and benefits provided to the Processor Division. The directors have considered the impact of a number of scenarios on the overall valuation of the PIPD business, including a considerable reduction in the benefits assumed to be provided to the Processor Division. The results of this sensitivity analysis showed that applying a range of reasonable variations to the key assumptions would not change the conclusion that no impairment in the carrying value of the goodwill is required at 31 December 2012.

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Notes to the financial statements continued

15 Goodwill continued System Design Division (SDD) The System Design Division develops and sells the tools and models used to create and debug software and system-on-chip (SoC) designs. The key assumptions in the value-in-use calculations were: Period of projected cash flows The directors have used a five-year forecast period with an assumed terminal growth rate after 2017 of 3% per annum. It is considered appropriate to use a five-year forecast period to properly reflect the weighted average period over which the benefits of the acquisitions of Axys, KEG and KSI are expected to accrue. Revenue growth Revenue growth assumptions are based on financial budgets and forecasts approved by senior management, taking into account typical semiconductor industry growth rates and ARM’s historical experience in the context of wider industry and economic conditions. Operating margins Operating margins are assumed to grow gradually during the period. Discount rate Future cash flows are discounted at a rate of 10% per annum post tax. The directors are confident that the amount of goodwill allocated to SDD and the assumptions used in estimating its fair value are appropriate. Whilst it is conceivable that a key assumption in the calculation could change, the directors believe that no reasonably foreseeable changes to key assumptions would result in an impairment of goodwill, such is the margin by which the estimated fair value exceeds the carrying value. 16 Other intangible assets

Existing In-process agreements Computer Patents and research and Developed and customer Core Trademarks and Order software licences development technology relationships technology tradenames backlog Total £m £m £m £m £m £m £m £m £m Cost At 1 January 2012 10.4 25.4 6.2 41.0 55.5 17.6 4.7 2.1 162.9 Additions 4.0 1.4 – – – – – – 5.4 Disposals (0.2) – – – – – – – (0.2) Exchange differences (0.1) – (0.3) (1.4) (2.2) (0.8) (0.2) (0.1) (5.1) At 31 December 2012 14.1 26.8 5.9 39.6 53.3 16.8 4.5 2.0 163.0 Accumulated amortisation At 1 January 2012 9.0 20.8 6.2 37.7 54.6 15.3 4.7 2.1 150.4 Charge for the year 1.6 2.3 – 1.4 0.4 0.9 – – 6.6 Disposals (0.2) – – – – – – – (0.2) Exchange differences (0.1) – (0.3) (1.4) (2.2) (0.7) (0.2) (0.1) (5.0) At 31 December 2012 10.3 23.1 5.9 37.7 52.8 15.5 4.5 2.0 151.8 Net book value At 31 December 2012 3.8 3.7 – 1.9 0.5 1.3 – – 11.2

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16 Other intangible assets continued

Existing In-process agreements Computer Patents and research and Developed and customer Core Trademarks and Order software licences development technology relationships technology tradenames backlog Total £m £m £m £m £m £m £m £m £m Cost At 1 January 2011 9.8 25.4 6.2 38.8 55.1 14.8 4.6 2.0 156.7 Additions 0.8 – – – – – – – 0.8 Acquisition of subsidiaries – – – 2.3 0.2 2.6 – – 5.1 Disposals (0.1) – – – – – – – (0.1) Exchange differences (0.1) – – (0.1) 0.2 0.2 0.1 0.1 0.4 At 31 December 2011 10.4 25.4 6.2 41.0 55.5 17.6 4.7 2.1 162.9 Accumulated amortisation At 1 January 2011 8.4 18.7 6.2 35.9 53.9 14.8 4.6 2.0 144.5 Charge for the year 0.8 2.1 – 1.9 0.5 0.4 – – 5.7 Disposals (0.1) – – – – – – – (0.1) Exchange differences (0.1) – – (0.1) 0.2 0.1 0.1 0.1 0.3 At 31 December 2011 9.0 20.8 6.2 37.7 54.6 15.3 4.7 2.1 150.4 Net book value At 31 December 2011 1.4 4.6 – 3.3 0.9 2.3 – – 12.5 Net book value at 1 January 2011 1.4 6.7 –2.91.2 – – – 12.2

17 Accrued and other liabilities

2012 2011 £m £m Accruals: Provision for payroll taxes on share awards 16.5 22.6 Employee bonus and sales commissions 23.8 23.7 Other accruals 31.0 31.8 Total accruals 71.3 78.1

Other taxation and social security 3.4 2.8 Other payables 4.6 4.0 79.3 84.9

18 Finance lease liabilities

2012 2011 £m £m Gross finance lease liabilities – minimum lease payments: Within one year 3.1 – In the second to fifth years inclusive 3.0 – Less: future finance charges (0.3) – Present value of lease obligations 5.8 –

Amounts due for settlement within 12 months 2.9 – Amounts due for settlement after 12 months 2.9 – Present value of lease obligations 5.8 – The Group has entered into a three and a four year finance lease arrangement in respect of certain IT equipment.

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Notes to the financial statements continued

19 Financial instruments (a) Financial instruments by category The accounting policies for financial instruments have been applied to the line items below: Financial assets

Assets at fair value through Loans and the income Available- receivables statement for-sale Total £m £m £m £m At 31 December 2012 Cash and cash equivalents 46.3 – – 46.3 Short-term deposits 340.0 – – 340.0 Currency exchange contracts – 1.4 – 1.4 Accounts receivable (gross of impairment provision) 126.9 – – 126.9 Total current financial assets 513.2 1.4 – 514.6 Available-for-sale financial assets – unlisted – – 13.8 13.8 Long-term deposits 141.3 – – 141.3 Loans and receivables 2.1 – – 2.1 Total non-current financial assets 143.4 – 13.8 157.2 Total financial assets 656.6 1.4 13.8 671.8 At 31 December 2011 Cash and cash equivalents 26.8 – – 26.8 Short-term deposits 319.1 – – 319.1 Embedded derivatives – 1.2 – 1.2 Accounts receivable (gross of impairment provision) 121.3 – – 121.3 Total current financial assets 467.2 1.2 – 468.4 Available-for-sale financial assets – unlisted – – 27.3 27.3 Long-term deposits 83.1 – – 83.1 Loans and receivables 2.0 – – 2.0 Total non-current financial assets 85.1 – 27.3 112.4 Total financial assets 552.3 1.2 27.3 580.8

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19 Financial instruments continued (a) Financial instruments by category continued Financial liabilities

2012 2011 £m £m Liabilities at amortised cost at 31 December: Accounts payable 5.9 8.7 Accrued and other liabilities * 46.8 48.3 Finance lease liabilities 5.8 – 58.5 57.0 Liabilities at fair value through the income statement at 31 December: Embedded derivatives 2.5 – Currency exchange contracts – 1.5 Total financial liabilities 61.0 58.5 * Non-financial liabilities are excluded from the accrued and other liabilities balance, as this analysis is required only for financial instruments. Loans and receivables During 2010 the Group invested £2.5 million in an interest-free charitable bond with Future Business. This was recognised in loans and receivables at its initial fair value of £1.9 million, measured using the effective interest method, which resulted in a charge of £0.6 million being recognised as interest payable and similar charges during 2010. The carrying value of this investment amounted to £2.1 million at 31 December 2012 (2011: £2.0 million), with £0.1 million being recognised as interest receivable during 2012 (2011: £0.1 million). Short-term deposits The effective interest rate on short-term deposits outstanding at the year end was 2.70% (2011: 2.44%) and these deposits have an average maturity of 190 days (2011: 197 days). Long-term deposits The effective interest rate on long-term deposits outstanding at the year end was 3.32% (2011: 3.18%) and these deposits have an average maturity of 489 days (2011: 532 days). (b) Credit quality of financial assets Trade debtors On a quarterly basis, all trade debtors more than three months overdue are considered for impairment on a line-by-line basis. Either a provision is made or the lack thereof is justified, with review by senior members of the Group’s finance team.

2012 2011 £m £m Trade debtors (gross of impairment provision): Not yet due 80.1 89.5 Under 90 days overdue 27.3 21.1 Over 90 days overdue but not provided for 9.3 4.1 Fully provided for 2.4 1.7 Total 119.1 116.4 As shown above, at 31 December 2012 trade debtors less than 90 days overdue amounted to £27.3 million. Of those outstanding at 31 December 2012, £13.2 million had been collected by 25 February 2013 and £10.9 million were owed by large, established customers. Similarly, debtors more than 90 days overdue and not provided for amounted to £9.3 million of which £3.7 million had been collected by 25 February 2013 and £1.3 million was owed by large, established customers. For the remainder, discussions regarding repayment are ongoing and repayment schedules have been agreed with the customers concerned. These will be monitored on a quarterly basis in accordance with the control outlined above. No further analysis has been provided here on the quality of these debts as they are not felt to pose a material threat to the Group’s future results. As shown above, at 31 December 2012, trade debtors fully provided for amounted to £2.4 million (2011: £1.7 million). Of those provided for at 31 December 2012, £0.6 million relates to trade debtors that are up to six months overdue (2011: £0.3 million) and £1.8 million relates to trade debtors that are over six months overdue (2011: £1.4 million).

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Notes to the financial statements continued

19 Financial instruments continued (b) Credit quality of financial assets continued Highly liquid financial assets Financial instrument counterparties are subject to pre-approval by the directors and such approval is limited to financial institutions with a Moody’s rating of at least A2/P-1, a Fitch rating of at least A/F1, or UK building societies with over £2 billion in assets, except in certain jurisdictions where the cash holding concerned is immaterial. At 31 December 2012, 93% (2011: 90%) of the Group’s cash and cash equivalents, and short- and long-term deposits were deposited with major clearing banks and building societies fulfilling these criteria. The majority of the Group’s cash currently falling outside of the counterparty criteria is held with building societies that were within criteria when the deposits were placed, with the Group having raised the criteria threshold for them during 2012. 20 Share capital

2012 2011 £m £m Authorised 2,200,000,000 ordinary shares of 0.05 pence each (2011: 2,200,000,000) 1.1 1.1

2012 2011 Number of Number of shares Value shares Value m £m m £m Issued and fully paid At 1 January 1,351.3 0.7 1,344.1 0.7 Allotted under employee incentive schemes 29.5 – 7.2 – At 31 December 1,380.8 0.7 1,351.3 0.7 During 2012, the aggregate consideration received on issue of new share capital allotted under employee incentive schemes was £5.6 million (2011: £6.6 million). 21 Own shares held

Treasury stock £m At 1 January 2011 22.1 Issuance of shares (22.1) At 31 December 2011 – No shares were repurchased during 2012 and 2011. There were no shares held as treasury stock at 31 December 2012 or 31 December 2011. 22 Acquisitions There were no acquisitions in 2012, but the following acquisitions were made in 2011: Obsidian Software Inc On 15 June 2011, the Group purchased the entire share capital of Obsidian Software Inc. for $5.6 million in cash, plus a further $9.5 million payable as an earn-out to the shareholders subject to them remaining in employment with ARM for up to three years and meeting certain performance criteria. The earn-out is being expensed in the income statement, within research and development expenses, as the services are provided. During 2012, the Group made a payment of £2.2 million in respect of these time-based and performance bonuses due under the acquisition agreement. This purchase has been accounted for as an acquisition. Obsidian, a company based in Austin Texas, was a market leader in verification and validation products and services used in the design of increasingly complex processors. The company’s RAVEN software has been used by many of the world’s leading semiconductor companies. As system-on-chip (SoC) and processors grow in complexity there is an increasing need to develop more sophisticated verification strategies. This acquisition augments ARM's drive in matching its verification strategies with the rate of change in its high performance, complex SoC IP components. For these reasons, combined with the ability to hire the entire workforce of Obsidian including the founders and management team, the Group paid a premium for the company giving rise to goodwill. All intangible assets were recognised at their fair values, with the residual excess over net assets being recognised as goodwill. All of the goodwill recognised is expected to be deductible for income tax purposes.

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22 Acquisitions continued The following table summarises the consideration and fair values of the assets acquired and liabilities assumed as at 15 June 2011. There have been no changes to fair values during 2012.

£m $m Accounts receivable 0.5 0.8 Other current assets 0.1 0.1 Property, plant and equipment – 0.1 Intangible assets 2.7 4.4 Deferred revenue (0.4) (0.6) Accrued and other liabilities (2.6) (4.3) Net assets acquired 0.3 0.5 Goodwill 3.2 5.1 Consideration 3.5 5.6 The consideration was all paid in cash. All transaction expenses incurred by the Group have been charged to the income statement within general and administrative expenses. Prolific Inc On 31 October 2011, the Group purchased the entire share capital of Prolific Inc. for $7.7 million in cash, plus a further $8.5 million payable as an earn- out to the shareholders subject to them remaining in employment with ARM for up to five years and meeting certain performance criteria. The earn-out is being expensed in the income statement, within research and development expenses, as the services are provided. During 2012, the Group made payments of £0.8 million in respect of these time-based and performance bonuses due under the acquisition agreement. This purchase has been accounted for as an acquisition. Prolific, a company based in Newark California, develops leading-edge IC design optimisation software tools that significantly reduce development time and improve the performance of cell-based designs. The increasing complexity of 20nm and below process technologies is driving the need for automated layout optimisation solutions. This acquisition augments ARM's strategy to provide innovative physical IP products that will enable the ARM partnership to continue to lead in the implementation of highly integrated, low-power SoC solutions. For these reasons, combined with the ability to hire the entire engineering workforce of Prolific, including the founders and the management team, the Group paid a premium for the company giving rise to goodwill. All intangible assets were recognised at their fair values, with the residual excess over net assets being recognised as goodwill. All of the goodwill recognised is expected to be deductible for income tax purposes. The following table summarises the consideration and fair values of the assets acquired and liabilities assumed as at 31 October 2011. There have been no changes to fair values during 2012.

£m $m Intangible assets 2.4 3.7 Deferred revenue (0.2) (0.3) Accrued and other liabilities (0.5) (0.8) Net assets acquired 1.7 2.6 Goodwill 3.3 5.1 Consideration 5.0 7.7 The consideration was all paid in cash. All transaction expenses incurred by the Group have been charged to the income statement within general and administrative expenses. Other During 2011, the Group made a payment of £0.5 million in respect of final consideration for the acquisition of Keil Elektronik GmbH. This payment was in respect of a previously accrued liability and therefore had no impact on the income statement.

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Notes to the financial statements continued

23 Share-based payments The Group has several share schemes, whereby shares in the Company can be granted to employees and directors. The different schemes are described below, but all options are granted with a fixed exercise price equal to the market price of the shares under option at the date of grant, except for those options within the SAYE and ESPP schemes as detailed below. Furthermore, from 2006, the Company has issued Restricted Stock Units (RSUs) to employees, which are actual share awards on vesting rather than options to buy shares at a fixed exercise price. Whilst the Company reserves the right to award options to employees going forward, the majority of awards to employees will be in RSUs. Under the UK Inland Revenue Executive Approved Share Option Plan (the “Executive Scheme”), the Company may grant options to employees meeting certain eligibility requirements. Options under the Executive Scheme are exercisable between three and ten years after their issue, after which time the options expire. Under the Company’s Unapproved Scheme (the “Unapproved Scheme”), for which it has not sought approval from the UK tax authorities, options are exercisable one to seven years after their issue, after which time the options expire. There is a further scheme for our French employees (the “French Scheme”). In the French Scheme, options are exercisable between four and seven years after their issue. Upon the acquisition of Artisan in 2004, the Company assumed the share schemes of Artisan existing at acquisition. The schemes remained substantially the same as prior to the acquisition, other than the options became options to purchase shares in ARM Holdings plc instead of Artisan Components Inc. The number and value of options were amended in line with the conversion ratio as detailed in the merger agreement. The only remaining scheme from those assumed is the “2003 Plan”. Under each plan, there are multiple vesting templates and vesting periods. The majority of the options were already vested upon acquisition, and the most common template was 25% vesting after one year, and then 6.25% vesting each quarter thereafter, until 100% vest after four years. Some options vest on a monthly basis, and some vest over five years. All options lapse ten years from the date of grant. The Company also offers savings-related share option schemes (SAYE) for employees and executive directors of the Group. 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. The option price for grants is set at 80% of the market share price prior to the announcement of the grant, and the right to exercise normally only arises for a six-month period once the savings have been completed. The Company also operates a savings-related option scheme for employees in the US and India, namely the Employee Share Purchase Plan (ESPP). The number of options granted is related to the value of savings made by the employee. The period of savings is six months, with the option price being at 85% of the lower of the market share price at the beginning and end of the scheme. The main RSU awards (to employees in all jurisdictions other than France) vest 25% on each anniversary over four years. RSU awards to our French employees vest 50% after two years, and then a further 25% after three and four years. Additionally, the Company operates a Deferred Annual Bonus plan (DAB). Under the DAB, which is for directors and selected senior management within the Group, participants are required to defer 50% of any related annual bonus into shares on a compulsory basis. These shares will be deferred for three years, and then a matching award will be made depending on the achievement of an EPS performance condition over that time. The Company also operates the Long Term Incentive Plan (LTIP), also for directors and selected senior management, whereby share awards are made and vest depending on the Company’s TSR performance compared to two comparator groups over the three year performance period. As disclosed in note 4, staff expenses arising from these share-based compensation schemes of £37.1 million (2011: £40.5 million) were charged to the income statement in the year. This is in line with the Group’s policies for recognition and measurement of the costs associated with these remuneration schemes as outlined in note 1.

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23 Share-based payments continued The fair value of options granted was estimated on the date of grant using the Black-Scholes option pricing model, except for the ESPP whose fair value is the intrinsic value of the award at the date of vest. The following assumptions for each option grant during 2012 and 2011 were as follows: Grant date 16 Feb 2012 23 Jun 2012 16 Aug 2012 16 Feb 2011 23 Jun 2011 16 Aug 2011 Scheme ESPP SAYE ESPP ESPP SAYE ESPP Share price at grant date £5.905 £5.06 £5.74 £6.225 £5.68 £5.26 Exercise price £4.42 £3.9616 £4.876 £2.62 £4.464 £4.471 Number of employees 373 490 372 294 423 319 Shares under option 333,464 720,922 306,497 451,423 552,903 279,806 Vesting period (years) – 3-5 – – 3-5 – Expected volatility – 38%-43% – – 42%-43% – Expected life (years) – 3-5 – – 3-5 – Risk free rate – 0.5% – – 0.5% – Dividend yield – 0.69% – – 0.51% – Fair value per option £1.485 £1.728-£2.175 £0.864 £3.605 £2.13-£2.423 £0.789 The fair value of RSUs, LTIP and DAB awards granted was estimated on the date of grant using the Black-Scholes option pricing model. As all are share awards with no exercise price, all awards have been deemed to have an exercise price of £0.0000001 in the Black-Scholes model. The assumptions for each grant during 2012 and 2011 were as follows: Grant date 8 Feb 2012 8 Feb 2012 8 Feb 2012 8 Feb 2012 8 May 2012 Scheme DAB RSU French RSU LTIP RSU Share price at grant date £5.68 £5.68 £5.68 £5.68 £5.07 Number of employees 50 1,918 91 54 108 Shares awarded 850,741 3,012,604 128,067 1,102,625 159,720 Vesting period (years) – 1-4 2-4 3 1-4 Expected volatility 39% 34%-45% 39%-45% 39% 37%-42% Expected life (years) 3 1-4 2-4 3 1-4 Risk free rate 0.5% 0.5% 0.5% 0.5% 0.5% Dividend yield 0.61% 0.61% 0.61% 0.61% 0.69% Fair value per share £5.577 £5.542-£5.671 £5.542- £5.611 £5.577 £4.933-£5.035

Grant date 8 May 2012 13 Aug 2012 13 Aug 2012 12 Nov 2012 12 Nov 2012 Scheme French RSU RSU French RSU RSU French RSU Share price at grant date £5.07 £5.74 £5.74 £7.125 £7.125 Number of employees 4 126 1 159 3 Shares awarded 4,230 213,201 960 275,270 2,490 Vesting period (years) 2-4 1-4 2-4 1-4 2-4 Expected volatility 38%-42% 35%-41% 38%-41% 31%-40% 38%-40% Expected life (years) 2-4 1-4 2-4 1-4 2-4 Risk free rate 0.5% 0.5% 0.5% 0.5% 0.5% Dividend yield 0.69% 0.66% 0.66% 0.53% 0.53% Fair value per share £4.933-£5.001 £5.592-£5.703 £5.592-£5.665 £6.976-£7.087 £6.976-£7.05

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Notes to the financial statements continued

23 Share-based payments continued Grant date 8 Feb 2011 8 Feb 2011 8 Feb 2011 8 Feb 2011 8 May 2011 Scheme DAB RSU French RSU LTIP RSU Share price at grant date £6.11 £6.11 £6.11 £6.11 £5.95 Number of employees 43 1,675 92 46 58 Shares awarded 641,059 5,945,805 316,888 921,443 186,820 Vesting period (years) – 1-4 2-4 3 1-4 Expected volatility 46% 37%-46% 37%-46% 46% 39%-44% Expected life (years) 3 1-4 2-4 3 1-4 Risk free rate 0.5% 0.5% 0.5% 0.5% 0.5% Dividend yield 0.47% 0.47% 0.47% 0.47% 0.49% £5.995- Fair value per share £6.024 £5.995-£6.081 £6.052 £6.024 £5.835-£5.921

Grant date 8 May 2011 13 Aug 2011 13 Aug 2011 12 Nov 2011 12 Nov 2011 Scheme French RSU RSU French RSU RSU French RSU Share price at grant date £5.95 £5.26 £5.26 £6.345 £6.345 Number of employees 2 87 4 80 1 Shares awarded 8,750 385,420 7,950 189,380 765 Vesting period (years) 2-4 1-4 2-4 1-4 2-4 Expected volatility 39%-44% 39%-45% 39%-45% 41%-46% 41%-46% Expected life (years) 2-4 1-4 2-4 1-4 2-4 Risk free rate 0.5% 0.5% 0.5% 0.5% 0.5% Dividend yield 0.49% 0.60% 0.60% 0.49% 0.49% Fair value per share £5.835-£5.892 £5.136-£5.229 £5.136-£5.198 £6.221-£6.314 £6.221-£6.283 The expected volatility was primarily based upon historical volatility adjusted for past one-time events that are not expected to re-occur. The expected life is the expected period to exercise. A reconciliation of option and share award movements over the year to 31 December 2012 is shown below. Share awards do not have an exercise price and therefore the reconciliation below shows only the number of awards, with no corresponding weighted average exercise prices.

2012 2011 Weighted average RSUs/LTIP/DAB Weighted average RSUs/LTIP/DAB Options Number exercise price Number Options Number exercise price Number Outstanding at 1 January 6,581,438 £1.221 35,215,062 13,452,860 £0.899 42,469,526 Granted 1,360,883 £4.280 14,448,979 1,284,132 £3.815 14,696,383 Forfeited (234,196) £3.570 (914,068) (171,095) £1.113 (831,400) Lapsed (10,589) £0.910 – (219,847) £1.186 – Exercised (3,958,614) £1.404 (25,494,139) (7,764,612) £1.096 (21,119,447) Outstanding at 31 December 3,738,922 £1.994 23,255,834 6,581,438 £1.221 35,215,062 Exercisable at 31 December 985,557 £0.685 – 3,020,599 £0.681 –

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23 Share-based payments continued The weighted average share price at the date of exercise or vest of the above share options and awards was £5.72 (2011: £5.90). The following options over ordinary shares were in existence at 31 December: 2012

Weighted Weighted Weighted average average average remaining life remaining life Number exercise price Expected Contractual Exercise price (£) outstanding £ Years Years Outstanding options: 0.47 – 0.854 1,514,873 0.72 0.87 1.37 1.005 – 1.055 46,114 1.04 1.03 2.05 1.25 32,813 1.25 0.54 1.08 1.325 – 4.464 2,145,122 2.93 1.77 1.97 Total 3,738,922 1.99 1.38 1.72

Outstanding RSU/LTIP/DAB awards: 0.00 (RSUs) 16,750,069 – 0.93 0.93 0.00 (LTIP) 4,189,314 – 0.82 0.82 0.00 (DAB) 2,316,451 – 1.06 1.06 Total 23,255,834 – 0.92 0.92

2011

Weighted Weighted Weighted average average average remaining life remaining life Number exercise price Expected Contractual Exercise price (£) outstanding £ Years Years Outstanding options: 0.27 – 0.4375 129,632 0.35 0.44 0.88 0.47 – 0.854 4,020,157 0.69 1.16 1.89 1.005 – 1.055 561,523 1.05 0.27 0.53 1.104 – 1.25 84,308 1.18 1.12 1.49 1.325 – 4.464 1,785,818 2.52 1.87 2.23 Total 6,581,438 1.22 1.26 1.84

Outstanding RSU/LTIP/DAB awards: 0.00 (RSUs) 23,735,397 – 1.09 1.09 0.00 (LTIP) 8,327,095 – 0.62 0.62 0.00 (DAB) 3,152,570 – 0.83 0.83 Total 35,215,062 – 0.95 0.95

24 Capital and other financial commitments

2012 2011 £m £m Capital expenditure commitments (expenditure on property, plant and equipment) 0.6 4.9 Other financial commitments (expenditure on investments) – 0.5 Total contracts placed for future capital and other financial expenditure not provided for in the financial statements 0.6 5.4

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Notes to the financial statements continued

25 Operating lease commitments – minimum lease payments At 31 December 2012, the Group had commitments under non-cancellable operating leases as follows:

2012 2011 Land and Land and buildings Other Total buildings Other Total £m £m £m £m £m £m The future aggregate minimum lease payments under non-cancellable operating leases are as follows: Within one year 6.8 20.4 27.2 6.1 19.7 25.8 Later than one year and less than five years 16.9 21.5 38.4 15.5 37.1 52.6 After five years 6.7 – 6.7 5.4 – 5.4 At 31 December 30.4 41.9 72.3 27.0 56.8 83.8 The Group leases office buildings and EDA tools software under non-cancellable operating lease agreements. The lease terms are between two and ten years, and the majority of lease agreements are renewable at the end of the lease period at market rate. 26 Financial contingencies It is common industry practice for licensors of technology to offer to indemnify their licensees for loss suffered by the licensee in the event that the technology licensed is held to infringe the intellectual property of a third party. Consistent with such practice, the Group provides such indemnification to its licensees but subject, in all cases, to a limitation of liability. The obligation for the Group to indemnify its licensees is subject to certain provisos and is usually contingent upon a third party bringing an action against the licensee alleging that the technology licensed by the Group to the licensee infringes such third party’s intellectual property rights. The indemnification obligations typically survive any termination of the licence and will continue in perpetuity. The Group does not provide for any such indemnities unless it has received notification from the other party that they are likely to invoke the indemnity. A provision is made if both of the following conditions are met: (i) information available prior to the issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements; and (ii) the amount of the liability can be reasonably estimated. Any such provision is based upon the directors’ estimate of the fair value of expected costs of any such claim. At present, the Group is not a party in any legal proceedings in which the directors believe that it is probable that the resolution of such proceedings will result in a material liability for the Group. Currently, there are legal proceedings against some of the Group’s licensees in which it is asserted that certain of the Group’s technology infringes third party patents, but in each of those proceedings the Group either presently has no obligation to indemnify, because certain preconditions to indemnification have not been satisfied by such licensees, or to the extent that there is any present obligation to indemnify, the Group does not believe that it is probable that the resolution of such proceedings will result in a material liability for the Group. If preconditions to indemnification are satisfied then an indemnification obligation may arise which could result in a material liability for the Group. The Group is presently in discussions with a licensee to re-negotiate the terms upon which the Group will indemnify that licensee. In the event that there is agreement with that licensee on the terms presently expected, an obligation of up to US$20 million will arise on adoption of the new indemnity terms. 27 Related party transactions During the year, the Group was invoiced £4.2 million (2011: £4.2 million) in subscription fees by its associated company, Linaro Limited (Linaro). At 31 December 2012, £1.0 million (2011: £1.1 million) was outstanding. In addition the Group provided consulting and other services to Linaro amounting to £1.7 million (2011: £1.6 million). All fees have been charged in accordance with the terms of the agreement. At 31 December 2012, £1.0 million (2011: £0.7 million) was owed to the Group. Further information relating to Linaro is disclosed in note 29. There were no other related party transactions during 2012 which require disclosure. Key management compensation is disclosed in note 3. 28 Post-balance sheet events After the year end, the directors proposed payment of a final dividend in respect of 2012 of 2.83 pence per share. Subject to shareholder approval, the final dividend will be paid on 17 May 2013 to shareholders on the register on 19 April 2013. The final dividend has not been recognised as a distribution during the year ended 31 December 2012.

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29 Principal subsidiaries, associates, and joint ventures Subsidiaries Details of principal subsidiary undertakings are shown below. Not all subsidiaries are included as the list would be excessive in length. A full list is filed in the Group’s Annual Return. All investments are indirectly held unless otherwise shown.

Proportion of total nominal value of Name of undertaking Country of registration Principal activity issued shares held ARM Limited England and Wales Marketing, and research and development of RISC-based 100* microprocessors and physical IP ARM Inc. US Marketing, and research and development of RISC-based 100 microprocessors and physical IP ARM KK Japan Marketing of RISC-based microprocessors and physical IP 100 ARM Korea Limited South Korea Marketing of RISC-based microprocessors and physical IP 100 ARM France SAS France Marketing and development of RISC-based microprocessors 100 and physical IP ARM Norway AS Norway Development of graphics IP 100 ARM Sweden AB Sweden Development of graphics IP 100 ARM Germany GmbH Germany Marketing of RISC-based microprocessor IP. Marketing, 100 and research and development of microcontroller tools ARM Embedded Technologies Pvt. Limited India Marketing, and research and development of RISC-based 100 microprocessors and physical IP ARM Taiwan Limited Taiwan Marketing, and research and development of RISC-based 100 microprocessors and physical IP ARM Consulting (Shanghai) Co. Limited PR China Marketing, and research and development of RISC-based 100 microprocessors and physical IP * The Company itself owns less than 1% of the share capital of ARM Limited, the remaining shares are held indirectly through ARM Finance UK Limited and ARM Finance UK Three Limited. Both ARM Finance UK Limited and ARM Finance UK Three Limited are 100% owned within the Group. Associate During 2010, the Group became a founder member of Linaro, a not-for-profit engineering company created to foster innovation in the Linux community. Linaro is a company limited by guarantee and as such has no shareholders. The Group controls only 25% of the board and therefore considers Linaro to be an associate rather than a subsidiary. The Group has not recognised any associate profit or loss, or net assets on the basis that the entity is not-for-profit. Joint venture On 4 December 2012 Trustonic Limited, a joint venture of which the Group holds a 40% share, commenced trading. The initial investment value amounted to £7.5 million ($12.0 million).

2012 2011 Investment in joint venture £m £m At 1 January – – Initial investment 7.5 – Share of results for the period (0.7) – At 31 December 6.8 – The Group’s share of the results of the joint venture, and its aggregated assets and liabilities, are as follows:

Non-current Current Expenses/ Current assets assets liabilities Loss for period £m £m £m £m At 31 December 2012 -Trustonic Limited 3.7 4.6 1.5 0.7 The Group’s share of joint venture capital commitments amount to £0.6 million at 31 December 2012.

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Company balance sheet/UK GAAP

2012 2011 At 31 December Note £m £m Fixed assets Investments 4 616.1 593.4 Current assets Debtors 5 0.8 32.8 Cash at bank and in hand 0.9 0.1 1.7 32.9 Creditors: amounts falling due within one year 6 (3.0) (0.5) Net current (liabilities)/assets (1.3) 32.4 Total assets less current liabilities 614.8 625.8 Net assets 614.8 625.8 Capital and reserves Called-up share capital 7 0.7 0.7 Share premium account 8 12.2 6.6 Share option reserve 8 61.4 61.4 Profit and loss reserve 8 540.5 557.1 Total shareholders’ funds 9 614.8 625.8 The financial statements on pages 142 to 148 were approved by the Board of directors on 27 February 2013 and were signed on its behalf by:

Sir John Buchanan, Chairman

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Notes to the financial statements/UK GAAP

1 Principal accounting policies The financial statements have been prepared in accordance with the Companies Act 2006 and applicable Accounting Standards in the UK. A summary of the more important accounting policies, which have been consistently applied and reviewed by the board of directors in accordance with Financial Reporting Standard (FRS) 18, “Accounting policies”, is set out below: Basis of accounting The financial statements are prepared in accordance with the historical cost convention. Investments in subsidiaries Investments in subsidiaries are initially recorded at cost. Where an acquisition satisfies the provisions of section 612 of the Companies Act 2006 for merger relief, the investment is stated at the nominal value of shares issued plus the fair value of any other consideration. Cash flow statement The Company has taken advantage of the exemption in FRS 1 Revised 1996 “Cash flow statements” which provides that where a company is a member of a group and a consolidated cash flow statement is published, the company does not have to prepare a cash flow statement. Foreign currency Transactions denominated in foreign currencies have been translated into sterling at actual rates of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies have been translated at the closing rates of exchange at the balance sheet date. Exchange differences have been included in operating profit. Taxation Current tax is provided at amounts expected to be paid using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Financial instruments The Company does not have any financial instruments, other than intercompany payables and receivables, and cash. Due to the short-term nature of these balances, the Company considers the fair value of these items to equal the carrying value. Because the Company is included in the consolidated financial statements of the ARM Holdings plc Group which are publicly available, and the financial disclosures required by FRS 29 are in those financial statements, no disclosure has been presented in these financial statements. Share schemes The Company issues equity-settled share-based payments, including an LTIP, to certain employees of subsidiary undertakings. In accordance with FRS 20, equity-settled share-based payments are measured at fair value at the date of grant. Fair value is measured by use of the Black-Scholes pricing model. The fair value determined at the grant date of the equity-settled share-based payments is expensed in the accounts of the subsidiary companies on a straight-line basis over the vesting period, based on the Company’s estimate of the number of shares that will eventually vest. The Company operates Save As You Earn (SAYE) schemes in the UK and an Employee Share Purchase Plan (ESPP) in the US and India. Options under the SAYE scheme were at a 20% discount to market price of the underlying shares on the date of announcement of the scheme. The UK SAYE schemes are approved by the Inland Revenue, which stipulates that the saving period must be at least 36 months. The Company has taken advantage of the exemption available, and has applied the provisions of FRS 20 only to those options granted after 7 November 2002 and which were outstanding at 31 December 2004. The Company does not have any employees and as such, in accordance with UITF 44, all share-based payments have been recorded as capital contributions to all subsidiaries. The Company recharges the relevant amount of the share-based payments to its US subsidiary. Consequently, the amount recharged is offset against the carrying value of its investments. Treasury shares The Company has a share buyback programme under which the Company is able to purchase its own shares and hold them as treasury shares. There were no treasury shares in place at 31 December 2012 or 2011. In accordance with FRS 25, the Company recognises these shares at cost as a deduction in arriving at shareholders’ funds.

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Notes to the financial statements/UK GAAP continued

2 Profit for the financial year As permitted by Section 408 of the Companies Act 2006, the parent company’s profit and loss account has not been included in these financial statements. The parent company’s loss after taxation, including dividends receivable and before dividends payable was £1.9 million (2011: £1.1 million). The Company has no employees; all five executive directors (as at 31 December 2012) have contracts of service with ARM Limited, a subsidiary of the Company. The emoluments of four of these directors are paid by ARM Limited, and one of the directors is paid by ARM Inc, the details of which are disclosed in the remuneration report within these financial statements. Audit fees are disclosed in note 5 to the consolidated financial statements on page 120. 3 Dividends paid and proposed 2012 2011 £m £m Final dividend paid of 2.09 pence per ordinary share in respect of 2011 (2011: 1.74 pence in respect of 2010) 28.8 23.4 Interim dividend paid of 1.67 pence (2011: 1.39 pence) per ordinary share 23.0 18.8 51.8 42.2 In addition, the directors are proposing a final dividend in respect of the financial year ended 31 December 2012 of 2.83 pence per share which will absorb an estimated £40 million of shareholders’ funds. It will be paid on 17 May 2013 to shareholders who are on the register of members on 19 April 2013, subject to approval by the shareholders at the 2013 AGM. 4 Investments The cost and net book value of interests in Group undertakings held by the Company was £616.1 million at 31 December 2012 and £593.4 million at 31 December 2011. The Company took advantage of merger relief in 2004 and did not record the premium on the issue of shares for the acquisition of Artisan Components Inc. (now ARM Inc.) and thus did not record the premium within the value of the investment in the Company balance sheet at that time.

Investments in subsidiary undertakings £m Cost and net book value At 1 January 2012 593.4 Capital contributions arising from share-based payments 37.1 Refund of costs related to share issue * (2.7) Recharge to subsidiary of share-based payments (11.7) At 31 December 2012 616.1 * During 2012, it was confirmed by HMRC that they would not challenge a ruling that the stamp duty incurred on the issue of shares of a UK company to a depositary or clearance system outside the EU was in breach of EU law. ARM has therefore been able to claim a full refund of £2.7 million for stamp duty incurred on the issue of shares for the acquisition of Artisan Components Inc. in 2004. Where options and awards over the Company’s shares have been issued to the employees of subsidiary undertakings, the fair value of employee services performed (equal to the share-based payments) has been recorded as a capital contribution. The Company recharges the relevant amount of the share-based payments to its US subsidiary. Consequently, the amount recharged is offset against the carrying value of its investments. Interests in Group undertakings Details of subsidiary undertakings are as follows:

Proportion of nominal value Country Description of issued Name of undertaking of registration of shares held shares held ARM Limited England and Wales Ordinary £1 shares less than 0.01% ARM Finance UK Limited England and Wales Ordinary $1 shares 100% The principal activity of ARM Limited is the marketing, research and development of RISC-based microprocessors and physical IP. The remaining shares in ARM Limited were held at the balance sheet date by ARM Finance UK Limited (AFL) and ARM Finance UK Three Limited (AFL3) (with AFL3 itself being an indirect wholly owned subsidiary of AFL). The principal activities of both AFL and AFL3 are as intermediate holding companies.

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5 Debtors

2012 2011 £m £m Amounts owed by Group undertakings –32.4 Prepayments and accrued income 0.5 0.1 Deferred tax assets * 0.3 0.3 0.8 32.8 * A deferred tax asset in respect of timing differences arising on losses has been recognised, and it is expected that profits will be available in the future to offset these losses. 6 Creditors: amounts falling due within one year

2012 2011 £m £m Amounts owed to Group undertakings 2.7 – Accruals 0.3 0.5 3.0 0.5 7 Called-up share capital

2012 2011 £m £m Authorised 2,200,000,000 ordinary shares of 0.05 pence each (2011: 2,200,000,000) 1.1 1.1 Allotted, called-up and fully paid 1,380,768,350 ordinary shares of 0.05 pence each (2011: 1,351,315,597) 0.7 0.7 29,452,753 ordinary shares of 0.05 pence each were issued in the year for cash consideration of £5.6 million as a result of the exercise of share options at various times during the year. Share options and awards The Company had the following options and awards outstanding over ordinary shares of 0.05 pence at 31 December 2012:

Weighted Range of average exercise Number exercise prices price Latest date Year of grant of options £ £ of exercise Executive Scheme 2004 32,813 1.25 1.25 29 January 2014 2005 35,255 1.055 1.055 3 February 2015 68,068 1.1490 Unapproved Performance Scheme 2006 488,573 1.325 1.325 6 February 2013 Unapproved Scheme 2006 6,375 1.36 1.36 3 May 2013 2003 Plan 2003 218,630 0.47–0.58 0.4996 22 October 2013 2004 692,484 0.55–1.01 0.6919 29 November 2014 911,114 0.6457 SAYE 2008 414,697 0.81 0.81 31 January 2014 2009 199,921 0.854 0.854 31 January 2015 2010 548,440 1.948 1.948 31 January 2016 2011 385,126 4.464 4.464 31 January 2017 2012 716,608 3.9616 3.9616 31 January 2018 2,264,792 2.7080 Total options 3,738,922 0.47–4.464 1.9941

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Notes to the financial statements/UK GAAP continued

7 Called-up share capital continued

Number Year of grant of share awards Latest vest date RSU 2009 2,807,731 12 November 2013 2010 5,119,095 12 November 2014 2011 4,517,249 12 November 2015 2012 3,419,684 12 November 2016 15,863,759 French RSU 2009 180,979 12 November 2013 2010 263,036 12 November 2014 2011 310,388 12 November 2015 2012 131,907 12 November 2016 886,310 LTIP 2010 2,261,100 8 February 2013 2011 868,124 8 February 2014 2012 1,060,090 8 February 2015 4,189,314 DAB 2010 914,409 8 February 2013 2011 599,801 8 February 2014 2012 802,241 8 February 2015 2,316,451 Total awards 23,255,834 Total options and awards 26,994,756 For further disclosures relating to share-based payments, refer to note 23 to the consolidated financial statements on page 136. Under the UK Inland Revenue Executive Approved Share Option Plan (the “Executive Scheme”), the Company may grant options to employees meeting certain eligibility requirements. Options under the Executive Scheme are exercisable between three and ten years after their issue, after which time the options expire. Under the Company’s Unapproved Scheme (the “Unapproved Scheme”), for which it has not sought approval from the UK tax authorities, options are exercisable one to seven years after their issue, after which time the options expire. There is a further scheme for our French employees (the “French Scheme”). In the French Scheme, options are exercisable between four and seven years after their issue. Upon the acquisition of Artisan in 2004, the Company assumed the share schemes of Artisan existing at acquisition. The schemes remained substantially the same as prior to the acquisition, other than the options became options to purchase shares in ARM Holdings plc instead of Artisan Components Inc. The number and value of options were amended in line with the conversion ratio as detailed in the merger agreement. The only remaining scheme from those assumed is the “2003 Plan”. Under each plan, there are multiple vesting templates and vesting periods. The majority of the options were already vested upon acquisition, and the most common template was 25% vesting after one year, and then 6.25% vesting each quarter thereafter, until 100% vest after four years. Some options vest on a monthly basis, and some vest over five years. All options lapse ten years from date of grant. The Company also offers savings-related share option schemes (SAYE) for employees and executive directors of the Group. 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. The option price for grants is set at 80% of the market share price prior to the announcement of the grant, and the right to exercise normally only arises for a six-month period once the savings have been completed. The Company also operates a savings-related option scheme for employees in the US and India, namely the Employee Share Purchase Plan (ESPP). The number of options granted is related to the value of savings made by the employee. The period of savings is six months, with the option price being at 85% of the lower of the market share price at the beginning and end of the scheme.

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7 Called-up share capital continued The Company also issues restricted stock units (RSUs) to employees which are actual share awards on vesting rather than options to buy shares at a fixed exercise price. The main RSU awards (to employees in all jurisdictions other than France) vest 25% on each anniversary over four years. RSU awards to our French employees vest 50% after two years, and then a further 25% after three and four years. Whilst the Company reserves the right to award options to employees going forward, the majority of awards to employees will be in RSUs. Additionally, the Company operates a Deferred Annual Bonus plan (DAB). Under the DAB, which is for directors and selected senior management within the Group, participants are required to defer 50% of any related annual bonus into shares on a compulsory basis. These shares will be deferred for three years, and then a further matching award will be made depending on the achievement of an EPS performance condition over that time. The Company also operates the Long Term Incentive Plan (LTIP), also for directors and selected senior management, whereby share awards are made and vest depending on the Company’s TSR performance compared to two comparator groups over the three year performance period. For disclosures relating to the grants in the year and fair value assumptions, reconciliations of opening to closing option balances and related items, please refer to note 23 in the consolidated financial statements. 8 Reserves

Share premium Share option Profit and account reserve loss reserve £m £m £m At 1 January 2012 6.6 61.4 557.1 Premium on issue of share options 5.6 – – Credit in respect of capital contributions arising from share-based payments – – 37.1 Loss attributable to shareholders – – (1.9) Equity dividends payable – – (51.8) At 31 December 2012 12.2 61.4 540.5 The share option reserve represents the fair value of options granted on the acquisition of Artisan Components Inc. in 2004. The Company considers the share option reserve and share premium account as non-distributable. Within the profit and loss reserve are credits in respect of FRS 20 employee share-based payments in respect of services performed by employees of subsidiary undertakings and recorded as a capital contribution. The Company also considers these credits as non-distributable. As such, approximately £380 million of the profit and loss reserve is deemed distributable. The Company did not undertake any share buy-backs during 2012. The quantum and frequency of share repurchases is not predetermined and will take into account prevailing market conditions, the short- to medium-term cash needs of the business and the level of employee share-based remuneration going forward. At 31 December 2012, there were nil (2011: nil) shares in the Company still held from purchases made in prior years.

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Notes to the financial statements/UK GAAP continued

9 Reconciliation of movements in shareholders’ funds

2012 2011 £m £m Loss attributable to shareholders (1.9) (1.1) Equity dividends payable (51.8) (42.2) (53.7) (43.3) Proceeds on issue of treasury shares on exercise of share options – 1.9 New share capital issued 5.6 6.6 Credit in respect of capital contributions arising from share-based payments 37.1 40.5 Net (reduction)/addition to shareholders’ funds (11.0) 5.7 Opening shareholders’ funds 625.8 620.1 Closing shareholders’ funds 614.8 625.8

10 Capital commitments The Company had no capital commitments at 31 December 2012 and 2011. 11 Financial commitments and contingencies At 31 December 2012 and 2011 the Company had no annual commitments under non-cancellable operating leases. 12 Related party transactions The Company has taken advantage of the exemption from disclosure available to parent companies under FRS 8, “Related party disclosures”, where transactions and balances between wholly owned Group entities have been eliminated on consolidation.

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Independent auditors’ report to the members of ARM Holdings plc

We have audited the parent company financial statements of ARM Holdings plc for the year ended 31 December 2012 which comprise the Company balance sheet and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of directors and auditors As explained more fully in the Statement of directors’ responsibilities included in the Directors’ report, the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, 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. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the parent company financial statements: • give a true and fair view of the state of the Company’s affairs as at 31 December 2012; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • the part of the Remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and • the information given in the Directors’ report for the financial year for which the parent company financial statements are prepared is consistent with the parent company financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements and the part of the Remuneration report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the Group financial statements of ARM Holdings plc for the year ended 31 December 2012.

Charles Bowman (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 27 February 2013

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Glossary

Apps Application software that runs within the chip. ARM7/9/11 ARM7 processor was one of ARM’s first commercial products. ARM9 and ARM11 processors followed later. Cortex ARM’s latest family of processors. DTV Digital TV. Ecosystem Community of companies that work with ARM, including semiconductor companies, foundries, OEMs and software providers. Fabless semiconductor company A fabless semiconductor company designs computer chips. These chips are typically manufactured by a foundry. For example Mediatek, NVIDIA and Qualcomm. Foundry A foundry is a specialist company that manufacturers computer chips on behalf of fabless semiconductor companies. For example TSMC and UMC. Intellectual Property (IP) ARM designs technology for use in computer chips. The general term for the products that are designs only, or are creations of the mind, is intellectual property. Licence Partners licence ARM’s designs. They pay an upfront free, which is reported as “licence revenue”. LTE Long Term Evolution (or 4G) is the next generation wireless standard for mobile phones. It is optimised for data streaming allowing internet connections at speeds similar to broadband in the home. Mali ARM’s family of 3D graphics processors. Microcontroller (MCU) A microcontroller is a general-purpose computer chip which has/can be used in many applications. Most ARM processors are used in either an SoC or MCU. Original Equipment Manufacturer (OEM) An OEM manufactures consumer products such as TVs or mobile phones. For example Apple, HTC and LG. Partner One of the companies within the ARM ecosystem. Physical IP Design of the building blocks used in the implementation a SoC design. Processor Design of the brain of the computer chip. Processor Optimisation Pack (POP) Physical IP components that have been selected and optimised to implement a processor on a specific foundry’s manufacturing process. Royalty ARM receives a royalty on every chip that contains ARM technology. The royalty is usually a percentage of the selling price of the chip and is reported as “royalty revenue”. STB Set-top box. System-on-Chip (SoC) A SoC is a computer chip where multiple functions have been integrated into a single chip. Most ARM processors are used in either an SoC or MCU.

150 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 Overview Our marketplaceStrategy and Our partnership Our commitment Financials and risk Governance Financial performance approach statements

Group directory

ARM Holdings plc ARM Germany GmbH 4965 Preston Park Blvd 110 Fulbourn Road Bretonischer Ring 16 Suite 650 Cambridge CB1 9NJ D-85630 Grasbrunn Plano, TX 75093 United Kingdom Germany United States Tel: +44 (0) 1223 400400 Tel: +49 89 456 040-0 Tel: +1 972 312 1107 Fax: +44 (0) 1223 400410 Fax: +49 89 456 040-19 Fax: +1 972 312 1159 ARM Limited ARM Israel 2002 Canton Way SW Liberty House 3 Hagavish Street Olympia Moorbridge Road 44424 Kfar Saba WA 98502-1119 Maidenhead Israel United States Berkshire SL6 8LT Tel: +972.9.7644888 Tel: +1 408 576 1500 United Kingdom Fax: +972.9.7644884 5375 Mira Sorrento Place Tel: +44 (0) 1628 427700 ARM Norway AS Suite 290 Fax: +44 (0) 1628 427701 Olav Tryggvassons gt. 39-41 San Diego, CA 92121 Rockingham Court 7011 Trondheim United States 152 Rockingham Street Norway Tel: +1 858 453 1900 Sheffield S1 4EB Tel: +47 4000 5757 2320 130th Avenue NE United Kingdom Fax: +47 7351 3181 Building E, Suite 220 Tel: +44 (0) 114 282 8000 ARM Sweden AB Bellevue Fax: +44 (0) 114 282 8001 Lilla Fiskaregatan 12 WA 98005 Blackburn Design Centre SE-222 22 Lund United States Belthorn House Sweden Tel: +1 408 576 1500 Walker Road Tel: +46 46 540 11 04 ARM KK Blackburn BB1 2QE Fax: +46 46 14 48 08 Shinyokohama Square Bldg. 17F United Kingdom ARM Inc. 2-3-12 Shin-Yokohama Tel: +44 (0) 1254 893900 150 Rose Orchard Way Kohoku-Ku, Yokohama-Shi Fax: +44 (0) 1254 893901 San Jose, CA 95134-1358 Kanagawa 222-0033 ARM France SAS United States Japan 12 Avenue des Prés Tel: +1 408 576 1500 Tel: +81 45 477 5260 BL204 Montigny le Fax: +1 408 576 1501 Fax: +81 45 477 5261 Bretonneux The Park on Barton Creek ARM Korea Limited 78059 Saint Quentin en 3711 S. Mopac Expressway 8th Floor Kyungdong Building Yvelines, Cedex Building 1, Suite 400 4-4 Sunae-Dong France Austin, TX 78746 Bundang-Gu, Seongnam-si Tel: +33 1 39 30 47 89 United States Gyeonggi-do 463-020 Fax: +33 1 39 30 47 88 Tel: +1 512 327 9249 Korea 25 Allée Pierre Ziller Fax: +1 512 314 1078 Tel: +82 31 712 8234 Le Paros Fax: +82 31 713 8225 5 East Street BP 70124 Franklin, MA 02038 06903 Sophia Antipolis Cedex United States France Tel: +1 970 532 0767 Tel: +33 4 97 23 51 00 Fax: +1 508 520 1907 Fax: +33 4 97 23 51 99 2 Venture Suite 470 Miniparc Polytec Irvine, CA 92618 60 Rue des Berges United States 38000 Grenoble Tel: +1 408 576 1500 France Fax: +1 949 623 8305 Tel: +33 4 56 38 47 00 Fax: +33 4 56 38 47 01

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Group directory continued

ARM Taiwan Limited ARM Consulting Unit 13B01, Anlian Plaza 8F, No. 36, Ruihu Street (Shanghai) Co. Ltd No.4018, Jin Tian Road Nei-Hu District 35F, Building B, Futian District Taipei City New CHJ International Business Centre Shenzhen 518006 11494 No. 391 Guiping Road PR China Taiwan (R.O.C) Shanghai 200233 Tel: +86 755 8280 4836 Tel: +886 2 2627 1681 PR China Fax: +86 755 8280 4839 Fax: +886 2 2627 1682 Tel: +86 21 6154 9000 ARM Embedded Fax: +86 21 6154 9100 7F, No. 2, Li-Hsin Technologies Pvt. Limited 6th Road Hsinchu Science Park Room 602, Ideal Plaza Level III, Salarpuria Hsinchu City 58 West Road Touchstone Marthahalli- 30078 North 4th Ring Road Sarajapur Outer Ring Road, Taiwan (R.O.C.) Haidian District Varthur Hobli, Tel: +886 3 565 7100 Beijing 100080 Bangalore 560 103 Fax: +886 3 567 7128 PR China Tel: +91 80 2518 5000 Tel: +86 10 8260 3570 Fax: +91 80 2844 0914 Fax: +86 10 8260 3573

Key shareholder information

ARM Holdings plc is the parent Registrars US Law company of the Group Equiniti Davis Polk & Wardwell Company Number: 2548782 Aspect House 99 Gresham Street Incorporated in England & Wales Spencer Road London EC2V 7NG Domiciled in the UK Lancing United Kingdom Public company limited by shares West Sussex

BN99 6DA Secretary and registered office United Kingdom Patricia Alsop 110 Fulbourn Road Shareholder Helpline Cambridge CB1 9NJ 0871 384 2139 United Kingdom Depositary Independent auditors The Bank of New York Mellon PricewaterhouseCoopers LLP 101 Barclays Street 1 Embankment Place New York For more shareholder information please London WC2N 6RH New York 10286 contact Ian Thornton at United Kingdom United States of America [email protected] Stockbrokers Legal advisers Our website contains information UBS Limited UK Law for shareholders, including regular strategic, 2 Finsbury Avenue Slaughter and May business and financial updates. London EC2M 2PP One Bunhill Row United Kingdom London EC1Y 8YY www.arm.com/ir United Kingdom Goldman Sachs Peterborough Court Linklaters 133 Fleet Street One Silk Street London EC4A 2BB London EC2Y 8HQ United Kingdom United Kingdom

152 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 Overview 01 Financials and risk 45 – Chairman’s overview 02 – Financial review 46 – Operational highlights 04 – Risk management 52 – Financial highlights 05 – Our business model 06 Governance 55 – Chairman’s introduction 56 Our marketplace 08 – Board of directors 59 – Corporate governance 62 – Where the market is now 09 – Directors’ report 73 – Where the market is heading 10 – Remuneration report 78

This report has been printed on Cocoon Offset a paper which is certified by the Forest Stewardship Council® and contains 100% recycled waste. The paper is Process Chlorine Free (PCF) made at a mill with ISO More information available online at: 14001 environmental management system www.arm.com/reporting2012 accreditation. This report was produced using the pureprint® environmental print technology, a guaranteed, low carbon, low waste, independently audited process that Designed and produced by reduces the environmental impact of the Radley Yeldar. www.ry.com printing process. Printed using vegetable oil based inks by a CarbonNeutral® printer certified to ISO 14001 environmental management system and registered to EMAS the Eco Management Audit Scheme. ARM, ARM Powered and Artisan are registered trademarks of ARM Limited. ARM7, ARM9, ARM11, Cortex, Cortex-A7, Cortex-A9, Cortex-A15, POP, Mali and Connected Community are trademarks of ARM Limited. WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 AR M Holdings plc 110 Fulbourn Road Cambridge CB1 9NJ ARM Holdings plc United Kingdom Annual Report & Accounts 2012 Telephone +44 (0)1223 400400 Facsimile +44 (0)1223 400410 www.arm.com Annual Report & Accounts 2012 & Accounts Report Annual plc Holdings ARM

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