Annual Report and Accounts 2010

2Segmental reporting

At 31 December 2010 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, 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.

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 and other acquisition related charges; share-based payments costs including employers taxes; restructuring and investment related charges are analysed below in addition to an analysis of revenues; operating costs; investment income; 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

Year ended 31 December 2010

Processor
Division
£000

Physical IP
Division
£000

System
Design
Division
£000

Unallocated
£000

Group
£000

Segmental income statement

 

 

 

 

 

Revenue

315,747

54,855

35,993

406,595

Operating costs

(179,224)

(82,519)

(39,493)

1,600

(299,636)

Investment income

3,634

3,634

Interest payable and similar charges

(566)

(566)

Profit/(loss) before tax

136,523

(27,664)

(3,500)

4,668

110,027

Tax

(24,053)

(24,053)

Profit/(loss) for the year

136,523

(27,664)

(3,500)

(19,385)

85,974

Reconciliation to normalised profit/(loss) before tax:

 

 

 

 

 

Intangible amortisation and other acquisition related charges

2,181

8,413

801

11,395

Share-based payment costs including employer’s taxes

24,969

9,949

6,992

41,910

Restructuring

(358)

(15)

(373)

Investment related charges

4,448

4,448

Normalised profit/(loss) before tax

167,763

(9,302)

4,278

4,668

167,407

Segmental balance sheet

 

 

 

 

 

Total assets

239,918

414,929

29,820

399,995

1,084,662

Total liabilities

(115,854)

(38,576)

(14,609)

(20,718)

(189,757)

Net assets

124,064

376,353

15,211

379,277

894,905

Other segmental items

 

 

 

 

 

Depreciation

3,045

2,470

604

6,119

Capital expenditure

3,889

2,773

693

7,355

Goodwill

139,560

377,767

14,958

532,285

Revenues (USD)

$ 490,747

$ 85,143

$ 55,417

$ 631,307

 

 

Year ended 31 December 2009

Processor
Division
£000

Physical IP
Division
£000

System
Design
Division
£000

Unallocated
£000

Group
£000

Segmental income statement

 

 

 

 

 

Revenue

227,191

44,890

32,941

305,022

Operating costs

(148,820)

(81,070)

(37,019)

7,501

(259,408)

Investment income

1,788

1,788

Interest payable and similar charges

(143)

(143)

Profit/(loss) before tax

78,371

(36,180)

(4,078)

9,146

47,259

Tax

(6,820)

(6,820)

Profit/(loss) for the year

78,371

(36,180)

(4,078)

2,326

40,439

Reconciliation to normalised profit/(loss) before tax:

Intangible amortisation and other acquisition related charges

2,598

12,056

1,500

16,154

Share-based payment costs including employer’s taxes

13,906

6,489

4,304

24,699

Restructuring

7,292

348

831

8,471

Investment related charges

188

188

Normalised profit/(loss) before tax

102,355

(17,287)

2,557

9,146

96,771

Segmental balance sheet

Total assets

215,271

402,223

28,089

198,900

844,483

Total liabilities

(54,457)

(24,839)

(9,234)

(17,256)

(105,786)

Net assets

160,814

377,384

18,855

181,644

738,697

Other segmental items

Depreciation

2,775

2,140

703

5,618

Capital expenditure

2,860

3,427

588

6,875

Goodwill

135,723

366,258

14,817

516,798

Revenues (USD)

$365,730

$72,148

$51,575

$489,453

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- and long-term deposits; available-for-sale investments; marketable securities; 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 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 are in the following principal territories:
Europe
United States
Asia Pacific

Analysis of revenue by destination*:

 

2010
£000

2009
£000

United States

129,252

84,747

Taiwan

51,839

34,828

South Korea

48,664

41,381

Japan

46,405

48,014

China

30,722

15,835

British Virgin Islands

21,346

14,550

Germany

16,271

8,481

Netherlands

14,794

14,347

Switzerland

13,316

10,369

Rest of Europe

13,930

13,936

Rest of Asia Pacific

9,596

7,832

Rest of North America

10,460

10,702

 

406,595

305,022

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

The Group’s revenue within the home country of the parent company amounted to £3.8 million and £1.7 million for the years ended 31 December 2010 and 2009 respectively. The Group’s exports from the UK were £391.0 million and £293.2 million for the years ended 31 December 2010 and 2009 respectively.

Analysis of revenue by origin:

 

2010
£000

2009
£000

Europe*

396,399

296,785

United States

9,901

7,838

Asia Pacific

295

399

 

406,595

305,022

*Includes the UK which had total revenues of £394.8 million in 2010 (2009: £295.0 million).

Analysis of revenue by revenue stream:

 

2010
£000

2009
£000

Licensing

132,528

98,446

Royalties

217,624

155,447

Services

20,450

18,188

Development systems

35,993

32,941

 

406,595

305,022

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

 

2010
£000

2009
£000

Europe*

43,134

14,410

United States

7,088

7,975

Asia Pacific

2,808

2,223

 

53,030

24,608

*Includes the UK which had non-current assets (excluding deferred tax assets, goodwill and other intangible assets) of £42.7 million in 2010    (2009: £14.0 million).