Annual report and accounts 2008

2Segmental reporting

At 31 December 2008 the Group is 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, fabric IP, embedded software and configurable digital signal processing IP.

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

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

This is based upon the Group’s internal organisation and management structure and is the primary way in which the board of directors is provided with financial information. Whilst revenues are 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.

In 2007, the Group early-adopted IFRS 8, “Operating segments”. This supersedes IAS 14, “Segmental reporting”, under which segments were identified and reported on risk and return analyses. Under IFRS 8, segments are reported based on internal reporting, bringing segment reporting in line with the requirements of US standard FAS 131. For the Group, the impact of this is purely presentational – as under IAS 14, the Group’s business segments were still defined as PD, PIPD and SDD.

The acquisition of Logipard in 2008 was allocated to PD, together with the related goodwill.

The following analysis is of revenues; operating costs; investment income; interest payable; profit/(loss) before tax, tax; profit/(loss) after tax; depreciation; amortisation of other intangible assets; share-based payment costs; capital expenditure; total assets and liabilities; net assets and goodwill for each segment and the Group in total.

Business segment information

Business segment information
Year ended 31 December 2008	Processor Division £000	Physical IP Division £000	Systems Design Division £000	Unallocated £000	Group £000
Segmental income statement
Revenue	221,354	46,432	31,148	−	298,934
Operating costs	(112,079)	(73,173)	(38,189)	(15,550)	(238,991)
Investment income	−	−	−	3,297	3,297
Interest payable	−	−	−	(51)	(51)
Profit/(loss) before tax	109,275	(26,741)	(7,041)	(12,304)	63,189
Tax	−	−	−	(19,597)	(19,597)
Profit/(loss) for the year	109,275	(26,741)	(7,041)	(31,901)	43,592
Segmental balance sheet
Total assets	235,899	463,302	32,136	116,846	848,183
Total liabilities	(41,696)	(20,192)	(10,617)	(35,335)	(107,840)
Net assets	194,203	443,110	21,519	81,511	740,343
Other segmental items
Depreciation	2,740	1,496	934	−	5,170
Amortisation of other intangible assets	2,692	16,187	2,903	−	21,782
Share-based payments cost	8,937	3,698	2,774	−	15,409
Capital expenditure	3,444	4,466	810	−	8,720
Goodwill	143,649	407,940	16,255	−	567,84

Business segment information
Year ended 31 December 2007	Processor Division £000	Physical IP Division £000	Systems Design Division £000	Unallocated £000	Group £000
Segmental income statement
Revenue	187,829	43,418	27,913	–	259,160
Operating costs	(113,901)	(62,799)	(43,006)	240	(219,466)
Investment income	–	–	–	5,459	5,459
Interest payable	–	–	–	(57)	(57)
Profit/(loss) before tax	73,928	(19,381)	(15,093)	5,642	45,096
Tax	–	–	–	(9,846)	(9,846)
Profit/(loss) for the year	73,928	(19,381)	(15,093)	(4,204)	35,250
Segmental balance sheet
Total assets	171,653	358,292	32,160	80,839	642,944
Total liabilities	(33,562)	(14,443)	(10,307)	(5,470)	(63,782)
Net assets	138,091	343,849	21,853	75,369	579,162
Other segmental items
Depreciation	2,756	1,800	936	–	5,492
Amortisation of other intangible assets	2,623	15,117	3,675	–	21,415
Share-based payments cost	10,575	3,356	2,855	–	16,786
Capital expenditure	3,161	1,336	947	–	5,444
Goodwill	107,265	302,050	11,520	–	420,835

There are no inter-segment revenues. Unallocated operating costs are foreign exchange revaluation on monetary items, including cash and cash equivalents. Unallocated assets and liabilities include: cash and cash equivalents; short-term investments and marketable securities; some deferred tax balances; current tax and VAT. Capital expenditure comprises additions to property, plant and equipment and other intangible assets, including additions resulting from acquisitions through business combinations.

The results of each segment have been prepared using accounting policies consistent with those of the Group as a whole.

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. The main operations in the principal territories are as follows:

–Europe

–United States

–Asia Pacific

Analysis of revenue by destination*:

Analysis of revenue by destination
	2008 £000	2007 £000
United States	90,648	96,140
Japan	54,561	41,868
Taiwan	26,746	28,358
South Korea	33,472	22,664
Netherlands	16,410	14,743
British Virgin Islands	15,985	8,544
Rest of Europe	35,074	27,911
Rest of North America	6,370	5,211
Rest of Asia Pacific	19,668	13,721
	298,934	259,160

*Destination is defined as the location of ARM’s customers.

The Group’s exports from the UK were £281.1 million and £217.0 million for the years ended 31 December 2008 and 2007 respectively.

Analysis of revenue by origin:

	2008 £000	2007 £000
Europe*	286,299	215,371
United States	12,181	42,115
Asia Pacific	454	1,674
	298,934	259,160

*Includes the UK which had total revenues of £284.6 million in 2008 (2007: £213.9 million).

Analysis of revenue by revenue stream:

	2008 £000	2007 £000
Licensing	103,506	110,663
Royalties	147,728	104,150
Services	16,552	16,434
Development systems	31,148	27,913
	298,934	259,160

Analysis of non-current assets (excluding deferred tax assets, goodwill and other intangible assets):

	2008 £000	2007 £000
Europe*	8,278	13,885
United States	8,502	2,827
Asia Pacific	2,411	1,891
	19,191	18,603

*Includes the UK which had non-current assets (excluding deferred tax assets, goodwill and other intangible assets) of £7.8 million in 2008 (2007: £13.6 million).

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