SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________

FORM 20-F

(Mark One)

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2015

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report ________________

Commission file number: 0-29644

ARM Holdings plc

(Exact name of Registrant as specified in its charter)

England

(Jurisdiction of incorporation or organization)

110 Fulbourn Road
Cambridge CB1 9NJ, England
(Address of principal executive offices)

Chris Kennedy, phone: +44 1223 400 400, fax: +44 1223 400 700, chris.kennedy@arm.com, 110 Fulbourn Road, Cambridge CB1 9NJ, England
(Name, Telephone, E-mail and/or Facsimile number and Address of Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
American Depositary Shares, each representing 3 Ordinary Shares of 0.05p each	The Nasdaq Stock Market LLC
Ordinary Shares of 0.05p each	The Nasdaq Stock Market LLC*

________________________

* Not for trading, but only in connection with the registration of American Depositary Shares representing such Ordinary Shares pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

The number of outstanding shares in the capital of ARM Holdings plc as of December 31, 2015:
Ordinary Shares of 0.05p each 1,412,436,842

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☒ Yes    ☐ No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

☐ Yes    ☒ No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes    ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

☐ Yes    ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.

☐ U.S.       GAAP ☒ International Financial Reporting Standards as issued by the International Accounting Standards Board        ☐ Other

If “Other” has been checked to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

☐ Item 17    ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes    ☒ No

Table of Contents

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Page

Introduction	1
Part I	2
Item 1.  Identity of Directors, Senior Management and Advisers	2
Item 2.  Offer Statistics and Expected Timetable	2
Item 3.  Key Information	2
Item 4.  Information on the Company	12
Item 4A.  Unresolved Staff Comments	25
Item 5.  Operating and Financial Review and Prospects	25
Item 6.  Directors, Senior Management and Employees	42
Item 7.  Major Shareholders and Related Party Transactions	86
Item 8.  Financial Information	87
Item 9.  Listing Details	88
Item 10.  Additional Information	90
Item 11.  Quantitative and Qualitative Disclosures About Market Risk	100
Item 12.  Description of Securities Other Than Equity Securities	102
Part II	104
Item 13.  Defaults, Dividend Arrearages and Delinquencies	104
Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds	104
Item 15.  Controls and Procedures	104
Item 16.  Reserved	105
Item 16A.  Audit Committee Financial Expert	105
Item 16B.  Code of Ethics	105
Item 16C.  Principal Accountant Fees and Services	105
Item 16D.  Exemptions from the Listing Standards for Audit Committees	105
Item 16E.  Purchases of Equity Securities by the Issuer and Affiliated Purchasers	105
Item 16F.  Change in Registrant’s Certifying Accountant	106
Item 16G.  Corporate Governance	106
Item 16H.  Mine Safety Disclosure	106
Part III	106
Item 17.  Financial Statements	106
Item 18.  Financial Statements	106
Item 19.  Exhibits	107

Introduction

Presentation of Financial Information

In this report, the term “US GAAP” refers to generally accepted accounting principles (“GAAP”) in the U.S. and “IFRS” refers to International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”).

We prepare our consolidated financial statements in accordance with IFRS.

Forward-looking Statements

Our reports filed with, or furnished to, the U.S. Securities and Exchange Commission (‘SEC’), including this document and written information released, or oral statements made, to the public in the future by or on behalf of the Company, contain ‘forward-looking statements’ within the meaning of the US Private Securities Litigation Reform Act of 1995, that may or may not prove accurate. These forward-looking statements are not historical facts, but rather are based on our current expectations, estimates and projections about our industry, our beliefs and assumptions. Words such as “aims”, “anticipates”, “expects”, “plans”, “will”, “intends”, “believes”, “seeks”, “estimates”, “targets”, “consider” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other important factors that could cause actual results, to differ materially

from what is expressed or implied by the forward-looking statements. We caution you not to place reliance on these forward-looking statements, which reflect our management’s view only as of the date of this annual report.

For ARM, these factors include: economic and financial conditions in the markets we serve; price levels for the technology we produce; rapid technological changes in our industry; litigation relating to patent or other claims; legal compliance risks and related investigative, remedial or enforcement actions; strategic actions, including investments, acquisitions and dispositions; disruptions that may result from transactions or other changes we make in our business plans or organization to adapt to market developments and numerous other matters that affect us or our markets, including those of a political, economic, business, competitive or reputational nature. Specific risks and uncertainties faced by us are described in “Item 3. Key Information—Risk Factors” and elsewhere in this annual report. Any forward-looking statement is based on information available to ARM as of the date of the statement. ARM does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances or in ARM’s expectations.

Certain Information

As used in this annual report, “we,” “us,” “our,” the “Company,” the “Group” and “ARM” refer to ARM Holdings plc and its subsidiaries, except where it is clear that such terms mean only ARM Holdings plc.

We publish our consolidated financial statements in pounds sterling. In this annual report, references to “pounds sterling,” “pounds,” “sterling,” “£,” “pence” and “p” are to the currency of the United Kingdom (“UK”) and references to “US dollars,” “dollars,” “$” or “c” are to the currency of the United States of America (“US”). See “Item 3. Key Information—Selected Financial Data—Exchange Rate Information” for historical information regarding the period end exchange rates between pounds sterling and US dollars. You should not construe these translations as representations that the pound amounts actually represent such US dollar amounts or could have been or could be converted into US dollars at the rates indicated or at any other rates.

This annual report includes product names and other trade names, logos and trademarks, either registered or with respect to which applications are pending, of ARM and of other companies. ARM, ARM Powered, AMBA, ARM7, ARM7EJ-S, ARM7TDMI, ARM7TDMI-S, ARM9, ARM9E-S, ARM9EJ-S, ARM9TDMI, ARM9TDMI-S, ARM920T, ARM922T, ARM926EJ-S, ARM946E, ARM946E-S, ARM966E-S, ARM968E-S, ARM996H-S, ARM11, ARM1136, ARM1136J-S, ARM1136JF-S, ARM1156, ARM1156T2F-S, ARM1156T2-S, ARM1176, ARM1176JZ-S, ARM1176JZF-S, Artisan, big.LITTLE, Cordio, CoreLink, CoreSight, Cortex, DesignStart, Jazelle, Keil, Mali, mbed, mbed Enabled, NEON, POP, SecurCore, Socrates, The Architecture for the Digital World, Thumb, TrustZone, ULINK, µVision and Versatile are trademarks or registered trademarks of ARM Limited (or its subsidiaries). All other brands or product names are the property of their respective holders. “ARM” is used to represent ARM Holdings plc; its operating company ARM Limited; and the regional subsidiaries ARM Inc.; ARM KK; ARM Korea Limited; ARM Taiwan Limited; ARM France SAS; ARM Electronic Technology (Shanghai) Co. Ltd.; ARM Belgium Services BVBA; ARM Germany GmbH; ARM Technologies Israel Ltd; ARM Finland Oy; ARM Embedded Technologies Pvt. Ltd.; ARM Norway AS; ARM Sweden AB; Geomerics Limited; ARM Technology (Ireland) Limited and ARM Hungary KFT.

Various amounts and percentages set out in this annual report have been rounded and accordingly may not total.

Part I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

Selected Financial Data

Our selected financial data at December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015 has been derived from our consolidated financial statements prepared in accordance with IFRS. Our consolidated financial statements have been audited by PricewaterhouseCoopers LLP, an independent

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registered public accounting firm. Our summary financial data at December 31, 2011, 2012 and 2013 and for the years ended December 31, 2011 and 2012 are also presented in accordance with IFRS and have been derived from our consolidated financial statements that are not included in this annual report. The following selected financial data should be read in conjunction with, and are qualified in their entirety by reference to, our consolidated financial statements and the notes thereto.

							Year ended December 31,
	2011			2012			2013			2014			2015
Income Statement Data:							(£ million, except per share data, percentages, number of shares and employees)
Revenues	£	491.8		£	576.9		£	714.6		£	795.2		£	968.3
Cost of revenues		(27.7	)		(31.9	)		(39.3	)		(37.8	)		(39.3	)
Operating expenses		(315.2	)		(336.9	)		(420.5	)		(448.4	)		(522.9	)
Exceptional items (1)		–			–			(101.3	)		–			–
Profit from operations		148.9			208.1			153.5			309.0			406.1
Investment income, net		8.0			13.6			13.1			11.0			11.8
Share of results in joint venture		–			(0.7	)		(4.0	)		(3.5	)		(3.1	)
Profit before tax		156.9			221.0			162.6			316.5			414.8
Tax		(44.3	)		(60.3	)		(57.8	)		(61.1	)		(75.1	)
Profit for the year		112.6			160.7			104.8			255.4			339.7
Basic earnings per share (pence)		8.4	p		11.7	p		7.5	p		18.2	p		24.1	p
Diluted earnings per share (pence)		8.2	p		11.5	p		7.4	p		18.0	p		23.9	p
Dividends declared per share (pence)		3.48	p		4.50	p		5.70	p		7.02	p		8.78	p
Diluted weighted average number of shares (m)		1,376.0			1,395.8			1,411.8			1,421.1			1,420.3
Research and development as a percentage of revenues		32.2	%		28.8	%		28.4	%		28.2	%		28.7	%
Balance Sheet Data:
Capital expenditure		13.0			33.2			17.0			31.3			41.9
Cash and cash equivalents, short- and long-term deposits and similar instruments		429.0			527.6			713.5			866.3			956.3
Share capital		0.7			0.7			0.7			0.7			0.7
Shareholders’ equity		1,061.2			1,206.1			1,311.4			1,528.3			1,797.6
Total assets		1,299.8			1,466.8			1,638.4			1,837.2			2,120.2
Employees at year end (number)		2,116			2,392			2,833			3,294			3,975

____________________

(1) The exceptional items in 2013 relate to a contribution to a full and final settlement of certain patent-related litigation and the impairment of an available-for-sale financial asset acquired as part of a transaction to acquire rights to a patent portfolio.

Exchange Rate Information

The following table sets forth, for the periods indicated, certain information concerning the exchange rate between pounds sterling and US dollars. Period average rates are based on the average daily buying rate (expressed as US dollars per pound sterling). Period end rates are based on the closing midpoint at the end of the period. Such rates are provided solely for the convenience of the reader and are not necessarily the exchange rates (if any) we used in the preparation of our consolidated financial statements included elsewhere in this annual report on Form 20-F. No representation is made that pounds sterling could have been, or could be, converted into US dollars at these rates or at any other rates.

USD/£1.00 Year Ended December 31,	Period Average	Period End
2011	1.6039	1.5541
2012	1.5849	1.6255
2013	1.5646	1.6563
2014	1.6476	1.5593
2015	1.5283	1.4802
2016 (through February 15, 2016)	1.4433	1.4485
USD/£1.00 Month	High	Low
August 2015	1.5749	1.5387
September 2015	1.5586	1.5153
October 2015	1.5475	1.5136
November 2015	1.5438	1.5031
December 2015	1.5223	1.4802
January 2016	1.4737	1.4163
February 2016 (through February 15, 2016)	1.4595	1.4297

On February 15, 2016 the closing rate was $1.45/£1.00.

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RISK FACTORS

You should carefully consider the risks described below as well as the other information contained in this annual report in evaluating us and our business. If any of the following risks actually occurs, our business, financial condition or results of future operations could be significantly harmed. In that case, the trading price of our shares and American Depositary Shares (“ADSs”) could decline and you may lose all or part of your investment. This annual report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including the risks faced by us described below and elsewhere in this annual report. You should also refer to the other information in this annual report, including our consolidated financial statements and the related notes.

Our Quarterly Results May Fluctuate Significantly and Be Unpredictable – This Could Adversely Affect the Market Price of Our Shares

We have experienced, and may in the future experience, significant quarterly fluctuations in our results of operations. Our quarterly results may fluctuate because of a variety of factors. Such factors include:

· the timing of entering into agreements with licensees;

· the financial terms and delivery schedules of our agreements with licensees;

· the demand for products that incorporate our technology or expected future demand for such products;

· the mixture of license fees, royalties, revenues from the sale of development systems and fees from services;

· the introduction of new technology by us, our licensees or our competition or other actions taken by our competitors;

· the timing of orders from and shipments to systems companies of ARM-based microprocessors from our semiconductor partners;

· any strategic investments or acquisitions that we might undertake;

· sudden technological or other changes in the microprocessor industry; and

· new litigation or developments in current litigation.

In future periods, our operating results may not meet the expectations of public market analysts or investors. In such an event the market price of our shares could be materially adversely affected. A more detailed description of how we earn revenues from license fees and royalties is set forth in the sections entitled “Item 18. Financial Statements—Notes to the Consolidated Financial Statements—Note 1b. Summary of significant accounting policies—Revenue recognition” and “Item 5. Operating and Financial Review and Prospects—Operating Results—Critical Accounting Policies and Estimates.”

We Are Dependent on Our Intellectual Property (“IP”) Licensees

We rely on our licensees to manufacture and market microprocessors and other IP based on our architecture in order to receive royalties in the future. We also depend on them to add value to our licensed architecture by providing complete ARM-based microprocessor solutions to meet the specific application needs of systems companies. However, the semiconductor partners are not contractually obliged to manufacture, distribute or sell microprocessors based on our technology or to market our microprocessor architecture on an exclusive basis. Some of our existing semiconductor partners design, develop and/or manufacture and market microprocessors based on competing architectures, including their own, and others may do so in the future.

If one or more of our licensees stops licensing our microprocessors or other IP, reduces its orders, fails to pay license or royalty fees due or does not produce products containing our microprocessors or other IP, our operating results could be materially and negatively affected.

We cannot assure you that our semiconductor licensees will dedicate the resources necessary to promote and further develop products based on our architecture, that they will manufacture products based on our microprocessors in quantities sufficient to meet demand, that we will be successful in maintaining our relationships with our licensees or that we will be able to develop relationships with new licensees. Although we

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believe that our strategy of selecting multiple licensees will expand the market for our architecture and lead to more rapid acceptance of our architecture by assuring multiple reliable sources of microprocessors at competitive prices, such a strategy may also result in distribution channel conflicts. This could create disincentives to market our architecture aggressively and make it more difficult to retain our existing licensees and to attract new partners and licensees.

Accurate prediction of the timing of inception of new licenses is difficult because the development of a business relationship with a potential licensee may frequently span a year or more. The fiscal period in which a new license agreement will be entered into, if at all, is difficult to predict, as are the financial terms of any such agreement. Engineering services are dependent upon the varying level of assistance desired by licensees and, therefore, the timing of revenue from these services is also difficult to predict.

With increasing complexity in each successive generation of integrated circuit products, we face the risk that the rate of adoption of smaller process geometries for integrated circuit manufacturing may slow or cease. We also face the risk that licensing revenue may suffer if current or former customers collaborate with each other regarding design standards for particular generations of integrated circuit products.

The royalties we receive on ARM-based microprocessors are based on the volumes and prices of microprocessors manufactured and sold by our semiconductor partners and the royalties we receive on physical IP libraries are based on volumes and prices of wafers, manufactured and sold by our physical IP licensees. Our royalties are therefore influenced by many of the risks faced by the semiconductor market in general. These risks include reductions in demand for systems-on-chip (“SoC”) based on our microprocessors and physical IP libraries and reduced average selling prices. The semiconductor market is intensely competitive. It is also generally characterized by declining average selling prices over the life of a generation of microprocessors and physical IP libraries. The effect of these price decreases is compounded by the fact that royalty rates decrease as a function of volume. We cannot assure you that delays in licensing, poor demand for services, decreases in prices or in our royalty rates will not materially adversely affect our business, results of operations and financial condition.

We Depend Largely on a Small Number of Customers and Products – This May Adversely Affect Our Revenues

Our revenues in a particular quarter depend largely on a small number of licensees and products. If we fail to achieve the performance required under a single license contract or if a single customer fails to make its milestone payments, our business, financial condition and results of operations could be materially adversely affected. In addition, any failure to develop successor products which offer significant competitive advantages to these customers in a timely manner or any decrease in demand for ARM technology could materially adversely affect us.

Changes in technology trends and/or economic conditions may cause companies within the semiconductor industry to consolidate further or for industry concentration to intensify, thereby reducing the number of customers that ARM may sell its technology to and potentially making ARM even more dependent on those customers that remain.

Our Success Depends Substantially on Systems Companies

Our success depends substantially on the acceptance of our technology by systems companies, particularly those which develop and market high-volume electronic products in the wireless, consumer electronics and networking markets where demand may be highly cyclical. The reason for this dependence is that sales of ARM-based microprocessors by our semiconductor partners to systems companies directly affect the amount of royalties we receive. We are subject to many risks beyond our control that may influence the success or failure of a particular systems company. These risks include:

· competition faced by the systems company in its particular industry;

· the engineering and marketing capabilities of the systems company;

· market acceptance of the systems company’s products;

· technical challenges unrelated to our technology faced by the systems company in developing its products; and

· the financial and other resources of the systems company.

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It can take a long time to persuade systems companies to accept our technology and, even if accepted, we cannot assure you that our technology will be used in a product that is ultimately brought to market. Furthermore, even if our technology is used in a product brought to market, we cannot assure you that such product will be commercially accepted or result in significant royalties to us. Demand for our IP may also be affected by consolidation in the integrated circuit and related industries, which may reduce the aggregate level of purchases of our IP components and services by the combined companies.

The revenue we generate from licensing activities depends in large part on the rate at which systems companies adopt new product generations, which, in turn, is affected by the level of demand for their integrated circuits and other products.

Rapid Technological Changes in Our Industry Are Difficult to Predict – Our Business May Be Adversely Affected if We Cannot Develop New Products on a Timely Basis

The market for our architecture is characterized by rapidly changing technology and end user needs. Our business, reputation and relationships with our partners could be adversely affected if we cannot develop technological improvements or adapt our products to technological changes on a timely basis. Whether we will be able to compete in the future will substantially depend on our ability to advance our technology to meet these changing market and user needs and to anticipate successfully or respond to technological changes in hardware, software and architecture standards on a cost-effective and timely basis.

We will have to make significant expenditures to develop our products. The long lead time from the initial design of our technology until it is incorporated into new end user applications can place significant strain on our research and development resources. Certain of our products have suffered delays in the past. We cannot assure you that the design of future products will be completed as scheduled, that we will be successful in developing and licensing new products, that we will not experience difficulties that delay or prevent the successful development, introduction and marketing of new products or that any new products that we may introduce will achieve market acceptance.

Our Microprocessor Architecture, Physical IP Libraries and Development Systems Tools May Not Continue to Be Accepted by the Market

There are competing microprocessor architectures in the market. We cannot assure you that the market will continue to accept our architecture. Market acceptance of our architecture by semiconductor and systems companies for use in a variety of embedded applications is critical for our success. While our microprocessor architecture has already been licensed by many semiconductor and systems companies for use in a variety of high-volume applications in the wireless, consumer electronics and networking markets, other microprocessor architectures have a large installed base of embedded applications and are supported by a broad base of related software and development tools. A more detailed description of these competing architectures is set forth in the section entitled “Item 4. Information on the Company—Business Overview—Competition”. It may be difficult for our architecture to succeed against incumbent architectures as systems companies that have used other microprocessor architectures would need to invest in additional training and development tools and convert software for existing embedded applications in order to change to a new architecture. Moreover, some competing microprocessor architectures have been developed by firms, including some of our semiconductor partners, that have substantially greater financial, technical and marketing resources than we do.

Our physical IP library products also face significant competition from the internal design groups of integrated circuit manufacturers that have expanded their manufacturing capabilities and portfolio of IP components to participate in the SoC market. Our physical IP library products also face competition from integrated circuit designers that have expanded their internal design capabilities and portfolio of IP components to meet their internal design needs. Integrated circuit manufacturers and designers that license our physical IP components have historically had their own internal physical IP component design groups. These design groups continue to compete with ARM for access to the integrated circuit manufacturers’ or designers’ physical IP component requisitions and, in some cases, compete with ARM to supply physical IP components to third parties. Physical IP components developed by internal design groups of integrated circuit manufacturers are designed to utilize the qualities of their own manufacturing process, and may therefore benefit from capacity, informational, cost and technical advantages.

Foundry partners may be reluctant to rely on a single vendor for a broad array of IP components, including microprocessors and Physical IP, and could select another vendor to provide them with products formerly supplied by us.

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Our development systems tools business faces significant competition from both the open source community and third-party tools and software suppliers. In the event that market share is lost to such competitors, there could be a material adverse effect on our revenues.

The High Cost of Building Advanced Semiconductor Manufacturing Facilities May Limit the Number of Foundries as Potential Customers for our Physical IP Libraries

The cost of developing leading-edge manufacturing facilities and processes needed for building advanced chips is rising. Some of ARM’s current foundry customers may delay or cancel plans for developing new manufacturing processes. Without a new process, ARM will not have an opportunity to develop and sell physical IP libraries for that process. This would reduce the licensing opportunity for ARM. In addition, the bargaining power of the remaining foundries with advanced manufacturing facilities would be increased. This could make it harder for ARM to win profitable licensing deals with these foundries, further reducing both licensing and royalty revenue.

Competition – We May Not Be Able to Compete Successfully in the Future

The markets for our products are intensely competitive and characterized by rapid technological change. We cannot assure you that we will have the financial resources, technical expertise or marketing or support capabilities to compete successfully in the future. Competition is based on a variety of factors including price, performance, features, product quality, software availability, marketing and distribution capability, customer support, name recognition and financial strength. Further, given our reliance on our semiconductor partners, our competitive position is dependent on their competitive position. In addition, our semiconductor partners do not license our architecture exclusively, and several of them also design, develop, manufacture and market microprocessors based on their own architectures or on other non-ARM architectures. A more detailed description of the competition we face from new technologies or products is set forth in the section entitled “Item 4. Information on the Company—Business Overview—Competition.”

Our Architecture and Physical IP Libraries May Face Strong Competition from Well Resourced Competitors

Some semiconductor companies have developed their own proprietary architecture for specific markets or applications. These companies may reuse their proprietary architecture to penetrate markets where ARM is currently the architecture of choice, or where ARM may be used in the future, making it harder for ARM to penetrate in the future. For example, Intel Corporation has developed the X86 architecture for use in PCs and laptops. With mobile phones becoming smarter, Intel is trying to capture the high-end smartphone market with a family of chips based on the X86 architecture. This could limit ARM’s market share in mobile phones and could prevent any further growth into mobile computing devices. Other semiconductor companies have proprietary architectures in other applications including, but not limited to, automotive, networking, digital television, electronic storage, microcontrollers, smart sensors and mobile communications. These companies may have much larger engineering, marketing and sales resources than ARM, and if successful in displacing or impeding ARM, could reduce licensing opportunities and royalties, negatively affecting operating results.

Some companies develop their own IP components or distribute components developed by foundries. For example, Synopsys, Inc. (“Synopsys”) develops IP components that are designed to serve the same purpose as components produced by ARM. Synopsys is combining these components with its other products and services to create a product portfolio that may be difficult for ARM to compete with. If Synopsys is successful in its strategy, then we would lose both license revenue and royalties, negatively affecting operating results.

The Availability of Development Tools, Systems Software, EDA Tools and Operating Systems is Crucial to the Market Acceptance of Our Products

We believe that it is crucial for the market acceptance of our products that development tools, systems software, EDA software and operating systems compatible with our architecture be available. We currently work with systems software, EDA software and tools and development partners to offer development tools, systems software, EDA software and operating systems for our architecture. However, we cannot assure you that:

· we will be able to attract additional tools and development, systems software and EDA tool partners;

· our existing partners will continue to offer development tools, systems software, EDA tools and operating systems compatible with our architecture; or

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· the available development tools, systems software, EDA tools and operating systems will be sufficient to support customers’ needs.

We May Incur Unanticipated Costs Because of Products That Could Have Technical Difficulties or Undetected Design Errors

Our products or technology could have a substantial technical difficulty or an undetected design error. This could result in unanticipated costs, including product liability litigation. The discovery of any design defect or any ensuing litigation could damage our results and reputation and our relationships with partners could be adversely affected.

There May Be Risks Associated with any Strategic Investments or Acquisitions We May Make

We envisage making strategic investments or acquisitions where there are opportunities to further the establishment of our technology, create opportunities in adjacent markets or develop opportunities through new technologies. Exploring and implementing any investments or acquisitions may place strain upon our ability to manage our future growth and may divert management attention from our core business. There are also other risks associated with this strategy. We cannot assure you that we will be able to make investments or acquire businesses on satisfactory terms or that any business acquired by us or in which we invest will be integrated successfully into our operations, achieve the expected benefits or be able to operate profitably.

Our International Operations Expose Us to Risks

We currently have operations in various jurisdictions around the world and may in the future expand our operations either within these jurisdictions or to new jurisdictions. Risks associated with these international operations include exposure to political, economic and financial conditions and unexpected changes in regulatory environments. Another risk we face is that, particularly with respect to IP, we are exposed to different legal jurisdictions, which may impact our ability to exercise our contractual rights in those countries, in particular in countries whose laws regarding the protection of IP are less rigorous or more difficult to enforce than the US or UK In addition, we could face potentially adverse tax consequences and difficulties in staffing and managing operations. Finally, managing operations in multiple jurisdictions will place further strain on management’s time and our ability to manage overall growth. Although we have not to date experienced any material adverse effects with respect to our foreign operations arising from such factors, we cannot assure you that such problems will not arise in the future.

Foreign Exchange Fluctuations Could Have a Material Adverse Effect on Our Results

Although we report our financial results in pounds sterling, substantially all of our revenues are generated, and a portion of our costs are denominated, in US dollars. As a result, we translate revenues and costs, as well as assets and liabilities, into pounds sterling in accordance with IFRS when presenting our financial statements. If the US dollar weakens against the pound, it will adversely impact our revenues, as sales denominated in US dollars are translated into pounds sterling. Consequently, our results of operations have been and are likely to continue to be affected by changes in the value of the US dollar versus the pound. In addition, our costs reflect the geographic spread of our operations, with approximately 50% of our costs being in pounds sterling. The mismatch between our US dollar revenues and our costs denominated in other currencies will result in positive or negative impacts as a result of movements in foreign exchange rates. To manage our exposure, we engage in currency hedging transactions, although such hedging may not cover all of our exposure, may be costly and exposes us to counterparty risk. A more detailed description of these hedging transactions is set forth in the section entitled “Item 5. Operating and Financial Review and Prospects—Operating Results—Foreign Currency Fluctuations.” Despite hedging and other mitigating techniques implemented by us, fluctuations in exchange rates could have a material adverse effect on our results of operations.

Our Business Will Be Adversely Affected if We Cannot Manage the Significant Changes in the Number of Our Employees and the Size of Our Operations

Either through acquisition or organic growth, from time to time we may significantly increase the number of our employees and the size of our operations. These changes in head count may place a significant strain on our management and other resources. We will face challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs in different jurisdictions.

If we are unable to manage growth in our head count, expenses, technological integration and the scope of operations effectively, the cost and quality of our products may suffer and we may be unable to attract and retain

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key personnel and develop and market new products. Further, the inability to successfully manage the substantially larger and geographically more diverse organization could have a material adverse effect on the Company and, as a result, on the market prices of our ADSs and our ordinary shares.

We May Not Operate Disaster Recovery Plans Which Adequately Mitigate the Effects of an Event Over Which We Do Not Have Direct Control

Our business depends on the efficient and uninterrupted operation of our computer and communications software and hardware systems and other information technology. If such systems were to fail for any reason or if we were to experience any unscheduled downtimes, even for only a short period, our operations and financial results could be adversely affected. Our systems could be damaged or interrupted by earthquake, fire, flood, hurricanes, power loss, telecommunications failure, break-ins, act of vandalism or similar events. In addition, we could be subject to system security breaches caused by computer viruses, hacking or cyber-attacks. We have formal disaster recovery plans in place. However, these plans may not be entirely successful in preventing delays or other complications that could arise from information systems failure, and, if they are not successful, our business interruption insurance may not adequately compensate us for losses that may occur, negatively affecting operating results. In addition, security breaches of our information technology systems or those of our partners could result in the misappropriation or unauthorized disclosure of confidential and proprietary information belonging to us, our employees, partners, customers or suppliers which could result in our suffering significant financial or reputational damage.

We Are Dependent on Our Senior Management Personnel and on Hiring and Retaining Both Qualified Engineers and Experienced Sales and Marketing Personnel

If we lose the services of any of our senior management personnel or a significant number of our engineers or sales and marketing personnel, it could be disruptive to our development efforts or business relationships and could have a material adverse effect on our business, financial condition and results of operations. As our future success depends on whether we can continue to enhance and introduce new generations of our technology, we are particularly dependent upon our ability to identify, attract, motivate and retain qualified engineers with the requisite educational background and industry experience. Competition for qualified engineers, particularly those with significant industry experience, is intense. We are also dependent upon our senior management personnel. In addition, whether we can successfully expand geographically will depend on our ability to attract and retain sales and marketing personnel. In certain geographic regions, there is fierce competition for such personnel.

Our Business and Future Operating Results May Be Adversely Affected by General Economic Conditions and Other Events Outside of Our Control

We are subject to risks arising from adverse changes in global economic conditions. Due to economic uncertainties in many of our key markets, many companies may delay or reduce technology purchases and investments. The impact of this on us is difficult to predict, but if businesses defer licensing our technology, require fewer services or development tools, or if consumers defer purchases of new products which incorporate our technology, our revenue could decline. A decline in revenue would have an adverse effect on our results of operations and could have an adverse effect on our financial condition.

Our business and operating results will also be vulnerable to interruption by other events outside of our control, such as earthquakes, fire, power loss, telecommunications failures, political instability, pandemics, military conflict and uncertainties arising out of terrorist attacks, including a global economic slowdown, the economic consequences of additional military action or additional terrorist activities and associated political instability, and the effect of heightened security concerns on domestic and international travel and commerce.

Claims May Be Made for Which We Do Not Have Adequate Insurance

Since 2001, the insurance industry has faced unprecedented and escalating global events compounded by international economic uncertainty. As a result of these and other pressures, many insurers have withdrawn from certain market sectors. We have continued with our philosophy of only placing coverage with secure underwriters with programs arranged individually to suit our needs. We currently have global insurance policies including coverage for the following significant risks: business interruption, public and products liability and directors’ and officers’ liability. We do not insure against claims concerning patent litigation or other IP infringement claims and potential related indemnification obligations, because we are of the view that any limited coverage that could be obtained is prohibitively expensive. Our results of operations could be materially adversely affected by the occurrence of a catastrophic event, to the extent that any resulting loss or claim is not covered under the terms of our then existing insurance policies.

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We May Be Unable to Protect and Enforce Our Proprietary Rights

Our ability to compete may be affected by whether we can protect our technology and enforce our proprietary rights. We take great care to protect our technology and innovations with patents, agreements with licensees, employees and consultants and other security measures. We also rely on copyright, trademarks and trade secret laws to protect our technology and innovations.

However, despite our efforts, we cannot assure you that others will not gain access to our trade secrets, or that we can meaningfully protect our technology and innovations. In addition, effective trade secret protection may be unavailable or limited in certain countries. Although we intend to protect our technology and innovations vigorously, there can be no assurance that such measures will be successful.

A more detailed description of how we protect our IP is set forth in the section entitled “Item 4. Information on the Company—Business Overview—Patent and IP Protection.”

We May Have to Defend Ourselves Against Third Parties Who Claim That We Have Infringed Their Proprietary Rights

We take great care to establish and maintain the integrity of our products. We focus on designing and implementing our products without the use of IP belonging to third parties, except under strictly maintained procedures and with the benefit of appropriate license rights. In the event that a third-party successfully proves that it has IP rights covering a product that we have licensed to customers, we will take steps to either purchase a license to use the relevant technology or work around the technology by developing our own solution so as to avoid infringement of that third-party’s IP rights.

An Infringement Claim or a Significant Damage Award Would Adversely Impact Our Operating Results

The semiconductor industry is characterized by frequent litigation regarding patent and other IP rights. From time to time, third parties, including our competitors, may assert patent, copyright and other IP rights to technologies that are important to our business. We cannot be certain that we would ultimately prevail in any dispute or be able to license any valid and infringed patents from third parties on commercially reasonable terms. Any infringement claim brought against us or our partners, regardless of the duration, outcome or size of the damage award, could:

· result in substantial cost to us;

· divert management’s attention and resources;

· be time-consuming to defend;

· result in substantial damage awards;

· damage the company’s reputation;

· cause product shipment delays; or

· require us to seek to enter into royalty or other licensing agreements.

Any infringement claim or other litigation against or by us could have a material negative affect on our business.

Any assertion of IP rights by a third-party against our technology could result in our licensees becoming the target of litigation and we may be bound to indemnify such licensees under the terms of our license agreements. Although our indemnification obligations are generally subject to a maximum amount, such obligations could nevertheless result in substantial expenses to us, which could have a material adverse effect on our business, financial condition and results of operations. In addition to the time and expense required for us to indemnify our licensees, a licensee’s development, marketing and sales of ARM architecture-based products could be severely disrupted or discontinued as a result of litigation, which in turn could also have a material adverse effect on our business, financial condition and results of operations.

In addition to the time and expense required for us to satisfy our support and indemnification obligations to our customers and strategic partners, any litigation could severely disrupt or shut down the business of our customers and strategic partners, which in turn could damage our relations with them and have a material adverse effect on our business, financial condition and results of operations.

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Our Future Capital Needs May Require Us to Seek Debt Financing or Additional Equity Funding Which, if Not Available, Could Cause Our Business to Suffer

From time to time, we may be required to raise additional funds for our future capital needs through public or private financing, strategic relationships or other arrangements. There can be no assurance that the funding, if needed, will be available on attractive terms, or at all. Furthermore, any additional financing arrangements may be dilutive to shareholders, and debt financing, if available, may involve restrictive covenants. Strategic arrangements, if necessary to raise additional funds, may require us to relinquish our rights to certain of our technologies or products. Our failure to raise capital when needed could have a material adverse effect on our business.

We Could Suffer Significant Damage to Our Brand and Reputation.

ARM’s technology is used in billions of consumer and enterprise products, many of which are depended on by individuals and business, and are used to store, manage or transmit huge amounts of personal, confidential or proprietary information. A fault or bug associated with one of ARM’s products could lead to damage to ARM’s corporate reputation and loss of brand value.

We May Fail to Have Appropriate Measures and Arrangements to Protect and Use Commercially Sensitive Information, Including IP.

The information shared between us and third parties, (which includes the IP owned by us, our suppliers and our customers), for the development of products and technologies is commercially sensitive and highly confidential. We enter into agreements with our employees, consultants, commercial partners and others to control access to, and distribution of, our technologies, documentation and other proprietary information and that of third parties.

Despite these efforts, persons may attempt to obtain, use, copy, disclose, distribute, offer for sale or make our products, services or technology without authorization, including but not limited to combining with or releasing our code as open source. Monitoring the use and disclosure of our commercially sensitive information is difficult, and our security measures and contractual provisions may not prevent the unauthorized use or disclosure of our commercially sensitive information.

Controls or restrictions put in place to protect data or ideas may not be sufficient and legal remedies are limited in different geographies. We cannot assure you that our efforts to prevent the misappropriation or infringement of our IP or the IP of our customers will succeed. To enforce a breached contract requires the initiation of litigation. The initiation of litigation may adversely affect our relationships and agreements with certain customers that have a stake in the outcome of the litigation proceedings. Litigation is very expensive, time consuming and may divert the attention of management and other key employees from the operation of the business, which could negatively impact our business and results of operations.

Additionally, despite our security measures, persons could attempt to penetrate our computer systems and networks through virtual cyberattacks to misappropriate our proprietary information and technology or interrupt our business. Because the techniques used by computer hackers and others to access or sabotage networks change frequently and generally are not recognized until launched against a target, we may be unable to anticipate, counter or ameliorate these cyberattacks. In addition, our information technology and infrastructure may be breached due to employee error, malfeasance or other disruptions. Failure of such controls may result in the Company breaching the intellectual rights of third parties or undertakings we have given to safeguard third party information.

In the event of an inappropriate exposure or misappropriation of our IP, the Company’s business reputation and its operating performance and results would be adversely affected and if such information were to be released to unauthorized parties, including competitors, litigation could be increased, and our business would suffer.

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Item 4. Information on the Company

HISTORY AND DEVELOPMENT OF ARM HOLDINGS PLC

History

ARM Holdings plc is a public limited company incorporated under the laws of England and Wales. The Company was formed on October 16, 1990 as a joint venture between Apple Computer (UK) Limited and Acorn Computers Limited and operated under the name Advanced RISC Machines Holdings Limited.

In 1998, the Company re-registered as a public company under the name ARM Holdings plc when it completed its initial public offering of shares and listed its shares for trading on the London Stock Exchange and for quotation on the NASDAQ National Market. In 2004, ARM Holdings plc acquired Artisan Components, Inc., a publicly held physical IP company based in Sunnyvale, California.

Our principal executive offices are at 110 Fulbourn Road, Cambridge, CB1 9NJ, England, and our telephone number is +44 1223 400 400. ARM, Inc., our US subsidiary, is located at 150 Rose Orchard Way, San Jose, CA 95134-1358, USA and its telephone number is +1 408 576 1500.

Capital Expenditures

For a discussion of the Company’s capital expenditures see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”

BUSINESS OVERVIEW

ARM designs a range of inter-related IP, including microprocessors, Physical IP and supporting software and tools to enhance the performance, cost-effectiveness and energy efficiency of high-volume embedded applications. ARM licenses and sells its technology and products to leading international electronics companies, which in turn manufacture, market and sell microprocessors, application-specific integrated circuits (“ASICs”), application-specific standard processors (“ASSPs”) and microcontrollers (“MCUs”) 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 utilize ARM’s technology, ARM has established its range of IP for use in many high-volume embedded microprocessor applications, including cellular phones, digital televisions, mobile computers and PC peripherals and for potential use in many growing markets, including smart cards and microcontrollers. ARM’s principal geographic markets are Europe, the US and Asia Pacific.

Industry Background

The semiconductor industry has been in place for many decades and provides the world’s digital electronics market with a growing variety of products. Over the life of the semiconductor industry, continuous technology developments have enabled miniaturization and given rise to an increasing level of design complexity. This increased complexity has had the effect of increasing structural costs; thus, the semiconductor industry has had to find ways to mitigate this. To this end, the industry has transitioned from being highly vertically integrated to being an industry that looks for horizontal specialization to alleviate structural cost. This in turn has given way to the creation of a sub-sector, semiconductor IP, which serves the needs of semiconductor companies by enabling them to outsource the cost of technology development where there is an inequality between the economic benefit of the development versus the differentiation that the company can achieve for the development. Specific areas where this outsourcing has occurred in a significant manner are in embedded microprocessors and physical IP.

Microprocessors are embedded in a wide variety of high-volume electronic products, ranging from video games to automotive control systems to digital cellular phones. While most of these microprocessors are invisible and inaccessible to the end user, product designers use the computational capabilities of these embedded microprocessors to implement the operating features of electronic products and control systems. “Embedded microprocessor” is a general term that refers to microprocessors other than the central processing unit (“CPU”) in traditional desktop personal computers (“PCs”).

The embedded microprocessor market has grown to support new electronic products as well as new capabilities and features in existing products. New products with easier user interfaces, such as mobile phones and audio players, all depend on embedded microprocessors. At the same time, new capabilities and features also drive the need for new and more powerful embedded microprocessors in products such as smartphones and digital televisions. As consumers demand electronic products and control systems with more features,

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capabilities and portability, systems companies which manufacture these products and control systems are demanding embedded microprocessors that support increasingly complex functions at low cost, that use energy efficiently, that can be rapidly implemented to shorten time to market and that are available in volume from multiple sources.

To shorten time to market and lower development costs, system designers need technology solutions that can be rapidly implemented, both from a hardware and software standpoint, to meet varying design needs for performance, power consumption and cost. Typically, a system designer will create a SoC integrating one or more microprocessor cores with other processing engines and peripherals. Product designers need an open microprocessor architecture that can be rapidly implemented, used in a variety of hardware formats and easily combined with differentiating technology suited to different applications.

These designs are highly complex, containing, in some cases, hundreds of millions of transistors. SoC designers incorporate functional blocks in the form of standard physical IP libraries that translate the circuit design of the SoC into the physical layout of transistors on a silicon wafer. The SoC will typically be fabricated either at the in-house facility of the designer’s semiconductor company or at one of the industry’s foundry manufacturing companies. As process node geometries continue to shrink, the increasing complexity of developing physical IP libraries is rendering the in-house development of such technology increasingly expensive and economically unattractive, as compared to the product differentiation derived from the optimization to the designer’s semiconductor manufacturing process. The Company believes that, over the long term, there will be an ever-increasing need for companies to outsource this activity in order to meet the demand of increased functionality within digital devices while remaining at a reasonable price.

As electronic products and control systems have grown more complex, the software used to implement these products and systems has also grown in complexity, forming an increasingly important component of the overall embedded microprocessor solution and contributing a significant portion of the overall development time and cost. In addition, to implement embedded microprocessor solutions efficiently, effective hardware and software development tools must be available to product designers. Using the industry-leading embedded microprocessor architecture permits a common set of software development tools to be used for application development and preserves software investments by permitting developers to reuse software across a variety of hardware implementations of the same architecture, saving considerable development resources for each new product.

ARM Solution

ARM addresses the needs of the semiconductor industry by designing and licensing microprocessors, physical IP, system components and software and development tools which enable the rapid design of embedded microprocessor solutions for use across a wide variety of applications. ARM offers systems designers a family of powerful, low-cost, energy-efficient microprocessor “cores” based on a common architecture and spanning a wide performance range. The design of these microprocessor cores (the “IP”) is then incorporated by ARM partners into functional and computational blocks to develop semiconductor chips which are then incorporated into digital electronics products. As a support for the microprocessor products, ARM also offers high-performance and low-power physical library solutions (“physical IP”) on a variety of processes. These products provide optimal performance with ARM microprocessors, but can also be used independently for designs that may not contain ARM microprocessor cores. By using physical library components from ARM, users are able to design their systems around standard libraries and then have those designs fabricated at both internal and independent semiconductor manufacturing facilities. In particular, ARM has created optimized logic and memory physical IP for a specific microprocessor and process technology, collectively referred to as “POP IP”. This POP IP allows chip designers to optimize ARM microprocessors for maximum performance and lowest power.

The Company provides the necessary development boards, software development toolkits and software debug tools, which facilitate system design and rapid development of system solutions incorporating ARM processors. The Company’s licensing offering includes on-chip graphics video IP, and display technology IP. To assist Partners in implementing ARM products, the Company also provides training and support services, and has recently introduced its first generation of enterprise software products aimed at connecting smart sensors to server-based analytic tools.

ARM believes that worldwide support from its semiconductor, software, design and tools partners provides systems companies with a microprocessor architecture and physical library components which are available from multiple sources and which, due to the flexibility offered by a common architecture, enables semiconductor partners and systems designers to design chips rapidly based on the ARM architecture and facilitates ongoing design and maintenance efforts at cost-competitive prices.

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The Company Believes That Key Benefits of the ARM Solution are:

Maximum flexibility of performance, cost and power. The Company offers a wide range of high-performance, low-cost solutions which enable systems designers to make the appropriate performance/price trade-offs for use in a particular application. The ARM architecture offers designers the flexibility to select an ARM processor with performance, die area (chip size) and power consumption characteristics appropriate for a specific application. ARM believes that its microprocessor architecture offers designers the opportunity to design embedded microprocessors at leading price/performance ratios. ARM believes that incorporating the ARM physical IP libraries and POP IP for high performance or low power gives the designer a further advantage in using the ARM solution. By minimizing the die size of ARM cores and microprocessors, maximizing the energy efficiency, and maximizing the performance through the combination of the microprocessor core and physical IP system, designers receive an unparalleled advantage by usage of the ARM portfolio of products.

Standards, re-use, and broad support enable rapid system design. As systems become more complex, use and re-use of proven hardware and software IP are essential to achieve time to market and cost goals. ARM provides a set of IP that enables system designers to standardize portions of their semiconductor chip design and development which enables significant reductions in development time and costs. In addition, ARM offers a means of creating flexible system designs through its range of fabric IP based on the Advanced Microcontroller Bus Architecture (“AMBA”) standard. This allows the designer to concentrate on application-specific portions of the system design, where they add real value. By deploying standard solutions across its range of cores and platforms, and making them widely available via its partnership business model, ARM attracts strong third-party support in the form of EDA modeling tools, software development tools, debug tools, operating system and real time operating system ports, software IP and peripherals.

Global partner network. ARM’s global network of partners assures systems companies of sufficient availability for high-volume products and, together with ARM’s international presence, gives systems designers global support for their design development. At December 31, 2015, ARM’s technology has been licensed to more than 420 semiconductor companies, including the majority of leading semiconductor companies worldwide. ARM’s broad semiconductor partner base provides systems companies with a wide range of suppliers, thus reducing the dependence of systems companies on any one supplier and producing price competition helping to contain costs of ARM-based chips. ARM’s various partners build their own solutions using ARM technology; there are a growing number of ARM-based ASICs, ASSPs and MCUs available for use by systems companies, thus facilitating their use of the ARM architecture. The Company works with numerous industry leading software systems and tools and development partners, including Adobe, Google, Microsoft Corporation, Mozilla, Oracle Corporation, Red Hat Incorporated, and many others who provide the third-party support needed to facilitate the use of ARM technology in a wide variety of applications.

Development of software tools and platforms. ARM designs and manufactures its own family of tools for use with its processors, which span the complete development process from concept to final product deployment. Each product within this portfolio has been developed closely alongside ARM cores ensuring it maximizes the cores’ performance. These embedded software tools, simulation models and hardware platforms enable validated support for device development. Support for ARM cores is provided in the ARM Development Studio at an early stage when lead partners are just starting to develop designs incorporating new ARM cores. For ARM partners producing microcontrollers, ARM has a single solution for their end users with the ARM Microcontroller Development Kit, based on the industry leading Keil microcontroller tools, that facilitates end users’ migration from MCUs based on other architectures.

ARM Strategy and Business Model

ARM’s strategy is to create technology that resides at the heart of advanced digital products. It is ARM’s strategy for its IP to be used by the world’s leading semiconductor providers to create these digital products. Therefore, ARM has taken the approach of designing and licensing its IP, for which it receives an initial license fee and an ongoing royalty each time ARM’s IP is incorporated into a semiconductor chip. This type of arrangement represents the manner in which the majority of ARM revenue is generated. There is typically a delay of two to four years between the licensing of ARM technology and the time at which royalties are received. ARM’s royalties are generally based on a percentage of the revenues received by licensees on their sales of chips based on ARM technology, or less frequently as a fixed amount per chip, and are normally payable by a licensee on sales occurring during the life of the ARM technology being licensed. Accordingly, ARM could continue to receive royalties in relation to specific technology even if such technology is no longer licensed to new customers. The Company believes that as ARM technology becomes more widely accepted, the revenues from royalties, as a percentage of total revenues, will increase.

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The Company also generates further revenue, beyond license fees and royalties through support, maintenance and training, and from sales and licensing of toolkits, development boards and systems software. In addition, the Company believes that revenues will increase as the ARM architecture continues to become more established across a broader range of markets.

To help designers to design systems based on ARM technology and develop software for ARM-based microprocessors, ARM also provides compilers, debuggers and development boards. These tools enable optimal software to be created and improve productivity for system and software developers. These products are sold as a one-time cost to the customer and do not typically include a royalty.

Leverage partner alliances. ARM’s semiconductor partners help grow the total ARM market by integrating their own IP in conjunction with ARM technology, thus combining their own particular strengths with those of ARM to provide an extensive array of ARM-based solutions. ARM’s business model also enables the Company to benefit from the extensive manufacturing, marketing and distribution networks of its semiconductor partners. The marketing and direct selling of semiconductors to systems companies is undertaken by ARM’s partners. ARM’s ability to manage its partnerships effectively has been and will continue to be a major challenge and a key factor in its success. See “Item 3. Key Information—Risk Factors—We Are Dependent on Our Intellectual Property (“IP”) Licensees.”

Increased availability of third-party support of ARM technology. ARM has established partnerships to develop software, tools, operating systems and designs to maximize the level of support for ARM’s technology and provide an efficient environment for system designers. Increasing acceptance and implementation of ARM technology has led to various third parties adapting software programs and development tools to ARM’s architecture. To the extent that such acceptance continues, it should drive even broader acceptance of the ARM technology by systems companies and end users. See “Item 3. Key Information—Risk Factors—The Availability of Development Tools, Systems Software, EDA Tools and Operating Systems is Crucial to the Market Acceptance of Our Products” for a discussion of the Company’s reliance on the availability of systems software and development tools compatible with the ARM architecture.

Focus on needs of systems companies. ARM is committed to providing technology solutions responsive to the requirements of end users in a variety of markets. The Company works with systems companies either directly or in tandem with its semiconductor partners to aid the systems companies’ customization of the ARM architecture to perceived market needs. ARM also aims to simplify and shorten the design process for systems companies. See “Item 3. Key Information—Risk Factors—Our Success Depends Substantially on Systems Companies.”

Strategic involvement in related products and services. ARM will continue to analyze its market and communicate with its partner network to identify opportunities for product innovation and new product creation, including with respect to features such as low power, high performance media and graphics, security, the creation of efficient code and platform execution environments. ARM will also continue to develop products and encourage and support industry standardization efforts to address the challenges that result from shrinking semiconductor process geometries and the increasing cost and complexity of semiconductor chip design. ARM maintains an ongoing five-year strategy plan for the development and growth of the business and constantly monitors its marketplace and evaluates new business, investment and acquisition opportunities.

Target Application Areas

ARM is continuing to see the convergence of the consumer electronics and telecommunications IT markets. This is being driven by a need for low-power, high-performance, secure components which need to be easy to both design and use. The Company’s four main target application areas (Mobile Computing, Networking Infrastructure, Servers and Embedded Intelligence) each demonstrate some or all of these requirements but differ in their applications. The Company continues to evolve from focusing on digital products to focusing on the way people use digital products and also on the solutions the Company provides to meet this demand worldwide.

Mobile Computing. The mobile market comprises a wide variety of mobile communication and portable computing devices, each with their own characteristics and needs. The applications include wireless handsets, mobile computers, portable media players and bluetooth devices. For each of these products, mobility (being able to use them while on the go) is the key concern to consumers. With ARM’s high performance/low power architecture, ARM’s customers can balance performance and power with cost, so that ARM ultimately provides the best solution to end users. With the acceleration of applications becoming critical, energy-efficient ARM technology is well placed to meet the demands of this market. Security is becoming increasingly important as mobile devices are used to carry out financial transactions, generating industry interest in products such as

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TrustZone. As low power is critical in mobile devices in order to extend battery life, products such as video and graphics processors, display technology, and physical IP libraries are well positioned.

Networking Infrastructure and Servers. In today’s world, having the data you need at your fingertips is key. In the Networking Infrastructure and Servers market, ARM focuses on the way data is handled through devices such as basestations, routers, switches and servers. ARM’s range of microprocessor performance, development systems and data efficient architecture give ARM a competitive advantage in this market space.

Embedded Intelligence. The world of embedded processors is growing in multiple areas, including anti-lock braking systems, smartcards, industrial control applications and smart, connected sensors. This market has the potential to grow substantially, especially as applications based on proprietary architectures move to microcontroller architectures that can be provided by multiple competing semiconductor companies. The reliability and software reusability of the ARM architecture positions ARM to penetrate this market. In addition, the introduction of products such as the Cortex-M class of processors, with their low gate count, small size and capabilities for high code density, together with Keil’s complementary MCU tools, positions ARM for winning designs in this market.

For a breakdown of total revenues by geographic market, see Note 2 to the Consolidated Financial Statements.

ARM’s Products and Services

ARM’s comprehensive product offering includes the following:

· microprocessor Cores: microprocessor cores, including specific functions such as video, graphics, display technology and Bluetooth radio IP;

· physical IP;

· development tools;

· enterprise software; and

· support and maintenance services.

Processor Cores

Historically, microprocessor designers concentrated on maximizing performance, with cost and size as secondary concerns. Anticipating the growth in portable and embedded markets, ARM has always focused on producing low-cost microprocessor cores that offer the higher performance that increasingly complex applications demand, yet operate within the power constraints of portable devices. This emphasis on low power consumption and low chip and system cost has made ARM’s products suitable for a broad range of applications.

Low power consumption has wider benefits in a broad range of markets. In addition to its clear advantage for battery operated devices, it enables the use of lower cost packaging, lower cost power supply components, and it allows more electronics to be packed into a small space without requiring the expense of cooling by fan or air conditioning.

ARM microprocessors are designed to allow high performance at a low total system cost. Two key features that help achieve this are small die area (chip size), and high code density. Code density is a measure of the amount of memory required to hold program code. High code density reduces the system cost by reducing the size of the main memory and bandwidth it must deliver.

ARM Architecture

The foundation of the ARM family of processors is its efficient Reduced Instruction Set Computing (“RISC”) instruction set. The design of the instruction set has two aims: high code density and easy instruction decoding. Older Complex Instruction Set Computing (“CISC”) processors use complex instructions to reduce the number of instructions necessary to code a program, resulting in high code density, but also in complex, power-hungry processor designs. RISC processors, on the other hand, use simple instruction sets but usually code less densely than CISC processors. Code compiled for ARM RISC processors, however, is generally more dense than code for competing CISC processors, delivering the memory cost advantages of high code density, with the performance, power, and die size advantages of RISC processors.

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Architectural Extensions

ARM’s strategy is to develop products incorporating additional features and instruction set enhancements appropriate to application needs, while maintaining a common, general purpose instruction set which provides code compatibility. Architectural extensions are introduced in subsequent versions of the ARM architecture, building on the previous architectures, thus adding backwards code compatibility of new processor cores with older generations.

The ARM Microprocessor Families

ARM architecture processors offer a wide range of performance options in the ARM7 family, ARM9 family, ARM11 family, ARM Cortex family and ARM SecurCore family. Scalability, the ability to match processing power to the application, is an important consideration when designers select a microprocessor family. The ARM architecture gives systems designers a wide choice of processor cores at different performance/price points, yet all ARM microprocessors use substantially the same instruction set and are capable of running the same software. This protects the investments ARM’s customers make in software development, software tools and staff training. The ARM product roadmap offers customers a proven architecture and intends to deliver innovative, powerful and cost-effective solutions to industry needs in future generations, while maintaining a high degree of compatibility.

ARM7 family. The ARM7 family comprises low power, general purpose 32-bit microprocessor cores particularly suitable where strict die area and power constraints must be satisfied while maintaining reasonably high performance, as in portable telecommunications. It is used in cost-sensitive embedded control applications and has been highly successful in the digital cellular telephone market.

ARM9 family. The ARM9 family comprises a range of microprocessors in the 150-250MHz range. Each processor has been designed for a specific application or function, such as an application processor for a feature phone or running a WiFi protocol stack. Therefore each has differentiating features appropriate for that application.

ARM11 family. The ARM11 family comprises a range of microprocessors in the 300-600MHz range. Each processor has been designed for a specific application or function such as an application processor for a smartphone or controlling the engine management system in a car.

ARM Cortex family. This is ARM’s newest family of processor cores. The family is split into three series:

· A Series targeting applications processors running complex operating systems;

· R Series targeting real time deeply embedded markets and running Real Time Operating Systems (“RTOSs”); and

· M Series addressing the needs of the low cost microcontroller markets.

By ensuring software compatibility across the three series, ARM has enabled the re-use of software, tools and engineering knowledge.

Graphic, Video and Display Technology IP

ARM develops graphics accelerator IP and software for semiconductor SoC vendors that deliver high-quality multimedia images without compromising performance, power consumption or system cost. ARM’s IP provides industry-leading 3D graphics solutions suitable for mobile phones, portable media players, set-top boxes, handheld gaming devices and infotainment systems (including automotive).

ARM also develops video processor and display technology IP, which combined with our graphics IP provides customers with an integrated multimedia platform, which is becoming increasingly important in devices such as mobile computers, portable media players and digital TVs.

Physical IP

ARM is a leading provider of physical IP components for the design and manufacture of integrated circuits, including SoCs. ARM Artisan physical IP products comprise embedded memory, standard cell and input/output components which are designed to provide the customers’ desired combination of performance, density, power and yield for a given manufacturing process. Artisan physical IP also includes a limited portfolio of analog and mixed-signal products. ARM’s physical IP components are developed for a variety of process geometries

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ranging from 7nm – 250nm design and are validated by producing them in silicon to ensure that they perform to specification, reducing the risk of design failure and gaining valuable time to market. ARM licenses its products to customers for the design and manufacture of integrated circuits used in complex, high-volume applications, such as portable computing devices, communication systems, cellular phones, microcontrollers, consumer multimedia products, automotive electronics, personal computers and workstations and many others.

ARM’s physical IP components are developed and delivered using a proprietary methodology that includes both commercial and proprietary electronic design automation tools and techniques. This methodology ensures that ARM’s IP components provide optimized power, performance, and area while reducing customer risk and time-to-market. ARM physical IP is easily integrated into a variety of customer design methodologies and support industry standard Integrated Circuit (“IC”) design tools, including those from EDA tool vendors such as Cadence, Mentor Graphics and Synopsys, as well as many other specialty IC design and modeling tools. To support the interoperability of these various IC design tool environments, each of ARM’s products includes an extremely broad set of verified tool models.

Physical IP Products

Logic and Memory products. ARM’s embedded memory components include random access memories, read only memories and register files.

These memories are provided in the form of a configurable “memory compiler” which allows the customer to generate the appropriate configuration for the given application.

All of ARM’s memory components include many configurable features such as power-down modes, low-voltage data retention and fully static operation as well as different transistor options to trade off performance and power. In addition, ARM’s memory components include built-in test interfaces that support the leading industry test methodologies and tools. ARM memory components also offer redundant storage elements which may help increase the manufacturing yield of IC designs containing large memories.

ARM logic products deliver optimal performance, power and area when building ARM Processors, Graphics, Video and Display Technology IP along with general SoC subsystem implementation, designed to deliver highest yield through extensive manufacturing optimization.

Processor Optimization Packs (“POP IP”). ARM has created optimized logic and memory physical IP for a specific process technology, supported by implementation knowledge and ARM benchmarking. When combined together, POP IP allows chip designers to optimize ARM microprocessors for maximum performance, lowest power or to develop customized solutions balancing power and performance for their specific application.

Silicon on Insulator (“SOI”) products. SOI is an alternative methodology to traditional semiconductor fabrication techniques that enables higher performance and lower power designs than today’s more common bulk silicon process. It is ARM’s belief that SOI will continue to be used in some market segments and applications.

Development Tools and Platforms

ARM development tools are used to build, simulate, execute, debug and optimize software for ARM processors. The use of ARM tools helps to reduce development risk and to accelerate time to market for our licensees and their OEM customers. This is achieved by providing simulation platforms, development boards and software development tools very early in the design cycle, so that software is developed in parallel with the hardware.

The portfolio of ARM development tools comprises Fast Models and Cycle Models, Development Boards, ARM Development Studio and Keil tools.

ARM Fast Models are simulation models of ARM processors and system IP, which are used by engineers to build a virtual prototype of their system. These virtual prototypes are fast and accurate representations of the final system, so the software developed on the virtual platform will behave correctly on the final product.

ARM Cycle Models are also used to create virtual prototypes. Cycle Models are slower, but provide detailed timing information of the execution, and are used for SoC architectural exploration and software optimization ahead of silicon availability.

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ARM Development Boards provide early hardware implementations of ARM processors, graphics processors and system IP on test chips, which are typically used for early software development and benchmarking.

The ARM Development Studio is an integrated suite of software development tools that includes a graphical development environment, build tools that translate high-level code into instructions that can be executed by an ARM processor, a debugger for fixing mistakes in the code, and performance analysis tools for improving the performance and power efficiency of the software.

The Keil Microcontroller Development Kit is also an integrated toolsuite, which specifically targets software development on Cortex-M processor-based catalog microcontrollers. Unlike the Development Studio, which has the full flexibility required to cope with many-core SoCs running complex operating systems, the Keil Microcontroller Development Kit has a narrow focus on a single type of device, and can therefore provide an optimal experience for developments on this microcontroller.

Enterprise Software

ARM is currently developing its first generation of products licensed to enterprises that will be run on their own servers and data centers. ARM’s mbed Device Server is a middleware that connects the Internet of Things (“IoT”) devices to web applications. It enables efficient and secure communication and device management for quickly developing and deploying enterprise applications based on open standards.

Support and Maintenance Services

Support, maintenance and training. ARM provides support and maintenance services under its license agreements to its semiconductor partners as well as ARM product-related training. See “—License Agreements” and “Item 5. Operating and Financial Review and Prospects—Operating Results—Overview— Service Revenues— Support and maintenance.” In order to serve its partners better, ARM has expanded the range of support, maintenance and training services, and now provides such services from its overseas offices, local to our customers’ engineering teams. See “Item 3. Key Information—Risk Factors—Our International Operations Expose Us to Risks” for a discussion of certain risks inherent in our international operations.

ARM Partner Network

Semiconductor partners. ARM licenses its technology on a worldwide and non-exclusive basis to semiconductor partners that manufacture and sell ARM-based chip solutions to systems companies. At December 31, 2015, ARM’s technology has been licensed to over 420 semiconductor companies, including many of the leading semiconductor companies worldwide. ARM serves this geographically diverse base from offices in the UK, P.R. China, France, Germany, Norway, Sweden, Finland, Ireland, Hungary, Slovenia, Belgium, Israel, Japan, South Korea, Taiwan, India and the United States.

Tools and development partners. ARM enables its tools and development partners to design tools that help ARM’s semiconductor partners and customers design ARM-based systems. ARM provides IP and support to these tools and development partners to give end customers of the ARM architecture the widest possible range of tools support.

Design partners. There are many design companies who develop ARM-based solutions for specific customer needs. Tasks for the system designers range from developing World Wide Web browser software for ARM-based platforms to offering turnkey product design services. The Company has also introduced the ARM Approved Design Center Program whereby design houses, which pass our strict qualification process, are able to access ARM technologies to enable them to undertake ARM-based designs for third parties.

License Agreements

ARM is the owner of IP in the field of microprocessor architecture and implementation for embedded signal processing, graphics IP, video IP, display technology IP, system platforms, peripherals, system software and software development and debug tools and physical IP components. ARM creates innovative technology which incorporates such IP. ARM grants licenses to such technology to semiconductor manufacturers, Integrated Device Manufacturers (“IDMs”) and fabless companies, original equipment manufacturers and chip design houses to enable such licensees to design, manufacture and distribute silicon chips which combine such technology with licensees’ own differentiating proprietary technology. The licenses are granted under written agreements which contain contractual terms and conditions to protect the technology and the IP embodied therein and to limit ARM’s liability in respect of licensees’ use of the technology. There are

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a number of different forms of license offered by ARM which are structured to address different licensee requirements and different IP protection issues. For all forms of its licenses, ARM strictly controls the modification rights which it grants to its technology and mandates, in order to protect the integrity of the ARM architecture, that the technology is verified by reference to ARM-specified tests prior to distribution in licensee products.

Fees and royalties. With regard to microprocessors and physical IP, ARM typically charges a license fee for access to its technology and a royalty for each unit of silicon which incorporates ARM’s technology and is distributed by the licensee.

License fees are invoiced in accordance with an agreed set of milestones. Revenue generated in the form of license fees is recognized in accordance with IFRS. Royalties are invoiced and recognized quarterly in arrears.

The Company’s main licenses generally fall into three broad categories:

Architecture, Implementation and Physical IP.

The Architecture License provides the licensee with the flexibility to differentiate its ARM-based products by creating alternative implementations of the licensed architecture, while retaining instruction set compatibility.

The Implementation License is a license with the objective of producing a specific ARM-based end product and may be a perpetual, term, per-use or subscription license. Under the former, the licensee has perpetual design and manufacturing rights for the licensed product.

Under the term license the design rights are only granted for a limited period of generally three or four years for the licensed product.

Under the per-use license the design rights are granted for the design of one ARM-based end product.

The subscription License allows a partner access to a selected set of ARM products, including unspecified future products, over a defined time period for a set annual fee. Design rights are granted for the subscription period, and manufacturing rights are perpetual for ARM-based products designed during that period.

The Physical IP license gives licensees the right to manufacture ICs containing physical IP components that ARM has developed for its manufacturing process.

Each of these license types requires the manufacturers to pay ARM royalties based on the selling prices of ICs or wafers that contain ARM products. Under Physical IP licenses, ARM typically credits a small portion of the royalty payments to the manufacturer’s account to be applied against license fees for any future orders placed with ARM within a certain time period, if any, payable by the manufacturer.

ARM provides the design rights to use ARM’s physical IP from the majority of libraries developed for the manufacturing facilities free of charge. This enables small fabless design companies to easily gain access to the ARM physical IP technology and have their design manufactured at a variety of foundry companies. In some cases, ARM will charge a license fee to the design company for optimized libraries for specific process technologies and process variants. The royalties for these designs are then subsequently collected from the facility where they were manufactured.

Competition

The markets for the Company’s products are intensely competitive and are characterized by rapid technological change. These changes result in frequent product introductions, short product life cycles and increased product capabilities typically representing significant price/performance improvements. Competition is based on a variety of factors including price, performance, product quality, software availability, marketing and distribution capability, customer support, name recognition and financial strength. Further, given the Company’s reliance on its semiconductor partners, the Company’s competitive position is dependent on its partners’ competitive positions. In addition, ARM’s semiconductor partners do not license ARM technology exclusively, and several of them also design, develop, manufacture and market microprocessors based on their own architectures or on other non-ARM architectures and develop their own physical IP in-house. They often compete with each other and with ARM in various applications.

Many of the Company’s direct and indirect competitors, including some of ARM’s semiconductor partners, are major corporations with substantially greater technical, financial and marketing resources and name

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recognition than ARM. Many of these competitors have a much larger base of application software and have a much larger installed customer base than ARM. There can be no assurance that ARM will have the financial resources, technical expertise, marketing or support capabilities to compete successfully in the future.

The Company believes that the ARM architecture is the leading independent microprocessor technology openly licensed to other companies and that the broad presence afforded to the Company through its established worldwide network of partners gives it an advantage over other companies which license microprocessor-related technology. The Company believes that its products offer high performance at competitive prices, and compete favorably in the embedded market by providing an open compatible architecture that is scalable from high-performance multimedia applications to small battery operated devices. However, there can be no assurance that the Company will be successful in the face of increasing competition from new technologies or products introduced by existing competitors and by new companies entering the market. See “Item 3. Key Information—Risk Factors— Competition—We May Not Be Able to Compete Successfully in the Future” and “—Our Architecture and Physical IP Libraries May Face Strong Competition from Well Resourced Competitors.”

Patent and IP Protection

The Company has an active program of protecting its proprietary technology through the filing of patents. As at December 31, 2015 the Company held 1,359 US patents in various aspects of its technology, and 1,366 non-US patents with expiration dates ranging from 2016 to 2034. In addition, as of the same date, the Company had 1,851 patent applications pending worldwide. The Company’s US patents do not prevent the manufacture or sale of ARM-based products outside of the United States. There can be no assurance that the Company’s pending patent applications or any future patent applications will be approved or will not be challenged successfully by third parties, that any issued patents will protect the Company’s technology or will not be challenged by third parties, or that the patents of others will not have an adverse effect on the Company’s ability to do business. Furthermore, there can be no assurance that others will not independently develop similar or competing technology or design around any patents that have been or may be issued to the Company.

In February 2013, the Company participated in a consortium of major technology companies which completed an agreement with MIPS Technologies, Inc. (“MIPS”) to obtain rights to its patent portfolio. The MIPS patent portfolio included 580 patents and patent applications covering microprocessor design, SoC design and other related technology fields. In January 2014, the Company participated in an auction to sell the patent portfolio and then successfully acquired a major portion of the portfolio for $4 million. The current number of these patents included in the Company’s total number of patents given above is 348.

The Company attempts to protect its trade secrets and other proprietary information through agreements with licensees and systems companies, proprietary information agreements with employees and consultants and other security measures. The Company also relies on trademarks, copyright and trade secret laws to protect its technology. Despite these efforts, there can be no assurance that others will not gain access to the Company’s trade secrets, or that the Company can meaningfully protect its technology. In addition, effective trademark, copyright and trade secret protection may be unavailable or limited in certain foreign countries. Although the Company intends to protect its rights vigorously, there can be no assurance that such measures will be successful.

Certain of the Company’s license agreements require licensees to grant back to ARM a royalty-free non-exclusive license to patented licensee modifications to the ARM technology. Such licenses permit ARM to sublicense to other licensees.

The semiconductor industry is characterized by frequent litigation regarding patent and other IP rights. See “Item 8. Financial Information—Legal Proceedings” for details of current litigation. Further litigation may be necessary in the future to enforce the Company’s patents and other IP rights, to protect the Company’s trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity, and there can be no assurance that other parties in any such litigation would not be able to devote substantially greater financial resources to such litigation proceedings or that the Company would prevail in any future litigation. Any such litigation, whether or not determined in the Company’s favor or settled by the Company, would be costly and would divert the efforts and attention of the Company’s management and technical personnel from normal business operations, which could have a material adverse effect on the Company’s business, financial condition and results of operations.

Any adverse determinations in litigation could result in the loss of the Company’s proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third parties or prevent the Company from licensing its technology, any of which could have a material adverse effect on the Company’s business, financial condition and results of operations. Moreover, the laws of certain countries in which the

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Company’s technology is or may in the future be licensed may not protect the Company’s IP rights to the same extent as laws in the United Kingdom or the United States, thus reducing the enforceability of the Company’s IP in those countries.

In any potential dispute involving the Company’s patents or other IP, the Company’s licensees could also become the target of litigation and the Company may be bound to indemnify such licensees under the terms of its license agreements. Although ARM’s indemnification obligations are generally subject to a maximum amount, such obligations could nevertheless result in substantial expenses to the Company. In addition to the time and expense required for the Company to indemnify its licensees, a licensee’s development, marketing and sales of ARM architecture-based products could be severely disrupted or discontinued as a result of litigation, which in turn could have a material adverse effect on the Company’s business, financial condition and results of operations. See “Item 3. Key Information—Risk Factors—We May Be Unable to Protect and Enforce Our Proprietary Rights” and “—We May Have to Defend Ourselves Against Third Parties Who Claim That We Have Infringed Their Proprietary Rights.”

Marketing and Distribution

In order to speed global acceptance of ARM technology, ARM seeks partners with diverse geographic locations and a broad base of systems company relationships. The Company markets its architecture and technology directly to its semiconductor partners and other customers from its offices in Cambridge, Maidenhead, Manchester, Sheffield and Blackburn in the United Kingdom and also from offices in Japan, South Korea, France, Germany, Ireland, Norway, Sweden, Finland, Hungary, Taiwan, P.R. China, Israel, Slovenia, India, and in California, Florida, Texas, Massachusetts and Washington in the United States. The Company’s architecture and technology are marketed on the basis of a number of factors including high performance/low power and price/performance, rapid time-to-market and the availability of third-party support. ARM also capitalizes on the extensive marketing and distribution networks of its semiconductor partners who market and distribute ARM core-based products directly to systems companies. As part of the Company’s strategy to increase ARM’s visibility, the Company’s license agreements generally require its partners to display an ARM logo on the ARM core-based products that they distribute. The Company believes that to the extent ARM technology becomes more widely accepted, the ARM “brand” will become increasingly important to potential partners and will drive the Company’s expansion into related software, development tools and system design. ARM believes that the availability of its marketing, sales and support services to all of its partners worldwide is critical to the success of the ARM architecture.

Research and Development

The ability of the Company to compete in the future will be substantially dependent on its ability to advance its technology in order to meet changing market needs. To this end, Company engineers are involved in researching and developing new versions of ARM microprocessor cores and physical IP technology as well as related software and tools applications. The Company is also involved in collaborative research with selected universities to leverage the technological expertise available at those universities. The Company has acquired certain patents from these collaborations.

As of December 31, 2015, ARM had 2,938 full-time research and development staff located at offices in Cambridge, Maidenhead, Sheffield, Manchester and Blackburn in the United Kingdom; Budapest, Hungary; Galway, Ireland; Sophia Antipolis and Grenoble, France; Grasbrunn, Germany; Trondheim, Norway; Lund, Sweden; Oulu, Finland; Sentjernej, Slovenia; Austin, Texas, US; San Jose, Irvine and San Diego, California, US; Olympia, Washington, US; Deerfield Beach, Florida, US; Boston, Massachusetts, US; Bangalore and Noida, India; Shanghai, P.R. China; Hsinchu, Taiwan; Kfar Netter, Israel.

In 2013, 2014 and 2015, research and development costs were approximately £202.9 million, £224.2 million and £278.0 million, respectively. Research and development costs were 28%, 28% and 29% of total revenues in 2013, 2014 and 2015, respectively.

Acquisitions

On February 5, 2015, the Company purchased the entire share capital of Wicentric, Inc. for $3.2 million in cash. Wicentric is a provider of Bluetooth Smart software solutions focused on enabling the development of low-power wireless products. This purchase has been accounted for as an acquisition.

On April 15, 2015, the Company purchased the entire share capital of Sunrise Micro Devices, Inc. (SMD) for $14.6 million. The majority of the consideration consisted of convertible loan notes (and interest accrued) with a fair value of £9.2 million ($13.5 million), with the remainder of the consideration settled in cash. SMD is

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a provider of radio IP solutions including a pre-qualified, self-contained radio block and related firmware to simplify radio deployment. This purchase has been accounted for as an acquisition.

On July 30, 2015, the Company purchased the entire share capital of Discretix Inc (trading as Sansa Security, Inc.) for $71.3 million in cash. Sansa Security is a provider of hardware security IP and software for advanced system-on-chip components deployed in IoT and mobile devices. This purchase has been accounted for as an acquisition.

On October 19, 2015, the Company acquired the trade and certain assets of Carbon Design Systems Inc., (Carbon) for $24.4 million. Carbon is a leading supplier of cycle-accurate virtual prototyping solutions, to deliver design optimization and time-to-market and cost-efficiency gains for its Partners. This purchase has been accounted for as an acquisition.

On May 27, 2014, the Company purchased the entire share capital of Duolog Holdings Limited (“Duolog”) for €13.9 million in cash. Duolog, a company based in Ireland and Hungary, is a leader in design configuration and integration technology for the semiconductor industry. The acquisition strengthens the Company’s IP configuration and integration capability, helping ARM Partners design and deploy system IP and manage increasing SoC integration complexity. This purchase has been accounted for as an acquisition.

On November 14, 2014, the Company purchased the entire share capital of Offspark BV a company providing specialized services in the field of digital security focusing on Online Security, Secure Hardware and Software and (Practical) Cryptography. The total purchase price was €1.5 million in cash and has been accounted for as an acquisition.

On July 19, 2013, the Company purchased the entire share capital of Sensinode OY. (“Sensinode”) for $11.7 million in cash. This purchase has been accounted for as an acquisition.

On December 12, 2013, the Company purchased the entire share capital of Geomerics Limited (“Geomerics”) for £13.4 million in cash. This purchase has been accounted for as an acquisition.

In 2012, the Company invested £7.5 million ($12 million) in a joint venture, Trustonic Limited, with a further investment during 2013 amounting to £3.7 million (€4.4 million), maintaining a 40% shareholding. The other two joint venture parties each owned 30% of the joint venture. With the establishment of industry standards and demand for security enhanced services, the focus of Trustonic is to accelerate the wide deployment of secure, smart devices.

The joint venture was reorganized in May 2015, such that the shareholding of one party has been acquired by the other two joint venture members. The joint venture is now controlled and owned equally by ARM and one other party, both with 50% shareholdings as at December 31, 2015. The reorganization generated goodwill of £1.4 million. The carrying value of the Company’s investment is £1.0 million at December 31, 2015.

In 2015, the Company invested £1.6 million in a joint venture, ARM Innovation Ecosystem Accelerator Co. Ltd (AIEA) (a company incorporated in PR China), representing a 49.9% shareholding. The collaboration creates an Internet of Things one-stop shop for startups and established OEMs, providing integrated hardware and software expertise as well as resources from the ARM ecosystem. This investment has been classified as a joint venture since the Company and its venture partner have joint control over the relevant activities of the business, including the appointment of directors and the determination of the operations of the company.

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ORGANIZATIONAL STRUCTURE

ARM Holdings plc is the holding company for a number of subsidiaries. The following is a list of our significant subsidiaries at December 31, 2015. Not all of our subsidiaries are included, as the list would be excessive in length. Unless stated otherwise, each subsidiary is wholly owned.

Company	Jurisdiction of Incorporation
ARM, Inc.	United States
ARM Limited	England and Wales
ARM France SAS	France
ARM Electronic Technology (Shanghai) Co. Ltd	China
ARM Norway AS	Norway
ARM Embedded Technologies Pvt. Ltd.	India
ARM Taiwan Limited	Taiwan

PROPERTIES

The Company leases land and buildings for its executive offices, engineering, marketing, administrative and support operations and design centers. The following table summarizes certain information with respect to the principal facilities leased by the Company:

Location	Freehold/Leasehold	Lease Term and Commencement Date	Approximate Area (square feet)	Principal Use
Cambridge, UK (110 Fulbourn Road)	Leasehold	20 years September 29, 1999	45,000	Executive offices and engineering, marketing and administrative operations
Cambridge, UK (130 Fulbourn Road)	Leasehold	20 years March 25, 2002	35,000	Executive offices and engineering, marketing and administrative operations
Cambridge, UK (100 Fulbourn Road)	Leasehold	13 years October 4, 2010	30,000	Executive offices and engineering, marketing and administrative operations
Maidenhead, UK	Leasehold	25 years July 7, 1998	17,000	Executive offices and design center
San Jose, California, US	Leasehold	8 years August 1, 2012	92,000	Executive offices and engineering, marketing and administrative operations
Austin, Texas, US	Leasehold	7.5 years August 1, 2009	57,400	Design center, marketing and support operations
Austin, Texas, US	Leasehold	10 years July 1, 2015	100,000	Design center, marketing and support operations
Bangalore, India	Leasehold	10 years March 1, 2013	113,800	Executive offices and engineering, marketing and administrative operations
Shanghai, China	Leasehold	3 years May 1, 2015	37,000	Executive offices and engineering, marketing and administrative operations
Trondheim, Norway	Leasehold	5 years December 1,2012	27,000	Design center, marketing and support operations
Sophia Antipolis France	Leasehold	9 years January 1, 2014	20,360	Design center, marketing and support operations
Sheffield, UK	Leasehold	3 years January 1, 2015	19,458	Design center, marketing and support operations
Hsinchu, Taiwan	Leasehold	3 years February 15, 2015	20,268	Design center, marketing and support operations

In addition, the Company leases offices in Blackburn, England; Cambridge, England; Manchester, England; Grasbrunn, Germany; Lund, Sweden; Oulu, Finland; Grenoble, France; Sentjernej, Slovenia; Dublin and Galway, Ireland; Budapest, Hungary; Kfar Netter, Israel; Noida, India; Boston, Massachusetts, USA; Irvine, California, USA; Deerfield Beach, Florida, USA; Plano, Texas, USA; Olympia, Washington, USA and Shanghai, China that are used for engineering and administrative purposes as well as in Shin-Yokohama, Japan; Shenzhen and Beijing, China; Taipei City, Taiwan; and Seoul, South Korea which are used for marketing and

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support operations. Company personnel based in; Bellevue, Washington, US; San Diego, California, US; Paris, France; Vilvoorde, Belgium and Kfar Saba, Israel have office space available to them.

Item 4A. Unresolved Staff Comments

None.

Item 5. Operating and Financial Review and Prospects

OPERATING RESULTS

The following discussion should be read in conjunction with the consolidated financial statements of ARM Holdings plc and notes thereto included elsewhere in this document which have been prepared in accordance with IFRS, which differ in certain respects from U.S. GAAP, and with the discussion of certain risk factors set forth under “Item 3. Key Information—Risk Factors” that might materially affect the Company’s operating results and financial condition.

Within the review of the Operating Results we have included certain non-IFRS measures; specifically, we present (i) normalized research and development costs, (ii) normalized sales and marketing expenditure, and (iii) normalized general and administrative costs, adjusted in each case to exclude exceptional items, share-based compensation charges including payroll taxes, amortization of intangibles acquired with business combinations, other acquisition-related charges, charges relating to the disposal and impairment of investments, share of results of joint venture and costs relating to the Company’s associate company Linaro.  Where such non-IFRS measures are presented, we also present the reconciling items detailed above and amount thereof, to the most directly comparable IFRS measures of research and development costs, sales and marketing expenditure, and general and administrative costs, respectively. 

We believe that disclosing such non-IFRS measures enables analysts and investors to isolate and evaluate clearly the impact of the items detailed above separately from the underlying financial performance of the Company.  We believe this also allows for a clearer comparison of performance from year to year (including of our research and development costs, sales and marketing expenditure, general and administrative costs, and operating costs and profit/loss before tax). Management believes that this provides analysts and investors with valuable additional information which gives them an improved insight into the business.

It should be noted that the non-IFRS measures presented are adjusted items and that all items for which the non-IFRS measures are adjusted are included in our reported financial information because they represent real costs of our business in the periods presented. As a result, non-IFRS measures merely allow investors to differentiate among different kinds of costs and they should not be used in isolation. Our determination of non-IFRS measures, together with our presentation of them within this financial information, may differ from similarly titled non-IFRS measures of other companies.

The Company’s internal operational structure was re-organized on January 1, 2014, to create an organization that is more scalable and more accountable, and that offers a more integrated product portfolio. As at December 31, 2014 and December 31, 2015, the Company’s internal organization and management structure reflected this change and this is the primary way in which the Chief Operating Decision Maker (CODM) was provided with financial information. The CODM assesses performance and allocates resources based on consolidated results of operations. The directors believe that the CODM is the Chief Executive Officer and the Executive Committee of the Company. The result of this re-organization is that the Company has one reportable segment, namely the IP Group (IPG).

Overview

ARM designs the technology that lies at the heart of advanced digital products, from wireless networking and consumer entertainment solutions to imaging, automotive, security and storage devices. ARM’s comprehensive product offering includes 16/32/64-bit RISC microprocessors, data engines, graphics processors, digital libraries, embedded memories, peripherals, software and development tools, as well as analog functions and high-speed connectivity products. The Company licenses this technology to semiconductor companies which, in turn, manufacture, market and sell microprocessors and related products. ARM has developed an innovative, IP-centered and market-driven business model in which it neither manufactures nor sells the products incorporating ARM technology, but concentrates on the research and development, design and support of the ARM architecture and supporting development tools and software. ARM provides a total system solution that offers a fast, reliable path to market for leading electronics companies.

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The Company’s revenues in 2015 increased in US dollars, being the primary currency of revenues generated, by approximately 15% whilst the semiconductor industry (excluding memory and analog) US dollar revenues as a whole increased by about 1% during the period October 1, 2014 to September 30, 2015 (source: Semiconductor Industry Association). This period is, in the Company’s opinion, relevant for comparison purposes because the Company’s royalty revenues are recognized when the Company receives notification from the customer of product sales, and such notification is typically received in the quarter following shipment of the product by the customer. Looking ahead to 2016, semiconductor industry revenues are generally anticipated to continue to grow modestly compared to 2015 (source: Gartner) and the Company is well positioned to continue to outperform the industry.

In 2015, the Company has remained both profitable and cash generative. On operating profits of £406.1 million, cash inflows from operating activities were £379.5 million, following which cash had been returned to shareholders through dividends of £107.8 million. At the end of the year, the Company reported cash, cash equivalents and short- and long-term deposits, net of accrued interest of £950.9 million.

Revenues

The Company’s revenues are classified as either “Product Revenues,” consisting of license fees, sales of development systems and royalties, or “Service Revenues,” consisting of revenues from support, maintenance and training. The most significant component of ARM’s total revenues are license fees and royalty income which together accounted for approximately, 90%, 91% and 92% of total revenues in 2013, 2014 and 2015, respectively.

Revenues from license fees accounted for approximately, 40%, 45% and 39% of total revenues in 2013, 2014 and 2015 respectively. License fees as a percentage of total revenues will be affected by fluctuations in royalties and in demand for ARM’s development systems and support and maintenance services. These products and services complement ARM’s licenses by supporting ARM’s semiconductor partners in their efforts to reduce time to market. In addition, they provide ARM with a way to support systems companies who purchase finished ARM technology-based products from semiconductor companies as well as certain software vendors whose software runs on ARM microprocessors. Growth in these complementary products and services will depend on continued success in demonstrating to semiconductor companies, systems companies and software vendors the enhanced implementation possibilities which such products and services provide for ARM technology-based products and, more generally, on continued market acceptance of the ARM architecture. Growth in these complementary products and services will also depend on whether the Company can devote sufficient engineering staff to support growth in services. Revenues from development systems and support and maintenance services represented approximately 10%, 9% and 8% of total revenues in 2013, 2014 and 2015, respectively.

Revenues from royalties accounted for approximately, 50%, 46%, 53% of total revenues in 2013, 2014 and 2015, respectively. The Company believes royalty revenue will continue to contribute a significant portion of total revenue going forward as the total number of partners and licenses increases.

As of December 31, 2015, the Company had over 420 Partners who, in turn, provide access to many other customers worldwide.

Product Revenues

License fees. Most licenses are designed to meet the specific requirements of the particular customer and can vary from rights to embed ARM technology into a customer’s own application specific product to the complete design of a SoC. See “Item 4. Information on the Company—Business Overview—License Agreements.” Over the term of a license, contractual payments can range from hundreds of thousands of dollars to several millions of dollars. The IP licensed by the Company consists of software and related documentation which enable a customer to design and manufacture microprocessors and related technology and software. A license may be perpetual or time-limited in its application. In general, the time between the signing of a license and final customer validation of the ARM technology is between 6 and 15 months with most time allocated to the period between delivery and validation of the technology. Delivery generally occurs within a short time period after the signing of a license. The licensee obtains license rights to the IP at the time of signing. In addition, the licensee obtains ownership of the licensed rights to the in-process customization as well as the completed customization. License fees are invoiced according to an agreed schedule. Typically, the first invoice is generated on signing of the contract, the second is generated on delivery of the customized IP (being the IP and other technical information relating to the product licensed) and the third and subsequent invoices are date-based milestones. No upgrades or modifications to the licensed IP are provided, except those updates and upgrades provided on

26 

a when-and-if-available basis under post-delivery service support. Following licensee validation of the ARM technology, the Company has no further obligations under the license agreement, except those under a valid post-delivery service support arrangement as mentioned above.

In addition to the license fees, contracts generally contain an agreement to provide post-delivery service support (support, maintenance and training) which consists of an identified customer contact at the Company and telephonic or e-mail support. Fees for post-delivery service support, which is provided after customer acceptance, are specified in the contract. Revenues from post-delivery service support are shown within Service Revenues and are discussed further below under “—Service Revenues—Support and maintenance.”

Development systems. Revenues from sales of development boards and tool kits fluctuate with demand from licensees, systems companies and certain software vendors whose software runs on ARM microprocessors.

Royalties. Royalties are either set as a percentage of the licensee’s net sale price per chip or, less frequently, as a fixed amount per chip. In both cases, the royalty percentage typically declines as the total volume of ARM-compliant products shipped increases before typically flattening out at an agreed volume level. Royalty payment schedules in individual contracts vary depending on the nature of the license and the degree of market acceptance of the ARM architecture prevailing at the contract date. The average royalty rate reported in any period will also depend on the mix of end products into which ARM-based chips have been designed in the period. ARM technology is designed into a wide range of end products which incorporate chips with a broad spectrum of selling prices. Royalties are payable by licensees when they have manufactured and sold the resulting ARM-compliant microprocessors and peripherals to systems companies. The license contracts provide for reports to be issued to ARM with details of such sales and, in certain cases, with forecasts of sales for periods in the near future.

Systems software. The Company earns additional product revenues with the sale of systems software. Revenue is recognized on customer acceptance.

Service Revenues

Support and maintenance. ARM generally requires its licensees to pay an annual fee for support and maintenance for a minimum of one year. The fair value of this post-delivery service support is determined by reference to the consideration the customer is required to pay when it is sold separately, and the service portion is recognized ratably over the term of the support arrangement. Revenue related to post-delivery service support is recognized based on fair value, which is determined with reference to contractual renewal rates.

Costs of Revenues

Product costs. Product costs are limited to variable costs of production, such as the costs of manufacture of development systems, amortization of the Company’s third-party technology licenses, cross-license payments to collaborative parties and the time spent by engineers on developing physical IP products.

Service costs. Service costs include the costs of support and maintenance services to licensees of ARM technology.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with IFRS 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.

The impact and any associated risks related to these policies on our business operations are discussed throughout this section where such policies affect our reported and expected financial results. Note that the preparation of the financial statements included in this annual report on Form 20-F requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

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Revenue Recognition

The Company 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 recognized when all of the following conditions have been satisfied:

· the Company has transferred to the buyer the significant risks and rewards of ownership of the goods;

· the Company 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 Company; 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 recognized 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 Company;

· 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 Company.

Revenue comprises the value of sales of licenses to ARM technology, royalties arising from the resulting sale of licensees’ ARM technology-based products, revenues from support, maintenance and training and the sale of development boards and software toolkits.

License revenue. Revenue from standard license products that are not modified to meet the specific requirements of each customer is recognized 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 license arrangement has been agreed and the IP has been delivered to the customer;

· continuing managerial involvement and effective control over licensed IP is relinquished at the point at which the IP is 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

· it is probable that the economic benefits associated with the transaction will flow to the Company; any economic benefits of the transaction that are deemed unlikely to flow to the Company are deferred until it becomes probable that they will flow to the Company.

The majority of the Company’s revenues come from the licensing of IP 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 Company’s suppliers.

Many license agreements are for products which are designed to meet the specific requirements of each customer. Revenue from the sale of such licenses is recognized on a percentage-of-completion basis over the period from signing of the license to completion of ARM’s contractual obligations. Under the percentage-of-completion method, provisions for estimated losses on uncompleted contracts are recognized 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

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requirement, which approximates to the extent of performance. After project completion, provisions for additional post-delivery warranty work are recognized in research and development expenses.

Where invoicing milestones in license arrangements are such that the receipts fall due significantly outside the period over which the customization is expected to be performed or significantly outside its normal payment terms for standard license arrangements, the Company evaluates whether it is probable that economic benefits associated with these milestones will flow to the Company 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 Company’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

· the extent to which previous experience with similar product groups and similar customers supports the conclusions reached.

Where the Company considers that there is insufficient evidence that it is probable that the economic benefits associated with such future milestones will flow to the Company, 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 Company. The Company 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 selling price of 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 components of a contract are linked and fair values cannot be allocated to the individual components, the revenue recognition criteria are applied to the components as if they were a single component.

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 recognized 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.

Royalty revenues. Royalty revenues are earned on sales by the Company’s customers of products containing ARM technology. Royalty revenues are recognized when it is probable that the economic benefits associated with the transaction will flow to the Company and the amount of revenue can be reliably measured, which the Company considers to be receipt of notification from the customer of product sales. Notification is typically received in the quarter following shipment of the products by the customer.

Other revenues. In addition to license 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 recognized based on fair value, which is determined with reference to contractual renewal rates. Where renewal rates are specified, revenue for post-delivery service support is recognized on a straight-line basis over the period for which support and maintenance is contractually agreed by the Company with the licensee. Services (such as training) that the Company 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 recognized as services are performed and it is probable that the economic benefits associated with the transaction will flow to the Company.

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Sales of software, including development systems, which are not specifically designed for a given license (such as off-the-shelf software) are recognized upon delivery, when the significant risks and rewards of ownership have been transferred to the customer. At that time, the Company has no further obligations except that, where necessary, the costs associated with providing post-delivery service support have been accrued.

For all types of revenue, if the amount of revenue recognized exceeds the amounts invoiced to customers, the excess amount is recorded as amounts recoverable on contracts within accounts receivable. The excess of amounts invoiced over revenue recognized is recorded as deferred revenue.

The Company 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 license agreements, there is an insignificant risk that customer acceptance may not be obtained. The Company also makes assessments, based on prior experience, of the extent to which future milestone receipts represent a probable future economic benefit to the Company. In addition, when allocating revenue to various components of arrangements involving several components, it is assumed that the fair value of each element can be estimated reliably. 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.

Intangible Assets

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 amortized 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.

Other intangible assets. Computer software, purchased patents and licenses to use technology are capitalized at cost and amortized on a straight-line basis over an estimate of the time that the Company 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 capitalized. External costs and internal costs are capitalized to the extent they enhance the future economic benefit of the asset acquired.

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 acquired intangible assets.

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 amortization commences when the assets are brought into use.

Order backlog is derecognized when it has been fully amortized.

Amortization 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 licenses	Three to eleven years
In-process research and development	One to five years
Developed technology	One to seven 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

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Impairment of assets

Non-financial assets that have an indefinite useful life, for example goodwill, are not subject to amortization but are tested annually for impairment.

Non-financial assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognized for the amount by which the non-financial 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. 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 2015 and 2014 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 Company’s other intangible assets.

The Company considers at each reporting date whether there is any indication that financial assets are impaired. If there is such an indication, the Company 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 recognized, 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 recognized in the income statement – is removed from equity and recognized in the income statement. Impairment losses recognized in the income statement on equity instruments are not reversed.

When securities classified as available-for-sale are sold, the accumulated fair value adjustments recognized through other comprehensive income are recycled through the income statement.

Provisions

Provisions for legal claims are recognized when: the Company 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.

Application of these accounting principles to potential losses that could arise from IP disputes is inherently difficult given the complex nature of the facts and law involved. Deciding whether or not to provide for loss in connection with such disputes requires management to make determinations about various factual and legal matters beyond the Company’s control. To the extent management’s determinations at any time do not reflect subsequent developments or the eventual outcome of any dispute, future income statements and balance sheets may be materially affected with an adverse impact upon our results of operation and financial position. Among the factors that the Company considers in making decisions on provisions are the nature of the litigation, claim, or assessment, the progress of the case (including progress after the date of the financial statements but before those statements are issued), the opinions or views of legal counsel and other advisers, the experience of the Company in similar cases, and any decision of the Company’s management as to how the Company intends to respond to the litigation, claim, or assessment. The fact that legal counsel is unable to express an opinion that the outcome will be favorable to the Company does not necessarily mean that the above conditions for accrual of a loss are met.

Results of Operations

The following table sets forth, for the periods indicated, the percentage of total revenues represented by certain items reflected in the Company’s consolidated statements of operations.

	Year ended December 31,
	2013		2014		2015
		%		%		%
Revenues
Product revenues		95.2		95.4		95.8

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	Year ended December 31,
	2013			2014			2015
	%			%			%
Service revenues		4.8			4.6			4.2
Total revenues		100.0			100.0			100.0
Cost of revenues
Product costs		3.5			2.9			2.2
Service costs		2.0			1.9			1.9
Total cost of revenues		5.5			4.8			4.1
Gross profit		94.5			95.2			95.9
Operating expenses
Research and development		28.4			28.2			28.7
Sales and marketing		12.5			11.7			11.0
General and administrative		17.9			16.4			14.3
Total operating expenses before exceptional items		58.8			56.3			54.0
Exceptional items (1)		14.2			-			-
Total operating expenses after exceptional items		73.0			56.3			54.0
Profit from operations		21.5			38.9			41.9
Investment income		1.9			1.4			1.2
Interest payable		0.0			0.0			0.0
Share of results of joint venture		(0.6	)		(0.4	)		(0.3	)
Profit before tax		22.8			39.9			42.8
Tax		8.1			7.7			7.8
Profit for the year		14.7			32.2			35.0

____________________

(1) The exceptional items in 2013 relate to a contribution to a full and final settlement of certain patent related litigation and the impairment of an available-for-sale financial asset acquired as part of a transaction to acquire rights to a patent portfolio.

The following table sets forth, for the periods indicated, our total revenues in US dollars and sterling:

	Year ended December 31,
	2013					2014					2015
		£ million		$ million			£ million		$ million			£ million		$ million
Total Revenues		714.6		1,117.7			795.2		1,292.6			968.3		1,488.6
Percentage Increase (vs previous year)		24	%	22	%		11	%	16	%		22	%	15	%
Actual average Dollar/Sterling Exchange Rate	$	1.56				$	1.63				$	1.54

Management analyzes product revenues in the categories of royalties, licenses and development systems. Service revenues consist of support, maintenance and training income. The following table sets forth, for the periods indicated, the amount of total revenues represented by each component of revenue:

	Year ended December 31,
	2013		2014		2015
		£ million
Product Revenues
Royalties		358.3		362.5		510.0
Licenses		285.6		361.2		380.6
Software and tools		36.4		35.0		37.3
		680.3		758.7		927.9
Service Revenues
Support, Maintenance and Training		34.3		36.5		40.4
Total Revenues		714.6		795.2		968.3

Product revenues. Product revenues consist of license fees, sales of development systems and royalties. Product revenues for 2013, 2014 and 2015 were £680.3 million, £758.7 million and £927.9 million, respectively, representing approximately 95% of total revenues in each of 2013 and 2014, respectively and 96% of total revenues in 2015. Product revenues in US dollars, being the primary currency of revenues generated,

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increased from $1,063.9 million in 2013 to $1,233.8 million in 2014 and increased further to $1,425.3 million in 2015.

License revenues increased from £285.6 million in 2013 to £361.2 million in 2014 and further increased to £380.6 million in 2015, representing approximately 40%, 45% and 39% of total revenues in 2013, 2014 and 2015, respectively. License revenues in US dollars increased from $447.9 million in 2013 to $580.8 million in 2014 and increased further to $587.9 million in 2015.

The portfolio of licensable products comprises a rich mix of proven ARM technology, such as the ARM7, ARM9, ARM11 and Cortex families of products and the Mali 3D graphics processors as well as Physical IP and other peripherals.

	Year ended December 31,
	2013			2014			2015
	(number or % of license revenue)
Licenses
New processor licenses signed		121			163			173
License Revenues
Cortex family processors		45	%		46	%		38	%
Long term licenses with certain strategic customers		23	%		21	%		29	%
Graphics Processor		7	%		7	%		7	%
Other Core license revenue		1	%		1	%		0	%
Non-Core		9	%		11	%		12	%
Physical IP		15	%		14	%		14	%
Total		100	%		100	%		100	%

Over 39 companies became new ARM Partners in 2015 (2014: 30 new ARM Partners), bringing the total number of semiconductor Partners to over 420 at the end of the year. This total number of semiconductor partners was net of those companies that have signed licenses with ARM in the past but have since been acquired by other companies or who no longer have access to ARM technology for other reasons.

During 2015, 26 licenses were signed for ARM’s most advanced processor technology, ARMv8-A, bringing the accumulated total of licenses for this technology to 89 (excluding licenses that are no longer expected to generate royalties).

License revenues from non-core products, covering items such as platforms, peripherals, embedded trace modules, embedded software, data engines, models and sub-systems were £45.2 million in 2015 compared to £39.5 million in 2014 and £26.0 million in 2013.

By the end of 2015, ARM had signed a total of 111 physical IP platform licenses resulting in license revenues of £53.9 million in 2015 compared to £52.1 million in 2014 and £41.2 million in 2013, representing approximately 14% of total license revenues in 2015, 14% in 2014 and 14% in 2013.

In 2015, ARM continued to develop leading-edge physical IP which enables the optimized implementation of SoC designs and to sign synergistic licenses that have been enabled by the combination of ARM and Artisan. Cortex-A class processors benefit from physical IP optimized for high performance and low power on advance process nodes; and Cortex-M class processors benefit from physical IP optimized for low performance and low power on mature process nodes. 13 licenses were signed for processor optimization packages in 2015, bringing the total number of licenses for this technology to 85.

Revenues from the sale of development systems decreased from £36.4 million in 2013 to £35.0 million in 2014 and increased to £37.3 million in 2015, representing approximately 5% of revenues in 2013, 4% in 2014 and 4% in 2015. Development systems revenues in US dollars increased slightly from $57.1 million in 2013 to $57.3 million in 2014 and decreased slightly to $57.2 million in 2015. The increase in 2013 to 2014 was due to the greater demand for the Company’s products required to support processor products with this demand remaining stable in 2015.

Royalties are either set as a percentage of the licensee’s average selling price (“ASP”) per chip or, less frequently, as a fixed amount and are recognized when the Company receives notification from the customer of product sales. In effect, this means that it is normally in the quarter following the shipments that data is received and so royalty data for a year reflects actual shipments made from the beginning of October of the previous year

33 

to the end of September of the current year. As the penetration of ARM technology-based chips grows across a wide range of end-market applications, the range of ASPs gets wider.

Royalties increased from £358.3 million in 2013 to £362.5 million in 2014 and further increased to £510.0 million in 2015, representing, 50%, 46%, and 53% of total revenues in 2013, 2014 and 2015, respectively. US dollar royalty revenues increased from $558.9 million in 2013 to $595.7 million in 2014 and further increased to $780.2 million in 2015. Processor volume shipments increased from 10.4 billion units in 2013 to 12.0 billion units in 2014 and further increased to 14.8 billion units in 2015, representing an increase of 23% compared to 2014. Industry analysts believe that worldwide unit shipments of smartphones grew around 12% in 2015. As more ARM technology is typically incorporated into feature-rich handsets, the Company benefited from the higher proportion of smartphones being shipped in the year. Beyond mobile, the Company also continued to gain share in all target end-markets including mobile computing, network infrastructure and microcontrollers.

Royalty revenues grew 31% in 2015, faster than unit volumes which grew at 23%.  This was primarily due to the mix of products being sold by our customers in 2015.  Our customers reported strong growth in the high-value application processors for use in mobile computing devices and networking infrastructure applications.  In addition, as some of these applications processors contained our latest ARMv8-A technology, we also benefited from a higher royalty percentage per chip.  Although we also saw growth in the number of lower-cost chips such as microcontrollers and smartcards, the net effect was for royalty revenue to grow faster than unit volumes.

US dollar revenues from royalties increased 7% in 2014 compared with 2013. The greater increase in royalty units shipped of 16% was due to the mix of products sold by customers during the year. There was an increase in demand for ARM-based microcontrollers in 2014 which typically have a lower royalty per chip. Although growth continued in high-end smartphones where the royalty per chip is typically higher, it was slower than in previous years and slower than the growth in shipments of ARM-based microcontrollers.

	Year ended December 31,
Royalties	2013		2014		2015
		£ million
Processor		317.5		326.0		463.1
Physical IP		40.8		36.5		46.9
				Units
				billion
Processor		10.4		12.0		14.8

The following table presents a breakdown of processor unit shipments by type:

Processor Series	2013 Unit Shipments			2014 Unit Shipments			2015 Unit Shipments
ARM7, ARM9 & ARM11		49	%		41	%		33	%
Cortex-A		17	%		19	%		18	%
Cortex-R		4	%		4	%		7	%
Cortex-M		30	%		36	%		42	%

The following table presents a breakdown of processor unit shipments by main market areas:

Main Market Areas	2013 Unit Shipments			2014 Unit Shipments			2015 Unit Shipments
Mobile		49	%		45	%		44	%
Enterprise		18	%		16	%		13	%
Home		5	%		5	%		5	%
Embedded		28	%		34	%		38	%

The Company expects royalty revenues to grow over the medium-term although they may be subject to significant fluctuations from quarter to quarter. The total number of partners shipping ARM technology-based products at the end of 2015 was 174 after taking into account corporate activity within the ARM partnership. 25 companies were paying royalties for physical IP products at the end of the year.

Service revenues. Service revenues consist of support, maintenance and training. Service revenues increased from £34.3 million in 2013 to £36.5 million in 2014 and further increased to £40.4 million in 2015,

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representing 4% of total revenues in 2015 (2014: 5%; 2013: 5%). Service revenues in US dollars, increased from $53.8 million in 2013 $58.8 million in 2014 and further increased to $63.3 million in 2015.

Geographic analysis. The Company earns revenues from customers who are based in many different geographies. The following table sets forth, for the periods indicated, revenue by geographic destination as a percentage of total revenue per the Company’s consolidated financial statements. The proportion of revenues from the Asia Pacific region (excluding Japan) is increasing as the level of licensing and royalty shipments from customers based in China, South Korea and Taiwan increases.

	Year ended December 31,
	2013		2014		2015
		%		%		%
Revenue by destination:
North America		39		41		38
Japan		7		7		7
Asia Pacific, excluding Japan		45		43		48
Europe		9		9		7
Total		100		100		100

Product costs. Product costs are limited to variable costs of production such as the costs of manufacture of development systems, amortization of third-party technology licenses, cross-license payments to collaborative partners and time of engineers on physical IP projects.

	Year ended December 31,
	2013			2014			2015
Product costs	£	24.7	m	£	22.6	m	£	21.5	m
As a percentage of total revenue		3	%		3	%		2	%
Product Gross Margin		96	%		97	%		98	%

Product costs decreased in 2015 and in 2014 due primarily to the fluctuation in direct costs related to physical IP products depending on the mix of customized and non-customized products. In 2015, development systems costs made up 13% (2014: 16%; 2013: 11%) of total product costs, physical IP related direct costs accounted for 80% (2014: 81%; 2013: 87%) and the balance related to third-party licenses and cross-license payments.

Service costs. Service costs include the costs of support and maintenance services provided to licensees of ARM technology. Cost of services was £14.6 million in 2013, £15.2 million in 2014 and £17.8 million in 2015. The gross margins earned on service revenues were approximately 57% in 2013, 58% in 2014 and 56% in 2015. In 2014 and 2015, the increase in service costs was largely due to increasing staff costs as the Company grows.

Performance indicators. The Company’s management uses several performance indicators in assessing the Company’s performance, of which revenues and earnings per share are the most important. Revenues are discussed in further detail in “—Results of Operations” above. Earnings per share are disclosed in our financial statements filed herewith. Another performance indicator for the business is backlog, defined as the aggregate value of contracted business not yet recognized as revenue in the profit and loss account. Period-end backlog excludes royalty revenue, which is recognized upon receipt of the royalty reports from our partners and consequently passes into backlog and is immediately released when invoiced.

The Company discloses the quarterly trend in backlog along with the maturity profile (how much is expected to be recognized as revenue in the next two quarters, in the subsequent two quarters, and over more than one year), and its composition is split between the main component parts.

	At December 31,
Maturity profile of backlog	2014			2015
Next two quarters (Q1 and Q2)		29	%		24	%
Subsequent two quarters (Q3 and Q4)		21	%		23	%
Greater than twelve months		50	%		53	%
Total		100	%		100	%

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	At December 31,
Backlog composition	2014			2015
Processors		75	%		78	%
Physical IP		12	%		7	%
Support & Maintenance and Others		13	%		15	%
Total		100	%		100	%

At the end of 2015, backlog was slightly lower than at the beginning of the year with revenue recognized on long-term licensing deals largely being replaced by new longer-term licensing deals being signed.

Another performance indicator is the number of patent applications submitted by ARM employees. ARM incentivizes its employees to submit patent applications by awarding patent bonuses. The number of proposed patent applications submitted by ARM employees was 413 in 2015, 171 in 2014 and 210 in 2013.

Research and Development Costs

	Year ended December 31,
	2013			2014			2015
	(in millions of pounds or %)
Total		202.9			224.2			278.0
Percentage of total revenue		28	%		28	%		29	%
Share based compensation charges (including payroll taxes)		45.1			46.9			50.7
Amortization of intangible assets acquired with business combinations		6.9			7.2			8.3
Acquisition-related charges		2.6			2.3			4.2
Normalized research and development costs		148.3			167.8			214.8
Excluding these charges the Percentage of total revenue		21	%		21	%		22	%

Continued investment in research and development remains an essential part of the Company’s strategy as the development of new products for licensing is key to its future growth.

Average engineering headcount increased from 1,803 in 2013 to 2,173 in 2014 and further increased to 2,639 in 2015. Staff costs increased in both 2014 and 2015 as a result of the growth in headcount as well as employee cost inflation.

Typically, when a new product is in development, the Company seeks to work with a small number of potential customers interested in licensing the product prior to the completion of its development. Once the customers are identified, further work is undertaken to complete the product’s fundamental design, after which it is transferred to the customers’ semiconductor process so that a series of test chips may be manufactured and validated. The Company cannot determine whether the product can be manufactured in accordance with its design specifications, including functions, features, and technical performance requirements, until the end of this process. Since all design, coding, and testing activities must be completed before technological feasibility is established, the Company does not capitalize any product development costs.

Sales and Marketing Expenditure

	Year ended December 31,
	2013			2014			2015
	(in millions of pounds or %)
Total		89.4			93.2			106.1
Percentage of total revenue		13	%		12	%		11	%
Share based compensation charges (including payroll taxes)		12.1			12.0			12.9
Amortization of intangible assets acquired with business combinations and other acquisition related costs		0.6			0.2			0.1
Normalized sales and marketing expenditure		76.7			81.0			93.1
Excluding these charges the Percentage of total revenue		11	%		10	%		10	%

Average headcount in sales and marketing increased from 425 in 2013 to 481 in 2014 and 498 in 2015.

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Sales and marketing costs increased largely due to increased corporate marketing in 2013, 2014 and 2015.

General and Administrative Costs

	Year ended December 31,
	2013			2014			2015
	(in millions of pounds or %)
Total		128.2			131.0			138.8
Percentage of total revenue		18	%		16	%		14	%
Share based compensation charges (including payroll taxes)		14.7			10.5			11.7
Investment-related charges/ (gain)		3.5			0.7			(5.3	)
Linaro-related charges		7.0			–			7.0
Restructuring		–			8.6			–
Acquisition-related charges		1.5			0.7			1.7
Normalized general and administrative costs		101.5			110.5			123.7
Excluding these charges the Percentage of total revenue		14	%		14	%		13	%

In 2014, general and administrative costs were higher than 2013 due to increasing costs relating to engineering platform, particularly with the completion of the Austin data center. Continued investment in our engineering platform saw costs increase further in 2015 in line with the growing business.

General and administrative average headcount was 465, up from 418 in 2014 and 370 in 2013.

Unrealized future foreign exchange gains on certain committed but not yet invoiced future revenue streams of £4.3 million (2014: gains of £9.6 million; 2013: losses of £4.5 million) were recorded in 2015. There were other foreign exchange gains of £3.3 million in 2013, a loss of £6.8 million in 2014 and a gain of £3.2 million in 2015. The foreign exchange rate between the US dollar and sterling had a range bound between $1.46 and $1.59 in 2015. The overall net charge or gain depends upon the mix and quantum of non-sterling denominated monetary assets (including cash, accounts receivable and accounts payable), embedded derivatives and currency exchange contracts.

Restructuring costs. In 2013 there were no restructuring charges. In 2014 there were restructuring costs of £8.6 million relating to a refocusing of effort following the reorganization at the beginning of 2014. In 2015 there were no restructuring charges.

Amortization of intangible assets. Licenses to use third-party technology and acquired patents are capitalized and amortized over the useful economic period that the Company is expected to gain benefit from them (generally between three and ten years). Licenses and patents totaling £23.6 million were purchased during 2001 to 2008. No licenses were purchased in 2009, 2010 and 2011. In 2012, 2013, 2014 and 2015 licenses were purchased for £1.4 million, £74.1 million, £5.1 million and £9.1 million, respectively. Amortization of these licenses amounted to £12.7 million in 2015 (2014: £11.0 million; 2013: £8.3 million). At December 31, 2015, the net book value of these assets was £60.0 million; which will be amortized over the next 8 years.

During 2008, the Company purchased Logipard AB, a video IP company in Sweden. Intangibles acquired and capitalized consisted of developed technology, customer relationships and in-process research and development and totaled £5.0 million. These assets were amortized over three to five years and the charge in 2013 was £0.9 million. These assets were fully amortized by the end of 2013.

During 2011, the Company purchased Obsidian Software Inc., a developer of verification and validation products and services, based in Texas. Intangibles acquired and capitalized consisted of patents and customer relationships and totaled £2.7 million. These assets were amortized over 3 years and the charge in 2013 was £0.9 million and in 2014 was £0.4 million. These assets were fully amortized by the end of 2014. The Company also acquired Prolific, Inc., a California-based company that develops leading-edge IC design optimization software tools. Intangibles acquired and capitalized consisted of developed technology, customer relationships and trademarks and totaled £2.4 million. These assets were amortized over 6 months to 3 years and the charge in 2013 was £0.8 million and in 2014 was £0.6 million. These assets were fully amortized by the end of 2014.

During 2013, the Company purchased Sensinode OY, a provider of software technology for the IoT. Intangibles acquired and capitalized consisted of developed technology and customer relationships and totaled £2.8 million. These assets are being amortized over five years. The charge in 2013 was £0.4 million and in 2014 was £0.6 million and in 2015 was £0.5 million. The Company also purchased

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Geomerics Limited, a leader in lighting technology for the gaming and entertainment industries. Intangibles acquired and capitalized consisted of patents and customer relationships and totaled £5.0 million. These assets are being amortized over seven years. The charge in 2014 was £0.7 million and in 2015 was £0.7 million.

On May 27, 2014, the Company purchased the entire share capital of Duolog for €13.9 million in cash. Duolog, a company based in Ireland and Hungary, is a leader in design configuration and integration technology for the semiconductor industry. The acquisition strengthens the Company’s IP configuration and integration capability, helping ARM Partners design and deploy system IP and manage increasing SoC integration complexity. Intangibles acquired and capitalized consisted of developed technology of £1.7 million. These assets are being amortized over five years and the charge in 2014 was £0.1 million and in 2015 was £0.2 million.

On November 14, 2014, the Company purchased the entire share capital of Offspark BV a company providing specialized services in the field of digital security focusing on Online Security, Secure Hardware and Software and (Practical) Cryptography. The total purchase price was €1.5 million in cash. Intangibles acquired and capitalized consisted of developed technology of £1.0 million. These assets are being amortized over five years and the charge in 2014 was less than £0.1 million and in 2015 was £0.2 million.

On February 5, 2015, the Company purchased the entire share capital of Wicentric, Inc. for $3.2 million in cash. Wicentric is a provider of Bluetooth Smart software solutions focused on enabling the development of low-power wireless products. Intangibles acquired and capitalized consisted of developed technology of £0.4 million. These assets are being amortized over 5 years and the charge in 2015 was less than £0.1 million.

On April 15, 2015, the Company purchased the entire share capital of Sunrise Micro Devices, Inc (SMD) for $14.6 million. The majority of the consideration consisted of convertible loan notes (and interest accrued) with a fair value of £9.2 million ($13.5 million), with the remainder of the consideration settled in cash. SMD is a provider of radio IP solutions, including a pre-qualified, self-contained radio block and related firmware to simplify radio deployment. Intangibles acquired and capitalized consisted of developed technology of £4.6 million. These assets are being amortized over 5 years and the charge in 2015 was £0.6 million.

On July 30, 2015, the Company purchased the entire share capital of Discretix Inc (trading as Sansa Security, Inc.) for $71.3 million in cash. Sansa Security is a provider of hardware security IP and software for advanced system-on-chip components deployed in IoT and mobile devices. Intangibles acquired and capitalized consisted of developed technology of £8.5 million and IPRD of £3.0 million. These assets are being amortized over 4 to 7 years and the charge in 2015 was £1.0 million.

On October 19, 2015, the Company acquired the trade and certain assets of Carbon Design Systems Limited for $24.4 million in cash. Carbon is a leading supplier of cycle-accurate virtual prototyping solutions, to deliver design optimization, time-to-market and cost-efficiency gains for its Partners. Intangibles acquired and capitalized consisted of developed technology of £4.7 million and customer relationships of £1.2 million. These assets are being amortized over 2 to 6 years and the charge in 2015 was £0.3 million.

Exceptional item - IP indemnity and similar charges. As noted in prior financial statements, the Company had been in discussions with a licensee to re-negotiate the terms upon which the Company would indemnify that licensee. During 2013, terms were executed and the Company incurred indemnification costs amounting to $18.0 million. Further in relation to legal proceedings regarding the same patent portfolio, for consideration of $45.4 million, the Company entered into a license agreement with a third party covering patents being asserted against ARM technology in litigation between the patentee and a number of licensees of ARM technology. The license was entered into in full and final settlement of any indemnity claims with respect to the asserted patents and will prevent any future assertion of the patents against ARM technology. Total indemnification, settlement and license costs of $63.4 million (£41.8 million) were expensed, as an exceptional item, in 2013, with a tax impact of £9.7 million.

Exceptional item - Impairment of available for sale financial assets (current). During 2013, the Company participated in a consortium, via a trust, to acquire certain patent rights. These rights were not subject to actual or threatened legal proceedings. Of the Company’s total contribution to the consortium, $100.5 million was classified within current available-for-sale financial assets (£60.7 million after translation at 31 December 2013 exchange rates) and $67 million, the residual, was classified within other intangible assets (£37.4 million after amortization to 31 December 2013). The available-for-sale financial asset represented ARM’s right to receive cash from the Company's financial interest in the consortium as it was anticipated that a program of licensing the patents to third parties would be undertaken by the trust. The other intangible asset consists of IP rights that are being amortized over a period of eight and a half years from March 2013, being the average remaining life of the underlying patent portfolio.

38 

In Q4 2013, the trust made a strategic decision not to pursue a licensing program and the portfolio was put up for sale by auction. The Company acquired the patents in January 2014 for $4.0 million (£2.4 million) which has been accounted for as an additional intangible asset. As there was no longer an expectation of any future cash flows with respect to licensing of the patents by the Trust, the available-for-sale financial asset has been impaired down to the value of the Company’s share of the auction proceeds as at December 31, 2013, giving rise to an exceptional charge in 2013 of $98.5 million (£59.5 million) in the financial statements for 2013, with a tax impact of £18.3 million. During 2014, there was amortization of £4.9 million and at December 31, 2014, the net book value of these assets was £32.5 million. During 2015, there was amortization of £4.9 million and at December 31, 2015, the net book value of these assets was £27.6 million.

Interest. Net investment income decreased from £13.1 million in 2013 to £11.0 million in 2014 and increased to £11.8 million in 2015. The increase in 2015 was mainly due to a larger cash balance, though lower interest rates reduced the impact of these higher balances. The decrease in 2014 was mainly due to lower interest rates. Cash was invested for periods of up to two years although more typically for periods of less than one year. Interest received in 2013, 2014 and 2015 included £0.1 million relating to a charitable interest free loan made by the Company in 2010.

Profit before tax. Profit before tax was £162.6 million in 2013, £316.5 million in 2014 and £414.8 million in 2015, representing 23%, 40% and 43% of total revenues, respectively. In 2013, higher revenues have been offset by the cost of exceptional items. In 2014 and 2015, revenues continued to rise giving rise to the higher profit margin.

Share of results of joint venture. On December 4, 2012 the joint venture, Trustonic Limited, of which the Company holds a 50% share, commenced trading. The initial investment value amounted to £7.5 million. The Company’s share of the results of Trustonic in 2015 was a loss of £3.1 million (2014: loss of £3.5 million; 2013: loss of £4.0 million).

Tax charge. The Company’s effective tax rates were 36% in 2013, 19% in 2014 and 18% in 2015. In 2013, the tax rate increased primarily due to the exceptional cost relating to the impairment of the available-for-sale financial asset which gave rise to an unrecognized deferred tax asset The introduction of the UK patent box regime from April 2013 partially offset this impact. In 2014, the effective tax rate was lower in the absence of exceptional non-deductible costs. In addition, the continued phasing-in of the UK patent box regime caused the tax rate to be lower in 2014 and 2015.

Foreign Currency Fluctuations

Foreign currency fluctuations. The Company’s earnings and liquidity are affected by fluctuations in foreign currency exchange rates, principally the US dollar rate, as most of the Company’s revenues and cash receipts are denominated in US dollars while a high proportion of its costs are in sterling.

The Company hedges its currency exposure using forward contracts for the sale of US dollars, which are entered into with major banks. The Company also uses currency options for a limited proportion of its dollar exposure. The fair values of the currency exchange contracts outstanding at December 31, 2013, 2014 and 2015 are disclosed in Note 16 to the Consolidated Financial Statements. The settlement period of the forward contracts outstanding at December 31, 2015 was between January 5, 2016 and December 19, 2016. The settlement period of the forward contracts outstanding at December 31, 2014 was between January 7, 2015 and August 13, 2015. The settlement period of the option contracts outstanding at December 31, 2015 was between January 19, 2016 and December 30, 2016. The settlement period of the option contracts outstanding at December 31, 2014 was between January 5, 2015 and June 30, 2016.

Contingencies and Loss Provisions

The accounting policy with respect to loss provisions is described in “—Operating Results—Critical Accounting Policies and Estimates—Provisions” above. IP disputes to which we are party are described in “Item 8. Financial Information—Legal Proceedings.” The provision for such disputes as of December 31, 2015 was £2.5 million (2014: £2.5 million; 2013: £nil). Based on the facts and circumstances surrounding any disputes, the Company does not expect any such dispute to result in a material cash outflow.

Risk Factors

For a discussion of the risks faced by the Company, see “Item 3. Key Information—Risk Factors.”

39 

Recently Issued Accounting Announcements

IFRS Accounting Standards and Pronouncements

For a description of newly published IFRS accounting standards see Note 1 to the Consolidated Financial Statements. There are no significant amendments to accounting policies during the year as a result of new accounting standards.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations primarily through cash generated from operations. Over the previous three years we have also received £22.1 million in cash from the issuance of shares and transfers of treasury shares to employees who have exercised options in the Company.

The Company’s operating activities provided net cash of £315.3 million, £341.6 million and £379.5 million in 2013, 2014 and 2015, respectively.

Accounts receivable increased by £19.8 million in 2013, increased by £4.0 million in 2014 and further increased by £37.2 million in 2015. Days’ sales outstanding were 47 at December 31, 2013, 40 at December 31, 2014 and 25 at December 31, 2015. In 2013, 2014 and 2015, increased licensing activity resulted in an increase in accounts receivable. Included within accounts receivable are amounts recoverable on contracts. Prepaid expenses and other assets increased by £8.8 million in 2013, increased by £9.9 million in 2014 and increased by £17.4 million in 2015. The 2015 increase in prepaid expenses and other assets was mainly due to an increase in government grant receivables. Inventories remained at similar levels in 2015, 2014 and 2013. There have been no other significant movements in other current assets.

Accounts payable increased by £1.1 million in 2013, increased by £4.5 million in 2014 and increased by £0.4 million in 2015. Movements in the accounts payable balance reflect the timing of receipt of invoices from suppliers. Accrued and other liabilities increased by £8.3 million in 2013, decreased by £11.6 million in 2014 and increased by £22.5 million in 2015. The decrease in 2014 was due to the lower bonus accrual for 2014. The increase in 2015 was due to higher bonus accrual.

At December 31, 2015, the Company recorded £154.6 million of deferred revenues (2014: £173.0 million; 2013: £199.2 million). Deferred revenues are an element of customer backlog, and represent amounts invoiced to customers not yet recognized as revenues in the income statement. Similarly, the Company recorded £51.2 million of amounts recoverable on contracts (“AROC”) at December 31, 2015, compared to £5.6 million and £9.1 million at December 31, 2013 and 2014, respectively. AROC represents amounts that have been recognized as revenue in the income statement but are yet to be invoiced to customers. Both deferred revenue and AROC fluctuate due to the maturity profile of ARM’s products, and invoicing milestones within contracts. At December 31, 2015, £44.5 million of deferred revenue is expected to be recognized after more than one year.

The Company believes that, given its current level of business, it has sufficient working capital for the foreseeable future.

Cash flow from operations has been used to fund the working capital requirements of the Company as well as capital expenditure. Cash outflow from capital expenditure in 2015 was £30.5 million for property, plant and equipment and £10.5 million for other intangible assets, compared with £20.4 million for property, plant and equipment and £10.0 million for other intangible assets in 2014 and £13.5 million and £31.8 million in 2013, respectively. In 2014, capital expenditure on property, plant and equipment was higher due to the investment in a data center at the Company’s Austin site. The level of expenditure on intellectual properties licenses was considerably lower in 2014. In 2015, capital expenditure on property, plant and equipment increased with investment in the new Austin office facility. The level of expenditure on intellectual properties licenses remained consistent in 2015.

In 2013, the Company made two acquisitions: Sensinode Oy and Geomerics Limited. The total expenditure, net of cash acquired, on these acquisitions was £21.1 million. The Company also made additional payments of £2.0 million and £0.6 million in respect of the acquisitions of Obsidian and Prolific, respectively, for time-based and performance bonuses due under the acquisition agreements.

On May 27, 2014, the Company purchased the entire share capital of Duolog for €13.9 million in cash. Duolog, a company based in Ireland and Hungary, is a leader in design configuration and integration technology for the semiconductor industry. The acquisition strengthens the Company’s IP

40 

configuration and integration capability, helping ARM Partners design and deploy system IP and manage increasing SoC integration complexity.

On November 14, 2014, the Company purchased the entire share capital of Offspark BV a company providing specialized services in the field of digital security focusing on Online Security, Secure Hardware and Software and (Practical) Cryptography. The total purchase price was €1.5 million in cash.

In 2014 the Company also made additional payments of £1.8 million, £0.4 million and £0.1 million in respect of the acquisitions of Obsidian, Prolific and Sensinode, respectively, for time-based and performance bonuses due under the acquisition agreements.

On February 5, 2015, the Company purchased the entire share capital of Wicentric, Inc. for $3.2 million in cash. Wicentric is a provider of Bluetooth Smart software solutions focused on enabling the development of low-power wireless products.

On April 15, 2015, the Company purchased the entire share capital of SMD for $14.6 million. The majority of the consideration consisted of convertible loan notes (and interest accrued) with a fair value of £9.2 million ($13.5 million), with the remainder of the consideration settled in cash. SMD is a provider of radio IP solutions, including a pre-qualified, self-contained radio block and related firmware to simplify radio deployment. Intangibles acquired and capitalized consisted of developed technology of £4.6 million.

On July 30, 2015, the Company purchased the entire share capital of Discretix Inc (trading as Sansa Security, Inc.) for $71.3 million in cash. Sansa Security is a provider of hardware security IP and software for advanced system-on-chip components deployed in IoT and mobile devices.

On October 19, 2015, the Company acquired the trade and certain assets of Carbon Design Systems Limited for $24.4 million in cash. Carbon is a leading supplier of cycle-accurate virtual prototyping solutions that deliver design optimization, time-to-market and cost-efficiency gains for its Partners.

In 2015, the Company also made additional payments of £1.1 million, £0.2 million, £0.3 million and £0.3 million resulting from the acquisitions of Prolific, Geomerics, Duolog and Sensinode, respectively, for time-based and performance bonuses due under the acquisition agreements.

The Company envisages making further strategic investments in the future in situations where the Company can broaden its product portfolio, where it can obtain skilled engineering resources and where the potential for furthering ARM core-based design wins is improved significantly.

In 2013, the Company participated in a consortium, via a trust, to acquire certain patent rights. These rights were not subject to actual or threatened legal proceedings. Of the Company’s total contribution to the consortium, $100.5 million was classified within current available-for-sale financial assets (£60.7 million after translation at 31 December 2013 exchange rates) and $67 million, the residual, was classified within other intangible assets (£37.4 million after amortization to 31 December 2013). The available-for-sale financial asset represented ARM’s right to receive cash from the Company's financial interest in the consortium as it was anticipated that a program of licensing the patents to third parties would be undertaken by the trust. The other intangible asset consists of IP rights that are being amortized over a period of eight and a half years, being the average remaining life of the underlying patent portfolio.

In Q4 2013, the trust made a strategic decision not to pursue a licensing program and the portfolio was put up for sale by auction. The Company acquired the patents in January 2014 for $4.0 million (£2.4 million) which have been accounted for as an additional intangible asset. As there was no longer an expectation of any future cash flows with respect to licensing of the patents by the trust, at December 31, 2013, the AFS financial asset was impaired down to the value of the Company’s share of the auction proceeds, giving rise to a non-cash exceptional charge of $98.5 million (£59.5 million). A deferred tax asset has not been recognized in relation to this exceptional item, increasing the current tax charge by £18.3 million in 2013.

In 2013, the Company invested £5.0 million in Cambridge Innovation Capital plc and in 2014, invested £1.3 million in Pragmatic Printing. In addition the Company further invested £3.8 million in various existing investments.

From time to time the Company has bought back shares in order to supplement dividends in returning surplus funds to shareholders. The Company did not buy back any shares during 2013. In 2014, the Company bought back shares with a total value of £66.9 million and in 2015, the company bought back shares with a total

41 

value of £92.2 million. Dividends totaling £107.8 million were paid to shareholders in 2015 (2014: £86.1 million; 2013: £68.9 million). In aggregate, the Company has returned more than £900 million to shareholders since 2004 through buy-backs and dividends. Share option exercises in 2015 gave rise to a £9.4 million cash inflow to the Company compared to £6.8 million in 2014 and £5.9 million in 2013.

Cash, cash equivalents and short- and long-term deposits, net of accrued interest at December 31, 2015 were £950.9 million compared to £861.7 million at December 31, 2014 and £706.3 million at December 31, 2013.

Our cash requirements depend on numerous factors, including: our ability to generate revenues from new and existing licensing and other agreements; expenditures in connection with ongoing research and development and acquisitions and disposals of and investments in complementary technologies and businesses; competing technological and market developments; the cost of filing, prosecuting, defending and enforcing patent claims and other IP rights; the purchase of additional capital equipment; fluctuations in foreign exchange rates; and capital expenditures required to expand our facilities. Changes in our research and development plans or other changes affecting our operating expenses may result in changes in the timing and amount of expenditures of our capital resources.

RESEARCH AND DEVELOPMENT

Research and development is of major importance and, as part of its research activities, the Company collaborates closely with universities worldwide, and plans to continue its successful engagement with the University of Michigan. Key areas of product development for 2015 include the development of further energy-efficient, high-performance engines for both data and control applications such as ARM cores based on the next generation of the ARM architecture that includes support for 64-bit processing. The Company is investing in future physical IP development, including lower-power, low-leakage technologies for both bulk Complementary Metal-Oxide Semiconductor (“CMOS”) and SOI processes to ensure leadership in this market. In addition, the Company will deliver development tools, graphics processors and fabric IP to enable its customers to design and program SoC products. The Company incurred research and development costs of £278.0 million in 2015, £224.2 million in 2014 and £202.9 million in 2013. See “Item 4. Information on the Company—Business Overview—Research and Development” and “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations—Research and development costs” above.

OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS

Our major outstanding contractual commitments relate to rental of office facilities and certain equipment under non-cancelable operating lease agreements which expire at various dates through 2025. Our contractual commitments as of December 31, 2015 were as follows:

	Payments due by period (£ million)
		Total	Less than 1 year	2-3 years	4-5 years	Thereafter
Operating leases		112.8	35.1	46.5	16.2	15.0
Finance leases		11.3	5.2	6.1	–	–
Capital purchase commitments (including expenditure on investments)		10.7	10.7	–	–	–
Total		134.8	51.0	52.6	16.2	15.0

The Company does not have any off-balance sheet arrangements with unconsolidated entities or other persons.

Item 6. Directors, Senior Management and Employees

DIRECTORS AND SENIOR MANAGEMENT

The directors of the Company (each, a “director,” and together, the “directors”) at February 15, 2016 were as follows:

Name(1)	Age	Term Expires	Position
Stuart Chambers	59	2016(2)	Chairman (from March 1, 2014)
Simon Segars	48	2016	Chief Executive Officer; Director
Chris Kennedy	52	2016	Chief Financial Officer; Director

42 

Name(1)	Age	Term Expires	Position
Mike Muller	56	2016	Chief Technology Officer; Director
Lawton Fitt	62	2016(2)	Independent Non-Executive Director (from September 1, 2015)
Janice Roberts	60	2016(2)	Independent Non-Executive Director
Larry Hirst	64	2016(2)	Independent Non-Executive Director
Andy Green	60	2016(2)	Senior Independent Non-Executive Director
Stephen Pusey	54	2016(2)	Independent Non-Executive Director (from September 1, 2015)
John Liu	52	2016(2)	Independent Non-Executive Director

____________________

(1) The address for each listed director is c/o ARM Holdings plc, 110 Fulbourn Road, Cambridge CB1 9NJ, England.

(2) Non-Executive Directors are normally appointed for three-year terms subject to election or re-election each year at the Annual General Meeting (“AGM”).

Stuart Chambers, age 59, Stuart Chambers joined the Board as Chairman designate on January 27, 2014 and became Chairman on March 1, 2014. He brings a strong track record and a wealth of board and executive experience both in the UK and globally. Up to 2009 he was the Group Chief Executive of Nippon Sheet Glass Group, which acquired Pilkington plc in 2006, where he was Chief Executive. Prior to the glass industry, Stuart held a number of senior positions at Mars, Inc., having previously spent ten years in several European roles at Royal Dutch Shell plc. He is Chairman of Rexam plc. He has also served in the past as a non-executive director on four other plc boards and chaired three remuneration committees.

Simon Segars, age 48, Chief Executive Officer. Simon Segars joined the Board in January 2005 and was appointed Chief Executive Officer on July 1, 2013. His previous roles include President, leading the IP divisions and representing them on the Board. EVP and General Manager of the Processor and Physical IP Divisions and prior to that, EVP, Engineering, EVP, Worldwide Sales and EVP, Business Development. He joined ARM in early 1991 and worked on many of the early ARM CPU products. He led the development of the ARM7™ and ARM9™ Thumb^® families. He holds a number of patents in the field of embedded CPU architectures. He is a director of the Global Semiconductor Alliance and the EDA Consortium. He is a non-executive director of Dolby Laboratories, Inc.

Mike Muller, age 56, Chief Technology Officer. Mike Muller was one of the founders of ARM. Before joining the Company, he was responsible for hardware strategy and the development of portable products at Acorn Computers. He was previously at Orbis Computers. At ARM he was VP, Marketing from 1992 to 1996 and EVP, Business Development until October 2000 when he was appointed Chief Technology Officer. In October 2001, he was appointed to the board. He is a director of Intelligent Energy Limited, Trustonic Limited and Cambridge Innovation Capital plc.

Lawton Fitt, age 62, Independent Non-Executive Director. Lawton Fitt joined the Board on September 1, 2015. Lawton was previously an investment banker with Goldman, Sachs & Co., becoming a partner in 1994 and a managing director in 1996, before retiring in 2002. She then served as Secretary (CEO) of the Royal Academy of Arts from October 2002 to March 2005. Lawton is currently an independent non-executive director of Ciena Corporation (where she also chairs the audit committee), Carlyle Group LP and The Progressive Corporation; and she is a trustee of Thomson Reuters Founders Share Company, having served on the board of Thomson Reuters Corporation until 2014.

Janice Roberts, age 60, Independent Non-Executive Director. Janice Roberts joined the Board in January 2011. She is a Partner at Benhamou Global Ventures, a Silicon Valley based venture capital firm, where she invests in early stage technology companies. Prior to that, she was a Managing Director of the Mayfield Fund from 2000 to 2013, where she invested in the mobile, wireless, communications and consumer technology industries. Previously, she held various executive positions at 3Com Corporation, including President Palm Computing, President 3Com Ventures and Senior Vice President, Business Development and Global Marketing. Prior to 3Com she was Managing Director of BICC Data Networks Ltd. She is a non-executive director of RealNetworks, Inc., Zebra Technologies Corporation and a director of several private technology companies in the US.

Larry Hirst, age 64, Independent Non-Executive Director. Larry Hirst joined the Board in January 2011. He is the former Chairman of IBM Europe, Middle East and Africa. He retired from IBM in 2010 having previously held a wide range of senior positions since joining the company in 1977. He currently chairs the Imperial College Data Science Institute Advisory Board. He is the Senior Independent Director at MITIE Group plc and an

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Ambassador to Everywoman and Black British Business. Former roles include being a UK Business Ambassador, a Commissioner for the Commission for Employment and Skills, and Chair of e-skills UK (the UK Sector Skills Council for Business and Information Technology) and he was also on the International Advisory Board for British Airways. He was awarded a CBE in 2006.

Andy Green, age 60, Senior Independent Non-Executive Director. Andy Green joined the Board in February 2011. He was CEO of Logica plc from 2008 to 2012 and was on the board of BT Group from 2001 to 2007. He is Deputy Chair of The Tech Partnership, President UK Space, and is on the board of the CBI. He is a Companion of the Chartered Management Institute. He has attended audit, risk and remuneration committee meetings over many years during his executive roles and he currently chairs two nomination committees and is a member of a remuneration committee. He is the Chairman of IG Group Holdings plc, Dock On AG, and Digital Catapult Limited. He is also a non-executive director of Avanti Communications Group plc.

John Liu, age 52, Independent Non-Executive Director. John Liu joined the Board on 1 December 2014. He is also a member of the Board of Trustees of Beijing Normal University Education Fund. Former roles include senior executive positions in various companies including as Corporate Vice President and Head of Greater China for Google Inc.; China CEO of SK Telecom Co., Ltd in Korea and Country Director of Greater China of Singapore Telecommunications Limited. He is based in China. He is a non-executive director of Digital China Holdings and China Eastern Airlines e-commerce Co.

Chris Kennedy, age 52,Chief Financial Officer. Chris Kennedy joined the Board as Chief Financial Officer on 1 September 2015. He brings to ARM more than 20 years of international experience in senior financial roles in a broad range of sectors, most recently at easyJet plc where he was CFO from 2010 onwards and a key part of the management team that transformed its performance. Prior to this he worked at EMI plc and was appointed to the board of EMI’s holding company, Maltby Ltd in 2008 as CFO and then Chief Investment Officer. He is a director of The EMI Group Archive Trust.

Stephen Pusey, age 54, Independent Non-Executive Director. Stephen Pusey joined the Board on 1 September 2015. Stephen was until recently Chief Technology Officer of Vodafone Group plc, retiring at Vodafone’s annual general meeting on July 28, 2015. He joined Vodafone in September 2006 and joined the board in 2009. Prior to joining Vodafone, Stephen held the positions of Executive Vice President and President Nortel Networks EMEA, having joined Nortel in 1982. Stephen is also an independent non-executive director of Centrica plc and of FireEye, Inc.

Election and re-election of Directors

In line with the provisions of the UK Corporate Governance Code 2014, all directors will present themselves for re-election (if eligible) unless the directors have agreed otherwise.

Executive Officers

Name(1)	Age	Position
Simon Segars	48	Chief Executive Officer; Director
Chris Kennedy	52	Chief Financial Officer; Director
Mike Muller	56	Chief Technology Officer; Director

____________________

(1) The address for each listed executive officer is c/o ARM Holdings plc, 110 Fulbourn Road, Cambridge CB1 9NJ, England.

BOARD PRACTICES

Corporate Governance

Compliance with the UK Corporate Governance Code (September 2014) and the Sarbanes-Oxley Act 2002 (US)

The Company has complied with the provisions of the UK Corporate Governance Code (September 2014) throughout 2015 and to the date of this document. The Company also achieved full compliance with the requirements of section 404 of the Sarbanes-Oxley Act 2002 for the tenth successive year. The Company’s ADSs are listed on NASDAQ and we are therefore subject to and comply fully with NASDAQ rules, US Securities laws and Securities and Exchange Commission rules to the extent that they apply to foreign private issuers. We explain in the reports below how we applied the provisions and principles of the

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FCA Listing Rules, the Disclosure and Transparency Rules, and the UK Corporate Governance Code (September 2014) throughout the year.

Board

The Board is collectively responsible for the overall conduct of the Company’s business. The Board’s core activities include:

· providing leadership for the Company;

· setting and reviewing the Company’s long term strategy;

· monitoring executive management actions, standards of conduct, performance against business plans and budgets, and ensuring that the necessary financial and human resources are in place for the Company to meet its business strategy and objectives;

· obtaining assurance that material risks to the Company are identified, defining the Company’s appetite for risk and ensuring that appropriate systems of risk management and internal control exist to mitigate such risks;

· planning Board and executive management succession;

· responsibility for the long-term success of the Company having regard to the interests of all stakeholders; and

· responsibility for ensuring the effectiveness of and reporting on our system of corporate governance.

The Board is responsible for setting the level of delegated authority, whilst retaining overall responsibility for the governance of the Company.

The table below shows directors’ attendance at scheduled Board meetings, conference calls and ad hoc meetings which they were eligible to attend during the 2015 financial year:

	Board meetings attended/Board meetings eligible for			Conference calls & ad hoc meetings attended/calls and meetings eligible for
Number of scheduled meetings			5			6
Stuart Chambers		5	/5		6	/6
Simon Segars		5	/5		6	/6
Lawton Fitt (appointed September 1, 2015)		2	/2		1	/2
Andy Green		5	/5		6	/6
Larry Hirst		5	/5		6	/6
Chris Kennedy (appointed September 1, 2015)		2	/2		2	/2
John Liu		5	/5		5	/6
Mike Muller		5	/5		6	/6
Stephen Pusey (appointed September 1, 2015)		2	/2		2	/2
Janice Roberts		5	/5		6	/6
Tim Score (retired June 30, 2015)		2	/2		3	/3
Kathleen O’Donovan (retired December 31, 2015)		4	/5		6	/6

The directors have the benefit of directors’ and officers’ liability insurance.

Board meetings

Board and committee papers are circulated electronically before each meeting utilizing an online portal which also allows directors to share comments and items of interest. The business considered at each Board meeting includes the Chief Executive Officer’s report on the status of the business (incorporating industry and strategic developments) and the Chief Financial Officer’s report (incorporating financial, market and investor-related information). On a cyclical basis, Board agendas also include detailed assessments of risk, governance, Corporate Responsibility (“CR”), public affairs, performance of the business, competitive landscape, Research and Development (“R&D”) and organization/succession planning. Strategy-focused meetings are held at least twice per year.

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In the event that a director is unable to attend a meeting or participate by conference call they receive and read the documents for consideration at that meeting and have the opportunity to relay their comments and, if necessary, to follow up with the Chairman or the Chief Executive Officer after the meeting.

The non-executive directors are encouraged to suggest matters for Board discussions, and in 2015 they were active in contributing to the agenda for the strategy review and ensuring the amount of time spent on strategic and operational issues was appropriately balanced.

During 2015, the non-executive directors supported the executive team to articulate and deliver the Company’s strategy in relation to China, the IoT market and ARM’s future investments. Key senior executives attend Board meetings throughout the year, which gives the non-executive directors visibility of executive talent below executive director level, direct information about business developments, and informs them about potential management succession. In particular, each year the general managers of the IP group present a review of past performance against key objectives and KPIs, and their proposals for the coming year.

During 2015, the Chairman held three meetings with the non-executive directors without the executives present, and the non-executive directors met on one occasion without the Chairman being present. In addition the Chairman had at least one face to face meeting individually with all directors of the Board and the Senior Independent non-executive Director (SID) also discussed the performance of the Chairman on an individual basis with each of the non-executive directors.

Board Activities during 2015

· Reviewed M&A Strategy and discussed potential acquisitions;

· Discussed the Company’s capital structure, dividends and buyback policy;

· Debated risk appetite and the development of risk appetite statements against the corporate risk register (CRR);

· Discussed global sales development;

· Conducted Board effectiveness review (internal);

· April Strategy meeting – discussed new and emerging technology segments and investment strategy;

· Discussed CR strategy;

· Reviewed cyber risk and ARM’s risk appetite in relation to cyber risk;

· September Strategy meeting – received presentations from Executive Committee members and external partners in China. Discussed integration of acquisitions and succession planning; and

· 2016 budget submission.

Chairman

Main responsibilities of the Chairman include:

· Board leadership;

· Board effectiveness;

· Building constructive relationships between executive and non-executive directors; and

· Promoting the highest standards of integrity, probity and corporate governance throughout the Company.

Chief Executive Officer

Main responsibilities of the Chief Executive Officer include:

· Executive Committee leadership;

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· Day-to-day management of the Company’s business;

· Strategy Implementation; and

· Stakeholder Engagement.

Chief Financial Officer

Main responsibilities of the Chief Executive Officer include:

· Managing the financial aspects of the business; and

· Strategy Implementation, in collaboration with the CEO and other Executive Committee members.

Independent Non-Executive Directors

Main responsibilities of the Independent Non-Executive Directors include:

· Constructively challenging the Executive Committee in its delivery of the Company’s strategy within the established risk and governance framework;

· Review and monitor the integrity of all information (including financial information) which is made publically available;

· Ensure appropriate succession plans are in place and are effective;

· Agree strategy; and

· Establish risk appetite and monitor risks.

Senior Independent Non-Executive Director

Main responsibilities of the Senior Independent Non-Executive Director includes:

· Acts as a sounding board for the Chairman;

· Provides a communication channel between the Chairman and the non-executive directors;

· Performance evaluation of the Chairman; and

· Available to discuss matters with shareholders, if required.

Independence

The Board reviewed the independence of the non-executive directors on appointment and continues to do so on an ongoing basis. It is the policy of the Board to review the continued appointment of non-executive directors after six years’ service. Kathleen O’Donovan, having served for a total of nine years, retired from the Board on December 31, 2015. Two new independent non-executive directors have been appointed during 2015.

All our non-executive directors are regarded as independent in character, judgment and behavior, based on both participation and performance at Board and Committee meetings. There are no relationships or circumstances that are likely to affect the judgment of any of them. Stuart Chambers was regarded as independent at the time of his appointment as Chairman.

Company Secretary

Philip Davis took over the role of Secretary to the Board and Board committees from Patricia Alsop in May 2015 and all Board members have individual access to his advice. He ensures that the Board receives all relevant information in a timely manner, organizes induction and training programs for new directors, and facilitates the Board evaluation in years when this is conducted internally. He is also responsible for ensuring that the correct Board and committee procedures are followed and advises the Board on corporate governance matters. The established procedure under which directors can, where appropriate, obtain independent legal or other professional advice at the Company’s expense is also administered through him.

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Board Evaluation

In accordance with Code Principles, the Board undertakes a formal and rigorous annual review of its effectiveness. Our last externally facilitated review took place in 2013 with an internally facilitated review in 2014, and in light of the significant changes to Board composition during 2015 we decided once again to undertake an internal evaluation for this year. We updated our Board effectiveness questionnaire, which was circulated as an online survey. The focus of the 2015 evaluation was the extent of progress in relation to the action areas identified in the 2014 review, and the directors’ views on the key challenges the Company will face in 2016. We intend to undertake an externally facilitated review during 2016.

2014 action areas identified	Action taken in 2015
Ensuring that the Board and committees have the skills and experience they need going forward	Following a rigorous process undertaken by the Nomination Committee, two new independent non-executive directors were appointed, including Lawton Fitt as Chairman of the Audit Committee. Consideration was given to the composition of the Board Committees, and Stephen Pusey was appointed to the Remuneration Committee from January 1, 2016. The Board continues to review the expertise and experience of its membership, and to address any perceived gaps appropriately.
Further improving the culture and dynamics in the boardroom, with each Board member developing a clear understanding of the role of the Board and their individual role	The consensus from the 2014 Board evaluation was that culture and dynamics in the boardroom improved during 2014 and directors’ roles were better defined and understood. In 2015, the directors committed to spending more time together outside the formal setting of the boardroom to enhance their relationships.  This was of particular importance in helping the newly appointed directors to settle into their roles as quickly as possible and the 2015 evaluation found that Board felt that the time spent on building their relationships had been useful.
Exiting 2015 with greater clarity and a more harmonized Board view on the long-term vision for the business and the consequent strategic priorities	The consensus from the 2015 effectiveness review was that considerable progress had been achieved in this area as a result of the strong Board focus on strategic priorities in 2015. However, this remains a priority for 2016.
Continuing to enhance the induction and ongoing training process for Board members	Directors attended various ARM events including the annual ARM Partner Meeting and the ARM TechCon, other industry events and external training courses. In 2015 it was agreed that attendance at events and training courses will be formally recorded. It was decided that the induction process had operated well for the new non-executive directors.

The 2015 evaluation covered:

· Board structure and dynamics;

· Board meetings;

· Meeting administration;

· Board committees – Audit, Remuneration and Nomination;

· Strategy review; and

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· Risk management, corporate governance and CR.

The overall conclusion was that the directors are satisfied that the Board works well and operates effectively in an environment where there is constructive challenge from the non-executive directors. They are also satisfied with the contribution made by their colleagues and that the newly appointed directors in particular have quickly been able to make a valuable contribution. There were certain areas for further action in 2016 as follows:

· Training and development – recording training attendance and increase training opportunities

· Focus of Board time – specific topic sessions scheduled

· Risk management – streamline the presentation of information to the Board

· Strategy review actions – continued enhancement of strategy sessions

Induction

A personalized induction program is arranged for new directors, tailored to their specific requirements, the aim of which is to introduce them to key executives across the business and to enhance their knowledge and understanding of the Company and its activities. In 2015, this included comprehensive induction programs for Chris Kennedy, Lawton Fitt and Stephen Pusey. Each director received a pack of information upon appointment, which included information about the Company and industry environment in which it operates, policies and procedures, the Board program and governance and risk structure. This was followed up by site visits to Cambridge and San Jose at which individual meetings with key executives were held. Whilst all directors received information to help them gain a good understanding of the Company’s operations generally, Chris Kennedy and Lawton Fitt’s inductions were focused especially on the Company’s finance operations to enable them to fulfil their specific responsibilities more effectively. Induction for the directors who joined during 2015 is ongoing.

All members of the Board are encouraged to spend time outside Board meetings with members of the Executive Committee and senior management and a number of individual meetings took place during 2015, which will continue during 2016. All Board members are invited to attend the Annual Partner Meeting in the UK, which is the Company’s key customer event of the year and/or the ARM TechCon in the US. Board members are also encouraged to attend the annual Capital Markets Day. These events offer the opportunity to understand more about the business, products, technology development roadmap, customer base and investor perspective.

Training

Board members receive guidance on the regulatory regimes and corporate governance framework that the Company operates under. In April 2015 the Board received a regular annual update from the Company Secretary on current governance topics including executive remuneration and board diversity. The Board also participated in a detailed workshop led by the Company’s external auditors in July 2015 covering recent and forthcoming developments in corporate governance, audit, reporting, financial accounting and tax. Each non-executive director sits on at least one Committee and each Committee receives training relevant to its remit through the provision of workshops led by external advisors. The Company has a commitment to training and all directors, executive or non-executive, encouraged to attend APM and TechCon in order to remain current with ARM’s technology and Partners, as well as suitable training courses at the Company’s expense.

Risk Management and Internal Control (“RMIC”)

The ARM Management System (“AMS”) is the business management and governance system used across ARM. It captures how we do business through delivery of our strategy and objectives, and details the internal controls that we need to manage risks to the long- and short- term success of the business.

AMS is extremely important for our customers, ecosystem, shareholders and people. It provides confidence that we can run this complex business in a robust way, deliver quality products that meet our customers’ needs, and ensure that the risks to achieving our business strategy and objectives are understood and managed. AMS documents the details of our governance framework and covers the entire life cycle of risk management and internal control within ARM to

· identify the risks that may impact the delivery or achievement of business strategy and objectives;

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· design and operate the controls to manage the risks;

· monitor the design and operating effectiveness of the controls; and

· manage the design, residual risk treatment plans and corrective actions as necessary.

The over-arching principle of leadership and culture informs all of our work on RMIC and our internal and external assurance approach assesses the degree to which the desired behaviors and risk culture are embedded within all our business processes. We firmly believe that a strong and well-communicated culture of openness and transparency is our best and most fundamental defense against the principal risks to ARM’s business.

The AMS design, which includes financial, compliance and operational controls, is fully documented and compliance is monitored through audits and periodic controls testing during each year. The effectiveness of individual controls is also reviewed by their owners within the operations and functions of the Company to ensure efficacy and relevance. The Business Assurance and Internal Audit function reports on the design and operating effectiveness of the AMS to the Audit Committee at least twice each year. The Compliance and Audit Committees also monitor the satisfactory remediation of any identified control issues with Company level significance.

The Company fully complies with the Code’s provisions on RMIC having established procedures to implement in full the FRC “Guidance on Risk Management, Internal Control and Related Financial and Business Reporting”.

Compliance with section 404 of the Sarbanes-Oxley Act 2002 (US) has been successfully achieved for each financial year since it became effective for foreign private issuers in 2006.

Committee and management structure

The Board delegates responsibility for reviewing and monitoring the Company’s internal controls to the Audit Committee and in turn the Compliance and Risk Review Committees report to the Executive Committee with specific items such as whistleblowing and effectiveness of internal controls also being reported to the Audit Committee. Together these committees are responsible for identifying and assessing risks which may impact the Company’s business strategy and objectives, and for monitoring the effectiveness of internal controls and progress of risk treatment plans designed to further mitigate the residual risk, if judged necessary.

In addition, there are various committee, governance review team and operational review meetings that span the Company. These include the regular Executive Committee meetings chaired by the Chief Executive Officer and the weekly Business Review Meeting chaired by the Chief Operating Officer, the purpose of which is to monitor and control all main business activities and consider any other matters requiring approval. Topics reviewed include revenues, orders booked, costs, product and project delivery dates, and levels of defects found in products in development. Relevant issues are escalated to the Executive Committee which, in turn, raises relevant issues to the Board.

The Audit Committee has reviewed and approved the system of RMIC, including internal controls over the consolidation process and financial reporting, which have been in place for the year under review and up to the date of approval of the Annual Report and financial statements.

Risk Review Committee

Strategic and operational risks are identified, prioritized and reported on within the Corporate Risk Register (CRR). The CRR includes a description of the overall risk, the risk factors, the risk owner and the risk management activities including operational and oversight activities as defined in the “three lines of defense” model. The three lines of defense are defined as operational controls (first line), risk management and compliance activities (second line), and independent sources of assurance such as internal audit (third line). During 2015 the CRR was refined with the addition of risk appetite statements to reflect the acceptance of differing levels of risk across the business. Residual risks are assessed in terms of likelihood and impact on the basis that the risk management activities assigned to them are operating effectively and an overall RAG (Red, Amber, Green) rating is generated, taking the risk appetite statement into account where appropriate. Each risk on the CRR is owned by a member of the Executive Committee. Risk treatment plans are managed within the relevant objectives of the Company’s operations and functions. Risks are identified through senior management discussion (top down) and regular reporting from every part of the business (bottom up).

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The Risk Review Committee typically meets on a quarterly basis to review the CRR and ensure that it remains live to the changing risk profile of the business. Each risk owner is required to review and demonstrate that risks are being appropriately managed via the internal controls and risk treatment plans, which are normally updated bi-annually. At each meeting, the Board and the Audit Committee receive copies of the minutes of the Risk Review Committee. These provide additional visibility of the range of risks, the ways in which such risks are managed, and management of the risk treatment plans to further mitigate where judged necessary. The Risk Review Committee reports formally on the CRR to the Executive Committee twice a year, where its findings are considered and challenged. These reports form the basis of regular reporting on principal risks at Board level, and facilitate the Board’s assessment of the principal risks facing the Company. The CRR, risk appetite and plans for further enhancing the Company’s risk management framework in 2016 were reviewed by the Board in July and again in November 2015 and are an integral part of monitoring the development and implementation of the Company’s strategy. Risk appetite will continue to be discussed and refined during 2016. During 2015, the Board confirmed that the level of residual risk is regarded as acceptable and within normal parameters for a company operating in ARM’s sphere of business.

Compliance Committee

The Compliance Committee oversees compliance throughout the business with all relevant standards, international regulations and trading requirements, among them; direct oversight of internal controls, financial, employment, health and safety, environmental, business continuity, customer satisfaction and security processes and policies. The Compliance Committee reports to the Executive Committee and to the Audit Committee throughout the year and its minutes are reviewed by the Audit Committee and the Board.

Disclosure Committee

The Disclosure Committee is responsible for ensuring that disclosures made by the Company to its shareholders and the investment community are accurate, complete and fairly present the Company’s financial condition in all material respects. The Disclosure Committee includes the Chairman and the Chairman of the Audit Committee, the Chief Executive and the Chief Financial Officer and meets immediately prior to each quarterly results announcement or more often as needed to consider and approve any disclosures.

Business Assurance and Internal Audit function

The remit of the Business Assurance and Internal Audit function is to provide assurance that the risk management and internal control are designed and operating effectively and that corrective action is being taken in a timely manner. Each year the Internal Audit function develops an annual audit plan. The annual audit plan is agreed by the Audit Committee, which monitors execution of the plan throughout the year. Audits are designed to assess the design and operating effectiveness of controls and recommend improvements in related processes as necessary.

The Company has certification for ISO 9001 (the international standard for Business Quality Management) ISO 22301 (Business Continuity) and ISO 27001 (Information Security) which was maintained throughout the year and was audited by Lloyd’s Register Quality Assurance (LRQA).

To demonstrate compliance with the Sarbanes-Oxley Act, the Internal Audit function also maintains the documented controls over financial reporting and confirms the operation of them either by direct testing or through a monitored self-assessment program. The management system is audited externally by LRQA, who support our COSO 2013 (Committee of Sponsoring Organizations of the Treadway Commission) entity level controls corporate integrity assessment, which covers FRC guidelines on embedding risk culture. The effectiveness of the controls over financial reporting is also monitored by the Audit Committee, which receives regular reports of the testing conducted by internal and external auditors.

Any significant control failings identified through the Internal Audit function or the external auditors are brought to the attention of the Compliance Committee and undergo a detailed process of evaluation of both the failing and the steps taken to remedy it. There were no significant control failures during 2015 or up to February 15, 2016, being the latest practicable date before the printing of this report.

Internal control management systems are designed to manage rather than eliminate the risk inherent in a fast-moving, high-technology business and can, therefore, provide only reasonable and not absolute assurance against material misstatement or loss.

During 2015, an externally facilitated review of the effectiveness of the Internal Audit function took place which concluded that the Internal Audit function delivers appropriate assurance across the business efficiently

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and effectively. Some areas of focus were identified and these will be considered by management as part of the business planning process, to ensure that the Internal Audit function remains effective as the business continues to grow.

Whistleblowing procedures

The Company operates a whistleblowing policy for employees to confidentially report concerns about any unethical business practices to senior management in strict confidence and without fear of recrimination, via a number of routes. The policy was last reviewed and updated during 2014 with the aim of increasing employees’ understanding of the circumstances in which they should raise concerns and the process to do this and during 2015 the effectiveness of the 2014 update was reviewed by the Compliance Committee. The Audit Committee receives details of any whistleblowing reports from the Compliance Committee.

There was one whistleblowing report in 2015, which was not found to involve any financial or other loss to the Company. It was thoroughly investigated and it was deemed appropriate that no further action was taken. In 2016 to date, there have been no whistleblowing reports.

Anti-bribery and anti-corruption measures

The Company’s Code of Business Conduct and Ethics, which is available on the Company’s website, and the Company Rules incorporate appropriate provisions to meet our obligations under the UK Bribery Act 2010. A training and communication program for all employees is in place to ensure that employees understand the requirements of the Act and the reporting procedures. Tailored communications are directed at employees in roles or working in countries that are regarded as higher risk.

Arrangements with contractors and suppliers have been and will continue to be reviewed and updated to reflect the requirements of the Bribery Act. The Compliance Committee oversees the reporting procedures and monitors and escalates reports in appropriate circumstances. There were no reports of concern during 2015 or up to February 15, 2016, being the latest practicable date before the printing of this report.

Human rights and equal opportunities

The Company has signed the Universal Declaration of Human Rights and has integrated relevant human rights principles into its policies for employees and contractors. There is growing interest worldwide in the issue of the impact of business on human rights.

As a result of our work in 2013 with Shift, a specialist NGO working on business and human rights, we are confident that our risk in this area remains low. More detail is provided in our supplemental CR reporting which can be found on our website. We have adopted a specific Human Rights Policy within our Code of Business Conduct and Ethics, in addition to our existing policies on conflict minerals, business ethics, discrimination and export controls. Our Human Rights Policy underlines our commitment to aim to avoid any adverse impact on human rights in the way we conduct our operations, and designates contact points within the senior executive team for any employee to seek advice on any issue that might have human rights implications.

The Company strives for equal opportunities for all its employees and does not tolerate any harassment of, or discrimination against, its staff. The Company endeavours to be honest and fair in its relationships with its customers and suppliers and to be a good corporate citizen, respecting the laws of the countries in which it operates.

ARM University Program

The ARM University Program aims to train the next generation of engineers on ARM and Partner based technologies through the production and dissemination of high quality teaching materials and education kits to universities worldwide. By working closely with our ecosystem using various partnership models, the program once again doubled its adopted course and laboratory base worldwide in 2015 following a similar expansion in each of 2013 and 2014.

2015 also saw the development of new educational and training materials, and e-courseware products, which have been successfully licensed to various partners worldwide. The online deployment of our educational products in particular is scaling up the program’s reach considerably. In addition, we have finalized the design of an infrastructure for an e-textbook publishing activity which will go hand-in-hand with our e-courseware production activity. To further extend the benefits of our approach, the program also developed a government relations strategy and plan in 2015, which is already bearing fruit, especially in China. Government relations are

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crucial to widening the adoption of standard educational formats and products, which the ARM University Program is developing for the benefit of the ARM ecosystem as well as the wider education system. Indeed, we believe that the future success of the Science, Technology, Engineering and Mathematics (“STEM”) education depends on a much closer partnership between government, industry and educational institutions including schools and universities.

The Company and our Partners are seeing an increased benefit from the ARM University Program’s activities as it educates hundreds of thousands of students worldwide in utilizing ARM technologies, preparing them for the vast and varied employment opportunities available in the ARM ecosystem.

Environmental, social, corporate governance and ethical policies

While the Company is accountable to its shareholders, it also endeavors to take into account the interests of all its stakeholders, including employees, customers and suppliers and the local communities and environments in which it operates. The Chief Executive Officer and the Chief Financial Officer take responsibility for these matters, which are considered at Board level. Full details of our CR strategy and achievements can be found in the main CR report on our website.

Investor relations

The Board makes considerable efforts to establish and maintain good relationships with shareholders and the wider investment community. There is regular dialogue with institutional investors during the year, except during close periods. The main channel of communication continues to be through the Chief Executive Officer, the Chief Financial Officer and the VP of Investor Relations. The Chairman, the Senior Independent Director and the other directors are available to engage in dialogue with major shareholders as appropriate.

The Board encourages communication with private investors and part of the Company’s website is dedicated to providing information for all investors, including responses to frequently asked questions, the investment case, product information, press releases, RNS and Securities and Exchange Commission (“SEC”) announcements, and the Annual Report.

At present, over 29 sell-side analysts write research reports on the Company and their details appear on the Company’s website. Shareholders can also obtain telephone numbers from the website, enabling them to listen to earnings presentations and audio conference calls with analysts. In addition, webcasts or audiocasts of key presentations are made available through the website.

Members of the Board develop an understanding of the views of major shareholders through any direct contact that may be initiated by shareholders, or through analysts’ and brokers’ briefings. The Board also receives feedback from the Company’s brokers and financial PR advisers, who in turn obtain feedback from analysts and brokers following investor roadshows. All shareholders can register to receive the Company’s press releases via the internet.

Annual General Meeting

The Board actively encourages participation at the AGM, scheduled for April 28, 2016, which is the principal forum for dialogue with private shareholders. The Circular and Notice of the AGM are being sent to shareholders concurrently with the distribution of this Report, which is well in advance of the required 21 clear days before the meeting. At the AGM, a presentation is made outlining recent developments in the business and an open question and-answer session follows to enable shareholders to ask questions about the business in general. The Chairman, who chairs the Nomination Committee, will be present at the AGM. He will arrange for the respective Chairmen of the Audit and Remuneration Committees to be available to answer questions and for all directors to attend.

All resolutions proposed at the 2016 AGM will be decided on a poll and the voting results will be published via RNS and the SEC, and made available on the Company’s website.

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Audit Committee

Lawton Fitt became Chairman of the Committee on January ,1 2016, succeeding Kathleen O’Donovan who chaired the Committee from January 31 2011 until December 31, 2015. Lawton is qualified as the Committee financial expert as defined in the Sarbanes-Oxley Act 2002 (US) and has recent and relevant financial expertise in compliance with the Code provision C3.1 and DTR 7.1.1 R. Our external auditors, Chief Executive Officer, Chief Financial Officer, the VP Finance, ARM Group, the VP Business Assurance & Head of Internal Audit, the Head of Tax and the General Counsel & Company Secretary are invited to attend all meetings in order to ensure that all the information required by the Committee for it to operate effectively is available. The Company Chairman and other Board members also attend Committee meetings from time to time. In conjunction with each meeting, representatives of the Company’s external auditors have a private session with the Committee, without other management being present.

The Chairman of the Audit Committee reports to the Board on a regular basis on how the Committee has discharged its responsibilities.

The Chairman of the Committee also has separate meetings with the VP Business Assurance & Head of Internal Audit, the Chairman of the Risk Review Committee, the external auditors, the Chief Financial Officer, the General Counsel & Company Secretary, the Chief Information Officer, the VP Investor Relations and the VP Finance, ARM Group during the year. This is to discuss their ongoing work and any areas of concern, to enable certain members of management, to report on key areas of risk and control and to ensure that the agendas of the Audit Committee reflect development in the business.

During 2015, the Chairman of the Committee and the external audit partner again organized a meeting for the UK-based PricewaterhouseCoopers LLP (“PwC”) audit and tax teams and the ARM finance and tax teams to discuss the audit approach, to understand the planning for the year end, and to gain insights into the corporate governance environment, updates to financial reporting requirements and the Company’s expectations from the internal and external audit processes. We consider this to be a valuable exercise which gives the ARM finance team and the external auditors the opportunity to reflect on the previous year’s audit and helps to ensure that our audit processes are continually improved.

Audit Committee composition and meeting attendance during 2015:

Name of Director	Position	Meetings Attended/eligible meetings
Lawton Fitt (appointed September 1, 2015	Independent non-executive Director, Committee Chairman from January 1, 2016	3/3
Janice Roberts	Independent non-executive director	7/7
Andy Green	Senior Independent Director	7/7
Kathleen O’Donovan (retired December 31, 2015)	Senior Independent Director, Committee Chairman	7/7

Principal activities of the Committee during 2015 were the monitoring and reviewing of:

· the integrity of the financial statements of the Company including any significant reporting judgments;

· any formal announcements of the Company’s financial performance and the clarity of disclosures;

· the Company’s risk management framework and internal controls and the effectiveness of the Company’s internal controls over financial reporting;

· the status of Sarbanes Oxley compliance;

· the framework for ensuring compliance with legal requirements, accounting standards, the Listing Rules of the Financial Conduct Authority (“FCA”) and the requirements of the SEC;

· the assessment of going concern in advance of its consideration by the Board;

· whether the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable;

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· the work and results of Business Assurance and Internal Audit in relation to the 2015 Audit Plan and approving the Audit Plan for the 2016 Audit plan;

· the effectiveness and integrity of the 2015 external audit process; including assessing the external auditors’ independence and objectivity, the effectiveness of the audit process and fees, the engagement of the external auditors to supply non-audit services and assessing their nature, extent and cost effectiveness; as well as making recommendations to the Board in relation to the appointment, remuneration and resignation or dismissal of the Company’s external auditors;

· the process and procedures whereby employees can raise concerns regarding potential impropriety; and

· the effectiveness of the Audit Committee and our own Terms of Reference.

The integrity of financial reporting and review of significant issues

The Committee reviewed the integrity of the financial statements of the Company and all formal announcements relating to the Company’s financial performance. Each quarter, the Committee reviewed accounting papers prepared by management on areas of financial reporting judgment and matters giving rise to exceptional items. These included:

· consideration of the accounting treatment of substantial transactions, including any judgmental matters in relation to revenue recognition for major license contracts with customers, which concluded that revenue had been accounted for appropriately;

· consideration of the identification of the Company’s operating segments and cash generating units and presentation of non-reportable segments of the Company which concluded that the business still has one reportable segment;

· review of the Adjusted Performance Measures (APMs) used by the Company and referred to as normalized performance measures. Our aim is to ensure they are properly derived , consistently treated and transparently presented, and are appropriately balanced with regard to the required IFRS measures;

· consideration of the judgments surrounding the goodwill impairment review performed in the fourth quarter of 2015. In light of the continuing strong performance of the Company in the year, the Committee was comfortable with management’s assessment that, after considering various scenarios incorporating various sensitivity and stress tests, that no impairment in carrying value was required;

· consideration of management’s judgment regarding the level of provision required to be carried in relation to ongoing litigation involving either the Company or its licensees, and in particular where the Company may be required to indemnify its licensees, including receiving regular updates from the Company’s General Counsel;

· consideration of the key judgments made in estimating the Company’s tax charge and review of any provisions in respect of ongoing tax matters, together with assessment from independent experts;

· consideration of the Company’s tax strategy and key developments that may influence the Company’s global tax position;

· review of reports from the Compliance and Risk Review Committees as regards to any matters relevant to the financial reporting of the Company; and

· consideration of the accounting treatment applied to intangible assets, including goodwill on acquisitions.

The effectiveness of risk management and internal controls

2015 was the first reporting period in which the Board were required to comply with the 2014 revisions to the UK Corporate Governance Code, which included a new requirement at C.2.1 to conduct a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The Board have always believed that an effective and robust risk management framework and system of internal control is essential to achieving reliable business performance and we have an established process to identify and manage risk within the business. The Audit Committee oversees the design and effectiveness of this process; we will continue to focus on challenging and improving it throughout the year.

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We are pleased with the progress and improvements achieved in 2015, however we believe that there is no room for complacency when managing risk and internal controls in a fast-moving business environment and our work in these areas will be ongoing in 2016 and beyond. We have seen continued improvement in the transparency and active ownership of risk management throughout the organization, driven and supported by a strong tone at the top and the growing strength of the assurance provided by the three lines of defense model.

The COSO framework of internal control continues to be embedded across the organization. The processes and procedures for identifying, evaluating and managing the significant business, operational, financial, compliance and other risks have been successfully integrated into day to-day business operations through our business management and governance system known as the AMS and associated Audit Assurance System.

The AMS is fully documented and compliance is monitored through audits and periodic controls testing during each year. The effectiveness of individual controls is also reviewed with their owners within the operations and functions of the Company to ensure efficacy and relevance. The Business Assurance function reports on the status of the AMS to the Audit Committee at least twice each year. The Compliance and Audit Committees also monitor the satisfactory remediation of any identified control issues with Company-level significance.

The Audit Committee have conducted a review of the effectiveness of the Company’s risk management and internal control systems which included consideration of how risks are identified and evaluated, how mitigation plans are created, executed and monitored, and accountability for risk mitigation is established. The annual plan which the Committee reviews covers all sources of assurance and a quarterly update on progress against plan is provided. We reported to the Board on any relevant matters. There were no significant internal control failings or weaknesses which it was considered necessary to report.

The work of Business Assurance & Internal Audit

ARM’s Internal Audit function develops an annual audit plan to provide assurance that controls are designed and operating effectively and that corrective action is being taken where necessary.

In 2015, we engaged KPMG to conduct a review of the effectiveness of the Internal Audit function and put forward proposals for enhancing the function to ensure that it remains fit for purpose as the business grows. The review concluded that the Internal Audit function delivers appropriate assurance across the business efficiently and effectively. Some areas of focus were identified and these will be considered by management as part of the business planning process, to ensure that the Internal Audit function remains effective. We also reviewed the resources of the team, the plans for their deployment during the year and the manner in which key working relationships were managed between the Business Assurance team and the Compliance and Risk Review Committees, the external auditors PwC and LRQA.

As well as the Committee's formal meeting with the VP Business Assurance & Head of Internal Audit, the Chairman of the Committee met with him informally throughout the year in order to provide the opportunity for open and timely dialogue. Typically there is a discussion about the content and quality of papers intended for the Committee, emerging business risks, the quality of engagement with Internal Audit and any concerns that might have arisen.

Fair, balanced and understandable

ARM’s annual report takes a large part of the year to complete; from concept to design and image selection to content development, authoring and reviewing. A small core team creates the design and most of the content, and they call on colleagues across the business to add key insights and details. The report is continually reviewed throughout its planning are development stage by a wide range of internal and external experts. Together, they endeavor to ensure that ARM’s annual report is a fair reflection of its business and industry context; it is balanced, with the emphasis on both the future opportunities and risks the business faces; and it is concise and understandable to a broad range of readers with different backgrounds, knowledge levels and requirements.

In line with the requirement in the UK Corporate Governance Code (September 2014); based on internal audit reviews and confirmations from management, the Committee and the Board believe that the Annual Report taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy.

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Compliance with the Listing rules of the FCA, the UK Corporate Governance Code and the Sarbanes-Oxley Act (US)

The Audit Committee has reviewed the framework for ensuring compliance with the requirements of the FCA, SEC and UK Corporate Governance. Throughout 2015, the Company complied fully with the UK Corporate Governance Code (September 2014), the UK listing rules, Disclosure and Transparency Regulations and also with the Sarbanes-Oxley Act 2002 (US).

Going concern

In advance of the consideration by the Board of its going concern evaluation, the Audit Committee reviewed the 2016 budget and longer-term plans and considered any reasonably likely scenarios that may occur. The Committee is 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 the Company.

External audit plan and approach

During the year we reviewed PwC's audit strategy, the audit approach, key areas of focus, materiality and the audit plan. PwC explained their risk-based approach, including the interaction with their work on internal control for the purposes of expressing an opinion under section 404 of the Sarbanes-Oxley Act. The results of those procedures were reported in November and December 2015 and January and February 2016. No material misstatements remained unadjusted in the financial statements.

In addition to the private meetings held with the external auditors and the Committee, the Chairman of the Committee meets with the PwC team on a regular basis to provide the opportunity for an open communication regarding any concerns, as well as to understand their assessment of key judgments as they arise.

External auditor effectiveness and partner rotation

PwC have been the Company’s auditors since it listed on the London Stock Exchange in April 1998. The external auditors are required to rotate the audit partner responsible for the Company and subsidiary audits every fifth year-end. The last audit partner rotation took place early in 2012. The Committee considers that the relationship with the auditors is working well and remains satisfied with their objectivity and effectiveness. The Committee is also satisfied with the quality of challenge, skepticism and execution by the auditors and this view is supported by a review of the effectiveness of the external audit process, which was undertaken in December 2015 and reported on in January 2016 involving Board members and senior managers who interact with the auditors. The review was conducted with reference to the best practice guidance contained in the FRC’s Audit Quality practice aid, which was published in May 2015 and looked at the robustness of the audit, and the quality of delivery, people and service. The conclusion was that the auditors are effective.

Tenure of external auditors

The Committee has considered the 2014 amendments to the EU Statutory Audit Directive (the “Directive”) with regard to audit tenure, which come into force on June 16, 2016 and mandate a maximum audit tenure of 10 years, subject to certain exceptions. On the basis of the Committee’s continued satisfaction with the performance and effectiveness of PwC (as described above), it has not considered it necessary to date to require the firm to tender for the audit work. The Committee’s expectation remains that it will conduct an audit tender before 2018.

Auditor independence

The auditors are required to, and do, communicate with the Committee at least annually as to whether there are any threats to their independence and objectivity and, if there are, what safeguards have been applied. The Committee has reviewed the auditors’ transparency report, paying particular attention to the sections covering internal controls, independence policies and the results of external regulator reviews. Having reviewed the safeguards in place, and the contents of the transparency report, as well as noting the regular and recent rotation of the audit partner, the Committee is satisfied that the auditors’ procedures are sufficient to maintain their independence and objectivity. The Committee has also considered the level of non-audit fees and believes that these are at a level which does not compromise their objectivity or independence in any way. There are no contractual obligations restricting the Company’s choice of external auditor. The Committee also keeps under review the value for money of the audit.

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Policy on auditors providing non-audit services

To avoid the possibility of the auditors’ objectivity and independence being compromised, there is an agreed policy in place on the provision of non-audit services by the auditors, which sets out arrangements for approving:

· services that require general pre-approval by the Committee;

· services that require specific pre-approval by the Committee before work commences; and

· services that cannot be provided by the auditors.

The non-audit services policy is reviewed annually. The Committee has discussed the anticipated effects of the amendments to the Directive and will ensure that the non-audit services policy remains fully compliant with the transposition of the Directive into UK legislation. The Company’s tax advisory work is carried out by the auditors only in cases where they are deemed to be best suited to perform the work in a cost-effective manner, given their familiarity with the Company’s business. In other cases, the Company has engaged another independent firm of accountants to perform tax advisory work. The Company does not normally award general consulting work to the auditors. Consulting work by PwC in respect of the Company’s procurement model, which commenced and was reported on during 2014, was finalized at the beginning of 2015. No other consulting work took place. From time to time, the Company will engage the auditors to perform work on matters relating to benchmarking of the Internal Audit function, human resources, and royalty audits. A breakdown of fees paid to the auditors can be found in note 5 to the financial statements.

Nomination Committee

The Committee continually reviews the skills, experience and attributes of the current directors, which informs the qualities to be sought when making future director appointments. Our goal remains to ensure that the Board and its committees comprise individuals with the requisite skills, knowledge and experience to maximize effectiveness in discharging its duties. In 2015, we finalized the appointment of our new CFO and made two appointment recommendations to the Board. The search for a replacement for Kathleen O’Donovan as Chairman of the Audit Committee commenced in February 2015. Having entered into discussions with a number of external search firms, we appointed Zygos Partnership to lead the search in April 2015. After a rigorous search process we recommended the appointment of Lawton Fitt to the Board. We also identified the need for a greater degree of technology expertise amongst the independent non-executive directors, and, following support from Lygon Group, we recommended the appointment of Stephen Pusey to the Board. There is no connection between the Company, or any individual director and either Zygos Partnership or Lygon Group.

At the end of 2014, the Board agreed that we should review the composition of each of the standing committees and make recommendations for any improvements which we identified. During 2015, we recommended the following appointments to committees in conjunction with the Chairmen of those committees:

· John Liu – appointed to the Nomination Committee February 5, 2015

· Lawton Fitt – appointed to the Audit Committee September 1, 2015 (Chairman from January 1, 2016)

· Stephen Pusey – appointed to the Remuneration Committee January 1, 2016

In addition to leading the process for Board appointments and making recommendations to the Board in relation to new appointments, the Committee also has a responsibility to contribute towards the Board’s development of an orderly succession plan for the appointment of directors and senior management. It was appropriate to involve the whole Board in this process and in September 2015, the Board received a comprehensive presentation on succession planning. Following that session, the Nomination Committee met and discussed succession for each of the most senior appointments and a number of actions were agreed and will be taken forward during 2016.

Nomination Committee composition and meeting attendance during 2015:

Name of Director	Position	Meetings attended/eligible meetings
Stuart Chambers	Chairman	4/4
Kathleen O’Donovan	Senior Independent Director (retired December 31, 2015)	4/4

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Name of Director	Position	Meetings attended/eligible meetings
Andy Green	Independent non-executive director (Senior Independent Director from January 1, 2016)	4/4
John Liu	Independent non-executive director (appointed February 5, 2015)	4/4

Diversity

The Committee notes the findings of the fifth annual progress report by Lord Davies in respect of the proposals originally put forward in the Davies Review of 2011. We recognize the importance of promoting gender equality on boards and throughout businesses.

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, throughout senior management and across the organization as a whole.

We will continue to make Board appointments on merit and also to value diversity in its broadest context. In summary, we are committed to recruitment which is based on equal opportunities for all, irrespective of age, gender, race, color, disability, religious affiliation, sexual orientation or marital status. During 2016 the Committee will continue to review the composition of the Board and its committees to ensure that we continue to maintain, collectively, a highly effective Board.

The Board currently comprises three executive directors, the Chairman and six independent non-executive directors. At the year end there were eight men (80%) and two women (20%) which broadly reflects the gender diversity of ARM’s workforce as a whole.

Our People

ARM was founded 25 years ago with a team of 12 people, and by the end of 2015, that team had grown to 3,975. ARM provides individuals with the capabilities, processes and infrastructure that enable them to develop and thrive as our business scales and strengthens. At the same time, we seek to retain a work culture that is grounded from our days as a start-up; to maximize the creative potential of individuals and to enable our people to be their brilliant selves.

In 2015, we continued shaping and strengthening our organization, and set ourselves the goal of being the best place to work in our industry. We laid new foundations by introducing an updated Vision, Mission and Strategy and set out ARM’s Core Beliefs and Behaviors. These connect all of our people with the heritage of the last 25 years and give us a collective view of our future. They define how our people work together to create technology that invisibly enables a globally connected population.

Culture

ARM’s Core Beliefs and Behaviors represent the essence of what makes ARM unique. They unify people from different countries and backgrounds, guide how we make decisions, and permeate all ARM processes and systems, including our new approach to performance management.

People at ARM are recognized for how they work together, how they drive innovation and how they support our customers. ARM gives managers the flexibility to recognize and reward excellent performance, and gives individuals control of their career development, enabling them to progress their technical and leadership skills. When hiring, we assess candidates for their cultural fit with ARM and that they are inquisitive and passionate about the success of others.

ARM completed four acquisitions in 2015. We seek out companies that complement our strategy and share our values. When deals are completed, we strive to ensure our new colleagues find their feet quickly at ARM, and this year we launched an “M&A People Toolkit” to ensure that the due diligence and integration process runs smoothly for everyone.

We recognize the importance of social capital and engagement, listen to our employees and act on feedback. Our employee engagement survey has run for 13 years. The commitment of ARM employees continues to be high, with 85% of our employees saying that they are sustainably engaged, an increase on 2014 and significantly higher than industry norms. Nine out of ten are proud to work for ARM, and even more are willing to put in discretionary effort to help ARM succeed.

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Capability

Through new hires and acquisitions, we expanded our workforce by net 681 people in 2015, taking the total to 3,975 (2014: 3,294). We opened offices in Deerfield, Miami and Chandler, Arizona, and now have 35 offices worldwide. We also invested in building the capability of individuals and teams through training and personal development. Our robust induction program seeks to accelerate the ramp up of our new colleagues through a combination of information sharing and networking.

In 2015 we enhanced our technical, management, leadership and business skills training. We also refreshed our approach to talent management, improving the way we evaluate potential and focus the development activities of our colleagues. We will continue to roll out and embed this approach in 2016, ensuring we have robust succession plans in place throughout the organization to ensure that ARM thrives now and in the future.

From our earliest days, we recognized the importance of diversity and inclusion in building a highly innovative business. In 2015, we reviewed how we could include diversity in our hiring and leadership programs, and how we could encourage young women to consider a career in engineering. Gender diversity at ARM is close to the industry average, with women in 10% of engineering positions, and 30% of other groups. One of the objectives of our CR program is to encourage more young people, particularly girls, to consider a career in engineering.

Connection

As we grow, it is ever more important to bring people together, and we organize several events a year to connect colleagues across the globe. Our annual Global Engineering Conference brings together 15% of our engineers to discuss important development issues that affect our business, especially those that cross the organizational boundaries of function, location, and department. In 2015, 585 new starters attended a Big Picture induction event and 155 colleagues participated in the Global Graduate Conference.

We also promote connection through online collaboration and communication. We recently relaunched ARM’s intranet to act as a central hub for all of our people to find and share information. Our internal social media network is used by over 65% of our employee base each day, and hosts regular “ask me anything” sessions with our CEO.

Our engagement survey shows that our people are proud to work at ARM, and this includes pride in our heritage. In November 2015, ARM celebrated its 25th anniversary with events in all of our global offices. We were joined by company founders and guest speakers to explore ARM’s history and how ARM technology has helped shape the connected world.

Connecting with people in our local communities is important to ARM. All ARM people can spend at least one day each year on volunteer work through our TeamARM program and they will receive full pay for that day. In 2015, more than 20% of our workforce took this opportunity, devoting 4,385 hours to skills-based volunteering, with more than 90% of our offices actively engaged in TeamARM activities around the world.

Corporate Responsibility

ARM technologies are appearing in an increasing range of devices. Some have the potential to solve some of the greatest challenges of our time. Through partnerships, we are working with others to deliver social impact at scale.

In 2014, we announced our objective to develop a CR program that would help millions of people. Since then, we estimate we will have helped over 300,000 people through a combination of improved access to education, medical services, charitable donations to health and education providers and support of programs. Over 80% of those in some of the poorest parts of the developing world.

Our next step is to bring about measurable improvements in the livelihoods of millions of people in the next five years. This means delivering positive change to one million people by 2016; and ten million by 2020. It is an ambitious target building on our previous commitments and will only be attainable with the help of our long-term charity partners that enable us to reach communities at scale.

Alongside this, we aim to improve our measurement approaches so that beyond measuring the number of people reached, we can understand both qualitative and quantitative impact. This means co-developing metrics with each of our key partners covering indicators like the number of lives saved, as well as education, health and livelihood outcomes.

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For example:

· Education – helping teachers and society demonstrate technology’s potential to improve the world and inspire the next generation.

· Health – improving global health outcomes in developing countries through long-term partnerships, supporting innovation and through the use of ARM technology.

2015 saw the introduction of the United Nations’ Sustainable Development Goals (“UN SDGs”) and, as a member of the UN Global Compact’s Advisory Board, ARM contributed to their development. We will be applying these goals to help guide and measure our own performance, and to structure our reporting.

Further information about the impact our program is having can be found in our CR Report and disclosures supplement. These are available for download from the ARM website.

CR Strategic Principles

Our CR strategy is informed and inspired by the wider ARM business model, innovation, trust, and partnership. Linking back to the core business enables us to deliver a more strategic impact over a longer timescale, and to share expertise through mutually beneficial partnerships.

Our CR principles reflect ARM’s values and operating model.

· Building an ecosystem of partners with a shared purpose, enabling us all to achieve more with a lower financial investment.

· Working with experts who are specialists in our project areas to generate credible evidence of impact.

· Encouraging collaboration among Partners and encouraging the open-sourcing of relevant research and analysis.

· Nurturing innovation and creativity to tackle complex problems that may have no established precedent.

Measuring our performance

Robust monitoring and evaluation help ensure each project remains on track. Our programs are mapped to each of the 17 SDGs and we report according to the Global Reporting Initiative G4 guidelines and the Dow Jones Sustainability Index (“DJSI”) best practice benchmark.

In 2015, we achieved entry into the European Index of the DJSI with a 74% ranking, and we have targeted inclusion in the World Index by 2017. Indeed, a key 2020 goal is to achieve 90% or higher percentile ranking in the DJSI.

Our CR focus areas

We have decided to focus on four areas of impact that reflect our skills, technology and ecosystem (see above). Working with charity partners and a range of internal and external stakeholders, we prioritize:

Education

Over the past year, ARM has been working with its technology Partners and the BBC on the micro:bit, a pocket-sized device that will be given free to every 12 year old in the UK. The micro:bit seeks to engage youngsters in computer coding in the same way that educational computers from the BBC Micro to the Raspberry Pi have inspired many of the engineers at ARM over the years. This initiative reflects our wider commitment to inspire a new generation of engineers and entrepreneurs.

Over one million micro:bit devices will be given to children in 2016, and ARM is now working on projects that will help teachers integrate them into lessons and broaden the usability of these mini-computers for older age groups.

Other education projects in 2015 included the STEM Scholars program, gathering data to show how to improve STEM uptake and attainment; and the Global STEM Alliance, mentoring thousands of children across the world.

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Health

We are proud of our strategic partnership with UNICEF, which began in May 2015 and has already shown how wearable technology can change children’s lives for the better. The Wearables for Good challenge had over 250 entries from 46 countries, with seven countries represented among the ten finalists. The winners are now being supported by ARM to turn their concept into a viable prototype, and we are matching all ten finalists with funding and commercial partners to incubate ideas. For more information go to: http://wearablesforgood.com/winners/.

We are also working with UNICEF on its technology platform, U-Report, which supports 1.7 million young people across Africa. By offering technical and financial support we will help UNICEF scale this service across more countries in Africa.

Other health projects include Literacy Bridge, which in 2015 reached 175,000 of the poorest farmers in the world, and Simprints, which has begun its first major health data capture trials with 22,000 mothers and children in Bangladesh.

Environment

We are on track to achieve our 2020 target of 15% reduction in energy consumption per employee, however we have not achieved the level of progress we had hoped in addressing our target of a 30% reduction in carbon emissions per employee during 2015. This is due partly to an increase in the size and complexity of our global estate, and partly to delay in establishing new programs to reduce the direct environmental impact of our business operations.

We remain committed to our 2020 targets, and have identified carbon offset opportunities, as well as energy efficiency opportunities across our estate to achieve them.

Additionally, ARM’s low power technology has an important role to play in reducing global emissions by enabling greater efficiencies in areas such as the data center, factory automation and building control. Our technology is also at the heart of new strategies that will deal with other environmental and resource challenges such as the management of energy grids and water resources.

Contributing to Communities

During 2015, we significantly expanded our reach and impact across communities. We successfully launched our employee volunteering program which has seen 4,385 hours contributed by our employees globally. We also donated over £200,000 to local community charitable projects in our neighbourhoods. In addition to time and money, we have worked to bring together our partners and businesses to collaborate on shared objectives around education and health. For example, we have set up a working group of Cambridge businesses to tackle issues pertinent to the local community.

Looking forward

The partnerships that we formed and strengthened over the year will help improve outcomes for millions of people. By 2016 we expect that at least one project will be reaching over a million more people and that all our projects are contributing to a Company goal of improving ten million lives by 2020.

Going concern

After dividend payments of £107.8 million and share buy-backs of £92.2 million, the highly cash generative nature of the business enabled the Company to increase its cash, cash equivalents and deposits to £950.9 million (net of accrued interest of £5.4 million) at the end of 2015. This was an increase from £861.7 million (net of accrued interest of £4.6 million) at the start of the year. After reviewing the 2016 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 the Company.

Statement of directors’ responsibilities

The directors are responsible for preparing the Annual Report, the Remuneration Report, and the financial statements in accordance with applicable law and regulations.

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Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Company financial statements in accordance with International Financial Reporting Standards as issued by the IASB. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgments and accounting estimates that are reasonable and prudent;

· state whether IFRSs as issued by the IASB have been followed, subject to any material departures disclosed and explained in the Company financial statements; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Remuneration report comply with the Companies Act 2006 and, with regards to the Company financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the Annual Report included on the Company’s website in accordance with the United Kingdom legislation governing the preparation and dissemination of financial statements. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

COMPENSATION

The management body of the Company is considered to be the Executive Committee. The aggregate compensation (including pension contributions) paid by the Company to all persons who served in the capacity of director or Executive Committee member in 2015 (20 persons) was £14.4 million. This includes £6.0 million of share-based compensation. This does not include expenses reimbursed to officers (including business travel and professional and business association dues and expenses) but includes amounts paid by the Company for automobiles made available to its officers and other benefits commonly reimbursed or paid by companies in the UK. Each executive officer participates in the Company’s Annual Bonus Plan under which he may receive a bonus of up to 125% of base salary. The aggregate amount accrued by the Company during 2015 to provide pension, retirement or similar benefits for directors and member of the Executive Committee was £0.1 million.

Directors’ emoluments

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

Director	Fees		Basic salary		Bonus payments		Benefits (1)		Subtotal 2015		Pension contributions 2015		Share-based payments 2015 (2)			Total 2015		Subtotal 2014		Pension contributions 2014		Share-based payments 2014 (2)		Total 2014
	£000		£000		£000		£000		£000		£000		£000			£000		£000		£000		£000		£000
Executive
Simon Segars		–		575		378		82		1,035		68		1,116			2,219		951		56		946		1,953
Chris Kennedy (appointed September 1, 2015)		–		158		104		955		1,217		13		79			1,309		–		–		–		–
Mike Muller		–		302		181		15		498		34		712			1,244		454		33		794		1,281
Tim Score (retired June 30, 2015)		–		214		–		9		223		23		(169	)		77		666		46		1,169		1,881
Total		–		1,249		663		1,061		2,973		138		1,738			4,849		2,071		135		2,909		5,115
Non-executive
Stuart Chambers		400		–		–		7		407		–		–			407		348		–		–		348
Lawton Fitt (appointed September 1, 2015)		20		–		–		1		21		–		–			21		–		–		–		–
Andy Green		60		–		–		2		62		–		–			62		68		–		–		68
Larry Hirst		80		–		–		1		81		–		–			81		78		–		–		78
John Liu (appointed December 1, 2014)		62		–		–		1		63		–		–			63		6		–		–		6
Stephen Pusey (appointed September 1, 2015)		20		–		–		–		20		–		–			20		–		–		–		–
Kathleen O’Donovan (retired December 31, 2015)		96		–		–		–		96		–		–			96		93		–		–		93

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Director	Fees		Basic salary		Bonus payments		Benefits (1)		Subtotal 2015		Pension contributions 2015		Share-based payments 2015 (2)		Total 2015		Subtotal 2014		Pension contributions 2014		Share-based payments 2014 (2)		Total 2014
	£000		£000		£000		£000		£000		£000		£000		£000		£000		£000		£000		£000
Janice Roberts		67		–		–		1		68		–		–		68		69		–		–		69
Total		805		–		–		13		818		–		–		818		662		–		–		662
Total		805		1,249		663		1,074		3,791		138		1,738		5,667		2,733		135		2,909		5,777

____________________

(1) All the executive directors receive family healthcare and annual travel insurance as part of their benefits in kind. In addition, Mike Muller and Chris Kennedy receive car and fuel allowance. Simon Segars received £68,000 (2014: £143,000) for living, transportation and other allowances as part of his placement in the US. Chris Kennedy received a one-off cash award of £950,000 in January 2016 as part of his new Chief Financial Officer package which is included in taxable benefits and a one-off award of Restricted Stock Units (“RSUs”) of £950,000 in November 2015 which is included in other as part of his new Chief Financial Officer package. Taxable benefits for non-executive directors consist of expenses paid to travel to UK Board meetings

(2) Share based payments represent each director’s individual compensation charge as calculated under IFRS 2, which the Company adopted from January 1, 2005. Further details of this are given in Note 21 to the Consolidated Financial Statements.

(3) Additional fees are paid to non-executive directors who are based outside the UK and travel to the UK for Board meetings as follows: Janice Roberts $2,500 per meeting, John Liu £2,000 per meeting, Lawton Fitt £2,000 per meeting. This is to reflect their additional time commitment.

It is the Company’s policy to allow executive directors to hold a non-executive position at another company 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:

Simon Segars became a non-executive director of Dolby Laboratories, Inc. on February 3, 2015. He received an award of 7,759 RSUs with a market value of $38.66 per share on that date and the award vested in full on February 1, 2016 with a market value of $35.78 per share. On February 2, 2016, he was granted a further award of 7,575 RSUs with a market value of $35.73 per share, which will vest in full on February 1, 2017. In addition, Simon Segars received fees totaling $40,673 up to December 31, 2015 (2014: n/a). Mike Muller is a non-executive director of Intelligent Energy plc and he received fees totaling £53,000 up to December 31, 2015 (2014: £49,110). Chris Kennedy will take up a position as a non-executive director at Whitbread plc on March 1, 2016 and his remuneration will be disclosed in the 2016 Annual Report.

All the executive directors accrue benefits under a money purchase pension scheme as a result of their services to the Company, contributions for which were fully paid during the year.

The Company has defined total directors’ pay for 2015 as the total of basic salary, benefits, bonus and pension contributions during 2015, plus the gains made on share schemes where the performance period relating to those schemes concluded in 2015. The Deferred Annual Bonus Plan (“DAB Plan”) matching shares that vested in February 2016 have been included, since December 31, 2015 is the end of the three year performance period for these awards. The performance conditions were not satisfied in respect of the performance period ended 31 December 2015 and therefore no shares vested under the LTIP.

Non-executive directors do not have service contracts and are not eligible to participate in bonus or share incentive arrangements. Their service does not qualify for pension purposes of other benefits, and no element of their fees is performance-related.

Directors’ Interests

Save as disclosed in “—Share Ownership” below, none of the directors has any interest in the issued share capital of the Company which is required to be notified to the Company pursuant to the UK Listing Authority’s rules (LR 9.8.6R(1)).

Single figure remuneration

The total directors pay for 2015 for each of the executive directors was as follows:

Director	Total amount of salary		All taxable benefits		Bonus Payments		Money and other assets receivable for periods of more than one financial year		All pension related benefits		Other benefits		Total
	£000		£000		£000		£000		£000		£000		£000
Simon Segars		575		82		378		360		68		–		1,463
Chris Kennedy (appointed September 1, 2015)		158		955		104		–		13		950		2,180

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Director	Total amount of salary		All taxable benefits		Bonus Payments		Money and other assets receivable for periods of more than one financial year		All pension related benefits		Other benefits		Total
	£000		£000		£000		£000		£000		£000		£000
Mike Muller		302		15		181		340		34		–		872
Tim Score (retired June 30, 2015)		214		9		–		1,027		23		–		1,273
Total		1,249		1,061		663		1,727		138		950		5,788

The total directors pay for 2014 for each of the executive directors was as follows:

Director	Total amount of salary		All taxable benefits		Bonus Payments		Money and other assets receivable for periods of more than one financial year		All pension related benefits		Total
		£000		£000		£000		£000		£000		£000
Simon Segars		515		155		281		1,277		56		2,284
Mike Muller		294		15		146		1,260		33		1,748
Tim Score		427		27		212		1,825		46		2,537
Total		1,236		197		639		4,362		135		6,569

____________________

Explanation of single figure remuneration

The single figure of remuneration table provides details of pay and benefits earned by a director in respect of the particular calendar year. Not all of the remuneration is paid in that year.

The bonuses earned during 2015 will be paid in cash in February 2016.

The money and other assets receivable for periods of more than one financial year are the amounts received by directors on the vesting of shares in February 2016. These shares were awarded in February 2013 under two schemes: the Long Term Incentive Plan (“LTIP”) and the matching element of the former DAB Plan. The amounts received are included in the single figure of remuneration for 2015, since the performance period for both these schemes concluded in 2015.

All the executive directors receive family healthcare and annual travel insurance as part of their benefits in kind. In addition, Mike Muller and Chris Kennedy receive car and fuel allowance. Simon Segars received £68,000 (2014: £143,000) for living, transportation and other allowances as part of his placement in the US. Chris Kennedy received a one-off cash award of £950,000 in January 2016 which is included in taxable benefits and a one-off award of RSUs of £950,000 in November 2015 which is included in other as part of his new Chief Financial Officer package.

Share prices applicable to grant and vesting of share awards:

8 February 2013 – 924.5 pence

8 February 2014 – 896.0 pence

12 February 2015 – 1,087.0 pence

11 February 2016 – 899.0 pence

Remuneration Summary

From 2014 onwards, remuneration for executive directors has comprised three principal elements:

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· Base salary: to provide an appropriately competitive level of base salary in order to enable the Company to recruit, retain and reward executive directors of the caliber required to achieve the Company’s business strategy and goal of sustained growth in corporate performance. The Committee considers corporate performance on environmental, social and corporate governance issues when setting the remuneration of executive directors.

· Annual bonus: maximum of 125% of base salary, paid in cash with the goal of incentivising executive directors to achieve profit and revenue targets that each account for 50% of target bonus. These targets are directly linked to the Company’s short-term financial and strategic goals and are regarded as the best drivers to increase market share and continue the Company’s outperformance of semiconductor market growth. 85% of base salary is payable at target. Bonus is subject to an individual performance multiplier, which flexes the payment by 0.75 to 1.25, subject to the overall maximum of 125% of salary.

· LTIP: annual conditional share awards are made at 187.5% of base salary with the ability for vesting of between 0% and 200% of that amount after three years dependent on achievement of performance conditions. Dividend shares are added at vesting.

There are further holding periods of one year for 25% of the vested shares and two years for a further 25% of the vested shares.

Base salary increases for 2015 and 2016

Executive directors’ annual base salaries have been increased as follows:

Director	From January 1, 2015		% increase 2014-2015			From January 1, 2016		% increase 2015-2016
Simon Segars	£	575,000		11.65	%	£	610,000		6.09	%
Tim Score	£	427,450		0.00	%		n/a		0.00	%
Mike Muller	£	302,360		3.00	%	£	317,500		5.01	%
Chris Kennedy*	£	475,000		n/a		£	498,750		5.00	%

*Chris Kennedy’s salary applies from 1 September 2015.

For 2015, the average increase in base salaries for the executive directors was 5.57% for the three individuals who served in both 2014 and 2015, compared with an average increase for the workforce as a whole of 4.78%. For 2016, the average increase is 5.46% for the executive directors and 6.24% for the workforce as a whole. In line with good practice for internal promotions, Simon Segars was appointed as Chief Executive Officer in July 2013 initially at a below-market salary, which was increased by 3% in 2014 and an additional 11.65% in January 2015. For 2016, the Committee reviewed his salary and overall package against best practice in UK companies of similar size and complexity (with reference to revenue and market capitalization), taking into account Simon’s individual performance over the previous year. This review concluded that an increase of 6.09% from £575,000 to £610,000 for 2016 was appropriate, given his continued capability and performance, and the increasing scale and complexity of the Company. The new salary is within our Remuneration Policy and is consistent with ARM’s philosophy of setting salaries, bonuses and benefits at appropriately competitive levels, with the main emphasis on long-term, performance-driven share-based rewards.

Across the Company, the increase for 2016 is in a range of 4.2% for the US rising to 9.2% in Asia, reflecting local market conditions and salary inflation.

Annual Bonus Plan in respect of 2015 financial year

Since 2014, bonuses have been paid wholly in cash. Target bonus is 85% and maximum bonus is 125% of base salary.

Individual performance conditions linked to business strategy are specific to each executive director and are set annually. These flex the amount of bonus by a factor of 0.75 to 1.25, subject to the overall maximum of 125% of salary. The Committee reviews the extent of achievement of specific individual performance conditions in arriving at the individual performance multiplier.

The Committee retains discretion to adjust bonus targets for any financial year to reflect exceptional events, including acquisitions or disposals. This discretion was exercised in 2015 and actual revenue and normalized operating profit (“NOP”) were adjusted to remove the impact of the acquisitions made in 2015 and certain long-term strategic investments for the purposes of measuring annual bonus. The Committee considers this to be

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reasonable since these acquisitions represent activities that were outside of the original budget and target levels set. The impact was to reduce revenue achieved by $9.1 million and to increase NOP by £4.2 million.

2015 Bonus targets and achievement

The financial targets that applied to the 2015 bonus and the achievement against those targets were:

2015 Bonus targets	Weighting		Threshold			Budget			Target			Actual		Bonus % of target achieved
NOP*		50% of max		£406.4m			£454.0m			£471.0 m			£462.3 m		37.22	%
Group Revenue		50% of max		US$1,292.6m			US$1,450.3m			US$1,540.0m			US$1,479.5m		33.14	%
Bonus outcome (% of target)				0	%		50	%		100	%				70.36	%
Bonus achievement (% of salary)				0	%		42.5	%		85	%				59.81	%

____________________

* NOP for bonus purposes is calculated using the Company budget exchange rate of £1: US$1.60 for 2015.

For each element, the bonus pays out linearly between the threshold and the budget and between the budget and target. Above target, the bonus continues to pay out linearly. Over-achievement of either the profit or revenue targets can compensate for a shortfall in the other (subject to the overall maximum of 125% of salary).

Individual performance outcomes

The individual performance multiplier is linked to targets and objectives that are specific to each executive director and are set annually. It should be noted that, when applied to the executive directors, the individual performance multiplier normally falls within a relatively narrow range at the upper end. This results from the fact that maintaining a very high level of performance is a pre-requisite to continuation in the role of an executive director. Performance is reviewed in-depth on at least an annual basis by the Chief Executive Officer (for the other executive directors) and by the Chairman for the Chief Executive Officer. These assessments are then reviewed by the Remuneration Committee. For performance in 2015, the individual performance conditions included objectives related to the following areas:

Simon Segars	Achieving 2015 business performance targets Succession planning, key appointments and organizational effectiveness Strategy development
Chris Kennedy	Organizational review, capital return strategy, effectiveness of CFO function
Mike Muller	IoT strategy and organization, R&D oversight to ensure long term technology pipeline, University relationships
Tim Score	Transitioning CFO role and responsibilities

The individual multipliers approved by the Committee for 2015 are shown in the table below.

Overall bonus outcomes

The executive directors received the following bonus payments in respect of performance in 2015.

Executive Director	Salary £’000	Bonus % of target achieved	Individual multiplier	Total bonus % of Salary	Bonus paid £’000
Simon Segars	575	59.81%	1.1	65.79%	378
Chris Kennedy	158	59.81%	1.1	65.79%	104
Mike Muller	302	59.81%	1.0	59.81%	181
Tim Score	–	–	–	–	–

*Chris Kennedy’s bonus was pro-rated from his start date of September 1, 2015.

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Annual bonus for 2016

The bonus opportunity in 2016 will remain 85% of salary for target performance, subject to an individual multiplier and an overall maximum of 125% of salary. The Committee continues to consider growth in revenue and profit as the most appropriate drivers to increase market share and continue the Company’s outperformance of semiconductor market growth. The bonus structure for 2016 will be in line with that described above for 2015. The specific financial targets and individual performance conditions will be disclosed retrospectively in the 2016 Annual Report. The Committee has recommended, and the Board is of the opinion, that the targets for the Annual Bonus Plan are commercially sensitive because they include budgeted numbers within the range of outcomes and it would be detrimental to the Company to disclose them in advance of, or during the relevant performance period.

Long term incentive plan

The potential awards held by the executive directors under the LTIP and DAB Plan as at December 31, 2015 are as follows:

Conditional share awards held by directors are as follows:

Director	Performance period ending December 31		Award date	Market price at date of award £		As at January 1 Number		Conditional award Number		Vested* Number			Lapsed Number			As at December 31 Number		Vesting date
Simon Segars		2014	February 8, 2012		5.68		49,295		–		(45,893	)		(3,402	)		–	February, 2015
		2015	February 8, 2013		9.245		32,449		–		–			–			32,449	February, 2016*
		2015	August 13, 2013		8.865		11,280		–		–			–			11,280	August, 2016*
		2016	February 8, 2014		8.96		107,770		–		–			–			107,770	February, 2017
		2017	February 12, 2015		10.87		–		99,183		–			–			99,183	February, 2018
							200,794		99,183		(45,893	)		(3,402	)		250,682
Tim Score (retired June 30, 2015)		2014	February 8, 2012		5.68		70,422		–		(65,562	)		(4,860	)		–	February, 2015
		2015	February 8, 2013		9.245		44,889		–		–			(44,889	)		–	February, 2016*
		2016	February 8, 2014		8.96		89,449		–		(26,895	)		(62,554	)		–	June, 2015**
							204,760		–		(92,457	)		(112,303	)		–
Chris Kennedy (appointed September 1, 2015)		2017	November 12, 2015		10.53		–		27,911		–			–			27,911	February, 2018
							–		27,911		–			–			27,911
Mike Muller		2014	February 8, 2012		5.68		48,415		–		(45,074	)		(3,341	)		–	February 2015
		2015	February 8, 2013		9.245		30,827		–		–			–			30,827	February 2016
		2016	February 8, 2014		8.96		61,429		–		–			–			61,429	February, 2017
		2016	February 8, 2014		8.96		–		52,155		–			–			52,155	February, 2018
							140,671		52,155		(45,074	)		(3,341	)		144,411

____________________

* The performance conditions applicable to the 2013 conditional awards were not satisfied in respect of the performance period ended December 31, 2015 and therefore no shares vested

** In accordance with the rules of the LTIP, on his retirement of June 30, 2015, Tim Score received these shares calculated on a pro-rata basis and reflecting the extent to which the performance conditions were satisfied at that date

LTIP vesting in 2016

On February 8, 2013, the executive directors were granted awards under the LTIP with a face value of 100% of salary. The performance conditions were:

· Total Shareholder Return (“TSR”) vs. FTSE 350 Index (50% of the awards) – threshold vesting for median TSR, increasing on a straight-line basis to full vesting for upper decile TSR

· TSR vs. FTSE All World Technology Index (50% of the award) – threshold vesting for median TSR, increasing on a straight-line basis to full vesting for upper decile TSR

Actual Company TSR over the period was 17.9% and below the median TSR for both comparator groups. Therefore, the performance conditions were not satisfied in respect of the performance period ended December 31, 2015 and therefore no shares vested.

LTIP – awards for 2015

On February 12, 2015, Simon Segars and Mike Muller were granted awards under the LTIP; on November 12, 2015 Chris Kennedy was granted awards under the LTIP; details are provided in the table below. The 3-year period over which performance will be measured will be by reference to results for the first quarter of 2015 against results for the fourth quarter of 2017 in respect of normalized EPS, and measured over January 1, 2015 to December 31, 2017 in respect of TSR.

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Executive Director	Date of grant		Awards made during the year		Market price on date of grant **			Face value on date of grant £000		Basis of grant (% of salary)			Maximum award (% of salary)
Simon Segars		February 12, 2015		99,183		1,087	p		2,156		187.5	%		375	%
Chris Kennedy*		November 12, 2015		27,911		1,053	p		588		187.5	%		375	%
Mike Muller		February 12, 2015		52,155		1,087	p		1,134		187.5	%		375	%

____________________

* Award for Chris Kennedy pro-rated from his start date

** Share price on award date is based on the closing market price on the previous day

The award is eligible to vest in its entirety on the third anniversary of the date of grant, subject to meeting performance conditions. Executive directors will additionally be required to hold 50% of any vested awards, with 25% released after 4 years and another 25% released after 5 years.

Performance measures for the LTIP were selected after careful consideration by the Committee, and following consultation with larger shareholders. The Committee believes that the use of both TSR and normalized EPS performance measures provides the best alignment to the Company’s long-term financial and strategic goals and encourages, reinforces and rewards the delivery of sustainable shareholder value.

The EPS range was set for awards made in 2014 following consultation with shareholders and remained unchanged for 2015. The Committee will review applicability of performance conditions on an annual basis, so that in the event that exceptional circumstances arise, such as material corporate activity or substantial changes in market conditions, their impact can be considered against subsequent annual awards. If changes are to be proposed for any prospective LTIP award, it would be the Committee’s intention to confirm any such change to shareholders in advance.

Analysts’ targets are acknowledged as important reference points for the markets, but there are a number of factors beyond the control of the Company and the executive directors that may impact medium- to long-term EPS performance (such as macro or semiconductor industry cycles and currency fluctuations). These may have impacts that would not necessarily be seen as underperformance by the Company. The Committee is also keen not to encourage short-term views or behavior where, in theory, investment in the long-term future (either organically or by acquisition) may be discouraged if the EPS range is set at too high a level.

The performance conditions for the 2015 LTIP awards were as follows:

· EPS (50% of award): 25% of the maximum award vests at threshold and 100% at the upper performance target (straight-line in between). Threshold is three years EPS growth of 15% per annum (including CPI) and the upper performance target is three years EPS growth of 22% p.a. (including CPI).

· TSR vs. FTSE 350 Index (25% of award): 25% of the maximum award vests at median and 100% vests at upper quintile (straight-line in between).

· TSR vs. FTSE All World Technology Index (25% of award): 25% of the maximum award vests at median and 100% vests at upper quintile (straight-line in between).

LTIP awards for 2016

The following conditional awards over ordinary shares were made under the LTIP on February 11, 2016:

Executive Director	Date of grant	Awards made during the year	Face value on date of grant (% of salary)
Simon Segars	February, 11 2016	127,224	375%
Chris Kennedy	February, 11 2016	104,021	375%
Mike Muller	February, 11 2016	66,219	375%

The mid-market closing price of an ordinary share on February 10, 2016, being the business day prior to the date of these conditional awards, was 899 pence.

Following review in December 2015, the Committee has decided that the performance conditions should continue unchanged for 2016.

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Former Deferred Annual Bonus Plan (DAB Plan)

Under the former DAB Plan, which operated for the last time in relation to 2013, 50% of bonus was compulsorily deferred into shares, which do not vest for three years. For the remaining awards, the last of which will vest in February 2017, at normalized EPS growth equal to the increase in the Consumer Prices Index (CPI) plus 4% per annum, the deferred shares will be matched on a 0.3:1 basis, rising to 2:1 when normalized EPS growth is in excess of CPI plus 12% per annum. The deferred shares can be forfeited in the event of gross misconduct and the matching shares are subject to forfeiture for “bad leavers”.

Former DAB Plan vesting in 2016

Shares representing the deferred element of bonus earned in 2012 and awarded in 2013 vested on February 11, 2016 with the maximum 2:1 ratio of matching shares being earned. This ratio was achieved because the Company’s performance equated to CPI plus 26.2% per annum compared to the upper limit of CPI plus 12% per annum on average for the three years making up the performance period. The amounts are shown below:

Executive Director	Shares deferred as part of 2012 bonus awarded in 2013	Matching shares granted	Matching shares value (£000)	Dividend shares vesting	Total award
Simon Segars	20,045	40,090	360	378	60,513
Mike Muller	18,900	37,800	340	357	57,057
Total	38,945	77,890	700	735	117,570

The market value of an ARM share on the date of vesting was 899 pence (based on the closing market price on the previous day).

In accordance with the rules of the DAB plan and the LTIP, on his retirement on June 30, 2015, Tim Score received the following shares calculated on a pro-rata basis and reflecting the extent to which the performance conditions were satisfied at that date:

DAB	Shares deferred as part of Bonus Number	Matching shares granted Number	Matching shares value £000	Total award Number
2013	28,637	48,523	456	77,160
2014	33,447	33,750	318	67,197
Total	62,084	82,273	774	144,357

LTIP	Conditional award Number	Vested award Number	Total award Number	Market value at vesting £000
2014 TSR	44,724	6,102	6,102	57
2014 EPS	44,725	20,793	20,793	196
Total	89,449	26,895	26,895	253

The market value of an ARM share on the date of vesting was 941 pence (based on the closing market price on the previous day).

Simon Segars and Mike Muller hold 30,327 and 22,501 shares respectively under the former DAB Plan which will vest in February 2017.

Pensions

The Company does not operate its own pension scheme but makes payments into a group personal pension plan, which is a money purchase scheme. For executive directors, the normal rate of Company contribution is 10% of base salary, or 11% in the case of the Chief Executive Officer (plus, if applicable, additional amounts in accordance with the Company’s salary sacrifice scheme). Contributions to the scheme or the alternative cash allowance were fully paid with respect to the year. None of the executive directors has any entitlement to participate in a defined benefit pension scheme.

New Chief Financial Officer package

The appointment of Chris Kennedy as Chief Financial Officer designate was announced on January 8, 2015 and he joined the Board as an executive director and Chief Financial Officer on September 1, 2015. The key elements of his agreed package for 2015, which are in line with our approved Remuneration Policy are set out below. The below package was detailed in the 2014 Annual Report on Remuneration.

Salary – £475,000, determined in January 2015.

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Bonus – maximum 125% of salary, pro-rated for actual service in 2015 (four months), subject to the same performance conditions as apply to the other executive directors and an individual performance multiplier.

One-off cash award – a payment of £950,000 (less payroll taxes) was made in January 2016 to compensate for part of the equity benefits foregone in his previous role. The award will be subject to clawback in the event of resignation or termination for cause in the following 12 months.

RSU award – a grant of restricted stock units to compensate for the remainder of equity benefits foregone in his previous role with a value of up to £950,000 (the number of restricted stock units to be based on the share price at the date of grant). The units will vest in equal tranches over 4 years and be subject to forfeiture over the period.

In determining the buy-out awards (i.e. the one-off cash award and the RSU award), the Committee considered a number of factors including the performance conditions attached to awards foregone, the likelihood of those conditions being met and the remaining vesting period of these awards. The total fair value of the awards is less than those foregone at easyJet plc, and the quantum reflects the strong likelihood of Chris Kennedy’s easyJet awards vesting in full. In terms of structure, cash and RSUs were chosen for simplicity and value for money for ARM shareholders, respectively.

LTIP award – an award in line with the approved Remuneration Policy, pro-rated for actual service in 2015 (four months), subject to the same performance conditions as apply to the other executive directors.

Pension – an employers’ contribution of 10% of salary.

Compensation for loss of office

Tim Score retired from the board on June 30, 2015. His leaving arrangements are in line with those set out in his contract, i.e. a 12 month notice period providing salary and contractual benefits until the termination date. He did not receive an annual bonus or LTIP award in respect of 2015. His outstanding LTIP and DAB awards were adjusted in line with the Remuneration Policy for a good leaver at the time the awards were made, i.e. prorated to his termination date and vesting immediately, subject to performance.

The Committee notes that the Company’s LTIP leaver provisions were reviewed during the year, and minor revisions were made to further align with market practice and best practice. In particular, in respect of awards made in 2015 and future years, good leavers awards will vest on the normal vesting date rather than immediately on termination, and any holding period will apply.

Payments to past directors

No payments were made to past directors during 2015.

Chairman and non-executive directors’ remuneration

In line with fee arrangements in place in other companies of similar size and complexity, the Company implemented the following fee arrangements from January 1, 2016:

· Chairman fee of £400,000 per annum

· A standard NED fee of £65,000 per annum. This was increased from £60,000 per annum in 2015, and was adjusted after careful review, to reflect ARM’s position in the FTSE-100 and the increasing scale and complexity of the business

· Additional fees for Committee Chairmen of £20,000 per annum and the Senior Independent Director of £16,000 per annum (last increased in 2015 to more fairly reflect the workload undertaken by them)

Fees paid to the Chairman will remain at the same level in 2016 as for 2015, as will the additional fee paid to Committee Chairman and the Senior Independent Director.

Share Ownership

The following table sets forth, as of February 15, 2016, (or date of retirement if earlier), certain information as to the shares and outstanding options to subscribe for shares held by (i) each executive officer and director of the Company holding options and (ii) all executive officers and directors of the Company, as a group. As of February 15, 2016, there were 23,316,243 shares outstanding

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and options with respect to nil underlying shares are exercisable and nil RSUs expected to vest within 60 days of February 15, 2016.

Name	Beneficial Ownership Number(1)		Beneficial Ownership Percentage	Number of Shares underlying options		Weighted average exercise price (per Share)		Exercise prices and Expiration dates
Stuart Chambers		40,000	Less than 0.01%		–		–		–
Simon Segars		668,432	0.05%		–		–		–
Chris Kennedy		20,256	Less than 0.01%		–		–		–
Mike Muller		1,336,000	0.09%		–		–		–
Tim Score (retired June 30, 2015)		799,454	0.06%		–		–		–
Lawton Fitt (appointed September 1, 2015)		210	Less than 0.01%		–		–		–
Andy Green		5,250	Less than 0.01%		–		–		–
Larry Hirst		–	–		–		–		–
John Liu		–	–		–		–		–
Stephen Pusey (appointed September 1, 2015)		6,329	Less than 0.01%		–		–		–
Janice Roberts		–	–		–		–		–
Kathleen O’Donovan (retired December 31, 2015)		–	–		–		–		–
All current directors as a group (10 persons) (2))		2,076,477	0.15%		–		–		–

____________________

(1) Shares that are not outstanding but that may be acquired upon exercise of options within 60 days of the date of this report are deemed outstanding for the purpose of computing the number and percentage of outstanding shares beneficially owned by the relevant person. However, such shares are not deemed to be outstanding for the purpose of computing the percentage of outstanding shares beneficially owned by any other person.

(2) The ten members of the Executive Committee, who are not directors of the Company, hold approximately 0.05% of shares in the Company as of February 15, 2016.

Share Option Schemes and Plans

The Company operates the following share option schemes and plans under which employees may acquire shares: the DAB Plan, the Employee Equity Plan and the U.S. Employee Stock Purchase Plan.

Since 2006, the Company has issued 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.

Additionally, the Company operated a DAB Plan. Under the DAB Plan , which is for directors and selected senior management within the Company, participants are required to defer 50% of any related annual bonus into shares on a compulsory basis. These shares were deferred for three years, and then a matching award made depending on the achievement of an EPS performance condition over that time. This scheme has been replaced after the February 2014 grant and replaced with a cash only bonus. For details of the new scheme, see “–Remuneration Policy” above.

The Company also operated the LTIP, also for directors and selected senior management, whereby share awards were made and vest depending on the Company’s TSR performance compared to two comparator groups over the three year performance period. Grants were made for the last time under this scheme in February 2013 and it was replaced by a new LTIP for 2014 grants onwards. For details of the new scheme, see “Board Practices - Remuneration Policy”.

The Company also offers savings-related share option schemes (SAYE) for employees and executive directors of the Company. The number of options granted is related to the value of savings made by the employee. The period of savings is three or five years. 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 certain countries, 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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Save As You Earn (“SAYE”) Scheme

Issue of Invitations. Invitations to join the SAYE Scheme are normally issued within 42 days of the announcement of the Company’s results for any period.

Eligibility. All employees of the Company and any subsidiaries designated by the Board of Directors who have worked for the Company or a participating subsidiary for a qualifying period as determined by the Board of Directors (but not to exceed five years) and any other employees nominated by the Board of Directors are eligible to participate in the SAYE Scheme.

Savings contract. Employees joining the SAYE Scheme must enter into a savings contract with a designated savings carrier under which they make a monthly saving for a period of three or five years or, if the Board of Directors so allows, any other period permitted under the relevant legislation. The monthly saving must not exceed such limit as is fixed by the Board of Directors within the ceiling imposed by the relevant legislation (currently £500 per month). With the three-year savings period, the employee receives no tax-free bonus. With the five-year savings period, the employee receives a tax-free bonus of 1.8 monthly payments. With the five-year savings period, the employee has the choice of leaving the money for a further two years to receive an additional bonus of 3.1 monthly payments, making a total bonus of 4.9 monthly payments over seven years (which sum cannot be used to buy shares in the Company). An option is granted to the employee to acquire shares in the Company which is exercisable within six months of maturity after the bonus is payable under the savings contract.

Option price. Options are granted at an option price which is not less than 80% of the market value of the shares on the day before the date of invitation (or some other date agreed with HM Revenue and Customs) and, where shares are to be subscribed, their nominal value (if greater). Market value means a value for the shares agreed in advance with HM Revenue and Customs if the shares are not listed or, if they are listed, the middle market quotation on the immediately preceding business day, or the average of the middle market quotations over the three preceding business days.

Exercise of options. Options are normally exercisable for a six-month period following the maturity date under the relevant savings contract. If the option is not exercised within this six-month period, the option will lapse. Options may also, however, be exercised in certain circumstances, for example on an option holder ceasing to be an employee due to injury, disability, redundancy, retirement, following change of control of the employing company and in the event of a takeover or winding up of the Company. If any option is exercised early in one of these circumstances, the option holder may only use the savings made under his savings contract at that time to exercise the option. Options are not transferable and may only be exercised by the person to whom they are granted, except in certain specific circumstances (e.g., death of employee).

Exchange of options. In the event of a change of control of the Company in certain circumstances, option holders may exchange their options for options over shares in the acquiring company.

Issue of shares. Shares issued on the exercise of options rank equally with shares of the same class in issue on the date of allotment, except in respect of rights arising by reference to a prior record date. Application has been made to and approved by the London Stock Exchange for the listing of shares issued under the SAYE Scheme.

Variation in share capital. Options may be adjusted following certain variations in the share capital of the Company, including a capitalization or rights issue, subdivision or consolidation or reduction of the share capital.

Termination of the SAYE Scheme. No options may be granted under the SAYE Scheme after the tenth anniversary of the date of the adoption of the rules.

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Amendments to the Schemes and Plans

The directors may amend the Schemes and Plans, except that any amendment relating to the identity of option holders, the limitations on their benefits, the number of shares which may be issued under the Schemes and Plans, the basis for determining an option holder’s entitlement to shares (other than provided for in accordance with the rules) or the adjustment of rights for option holders in the event of a variation in share capital may not be made to the advantage of option holders without prior approval of the shareholders of the Company in general meeting, except for minor amendments relating to tax and administrative matters. Amendments to the Executive Scheme and the SAYE Scheme are subject to the prior approval of HM Revenue and Customs, while they are to retain their approved status.

Share dilution

It is proposed that the Company will continue to manage dilution within the context of maintaining award levels within a 10% limit over five years, the limit that has applied since 2003. We are aware that this is higher than the limit of 5% over ten years in respect of discretionary awards and 10% over ten years in respect of all schemes adopted by many UK companies and preferred by many institutional investors. The reasons for this higher limit, which was approved by shareholders when the former LTIP was introduced, are as strong today. These are:

· the broad-based nature of our equity plans, under which shares are provided to all employees and are a key part of the Company’s employee reward package; and

· the need to be able to compete with US companies worldwide for the high-caliber engineers and executives required to secure the Company’s future success.

The Committee is keenly aware of this issue, and expects to keep well below the 10% upper limit. Dilution over the past five years has been 3.8%.

Remuneration Committee

In this section we describe the composition and activities of the Committee during 2015.

Committee composition and meeting attendance during 2015:

Name of Director	Position	Meetings Attended/eligible meetings
Larry Hirst	Independent non-executive director	5/5
Andy Green	Independent non-executive director	5/5
Janice Roberts	Independent non-executive director	5/5

Stephen Pusey joined the Committee on January 1, 2016.

Given their diverse business experience, the independent non-executive directors who made up the Committee in 2015 offer a balanced view and international expertise in relation to remuneration matters for the Company.

Operation of the Committee

The Chief Executive Officer, the EVP People and the VP Reward are normally invited to attend for at least part of each meeting to ensure that the Committee is able to obtain their input. The Company Chairman also normally attends meetings by invitation. The Company Secretary advises the Committee on corporate governance matters and acts as Secretary to the Committee. None of these individuals are present when their own remuneration is discussed. External advisers also attend meetings by invitation. Their advice and

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recommendations are used as a guide but do not in any way replace the Committee’s own deliberations and decisions.

The Committee’s terms of reference are published on the corporate website.

External Advisers

The Committee has access to independent professional advice on remuneration matters. Following a competitive tender process, Mercer Limited (Mercer) was appointed by the Committee in April 2014 and also provides advice to management on reward for the wider workforce. Mercer is a member of the Remuneration Consultants Group and adheres to its Code of Conduct, which incorporates principles of transparency, integrity, objectivity, competence, due care and confidentiality. On the basis of Mercer’s confirmation of adherence to this Code and the detailed advice it has given since appointment, Committee members are satisfied that its advice is objective and independent and that its fees are in line with market practice. Fees are charged at an hourly rate based on an agreed fee rates and fee quotations are provided in advance for any significant elements of work.

Work undertaken by Mercer for the Committee in 2015 included analysis and advice on the design of executive reward and the new share matching plan, review and making recommendations in relation to the Directors’ Remuneration Report for 2015, analysis of executive benchmarking data and preparation for and attendance at Remuneration Committee meetings. The Committee also received advice from Kepler Associates (“Kepler”) (subsequently acquired by Mercer in June 2015) who provided independent verification of TSR calculations for the LTIP. Kepler also provided a valuation model for the LTIP to the Company to assist with calculation of share compensation charges.

Fees paid to external advisers in the year were:

Name of advisor	Fee	Work undertaken
Mercer	£61,185	Analysis and advice on executive director and broader executive packages, specific review of TSR, comparator groups applicable to ARM, review and recommendation in relation to the Directors’ Remuneration Report for 2015, analysis of executive benchmarking data, preparation for and attendance at Remuneration Committee Meetings and advice to the Company on aspects of reward and incentive.
Kepler	£7,200	Independent verification of TSR, provision of a valuation model for the LTIP.

2014 AGM – vote on Remuneration Policy

At the 2014 AGM voting on the Remuneration Policy was as follows:

97.58% vote in favor out of a total of 1,099,892,911 votes cast (with 2.42% votes against and 14,047,874 votes withheld.)

2015 AGM – Statement of voting

At the 2015 AGM voting was as follows:

Annual Report on Remuneration 67.9% vote in favor out of a total of 1,089,913,024 votes cast (with 32.1% votes against and 21,040,764 votes withheld).

Feedback from our shareholders ahead of the vote indicated concerns about the recruitment buy-out award for our new Chief Financial Officer, Chris Kennedy. In particular there were concerns that part of the award was in cash (subject to clawback) and that none of the award was subject to explicit performance conditions.

The Remuneration Committee has discussed the feedback received and understands the position of shareholders on this issue. The Committee will take the feedback provided into account in the event of future executive director recruitment and when a new Remuneration Policy is submitted at the 2017 AGM.

Remuneration Policy

The Directors’ Remuneration Policy was approved by shareholders at the Annual General Meeting on May 1, 2014. It applies to the executive directors at the date of this report and is intended to apply for three years from adoption in relation to any new executive director appointments.

We believe that sustained growth can be successfully achieved only with a high level of employee engagement and motivation. We believe that it is in shareholders’ best interests that the Company is able to attract the best talent in the world within our specialized market. All elements of pay and benefits set out in the policy table are regarded as necessary to recruit, retain and motivate appropriately skilled executives and align their remuneration to the long-term success of the Company. The structure of appropriately competitive base

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salaries and higher potential incentives supports both short- and long-term strategy and has proved both motivational and successful in achieving strong business performance over the past few years.

This Remuneration Policy section of the report has been prepared in accordance with Schedule 8 to the Large- and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The Committee has also taken into account the principles set out in Schedule A to the UK Corporate Governance Code (September 2014) published by the Financial Reporting Council, the Listing Rules of the Financial Conduct Authority and the Investment Association’s Principles of Remuneration revised in November 2015.

The Committee considers corporate performance on environmental, social and corporate governance issues when setting the remuneration of executive directors. It also takes account of pay and conditions elsewhere in the Company. In particular, the Committee is mindful of the fact that all employees receive share awards under the Company’s equity plans.

The Committee does not specifically consult with employees when setting and reviewing remuneration policy for the executive directors; however, it does review the salary increases for all Executive Committee members against the general employee pay award each year to ensure that there is fairness. Employees have an opportunity to raise any concerns over pay and benefits through the annual employee engagement survey or direct with their line manager. The EVP People and the VP Reward attend meetings by invitation and are available to answer the Committee’s questions on wider employee remuneration matters.

Shareholding requirements

In order to align executives’ interests with those of shareholders over a longer time period, from 2014 onwards all Executive Committee members have been required to build a shareholding of 200% of base salary (an increase from the previous level of 100% of base salary). For other participants in the LTIP, the shareholding requirement has increased from 50% to 100% of base salary. Unvested shares under the LTIP and former DAB Plan do not count towards the shareholding requirements. Until these levels are achieved, no more than 50% of shares received through vesting under the DAB Plan and LTIP (after the automatic sale of shares to satisfy tax liabilities) can be disposed of by participants. For 2014 a transitional arrangement applied for participants below Executive Committee level under which 20% of net shares vesting was retained. This increased to 50% for 2015 onwards.

Service Contracts

In accordance with Code Provision D.1.5, our policy is that notice periods for executive directors are of one year’s duration and each of the executive directors’ service contracts reflects this. These agreements provide for each of the directors to provide services to the Company on a full time basis and contain restrictive covenants for periods of three to six months following termination of employment relating to non-competition, non-solicitation of the Company’s customers, non-dealing with customers, and non-solicitation of the Company’s suppliers and employees. In addition, each service contract contains an express obligation of confidentiality in respect of the Company’s trade secrets and confidential information and provides for the Company to own any IP rights created by the directors in the course of their employment.

The dates of the service contracts of each person who served as an executive director during the financial year are as follows:

Name of Director	Date
Simon Segars	July 17, 2014
Chris Kennedy (joined September 1, 2015)	January 17, 2015
Mike Muller	January 31, 1996
Tim Score (retired June 30, 2015)	March 1, 2002

Service contracts for the executive directors and appointment letters for the Chairman and non-executive directors are available to view in the Corporate Governance section of our website.

The term of appointment for non-executive directors is three years, which can be rolled forward for two further periods each of three years, which would be subject to annual review. Appointments are subject to termination of three months’ notice. Fees paid to non-executive directors are reviewed annually with effect from January 1, 2016.

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Remuneration Policy for executive directors

The Policy applies to the executive directors at the date of this report and is intended to apply to any new executive directors who may be appointed during this three-year period.

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Component of remuneration package and how it supports business strategy	Operation and clawback	Maximum  potential value	Performance conditions, targets assessment and areas of discretion
Base salary To provide an appropriately competitive level of base salary, to enable the Company to recruit, retain and motivate executive directors of the caliber required to achieve the Company’s business strategy and goal of sustained growth in corporate performance.	Base salaries are reviewed annually by the Committee and are paid monthly in cash Increases generally apply from January in each year. In its annual review or on promotion, the Committee considers the following: ·      pay levels at companies of similar size (by reference to market capitalization and revenue) on a geographic and global basis. ·      external market conditions. ·      pay and benefits elsewhere in the Company. ·      individual performance, skills, experience and potential. ·      corporate performance on environmental, social and corporate governance issues . Clawback does not apply to base salary (in accordance with contractual agreements).	Base salaries are set at an appropriate level for each role, taking account of the factors described in this table. Generally salaries are no higher than market median although higher salaries may be paid, if necessary, to recruit externally or to retain key executives. In normal circumstances base salary increases will be determined by reference to average increases for employees across the Company. Greater increases may be approved if there is a substantial change in a director’s role or responsibilities or if the salary is significantly below the current market rate. In such circumstances, increases may be phased over a number of years and be conditional on performance.	None, although the overall performance of each executive director is considered by the Committee when reviewing base salaries. Maximum notice period is 12 months and pay in lieu of notice may be made at the discretion of the Company. This would include base salary and contractual benefits (pro-rated where applicable) and any untaken holiday. Fees for outplacement and legal advice may be also be paid by the Company.
Performance-related bonus (in respect of 2014 financial year onwards) To incentivize executive directors to achieve performance objectives	Bonus, if earned, is paid wholly in cash for 2014 onwards Paid annually after the Preliminary Announcement for the prior year end Bonus payments are not	Maximum bonus: 125% of base salary. Bonus payable at target: 85% of base salary . Target means the	Amount is subject to achievement of two performance targets and then adjusted for individual performance: ·      Normalized

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that are directly linked to the Company’s short- term financial and strategic goals.	pensionable. Individual performance measures are focused on objectives that are specific to each executive director. Clawback: provisions exist that require bonus to be forfeited (i.e. offset of bonus accruing in that year) or an equivalent value repaid in exceptional circumstances. These include material misstatement of published results and misconduct causing a material loss and would apply for two years from the payment of such bonus. The proportion of the bonus that would be repayable (and could be 100%) would depend on the extent to which the original bonus exceeds that which would have been paid if the results had been correctly stated, and also taking into account any negative impact of the re-statement.	achievement of appropriate maximum targets in respect of both Normalized Operating Profit (NOP) and total revenue and prior to any personal performance adjustment. Bonus payable at threshold: 0% of base salary. Threshold means the minimum level of performance before bonus starts to accrue.	Operating Profit (NOP) (50% of target bonus). ·      Total revenue (50% of target bonus. ·      Individual performance measures specific to each executive director which flex the amount of bonus by a factor of 0.75 to 1.25. Revenue and profit growth are regarded as the most appropriate short-term metrics for continuing the Company’s performance. The Committee retains discretion to adjust bonus targets for any financial year to reflect intervening events including acquisitions or disposals. The numerical values of targets for any particular financial year will not be disclosed in advance or during that year as the Committee considers this information to be commercially sensitive. The actual targets will be disclosed in the following financial year.
Performance-related bonus (in respect of years up to and including 2013) To incentivize executive directors to achieve performance objectives that are directly linked to the Company’s short-term financial and strategic goals. Revenue and profit.	Bonus earned in respect of 2013 was subject to the provisions of the DAB Plan. This was the final operation the DAB Plan. Bonus was split 50% cash and 50% deferred shares based on NOP, total revenue and individual performance. There is compulsory deferral into shares for three years. Bonus matching applies to deferred shares in the range of 0.3 for 1 to 2 for 1 match subject to three year EPS growth of CPI + 4% to CPI +12% p.a.,	Maximum and target bonus opportunity of 150% and 100% of salary respectively.	The targets for 2013 bonus were: 50% of target bonus was dependent on achieving a NOP target of £313.5m** with 0% payout at £257.7m rising in a linear way to 25% at £294.6m. The NOP portion of bonus can continue to accrue.

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growth are regarded as the best drivers most appropriate short-term metrics for continuing the Company’s performance.	respectively. Deferred and any matching shares in relation to 2013 performance will be received in February 2017. Dividend shares are added at vesting*. Provisions exist that could result in immediate forfeiture of shares in the event of dismissal for gross misconduct, as determined by the Committee and at its discretion.		linearly above the target of £313.5m on a straight-line basis, subject to the overall maximum of 150% of base salary. 50% of bonus was dependent on achieving a US$ revenue target of US$1,096m with 0% payout at US$913.2m rising to 25% at US$1,030.1m. The revenue portion of bonus can continue to accrue above the target of US$1,096m so that for every 1% increase in revenue, bonus is increased by 2.5% of the target, subject to the overall maximum of 150% of base salary Bonus amount is then subject to an individual performance multiplier which flexes the payment by 0.75 to 1.25 again subject to the overall maximum of 150% of base salary.
Long-Term Incentive Plan 2013 (first operation in 2014) To incentivize executive directors to achieve performance objectives that are directly linked to the Company’s long- term financial and strategic goals. To align executive directors’ interests with shareholders through the performance conditions	Annual conditional share awards are made at 187.5% of base salary with the ability for vesting of between 0% to 200% after three years dependent on achievement of the performance conditions, with a maximum of 375% of base salary. 50% of the vested shares will be subject to additional holding periods with 25% released after four years and the remaining	Maximum limit of 600% in exceptional circumstances as determined by the Committee. By way of example, exceptional circumstances could include the hiring of an exceptional senior executive director in a highly	Vesting is based on: three year growth relative to the FTSE All World Technology Index (25%). three year TSR growth relative to the FTSE 350 (25%). three year EPS growth (50%) with threshold at 15 %

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and share retention obligations .	25% released after five years. During these holding periods shares may not be sold even if the participant has left the Company. Dividend shares are added at vesting. Malus: The Committee has discretion to reduce a share award (including to nil) prior to vesting where there are exceptional circumstances which include a material misstatement in the Company’s published results, misconduct by the executive director that is deemed to have caused or contributed to a material loss as a result of reckless, negligent or willful actions, or inappropriate values or behavior. Clawback: the Committee has discretion to clawback shares and executive directors have an obligation under the Rules to transfer shares or pay over the proceeds of sale in exceptional circumstances (as described above). If sold at less than market value, the obligation is to pay market value at the date of disposal. Clawback would be less any tax and social security paid or due to be paid. The Committee has discretion to set the length of the clawback period which would normally be two years from acquisition of the shares.	competitive market where we need to make an exceptional offer in order to recruit.	annual growth (including CPI) and the upper performance target at 22% annual growth (including CPI). 25% of the respective TSR elements vest for median performance with 100% vesting for upper quintile performance. Similarly 25% of the EPS element vests at threshold performance with 100% vesting at the upper performance target with straight line interpolation between these two points. The Committee will review the performance conditions for new awards annually. The Committee has discretion to waive or change a performance condition if anything happens that causes the Committee reasonably to consider it appropriate, provided that any changed performance condition will be no more difficult to satisfy than the original condition was intended to be at the time the award was granted.
Shareholding requirement To align executive	Until 200% of salary is achieved, no more than 50% of shares received through the DAB Plan and LTIP (after the automatic sale of shares to

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directors’ interests with those of shareholders over a longer time period, they are required to build a shareholding of 200% of base salary.	satisfy tax liabilities) can be disposed of. Unvested DAB Plan shares do not count towards the shareholding requirements.
Long-Term Incentive Plan (in respect of years up to and including 2013) To incentivize executive directors to achieve performance objectives that are directly linked to the Company’s long term financial and strategic goals. To align executive directors’ interests with those of the shareholders through the performance conditions and share retention obligations.	Annual conditional awards normally at 100% of salary with the potential for the award to vest at between 0% and 200% of salary for upper decile performance at the end of the three-year performance period. Dividend shares are added at vesting.	Maximum award limit of 400% in exceptional circumstances was never used.	Vesting is based on: Three-year TSR growth relative to the FTSE All World Technology Index (50%). Three-year TSR growth relative to the FTSE 350 (50%). Threshold vesting commencing at median ranking of TSR group (25% of respective TSR elements rising to 100% vesting for an upper decile ranking on a straight-line basis). The Committee has discretion to waive or change a performance condition which cause the Committee to reasonably consider that: (a)   The amended Performance Condition would be a fairer measure of performance and would be no easier to satisfy; or (b)   The Performance Condition should be waived.
Pension To provide pension	10% of base salary for executive directors and 11% for the CEO is paid either into the	11% of base salary.	Not applicable.

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contributions in line with market practice, which will enable directors to plan for retirement.	Group Personal Pension Plan or overseas equivalent, or  as a cash allowance (subject to payroll deductions) for those in excess of the lifetime allowance applicable in the UK.
Other benefits To provide competitive benefits in line with market practice to enable the Company to recruit and retain high caliber executive directors. To reward innovation and invention.	Other benefits are provided appropriate to the location of the executive director and include provision of a car or car and fuel allowance, long term sickness and disability insurance, death in service benefit, healthcare insurance and travel insurance for the executive director and family. Executive directors may also receive patent bonuses in line with the scheme operated by the Company from time to time for patent applications and on grants of patents.	Reasonable market cost of providing benefits. The Committee reserves the discretion to provide such situation-specific benefits as may be required in the interests of the Company’s business, such as relocation. Full details of the exercise of any such discretion would be provided to shareholders in the next remuneration report.	Not applicable.
Overseas benefits/Relocation allowances To provide competitive benefits in line with market practice to enable the Company to recruit and retain high- caliber executive directors and move them to alternative locations when required by the needs of the business.	Executives based in countries outside their home country receive other benefits appropriate to the country in which they are working. In the event that an executive director agrees to move from their home country temporarily the relocation arrangements may include: Housing allowance or settlement of actual costs. Disturbance allowance to enable essential household purchases to be made. Cost of living and transportation allowance for the duration of the assignment . Flights home for executive and family. School fees for executive director’s children. Cost of personal tax advice.	Reasonable market cost of providing benefits for the duration of the term abroad.	Not applicable.

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	Cost of visas for executive and family. Cost of transporting executive and family’s personal effects. Legal and estate agents fees associated with properties in home and overseas locations.
One-off recruitment cash/equity awards To provide an appropriately attractive package to persuade an external hire to accept an offer of employment and/or to buy out equity that would be lost on leaving previous employment.	An award of RSUs or a grant of options may be made under the Employee Equity Plan to a new recruit to compensate for equity awards foregone with previous employer and/or provide equity that vests in the three years prior to potential vesting of the first LTIP award. Alternatively a cash payment or an additional LTIP award may be made to compensate. Payment may be on taking up appointment or to coincide with vesting dates under the previous employer’s plan. Malus and clawback provisions would apply.	The maximum would be a sum equal to the value of equity foregone, taking account of performance conditions attached to the award,  likelihood of vesting and accelerated payment.	The Committee has discretion to determine performance conditions for any award of RSUs, any LTIP award, or any grant of options taking into account of the circumstances of each individual case. Performance conditions would  normally be applied on an equivalent basis to those applicable to awards made to other executive directors in the same calendar year. Performance conditions may, but would not necessarily be applied to any cash payment.
Other Contributory Equity Plans Executive directors are eligible to participate in the share plan applicable to the country where they work. These plans provide an opportunity for executive directors to voluntarily invest in the Company.	ARM currently operates a Save as You Earn Option Scheme in the UK (and some other countries) and an Employee Stock Purchase Plan in the US (and some other countries), which enables employees to buy shares at a discount of up to 20% of market value through regular monthly or fortnightly payroll deductions.	The maximum participation limits will not exceed those set by the relevant tax authorities from time to time.	Not applicable.
Fees for non-executive roles held outside the Company To provide executive directors with opportunities to widen their knowledge and experience of the	Executive directors are permitted to retain any fees paid and/or shares offered in connection with external non-executive roles that they undertake.	The amounts received are disclosed annually.	Not applicable.

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operation of other company boards and committees, they are permitted to hold non-executive positions at other companies.
Non-Executive Directors’ (NED) and Chairman’s fees To attract and retain an appropriately experienced Chairman and independent non-executive directors of suitable caliber to fulfil a range of different roles including, financial expert/Audit Committee Chairman, Senior Independent Director, and other Committee Chairmen. To pay fees that reflect responsibilities and workload undertaken, and which are competitive with peer companies.	NED fees are proposed by the executive directors and approved by the Board as a whole. The Chairman’s fee is proposed by the Committee and approved by the Board as a whole with the Chairman taking no part in the decision. NED appointments are terminable on three months’ notice. Fees are reviewed on an annual basis and take account of fees paid for similar roles by peer companies. The NEDs and the Chairman are not eligible to receive bonuses, pension contributions and nor can they to participate in the LTIP or other equity plans. The overall fees paid to non-executive directors will remain within the limit stated in our Articles of Association, currently £0.5m which we are seeking approval to increase to £1.0m at the 2014 AGM.	Fees are set at an appropriate level taking into account the factors outlined in this table. Additional fees are paid to the SID and Committee Chairmen. An additional fee is paid to NEDs based outside the UK who undertake long haul travel to attend Board meetings in the UK, to reflect the additional time commitment.	Not applicable.
Legacy arrangements (pre 27 June 2012)	None.

* Dividend shares are additional shares added at vesting equal to the amount of dividends that would have been paid during the deferral period for the DAB Plan and LTIP.

** Calculated at the Company budget exchange rate of £1:US$1.60.

In the event of termination of an executive director’s contract of employment, compensation would be based on salary and contractual benefits during the notice period and whether the departing director is accepted to be a good leaver under the rules of the Annual Bonus plan, the 2013 LTIP, the former LTIP, and the former DAB Plan.

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EMPLOYEES

At December 31, 2015, the Company had 3,975 full-time employees, including 1,580 in the UK, 151 in France, 30 in Germany, 117 in Norway, 99 in Sweden, 35 in Ireland, 40 in Hungary, 55 in Finland, 5 in Slovenia, 92 in Israel, 2 in Belgium, 904 in the US, 30 in Japan, 18 in South Korea, 64 in Taiwan, 212 in P.R. China, and 541 in India.

The table below sets forth the number of Company employees by function and by location at year end for the periods indicated:

	At December 31,
	2013		2014		2015
Total		2,833		3,294		3,975
Function
Research and Development		1,987		2,370		2,938
Marketing and Sales		447		486		530
Finance and Administration		399		438		507
Location
Europe		1,541		1,860		2,206
United States		668		713		904
Far East and India		624		721		865

Overall, approximately three-quarters of the Company’s employees have technical degrees and approximately one third of the Company’s employees have advanced technical degrees. The Company’s future success will depend on its ability to attract, retain and motivate highly qualified technical and management personnel who are in great demand in the microprocessor industry. The Company’s employees are not represented by any collective bargaining agreements and the Company has never experienced a work stoppage. The Company believes that its employee relations are good. See “Item 3. Key Information—Risk Factors—We Are Dependent on Our Senior Management Personnel and on Hiring and Retaining Both Qualified Engineers and Experienced Sales and Marketing Personnel” for a discussion of the dependence of the Company on identifying, attracting, motivating and retaining qualified engineers and other personnel.

Item 7. Major Shareholders and Related Party Transactions

MAJOR SHAREHOLDERS

The following table sets forth certain information as at February 15, 2016, with respect to each person who is known by the Company to be the beneficial owner of more than 3% of outstanding shares.

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. As at February 15, 2016 the number of our shares held in the US in the form of ordinary shares or ADSs amounts to approximately half of our total outstanding share capital. We believe that the persons named in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them. The shareholders listed below have the same voting rights as our other shareholders. As far as the Company is aware, it is neither directly nor indirectly owned or controlled by one or more corporations or by any government.

As at February 15, 2016, which is the most recent practicable date prior to the date of this annual report, except as noted below, we are not aware of:

· any arrangements that might lead to a change in control of our business;

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· any person who is interested in 3% or more of our capital; or

· any person who can, will or could directly or indirectly, jointly or severally, exercise control over us.

Beneficial owners (February 15, 2016)	Shares Beneficially Owned (Number)		Percent
Baillie Gifford & Co		134,511,506		9.57
BlackRock, Inc		71,641,045		5.08
Thornburg Investment Management		65,856,520		5.01
Fidelity Management and Research Corporation		67,972,760		4.92
The Capital Group Companies, Inc		42,607,807		3.02

Beneficial owners (February 16, 2015)	Shares Beneficially Owned (Number)		Percent
BlackRock, Inc		71,623,478		5.07
Baillie Gifford & Co		70,361,012		5.01
Thornburg Investment Management		65,856,520		5.01
Fidelity Management and Research Corporation		67,972,760		4.92
Janus Capital Corporation		56,222,881		4.00

Beneficial owners (March 3, 2014)	Shares Beneficially Owned (Number)		Percent
Baillie Gifford & Co		70,530,313		5.05
Thornburg Investment Management		65,856,520		5.01
Fidelity Management and Research Corporation		67,972,760		4.92
The Capital Group Companies, Inc.		58,256,483		4.16
Janus Capital Corporation		42,639,790		3.05

RELATED PARTY TRANSACTIONS

During the year ended December 31, 2015, the Company incurred subscription costs of £7.0 million from Linaro Limited, an associated company (2014: £nil), representing ARM’s committed aggregate contributions to Linaro for a period of two years. In respect of the subscription fees, the Company was invoiced £3.5 million during the year to December 31, 2015 (2014: £3.5 million). As at December 31, 2015, £1.1 million (2014: £1.1 million) was owing to Linaro.

In addition, the Company provided consulting and other services to Linaro amounting to £1.3 million (2014: £1.1 million). All fees have been charged in accordance with the terms of the agreement. As at December 31, 2015, £0.4 million (2014: £0.3 million) was owed to the Company.

There were no other related party transactions during 2015 which require disclosure.

Item 8. Financial Information

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Consolidated financial statements are set forth under “Item 18. Financial Statements.”

LEGAL PROCEEDINGS

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 IP of a third-party. Consistent with such practice, the Company provides such indemnification to its licensees. The obligation for the Company to indemnify its licensees is subject to certain provisos and is usually contingent upon a third-party bringing an action against the licensee alleging that the technology licensed by the Company to the licensee infringes such third-party’s IP rights. The indemnification obligations typically survive any termination of the license and will continue in perpetuity.

The Company 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

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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 reliably estimated. Any such provision is based upon the directors’ estimate of the expected costs of any such claim.

At present, the Company 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 Company. Currently, there are legal proceedings against some of Company’s licensees in which it is asserted that certain of the Company’s technology infringes third-party patents, but in each of those proceedings the Company 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 Company does not believe that it is probable that the resolution of such proceedings will result in a material liability for the Company. If preconditions to indemnification are satisfied then an indemnification obligation may arise which could result in a material liability for the Company.

DIVIDEND DISTRIBUTION POLICY

The directors recommend payment of a final dividend in respect of 2015 of 5.63 pence per share which, taken together with the interim dividend of 3.15 pence per share paid in October 2015, gives a total dividend in respect of 2015 of 8.78 pence per share, an increase of 25% over 7.02 pence per share in 2014 following a 23% increase from 5.70 pence in 2013. Subject to shareholder approval at the AGM on April 28, 2016, the final dividend will be paid on May 13, 2016 to shareholders on the register on April 22, 2016.

It is the Board’s intention to increase the dividend over time, taking into account the opportunity for continued investment in the business and the Company’s underlying operational performance.

SIGNIFICANT CHANGES

We have not experienced any significant changes since the date of the annual financial statements.

Item 9. Listing Details

The information in this section has been extracted from publicly available documents from various sources, including officially prepared materials from the London Stock Exchange and the NASDAQ National Market and has not been prepared or independently verified by us. This is the latest available information to our knowledge.

MARKET PRICE INFORMATION

Shares

The Company’s ordinary shares were listed on the London Stock Exchange in April 1998 under the symbol ARM. The London Stock Exchange is the principal trading market for the Company’s ordinary shares.

The following table sets forth, for the periods indicated, the high and low closing prices of the ordinary shares reported on the London Stock Exchange:

	Price per share (£)
		High	Low
Annual prices:
2011		6.51	4.38
2012		7.83	4.69
2013		11.10	7.59
2014		10.95	8.06
2015		12.05	8.49
Quarterly prices:
2014:
First Quarter		10.95	8.75
Second Quarter		10.47	8.45
Third Quarter		9.86	8.33
Fourth Quarter		9.98	8.06
2015:

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	Price per share (£)
		High	Low
First Quarter		12.05	9.44
Second Quarter		12.01	10.37
Third Quarter		10.63	8.49
Fourth Quarter		11.35	9.33
2016:
First Quarter (through February 15, 2015)		10.15	8.61
Monthly prices:
August 2015		9.94	8.49
September 2015		9.82	9.14
October 2015		10.73	9.33
November 2015		11.24	10.32
December 2015		11.35	10.19
January 2016		10.15	9.33
February 2016 (through February 15, 2016)		10.11	8.61

ADSs

The Company’s ordinary shares were listed in April 1998 on the NASDAQ Stock Market in the US in the form of ADSs, evidenced by American Depositary Receipts, under the symbol ARMH. One of the Company’s ADSs, for which The Bank of New York Mellon is the depositary, represents three ordinary shares.

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The following table sets forth, for the periods indicated, the reported high and low closing prices on the NASDAQ National Market for the outstanding ADSs.

	Price per ADS ($)
		High	Low
Annual prices:
2011		31.63	20.86
2012		38.32	21.70
2013		54.83	35.17
2014		54.01	39.28
2015		54.63	39.93
Quarterly prices:
2014:
First Quarter		54.01	43.80
Second Quarter		52.82	42.83
Third Quarter		49.24	42.05
Fourth Quarter		46.86	39.28
2015:
First Quarter		54.63	43.23
Second Quarter		54.29	48.84
Third Quarter		49.25	39.93
Fourth Quarter		50.96	42.82
2016:
First Quarter (through February 15, 2015		44.41	37.62
Monthly prices:
August 2015		45.92	39.93
September 2015		45.29	41.26
October 2015		49.16	42.82
November 2015		50.70	46.95
December 2015		50.96	45.24
January 2016		44.41	39.64
February 2016 (through February 15, 2016)		44.15	37.62

Item 10. Additional Information

CORPORATE GOVERNANCE

Differences in our corporate governance and NASDAQ corporate governance practices

As a NASDAQ-listed foreign private issuer, we are permitted to follow home country practices in lieu of certain of NASDAQ’s corporate governance requirements. We must disclose any significant ways in which our corporate governance practices differ from the NASDAQ listing standards. We believe the following to be the significant differences between our corporate governance practices and NASDAQ corporate governance rules applicable to US companies.

Independent Directors

Nasdaq listing standards require that a majority of the company's board of directors be comprised of independent directors. The UK Corporate Governance Code 2014 requires that at least half the Board excluding the Chairman should comprise independent non-executive directors and the Board currently comprises three executive directors, six independent non-executive directors and the Chairman. In accordance with the Combined Code, the Chairman of the Board of Directors is not considered independent although he was regarded as independent at the time of his appointment.

The Board has considered the overall balance between executive and non-executive directors and believes that the number of executive directors is fully justified by the contribution made by each of them.

Nomination of Directors. NASDAQ listing standards require that nominees to a company’s board of directors be selected, or recommended for the board’s selection, either by a majority of the company’s independent

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directors or by a nomination committee comprised solely of independent directors. The nomination committee leads the process for board appointments and makes recommendations to the board in relation to new appointments of executive and non-executive directors and on succession planning, board composition and balance. It is chaired by Stuart Chambers, Chairman of the Board of Directors, and the other members are Kathleen O’Donovan (retired December 31, 2015), Andy Green and John Liu.

Shareholder Approval

Stock option plans. NASDAQ listing standards require listed companies to obtain shareholder approval before a stock option or purchase plan is established or materially amended or other equity compensation arrangement is made pursuant to which stock may be acquired by officers, directors, employees or consultants of the Company, subject to certain exceptions. The Company’s directors may amend the Schemes and Plans, except that any amendment relating to the identity of option holders, the limitations on their benefits, the number of shares which may be issued under the Schemes and Plans, the basis for determining an option holder’s entitlement to shares (other than provided for in accordance with the rules) or the adjustment of rights for option holders in the event of a variation in share capital may not be made to the advantage of option holders without prior approval of the shareholders of the Company in general meeting, except for minor amendments relating to tax and administrative matters. Amendments to the UK Approved Executive Scheme and the SAYE Scheme are subject to the prior approval of the HM Revenue and Customs, while they are to retain their approved status.

Other transactions. NASDAQ listing standards require listed companies to obtain shareholder approval prior to the issuance of securities in certain circumstances related to a change of control of the issuer, the acquisition of the stock or assets of another company under certain circumstances and in connection with certain transactions involving the sale, issuance or potential issuance of 20% or more of common stock or voting power of the issuer. As a foreign private issuer, the Company complies with corporate governance practices customary in its home jurisdiction, the United Kingdom. While not dealing directly with the transactions enumerated in the NASDAQ listing requirements, there are various provisions requiring shareholder vote, which can best be summarized as follows.

Under the Listing Rules of the UK Financial Conduct Authority, shareholder approval is usually required for an acquisition or disposal by a listed company if, generally, the size of the company or business to be acquired or disposed of represents 25% or more of the assets, profits or gross capital of the listed company or if the consideration to be paid represents 25% or more of the aggregate market value of the listed company’s equity shares. Shareholder approval may also be required for an acquisition or disposal of assets between a listed company and parties, including: (a) directors or shadow directors of the company or its subsidiaries; (b) any person who is, or was in the last 12 months preceding the date of the transaction, a holder of 10% or more of the nominal value of any class of the company’s or any holding company’s or its subsidiary’s shares having the right to vote in all circumstances at general meetings; or (c) any of the associates of persons described in (a) or (b).

Quorum

NASDAQ rules require that the quorum for any meeting of shareholders must not be less than 33⅓% of the outstanding shares of a company’s common voting stock. We comply with the relevant quorum standards applicable to companies in the UK, as set forth in our Articles of Association summarized below.

Independent by Regulatory Body

The Company’s auditors are registered with the US Public Company Accounting Oversight Board and, therefore, are subject to its inspection regime.

ARTICLES OF ASSOCIATION

The following summarizes certain rights of holders of shares. The following summary does not purport to be complete and is qualified in its entirety by reference to the Articles of Association of the Company.

Shareholder Meetings

An AGM of shareholders must be held once in every year (within the period of six months after the end of the Company’s financial year). The Board of Directors may convene an Extraordinary General Meeting of shareholders whenever they think fit. General meetings may be held at such time and place as may be determined by the Board of Directors. An Annual General Meeting may be convened on at least 21 days’ written notice to shareholders entitled to receive notices. Following the passing of a special resolution at

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the 2013 AGM, an Extraordinary General Meeting for any purpose can be convened on 14 days’ written notice. The Company may determine that only those persons entered on the register at the close of business on a day determined by the Company, such day being no more than 21 days before the day the notice of the meeting is sent, shall be entitled to receive such a notice. Three shareholders must be present in person or by proxy to constitute a quorum for all purposes at general meetings.

Voting Rights

Subject to disenfranchisement in the event of (i) non-payment of any call or sum due and payable in respect of any ARM ordinary share or (ii) a shareholder, or other person interested in ARM ordinary shares held by a shareholder, being in default for a period of 14 days of a notice requiring them to supply ARM with information under Section 793 of the UK Companies Act 2006, on a show of hands every shareholder who is present in person or by proxy or by representative has one vote and, on a poll, every shareholder present in person or by proxy or by representative has one vote for each share held. In the case of joint holders of ordinary shares the vote of the person whose name stands first in the share register in respect of the shares who tenders a vote, whether in person or by proxy, is accepted to the exclusion of any votes tendered by any other joint holders.

Voting at any general meeting is by a show of hands or by poll. A poll is required for any special resolution which is proposed. A poll may be demanded by (i) the chairman of the meeting, (ii) not less than five shareholders present in person or by proxy and entitled to vote, (iii) any shareholder or shareholders present in person or by proxy and representing not less than one-tenth of the total voting rights of all shareholders having the right to vote at such meeting or (iv) any shareholder or shareholders present in person or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right. Where a poll is not demanded, the interests of beneficial owners of shares who hold through a nominee, such as a holder of an ADR, may not be reflected in votes cast on a show of hands if such nominee does not attend the meeting or receives conflicting voting instructions from different beneficial owners for whom it holds as nominee. A nominee such as a depositary is able to appoint any ADR holder as its proxy in respect of the ADR holders’ underlying ordinary shares. Since under English law voting rights are only conferred on registered holders of shares, a person holding through a nominee may not directly demand a poll unless such person has been appointed as the nominee’s proxy with respect to the relevant meeting. In line with UK corporate governance best practice, all resolutions set out in the Circular and Notice of the 2014 AGM will be decided on a poll.

Unless a special resolution is required by law or the Articles (see below), voting in a general meeting is by ordinary resolution. An ordinary resolution (e.g., a resolution for the election of directors, the approval of financial statements, the declaration of a final dividend, the appointment of auditors or the grant of authority to allot shares), in the case of a vote by show of hands, requires the affirmative vote of a majority of the shareholders present in person or by proxy who vote on the resolution, or, on a poll, a majority of the votes actually cast by those present in person or by proxy. A special resolution (e.g., a resolution amending the Articles of Association, changing the name of the Company or waiving the statutory pre-emption rights which would otherwise apply to an allotment of equity securities to be paid up wholly in cash), the voting for which must be taken on a poll, requires at least three-fourths of the votes actually cast on the resolution by those present in person or by proxy.

The Articles of Association provide that holders of American Depositary Receipts (“ADRs”) are entitled to attend, speak and vote on a poll or show of hands, at any general meeting of the Company following appointment by The Bank of New York Mellon, as the depositary, as proxies in respect of the underlying ordinary shares represented by the ADRs. Each such proxy may also appoint a substitute proxy. Alternatively, holders of ADRs are entitled to vote on a poll by supplying their voting instructions to the depositary, who will vote the ordinary shares underlying their ADRs on their behalf.

Directors

A director shall not vote in respect of any contract or arrangement in which he has, or can have, a direct or indirect interest and shall not be counted in the quorum at a meeting in relation to any resolution on which he is not entitled to vote. Subject to the provisions of law, a director shall (in the absence of some other material interest) be entitled to vote and be counted in the quorum in respect of any resolution concerning the giving of any security, guarantee or indemnity in respect of money lent or obligations incurred by him or by any other person for the benefit of the Company or any of its subsidiaries or in respect of any debt or other obligation of the Company or its subsidiaries for which he himself has assumed responsibility under a guarantee or indemnity or by the giving of security. A director shall also (in the absence of some other material interest) be entitled to vote and be counted in the quorum in respect of any resolution regarding an offer of shares or other securities of

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or by the Company or any of its subsidiaries in which offer he is or may be entitled to participate, subject to the provisions of law.

A director shall not be required to retire by reason of his having attained any particular age, and any provision of law which would have the effect of rendering any person ineligible for appointment or election as a director or liable to vacate office as a director on account of his having reached any specified age or of requiring special notice or any other special formality in connection with the appointment or election of any director over a specified age, shall not apply to the Company. A director shall not be required to hold any shares of the Company by way of qualification.

Dividends

The Company may by ordinary resolution declare dividends but no such dividend shall exceed the amount recommended by the directors. If and so far as in the opinion of the directors the profits of the Company justify such payments, the directors may also, from time to time, pay interim dividends of such amounts and on such dates and in respect of such periods as they think fit. The directors may also pay fixed dividends on any class of shares carrying a fixed dividend expressed to be payable on fixed dates on the dates prescribed for the payment thereof. Subject to the extent that rights attached to any shares or the terms of issue thereof provide otherwise, all dividends shall be apportioned and paid proportionately to the amounts paid up during any portion or portions of the period in respect of which the dividend is paid. No amount paid on a share in advance of calls shall be treated as paid on the share. Dividends may be paid in such currency as the Board of directors may decide; however, the Company intends to pay cash dividends denominated in pounds sterling.

No dividend shall be paid otherwise than out of profits available for distribution (determined in accordance with the provisions of the UK Companies Act 2006). No dividend or other moneys payable on or in respect of a share shall bear interest as against the Company. Any dividend unclaimed after a period of 12 years from the date on which such dividend was declared, or became due for payment, shall be forfeited and shall revert to the Company. With the sanction of an ordinary resolution and the recommendation of the Board of Directors, payment of any dividend may be satisfied wholly or in part by the distribution of specific assets and in particular of paid-up shares or debentures in any other company. The Board of directors may, if authorized by an ordinary resolution, offer a scrip dividend to ordinary shareholders.

Winding Up

If the Company shall be wound up, the liquidator may, with the authority of a special resolution of the Company: (i) divide amongst the members in specie or in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and, for that purpose, set such value as he deems fair upon any property to be divided and determine how the division shall be carried out between the members; or (ii) vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator shall think fit; but no member shall be compelled to accept any shares or other property in respect of which there is a liability.

Issues of Shares and Pre-emptive Rights

Without prejudice to any special rights previously conferred on the holders of any issued shares or class of shares, any share in the Company may be issued with such preferred, deferred or other special rights, or subject to such restrictions, whether as regards dividend, return of capital, voting or otherwise, as an ordinary resolution of a general meeting of shareholders may from time to time determine (or, in the absence of any such determination, as the Board of directors may determine). The Company may issue redeemable shares provided that there are shares outstanding at the time which are not redeemable at the relevant time.

Subject to the provisions of the UK Companies Act 2006 relating to authority, pre-emption rights and otherwise and of any resolution of the Company in general meeting, all unissued shares shall be at the disposal of the directors and they may allot (with or without conferring a right of renunciation), grant options over or otherwise dispose of them to such persons, at such times and on such terms as they think proper.

The UK Companies Act 2006 confers on shareholders, to the extent not disapplied, rights of pre-emption in respect of the issue of equity securities that are, or are to be, paid up wholly in cash. The term “equity securities” means: (i) shares other than shares which, with respect to dividends and capital, carry a right to participate only up to a specified amount in a distribution and other than shares allotted pursuant to an employees’ shares scheme; and (ii) rights to subscribe for, or to convert securities into, such shares. These provisions may be disapplied by a special resolution of the shareholders, either generally or specifically, for a maximum period not exceeding five years.

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Subject to the restrictions summarized below and to the passing of a resolution to renew the directors’ authority to allot at the 2016 AGM, the directors will be generally and unconditionally authorized for the purpose of Section 551 of the UK Companies Act 2006 to exercise all or any powers of the Company to allot relevant securities (within the meaning of that Section) up to an aggregate nominal amount of £232,595.50 (i.e., a total of 465,191,084 shares). In addition to this general authority to allot relevant securities, in connection with a rights issue by the Company, the directors will also be authorized to allot an additional aggregate nominal amount of relevant securities of up to £70,483.50 (i.e., a total of 140,966,995 shares). Both allotment authorities will continue for a period expiring (unless previously renewed, varied or revoked by the Company in general meeting) on the earlier of the end of the AGM of the Company held in 2017 or June 30, 2017 (on terms that, during such period, the Company may make an offer or agreement which would or might require relevant securities to be allotted after the expiry of such period).

Subject to the passing of a resolution at the 2016 AGM, the directors will be empowered pursuant to Section 561 of the UK Companies Act 2006 to allot equity securities (within the meaning of Section 560(1) of the UK Companies Act 2006) for cash pursuant to the authorities described above as if Section 561 of the UK Companies Act 2006 did not apply to any such allotment (on terms that the Company may make an offer or agreement which would or might require equity securities to be allotted after the expiry of such authority), such power to be limited to (a) allotments of equity securities up to an aggregate nominal amount equal to 33% of the issued share capital of the Company in connection with an offer of such securities open for acceptance for a period fixed by the directors to holders of shares on the register on the record date fixed by the directors in proportion to their prospective holdings, but subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to fractional entitlements or legal or practical problems under the laws of, or the requirements of any recognized regulatory body or any stock exchange, in any territory; (b) allotments of equity securities up to a further aggregate nominal amount equal to 33% of the issued share capital of the Company in connection with an offer to holders of shares in proportion (as nearly as may be practicable) to their existing holdings to subscribe further securities by means of the issue of a renounceable letter (or other negotiable document) which may be traded for a period before payment for the securities is due, but subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates or legal, regulatory or practical problems in, or under the laws of, any territory; and (c) allotments (otherwise than as described in (a) or (b) above) of equity securities for cash up to an aggregate nominal amount equal to 10% of the issued share capital of the Company.

Transfer of Shares

Any holder of ordinary shares which are in certificated form may transfer in writing all or any of such holder’s shares in any usual or common form or in any other form which the directors may approve and may be made under hand only. The instrument of transfer of a share which is in certificated form shall be signed by or on behalf of the transferor and (except in the case of fully paid shares which are in certificated form) by or on behalf of the transferee. All instruments of transfer which are registered may be retained by the Company. All transfers of shares which are in uncertificated form may be effected by means of the CREST settlement system.

The directors may in their absolute discretion, and without assigning any reason therefore, refuse to register any transfer of shares (not being fully paid shares) which are in certificated form provided that, where such shares are admitted to the Official List maintained by the UK Listing Authority, such discretion may not be exercised in such a way as to prevent dealings in the shares of that class on a proper and open basis. The directors may also refuse to register an allotment or transfer of shares (whether fully paid or not) to more than four persons jointly. The directors may also refuse to register a transfer of shares which are in certificated form unless the instrument of transfer is both (i) in respect of only one class of shares and (ii) lodged at the transfer office accompanied by the relevant share certificate(s) and such other evidence as the directors may reasonably require to show the right of the transferor to make such transfer.

Disclosure of Interests

Chapter 5 of the Disclosure and Transparency Rules published by the Financial Conduct Authority provides that if the percentage of voting rights that a person (including a company and other legal entities) holds directly or indirectly as a shareholder or through other financial instruments (such as derivatives) exceeds 3% of the voting rights attached to all shares (whether or not the voting rights are suspended and including voting rights held through ADRs) is required to notify the company of its interest within two trading days following the day on which the notification obligation arises. After the 3% level is exceeded, similar notifications must be made in respect of increases or decreases of 1% or more.

For the purposes of the notification obligation, a person is an indirect holder of voting rights to the extent that it is able to acquire, dispose of or exercise voting rights in any of the following cases: (i) voting rights held

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by a third-party with whom that person has concluded an agreement, which obliges them to adopt, by concerted exercise of the voting rights they hold, a lasting common policy towards the management of the issuer in question; (ii) voting rights held by a third-party under an agreement concluded with that person providing for the temporary transfer for consideration of the voting rights in question; (iii) voting rights attaching to shares which are lodged as collateral with that person provided that person controls the voting rights and declares its intention of exercising them; (iv) voting rights attaching to shares in which that person has the life interest; (v) voting rights which are held, or may be exercised within the meaning of points (i) to (iv) or, in points (vi) and (viii) by a firm undertaking investment management, or by a management company, by an undertaking controlled by that person; (vi) voting rights attaching to shares deposited with that person which the person can exercise at its discretion in the absence of specific instructions from the shareholders; (vii) voting rights held by a third-party in his own name on behalf of that person; and (viii) voting rights which that person may exercise as a proxy where that person can exercise the voting rights at his discretion in the absence of specific instructions from the shareholders.

Certain interests (e.g., those held by certain investment fund managers) may be disregarded for the purposes of calculating the 3% threshold, but the disclosure obligation will still apply where such interests exceed 5% or 10% or more of voting rights, and to increases or decreases of 1% or more at above the 10% threshold.

In addition, Section 793 of the UK Companies Act 2006 gives the Company the power by written notice to require a person whom the Company knows or has reasonable cause to believe to be, or to have been at any time during the three years immediately preceding the date on which the notice is issued, interested in its voting shares to confirm that fact or to indicate whether or not that is the case and, where such person holds or during the relevant time had held an interest in such shares, to give such further information as may be required relating to such interest and any other interest in the shares of which such person is aware.

Where any such notice is served by a company under the foregoing provisions on a person who is or was interested in shares of the company and that person fails to give the company any information required by the notice within the time specified in the notice, the company may apply to the English court for an order directing that the shares in question be subject to restrictions prohibiting, among other things, any transfer of those shares, the exercise of the voting rights in respect of such shares, the taking up of rights in respect of such shares and, other than in liquidation, payments in respect of such shares. In this context, the term “interest” is widely defined and will generally include an interest of any kind whatsoever in voting shares, including the interest of a holder of an ADR.

A person who fails to fulfil the obligations imposed by Chapter 5 of the Disclosure and Transparency Rules may be subject to a penalty by the Financial Conduct Authority. The Financial Conduct Authority may use its powers to ensure that the relevant information is disclosed to the Company (and to the market) and may order that information be disclosed to it. A person who fails to fulfil the obligations imposed by Section 793 of the UK Companies Act 2006 described above is subject to criminal penalties.

Restrictions on Voting

No shareholder shall, unless the directors otherwise determine, be entitled in respect of any share held by him to vote either personally or as a proxy if any call or other sum payable by him to the Company in respect of that share remains unpaid.

If a shareholder, or a person appearing to be interested in shares held by such shareholder, has been duly served with a notice under Section 793 of the UK Companies Act 2006 (as described above), and is in default for a period of 14 days in supplying to the Company the information thereby required, then (unless the directors otherwise determine) the shareholder shall not (for so long as the default continues) nor shall any transferee to whom any such shares are transferred (other than pursuant to an approved transfer (as defined in the Articles) or pursuant to the paragraph below), be entitled to attend or vote either personally or by proxy at a shareholders’ meeting or exercise any other right conferred by membership in relation to shareholders’ meetings in respect of the shares in relation to which the default occurred (“default shares”) or any other shares held by the shareholder.

Where the default shares represent 0.25% or more of the issued shares of the class in question, the directors may by notice to the shareholder direct that any dividend or other money which would otherwise be payable on the default shares shall be retained by the Company without liability to pay interest and the shareholder shall not be entitled to elect to receive shares in lieu of dividends and/or that no transfer of any of the shares held by the shareholder shall be registered unless transfer is an approved transfer or the shareholder is not himself in default in supplying the information required and the transfer is of part only of the shareholders holdings and is accompanied by a certificate given by the shareholder in a form satisfactory to the directors to the effect that

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after due and careful inquiry the shareholder is satisfied that none of the shares which are the subject of the transfer are default shares. In the case of shares in uncertificated form, the directors may only exercise their discretion not to register a transfer if permitted to do so under the UK Uncertificated Securities Regulations 2001. Any direction notice may treat shares of a member in certificated and uncertificated form as separate holdings and either apply only to the former or to the latter or make different provisions for the former and the latter.

Alteration of Share Capital

The Company may from time to time by ordinary resolution of its shareholders:

(i) increase its share capital by the creation of new shares of such amount as the resolution shall prescribe;

(ii) consolidate and divide all or any of its share capital into shares of larger amounts than its existing shares;

(iii) cancel any shares which, at the date of the passing of the resolution, have not been taken, or agreed to be taken, by any person and diminish the amount of its capital by the amount of the shares so canceled;

(iv) subdivide its shares, or any of them, into shares of smaller amount than is fixed by the Memorandum of Association so that the resolution in question may determine that one or more of the shares in question may have preferred, deferred or other special rights, or be subject to any such restrictions, as the Company has power to attach to unissued or new shares; and

(v) subject to the provisions of the UK Companies Act 2006:

by ordinary resolution, purchase all or any of its shares of any class; and

by special resolution, reduce its share capital, any capital redemption reserve and any share premium account or other undistributable reserve in any way.

The following resolution was passed at the 2015 AGM:

That the Company be and is hereby unconditionally and generally authorized for the purpose of Section 701 of the UK Companies Act 2006 to make market purchases (as defined in Section 693(4) of that Act) of ordinary shares of 0.05 pence each in the capital of the Company provided that:

(a) the maximum number of shares which may be purchased is 141,146,510;

(b) the minimum price which may be paid for each share is 0.05 pence;

(c) the maximum price (excluding expenses) which may be paid for any ordinary share is an amount equal to 105% of the average of the closing mid-market price of the Company’s ordinary shares as derived from the Daily Official List of the London Stock Exchange plc for the five business days immediately preceding the day on which such share is contracted to be purchased; and

(d) this authority shall expire at the conclusion of the AGM of the Company held in 2016 or, if earlier, on June 30, 2016 (except in relation to the purchase of shares the contract for which was concluded before the expiry of such authority and which might be executed wholly or partly after such expiry) unless such authority is renewed prior to such time.

The following resolution is proposed for approval by shareholders at the 2016 AGM:

That the Company be and is hereby unconditionally and generally authorized for the purpose of Section 701 of the UK Companies Act 2006 to make market purchases (as defined in Section 693(4) of that Act) of ordinary shares of 0.05 pence each in the capital of the Company provided that:

(a) the maximum number of shares which may be purchased is 140,966,995;

(b) the minimum price which may be paid for each share is 0.05 pence;

(c) the maximum price (excluding expenses) which may be paid for any ordinary share is an amount equal to 105% of the average of the closing mid-market price of the Company’s ordinary shares as derived

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from the Daily Official List of the London Stock Exchange plc for the five business days immediately preceding the day on which such share is contracted to be purchased; and

(d) this authority shall expire at the conclusion of the AGM of the Company held in 2017 or, if earlier, on June 30, 2017 (except in relation to the purchase of shares the contract for which was concluded before the expiry of such authority and which might be executed wholly or partly after such expiry) unless such authority is renewed prior to such time.

Reserves

The directors may from time to time set aside out of the profits of the Company and carry to reserve such sums as they think proper which, at the discretion of the directors, shall be applicable for any purpose to which the profits of the Company may properly be applied and pending such application may either be employed in the business of the Company or be invested. The directors may divide the reserve into such special funds as they think fit and may consolidate into one fund any special funds or any parts of any special funds into which the reserve may have been divided. The directors may also without placing the same to reserve, carry forward any profits.

Capitalization of Profits and Reserves

The directors may, with the sanction of an ordinary resolution of the Company, capitalize any sum standing to the credit of any of the Company’s reserve accounts (including any share premium account, capital redemption reserve or other undistributable reserve) or any sum standing to the credit of its profit and loss account. Such capitalization shall be effected by appropriating such sum to the holders of ordinary shares on the register on the date of the resolution (or such other date as may be specified therein or determined as therein provided) in proportion to their then holdings of ordinary shares and applying such sum in paying up in full unissued ordinary shares (or, subject to any special rights previously conferred on any shares or class of shares for the time being issued, unissued shares of any other class). The directors may do all acts and all things considered necessary for the purpose of such capitalization, with full power to the directors to make such provisions as they think fit in respect of fractional entitlements which would arise on the basis aforesaid (including provisions whereby fractional entitlements are disregarded or the benefit thereof accrues to the Company rather than to the members concerned). The directors may authorize any person to enter into, on behalf of all the members, an agreement with the Company providing for any such capitalization and matters incidental thereto, and any such agreement shall be effective and binding on all concerned.

MATERIAL CONTRACTS

Service Agreements

Executive directors (as referred to in “Item 6. Directors, Senior Management and Employees”) have service contracts that may be terminated by either party on one year’s notice. These agreements provide for each of the executive directors to provide services to the Company on a full-time basis. The agreements contain restrictive covenants for periods of three or six months following termination of employment relating to non-competition, non-solicitation of the Company’s customers, non-dealing with customers and non-solicitation of the Company’s suppliers and employees. In addition, each employment agreement contains an express obligation of confidentiality in respect of the Company’s trade secrets and confidential information and provides for the Company to own any IP rights created by the executives in the course of their employment.

The service contracts for each of Mr. Kennedy, Mr. Muller, Mr. Score and Mr. Segars, all of whom served as directors during the financial year, are as described above. Mr. Kennedy’s contract is dated January 17, 2015, Mr. Muller’s contract is dated January 31, 1996, Mr. Score’s contract is dated March 1, 2002 and Mr. Segars’ contract is dated July 17, 2014.

EXCHANGE CONTROLS

There are currently no government laws, decrees or regulations in the United Kingdom that restrict the export or import of capital, including, but not limited to, UK foreign exchange controls on the payment of dividends, interest or other payments to non-resident holders of the shares.

TAXATION

The following is a discussion of material US federal and UK tax consequences of the ownership and disposition of shares or ADSs by a beneficial owner of shares or ADSs that for US federal income tax purposes

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(i) is a citizen or individual resident of the United States, a corporation or other entity taxable as a corporation, created or organized under the laws of the United States, state therein or the District of Columbia, or an estate or trust the income of which is subject to US federal income tax regardless of its source, and (ii) owns such shares or ADSs as capital assets (a “US Holder”).

Except where expressly stated otherwise, this discussion does not address the tax consequences to a US Holder (i) that is resident in the United Kingdom for UK tax purposes or that is subject to UK taxation by virtue of carrying on a trade, profession or vocation in the United Kingdom, (ii) to whom, in the case of an individual, “split year” treatment applies for UK tax purposes, or (iii) that is a person which alone or together with one or more associated person owns, directly or indirectly, 10% or more of the voting stock of the Company. This discussion is not exhaustive of all possible tax considerations that may be relevant in the particular circumstances of each US Holder, including alternative minimum tax consequences and the potential application of the provisions of the US Internal Revenue Code known as the Medicare contribution tax. In addition, it does not address all tax considerations that may be relevant to all categories of holders, some of whom may be subject to special rules, such as (i) certain financial institutions, (ii) insurance companies, (iii) dealers and traders in securities or foreign currencies, (iv) persons holding shares or ADSs as part of a hedge, straddle, conversion transaction or other integrated transaction, (v) persons whose functional currency for US federal income tax purposes is not the US dollar, (vi) partnerships or other entities classified as partnerships for US federal income tax purposes, (vii) tax-exempt organizations, or (viii) persons who acquired shares or ADSs pursuant to the exercise of any employee stock option or otherwise as compensation or in connection with an employment. Shareholders and ADS holders are advised to satisfy themselves as to the tax consequences, including the consequences under foreign, US federal, state and local laws applicable in their own particular circumstances, of the ownership and disposition of shares or ADSs by consulting their tax advisers.

The statements regarding US and UK tax laws and practices set forth below, including the statements regarding the US / UK double taxation convention relating to income and capital gains (the “Treaty”) and the US / UK double taxation convention relating to estate and gift taxes (the “Estate Tax Treaty”), are based on those laws and practices and the Treaty and the Estate Tax Treaty as in force and as applied in practice on the date of this annual report. These laws and practices and the Treaty and the Estate Tax Treaty are subject to change subsequent to the date of this annual report, possibly on a retroactive basis. This discussion is further based in part upon representations by the depositary and assumes that each obligation provided for in, or otherwise contemplated by, the deposit agreement between the Company and The Bank of New York Mellon and any related agreement will be performed in accordance with its respective terms. In general, US Holders of ADSs will be treated as owners of the shares underlying their ADSs for US federal income tax purposes. Accordingly, except as noted, the US federal and UK tax consequences discussed below apply equally to US Holders of ADSs and shares.

The US Treasury has expressed concerns that parties to whom ADSs are released before shares are delivered to the depositary (“pre-release”), or intermediaries in the chain of ownership between holders and the issuer of the shares underlying the ADSs, may be taking actions that are inconsistent with the claiming of foreign tax credits by US holders of ADSs. Such actions would also be inconsistent with the claiming of the favorable tax rates, described below, applicable to dividends received by certain non-corporate holders. Accordingly, the availability of the favorable tax rates for dividends received by certain non-corporate US Holders, as described below, could be affected by actions taken by parties to whom the ADSs are pre-released or such intermediaries.

Taxation of Dividends

Under current UK tax law, no withholding tax will be deducted from dividends paid by the Company.

For US federal income tax purposes, subject to the passive foreign investment company (“PFIC”) rules described below, distributions paid on ADSs or shares, other than certain pro rata distributions of shares, will be treated as dividends to the extent paid out of the Company’s current or accumulated earnings and profits as determined under US federal income tax principles. Because the Company does not maintain calculations of its earnings and profits under US federal income tax principles, it is expected that distributions generally will be reported to US Holders as dividends. Dividends paid in pounds sterling will be included in a US Holder’s income, in a US dollar amount calculated by reference to the exchange rate in effect on the date that the depositary, in the case of ADSs, or US Holder, in the case of shares, actually or constructively receives the dividend, regardless of whether the payment is in fact converted into US dollars on such date. If the dividend is converted into US dollars on the date of receipt, a US Holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. A US Holder may have foreign currency gain or loss if the dividend is converted into US dollars after the date of receipt.

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Subject to applicable limitations and the discussion above regarding concerns expressed by the US Treasury, dividends paid to certain non-corporate US Holders may be taxable at rates applicable to long-term capital gains. US Holders should consult their tax advisers regarding the availability of these favorable tax rates on dividends in their particular circumstances. Dividends will not be eligible for the dividends received deduction generally allowed to US corporations under the Internal Revenue Code.

Taxation of Capital Gains

Subject to the comments set out below in relation to temporary non-residents, a US Holder not resident in the UK will not ordinarily be liable for United Kingdom taxation on capital gains realized on the disposition of such US Holder’s shares or ADSs. However, if in the case of a corporate US Holder, such US Holder carries on a trade in the United Kingdom through a permanent establishment or, in the case of any other US Holder, such US Holder carries on a trade, profession or vocation in the United Kingdom through a branch or agency and such shares or ADSs are, or have been, used, held or acquired by or for the purposes of such trade (or profession or vocation), permanent establishment, branch or agency, such US Holder may, depending on the circumstances, be liable for UK tax on a gain realized on disposal of such holder’s shares or ADSs.

An individual US Holder who ceases to be resident for UK tax purposes in the United Kingdom for a period of five years or less and who disposes of shares or ADSs during that temporary period of non-residence may, when that individual returns to the United Kingdom, be liable to UK tax on gains arising during the temporary period of non-residence, subject to any available exemption or relief.

A US Holder will generally recognize gain or loss for US federal income tax purposes on the sale or exchange of shares or ADSs in an amount equal to the difference between the amount realized and such holder’s adjusted tax basis in the shares or ADSs (in each case as determined in US dollars). Subject to the PFIC rules discussed below, such gain or loss will be long-term capital gains or loss if the US Holder held the shares or ADSs for more than one year. The gain or loss will generally be US-source for foreign tax credit purposes. The deductibility of capital losses may be subject to limitations.

PFIC Rules

The Company believes that it was not a PFIC for US federal income tax purposes for the year ended December 31, 2015. However, since PFIC status depends upon the composition of the Company’s income and assets and the market value of its assets (including, among others, goodwill and equity investments in less than 25% owned entities) from time to time, which may be determined based upon the market value of its shares, which will vary over time and may be especially volatile in a technology-related enterprise such as the Company, there can be no assurance that the Company will not be a PFIC for any taxable year. If the Company were a PFIC for any taxable year during which a US Holder held shares or ADSs, certain adverse consequences could apply to the US Holder.

If the Company were a PFIC for any taxable year during a US Holder’s holding period for the shares or ADSs, gain recognized by such US Holder on a sale or other disposition of the shares or ADSs would be allocated ratably over the US Holder’s holding period for the shares or ADSs. The amounts allocated to the taxable year of the sale or other disposition and to any year before the Company became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate for that taxable year, and an interest charge would be imposed on the tax attributable to the allocated amount. Further, any distribution in respect of ADSs or shares in excess of 125% of the average of the annual distributions on ADSs or shares received by the US Holder during the preceding three years or the US Holder’s holding period, whichever is shorter, would be subject to taxation in the same manner. Certain elections may be available to US persons that would result in alternative treatments (such as a mark-to-market treatment) of the shares or ADSs. Subject to certain exceptions, if a US Holder owns shares or ADSs during any year in which the Company is a PFIC, the US Holder generally must file annual reports on IRS Form 8621 (or any successor form) with respect to the Company, generally with the US Holder’s federal income tax return for that year. US Holders should consult their tax advisers to determine whether any such elections would be available and, if so, what the consequences of the alternative treatments would be in those US Holders’ particular circumstances.

In addition, if the Company were to be a PFIC in a taxable year in which it pays a dividend or the prior taxable year, the favorable rates discussed above applicable to certain dividends paid to certain non-corporate US Holders would not apply. US Holders should consult their tax advisers concerning the potential application of the PFIC rules to their ownership and disposition of the shares and ADSs.

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UK Inheritance Tax

Subject to the discussion of the Estate Tax Treaty in the next paragraph, shares or ADSs beneficially owned by an individual may, depending on the circumstances, be subject to UK inheritance tax on the death of the individual or, in certain circumstances, if the shares or ADSs are the subject of a gift (including a transfer at less than full market value) by such individual. Inheritance tax is not generally chargeable on gifts to individuals made more than seven years before the death of the donor. Special rules apply to shares or ADSs held in a settlement.

Shares or ADSs held by an individual whose domicile is determined to be the United States for purposes of the Estate Tax Treaty, and who is not a national of the United Kingdom, will not be subject to UK inheritance tax on the individual’s death or on a lifetime transfer of the shares or ADSs except where the shares or ADSs (i) are part of the business property of a UK permanent establishment of an enterprise or (ii) pertain to a UK fixed base of an individual used for the performance of independent personal services. The Estate Tax Treaty generally provides a credit against US federal tax liability for the amount of any tax paid in the United Kingdom in a case where the shares or ADSs are subject both to UK inheritance tax and to US federal estate or gift tax.

UK Stamp Duty and Stamp Duty Reserve Tax

Transfers of ADSs are usually effected without recourse to a stampable document and, in any event, are generally executed outside the United Kingdom. For that reason, UK stamp duty is not in practice generally payable on the acquisition or subsequent transfer of an ADS. The acquisition or transfer of an ADS is also not subject to stamp duty reserve tax (“SDRT”).

UK stamp duty and/or SDRT will however, subject to certain exceptions, be payable at an aggregate rate of 1.5% of the amount of consideration or, if none, of the value of the shares (rounded up to the next multiple of £5) on any instrument transferring the shares: (i) to, or to a nominee for, a person whose business is or includes the provision of clearance services; or (ii) to, or to a nominee or agent for, a person whose business is or includes issuing depositary receipts. This includes transfers of shares to the custodian for deposits under the ADS deposit agreement, but excludes an issue of new shares, which, following recent changes, may now be issued to the custodian without incurring any stamp duty or SDRT.

In accordance with the terms of the ADS deposit agreement, any tax or duty payable by the ADS depositary or the custodian on any such transfers of shares in registered form will be charged by the ADS depositary to the party to whom ADSs are delivered against such transfers.

US Information Reporting and Backup Withholding

Payment of dividends and sales proceeds that are made within the United States or through certain US-related financial intermediaries generally are subject to information reporting and backup withholding unless (i) they are received by a corporation or other exempt recipient or (ii) in the case of backup withholding, the recipient provides a correct taxpayer identification number and certifies that it is not subject to backup withholding.

The amount of any backup withholding from a payment to a US Holder will be allowed as a credit against the US Holder’s US federal income tax liability and may entitle such US holder to a refund, provided that the required information is timely furnished to the Internal Revenue Service.

DOCUMENTS ON DISPLAY

The documents concerning us which are referred to herein may be inspected at the Securities and Exchange Commission. You may read and copy any document filed or furnished by us at the SEC’s public reference rooms in Washington D.C., New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the reference rooms.

Item 11. Quantitative and Qualitative Disclosures About Market Risk

FOREIGN CURRENCY EXCHANGE RATE RISK

The Company’s earnings and liquidity are affected by fluctuations in foreign currency exchange rates, principally the US dollar rate, as most of the Company’s revenues and cash receipts are denominated in US dollars while a significant proportion of its costs are in sterling.

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The Company 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 license deals and royalty receipts) in comparison with its requirement to settle certain expenses in US dollars. The fair values of the financial instruments outstanding at December 31, 2013, 2014 and 2015 are disclosed in Note 17 to the Consolidated Financial Statements. The settlement period of the forward contracts outstanding at December 31, 2015 was between January 5, 2016 and December 19, 2016. The settlement period of the option contracts outstanding at December 31, 2015 was between January 19, 2016 and December 30, 2016.

During the fiscal year, the Company was exposed to foreign currency exchange risk inherent in its sales commitments, anticipated sales, anticipated purchases and assets and liabilities denominated in currencies other than sterling. ARM transacts business in approximately eleven foreign currencies worldwide, of which the most significant to the Company’s operations were the US dollar, the Indian Rupee, the Euro and the Chinese Yuan for 2015. Generally, the Company is a net receiver of US dollars, and therefore benefits from a weaker sterling and is adversely affected by a stronger sterling relative to the dollar. It is a net payer of other foreign currencies but at a significantly lower level than the US dollar receivables. The Company has performed a sensitivity analysis at December 31, 2015, 2014 and 2013, using a modeling technique that measures the changes in the fair values arising from a hypothetical 10% adverse movement in the levels of foreign currency exchange rates relative to sterling with all other variables held constant. The analysis covers all of the Company’s foreign currency contracts offset by the underlying exposures. The foreign currency exchange rates used were based on market rates in effect at December 31, 2015, 2014 and 2013. The sensitivity analysis indicated that a hypothetical 10% adverse movement in foreign currency exchange rates would result in a loss in the fair values of ARM’s foreign exchange derivative financial instruments, net of exposures, of £5.3 million at December 31, 2015 (2014: £4.0 million; 2013: £9.5 million).

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INTEREST RATE RISK

At December 31, 2015, the Company had £956.1 million (2014: £873.1 million) of interest-bearing assets. At December 31, 2015, 95% (2014: 93%) of interest-bearing assets, comprising cash equivalents; short-term and long-term deposits and short-term marketable securities were at fixed rates and are therefore exposed to fair value interest rate risk. Floating rate cash earns interest based on relevant national LIBID equivalents and is therefore exposed to cash flow interest rate risk.

Other financial assets, such as available-for-sale investments, are not directly exposed to interest rate risk.

A 1% (100 basis points) decrease in the average interest rate during the year would have reduced interest income by approximately £8.5 million (2014: £7.3 million; 2013: £5.8 million;) and profit after tax by £6.8 million (2014: £5.8 million; 2013: £4.6 million).

During 2014 and 2015, the Company entered into a number of lease agreements for IT equipment which have been classified as finance leases. The Company had no borrowings during 2013, 2014 or 2015.

The Company has no derivative financial instruments to manage interest rate fluctuations in place at year end since it has no loan financing, and as such no hedge accounting is applied.

The Company’s cash flow is carefully monitored on a daily basis. Excess cash, considering expected future cash flows, is placed on either short-term or medium-term deposit to maximize the interest income thereon. Daily surpluses are swept into higher-interest earning accounts overnight. The Company manages its proportion of fixed-to-floating deposits based on the prevailing economic climate at the time (with reference to forward interest rates) and also on the required maturity of the deposits (as driven by the expected timing of the Company’s cash receipts and payments over the short- to medium-term).

Item 12. Description of Securities Other Than Equity Securities

Fees and charges payable to the depositary

The Company’s ADS program is administered by The Bank of New York Mellon, One Wall Street, New York, New York, US, as depositary.

The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

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Persons depositing or withdrawing shares must pay:	For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)	·       Issuance and delivery of ADSs including issuances resulting from a dividend or free distribution of shares or rights ·      Surrender of ADSs for the purpose of withdrawal of shares including if the deposit agreement terminates
$.02 (or less) per ADS (or portion thereof)	·      Any cash distribution to ADS registered holders
A fee equivalent to the fee that would be payable if securities distributed to investors had been shares and the shares had been deposited for issuance of ADSs	·      Distribution of securities (other than shares or rights) distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders
Registration fees	·      Registration of shares on the share register to or from the name of the depositary or its agent when the investor deposits or withdraws shares
Expenses of the depositary	·      Cable telex and facsimile transmissions (when expressly provided in the deposit agreement) ·      Reasonable expenses incurred by the depositary in the conversion of dividends and other distributions in foreign currency to U.S. dollars
Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes	·     As necessary

Fees and charges payable by the depositary

In March 2013, the Company received $0.8 million from the depositary. In March 2014, the Company received $1.8 million, $1.8 million in June 2014 and $1.3 million in November 2014. In December 2015, the Company received $1.8 million from the depositary. These amounts were for continuing annual stock exchange listing fees, standard out-of pocket maintenance costs for the ADRs (for expenses relating to postage and envelopes for mailing annual reports and proxy materials, printing and distributing dividend checks, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, facsimile and telephone calls), and legal fees.

The depositary has agreed to reimburse the Company for expenses related to the administration and maintenance of the ADS program. The depositary has agreed to reimburse the Company for its continuing annual stock exchange listing fees. The depositary has also agreed to pay its standard out-of-pocket administration, maintenance and shareholder services expenses for providing services to the ADR holders, including expenses of postage and envelopes for mailing annual and interim financial reports, issuance of initial and replacement dividend checks, US Federal and U.K. Inland Revenue tax reporting, mailing required tax forms, stationery, postage, facsimile, and telephone calls. It has also agreed to reimburse the Company annually for certain investor relationship programs or special investor relations promotional activities. In certain instances, the depositary has agreed to increase the reimbursement payments to the Company based on the performance of the ADR facility. There are limits on the amount of expenses for which the depositary will reimburse the Company, but the amount of reimbursement available to the Company is not related to the amount of fees the depositary collects from investors.

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Part II

Item 13. Defaults, Dividend Arrearages and Delinquencies

Not applicable.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

Not applicable.

Item 15. Controls and Procedures

Disclosure controls and procedures. As of December 31, 2015, the Company, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, performed an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company’s management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which by their nature can provide only reasonable assurance regarding management’s control objectives. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of December 31, 2015 to provide reasonable assurance that the information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time specified in the rules and forms of the SEC and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. There has been no change in the Company’s internal control over financial reporting that occurred during the period covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS and includes those policies and procedures that:

· Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transaction and disposition of the assets of the Company;

· Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

· Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2015.

The Company’s independent auditors, PwC, which have audited the consolidated financial statements of the Company for the fiscal year ended December 31, 2015, have also assessed the effectiveness of the Company’s internal controls over financial reporting; their report is included herein.

104 

Item 16. Reserved

Item 16A. Audit Committee Financial Expert

Lawton Fitt, who was appointed to the Board as an independent non-executive director in September 2015 and became a member of the audit committee in January 2016 is qualified to be an Audit Committee financial expert and became the financial expert for the purposes of the Sarbanes–Oxley Act of 2002 on January 1, 2016 when she assumed the Chairmanship of the Audit Committee.

Kathleen O’Donovan, who was appointed to the Board as an independent non-executive director in December 2006 and became a member of the audit committee in January 2007 is qualified to be an Audit Committee financial expert and was the financial expert for the purposes of the Sarbanes Oxley Act of 2002 up until December 31, 2015.

Item 16B. Code of Ethics

The Company has in place a Code of Business Conduct and Ethics, which is applicable to all directors, officers and employees, including the Chief Executive Officer, Chief Financial Officer, VP Finance, ARM Group and any person performing similar functions. The policy contains provisions relating to honest and ethical conduct (including the handling of conflicts of interest between personal and professional relationships), the preparation of full, fair, accurate, timely and understandable disclosure in reports and documents filed with the Securities and Exchange Commission and in other public communications made by the Company, compliance with applicable laws, rules and regulations, prompt internal reporting of violations of company policies, accountability for adherence to the policy and other matters. This policy is available on our website at www.arm.com and upon written request from ARM Holdings plc, 110 Fulbourn Road, Cambridge, CB1 9NJ, UK. Any amendment to or waiver from a provision of the policy relating to directors and executive officers will be promptly disclosed on the Company’s website.

Item 16C. Principal Accountant Fees and Services

	2013		2014		2015
	£’000		£’000		£’000
Fees payable to the Company’s auditor and its associates for the audit of the Company Audit Fees		0.3		0.3		0.3
Fees payable to the Company’s auditor and its associates for other services:
The audit of the Company’s subsidiaries		0.2		0.2		0.2
Audit-related assurance services (services pursuant to Section 404 of the Sarbanes-Oxley Act)		0.3		0.4		0.4
Other assurance services		0.1		-		-
Tax advisory services		0.1		0.1		0.1
All other non-audit services(1)		0.1		0.1		-

____________________

(1) All other non-audit services includes the provision of advice relating to the Company’s procurement model in 2014 and fees for the performance of royalty audits in 2013.

The audit of ARM Holdings plc (included in Audit Fees), the royalty audits and the procurement advice (categorized as All Other Fees) were specifically pre-approved by the Audit Committee. The remaining services (including the annual audit services performed for each subsidiary of the Company) received general pre-approval from the Audit Committee.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The Board intends to undertake a limited share buyback program to maintain a flat share-count over time. No share buybacks were made in 2013. In 2014, £66.9 million of shares were repurchased, representing 7.9 million shares. In 2015, £92.2 million of shares were repurchased, representing 9.0 million shares. At December 31, 2015, 7.2 million of these shares were held as treasury stock (2014: 7.9 million shares).

105 

Item 16F. Change in Registrant’s Certifying Accountant

Not applicable.

Item 16G. Corporate Governance

Please refer to “Item 10. Additional Information—Corporate Governance”.

Item 16H. Mine Safety Disclosure

Not applicable.

Part III

Item 17. Financial Statements

The Company has responded to Item 18 in lieu of this item.

Item 18. Financial Statements

The following financial statements, together with the report of PwC thereon, are filed as part of this Form 20-F.

Report of Independent Registered Public Accounting Firm	F-1
Consolidated Income Statements	F-2
Consolidated Statement of Comprehensive Income	F-3
Consolidated Balance Sheets	F-4
Consolidated Cash Flow Statements	F-5
Consolidated Statements of Changes in Shareholders’ Equity	F-7
Notes to the Consolidated Financial Statements	F-9

106 

Item 19. Exhibits

****1.1	Articles of Association of ARM Holdings plc.
*4.1	Executive Service Agreement between Advanced Risc Machines Limited and Michael Peter Muller, dated January 31, 1996.
**4.2	Executive Service Agreement between ARM Limited and Tim Score, dated March 1, 2002.
****4.3	Executive Service Agreement between ARM Limited and Simon Segars, dated July 17, 2014.
4.4	Executive Service Agreement between ARM Holdings plc and Chris Kennedy, dated January 17, 2015.
4.5	ARM Holdings plc Employee Equity Plan adopted by ARM Holdings plc on April 25, 2006 (as amended by the Share Schemes Committee on April 23, 2007, October 15, 2008 and August 11, 2010).
***4.6	ARM Holdings plc Deferred Annual Bonus Plan.
***4.7	ARM Holdings plc U.S. Employee Stock Purchase Plan.
8.1	List of significant subsidiaries.
12.1	CEO certification required by Rule 13a-14(a).
12.2	CFO certification required by Rule 13a-14(a).
13.1	Certification required by Rule 13a-14(b).
15.1	Consent of the Independent Registered Public Accounting firm.

____________________

* Previously filed with the Securities and Exchange Commission as part of the annual report on Form 20-F as filed on June 15, 2001 and incorporated herein by reference.

** Previously filed with the Securities and Exchange Commission as part of the annual report on Form 20-F as filed on June 23, 2003 and incorporated herein by reference.

*** Previously filed with the Securities and Exchange Commission as part of the registration statement on Form S-8 on May 8, 2006 and incorporated herein by reference.

**** Previously filed with the Securities and Exchange Commission as part of the annual report on Form 20-F as filed on February 18, 2015 and incorporated herein by reference.

107 

Signature

The registrant certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

ARM Holdings plc
By:	/s/ Chris Kennedy
	Name:	Chris Kennedy
	Title:	Chief Financial Officer

Dated: February 18, 2016

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of ARM Holdings plc

In our opinion, the accompanying consolidated balance sheets and the related consolidated income statements, consolidated statements of comprehensive income, consolidated cash flow statements and consolidated statements of changes in shareholders’ equity present fairly, in all material respects, the financial position of ARM Holdings plc and its subsidiaries at December 31, 2015 and December 31, 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting included under Item 15 of the Annual Report on Form 20-F. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and International Standards on Auditing. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

By:	/s/ PricewaterhouseCoopers LLP
	Name:	PricewaterhouseCoopers LLP  London  United Kingdom  February 17, 2016

F-1

Consolidated Income Statement
for the Year Ended December 31

	Note		2013 £ million			2014 £ million			2015 £ million
Revenues		2		714.6			795.2			968.3
Cost of revenues				(39.3	)		(37.8	)		(39.3	)
Gross profit				675.3			757.4			929.0
Operating expenses
Research and development				(202.9	)		(224.2	)		(278.0	)
Sales and marketing				(89.4	)		(93.2	)		(106.1	)
General and administrative				(128.2	)		(131.0	)		(138.8	)
Total operating expenses before exceptional items				(420.5	)		(448.4	)		(522.9	)
Exceptional items
IP indemnity and similar charges		6		(41.8	)		—			—
Impairment of available-for-sale financial assets		6		(59.5	)		—			—
Total exceptional items				(101.3	)		—			—
Total operating expenses after exceptional items				(521.8	)		(448.4	)		(522.9	)
Profit from operations				153.5			309.0			406.1
Investment income				13.3			11.3			12.1
Interest payable and similar charges				(0.2	)		(0.3	)		(0.3	)
Share of results in joint venture		27		(4.0	)		(3.5	)		(3.1	)
Profit before tax		5		162.6			316.5			414.8
Tax (including £nil in respect of exceptional items (2014: £nil million, 2013: £8.6 million))		7		(57.8	)		(61.1	)		(75.1	)
Profit for the year				104.8			255.4			339.7
Earnings per share
Basic and diluted earnings				104.8			255.4			339.7
Number of shares (millions)
Basic weighted average number of shares				1,396.4			1,406.2			1,407.4
Effect of dilutive securities: Employee incentive schemes				15.4			14.9			12.9
Diluted weighted average number of shares				1,411.8			1,421.1			1,420.3
Basic EPS				7.5	p		18.2	p		24.1	p
Diluted EPS				7.4	p		18.0	p		23.9	p

The accompanying notes are an integral part of the financial statements. Details of dividends paid and proposed are in note 8 and 26 of the financial statements respectively.

F-2

Consolidated Statement of Comprehensive Income
for the Year Ended December 31

	Note		2013 £ million			2014 £ million		2015 £ million
Profit for the year				104.8			255.4		339.7
Other comprehensive income:
Unrealized holding gain on available-for-sale financial assets reclassified to income statement (net of tax of  £1.1 million; 2014: £nil; 2013: £nil)		11		—			—		(4.3	)
Unrealized holding gain on available-for-sale financial assets (net of tax of  £4.4 million; 2014: £1.1 million; 2013: £nil) (1)		11		—			4.3		17.7
Currency translation adjustment (1)				(17.9	)		34.6		32.1
Other comprehensive income/(loss) for the year				(17.9	)		38.9		45.5
Total comprehensive income for the year				86.9			294.3		385.2

(1) These items may be reclassified to the income statement if certain conditions are met.

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

F-3

Consolidated Balance Sheet
At December 31

	Note		2014 £ million		2015 £ million
Assets
Current assets:
Cash and cash equivalents		17		54.1		40.5
Short-term deposits and similar instruments		17		620.8		617.8
Embedded derivatives		17		2.6		6.9
Accounts receivable		9		138.6		183.7
Available-for-sale financial assets		11,17		—		23.1
Prepaid expenses and other assets		10		43.2		51.6
Current tax assets				8.9		22.9
Inventories				2.7		1.8
Total current assets				870.9		948.3
Non-current assets:
Long-term deposits and similar instruments		17		191.4		298.0
Loans and receivables		17		3.0		6.0
Available-for-sale financial assets		11,17		23.7		11.6
Investment in joint ventures		26		3.0		2.6
Prepaid expenses and other assets		10		1.7		1.4
Property, plant and equipment		12		43.4		61.6
Goodwill		13		567.0		650.7
Other intangible assets		14		77.2		92.0
Deferred tax assets		7		55.9		48.0
Total non-current assets				966.3		1,171.9
Total assets				1,837.2		2,120.2
Liabilities
Current liabilities:
Accounts payable		17		11.7		12.7
Fair value of currency exchange contracts		17		4.8		3.2
Accrued and other liabilities		15		80.6		100.7
Finance lease liabilities		16		3.9		5.2
Current tax liabilities				31.9		30.6
Deferred revenue				127.4		110.1
Total current liabilities				260.3		262.5
Non-current liabilities:
Accrued and other liabilities		15		—		6.3
Finance lease liabilities		16		2.6		6.1
Deferred tax liabilities		7		0.4		3.2
Deferred revenue				45.6		44.5
Total non-current liabilities				48.6		60.1
Total liabilities				308.9		322.6
Net assets				1,528.3		1,797.6
Capital and reserves attributable to owners of the Company
Share capital		18		0.7		0.7
Share premium account				24.9		27.2
Capital reserve				354.3		354.3
Share option reserve				61.4		61.4
Retained earnings				991.8		1,213.3
Revaluation reserve				4.3		17.7
Cumulative translation adjustment				90.9		123.0
Total equity				1,528.3		1,797.6

____________________

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

F-4

Consolidated Cash Flow Statement
for the Year Ended December 31

	Note		2013 £ million			2014 £ million			2015 £ million
Profit before tax				162.6			316.5			414.8
Investment income, net of interest payable and similar charges				(13.1	)		(11.0	)		(11.8	)
Share of results of joint ventures				4.0			3.5			3.1
Profit from operations				153.5			309.0			406.1
Adjustments for:
Depreciation and amortization of property, plant and equipment and intangible assets				28.0			35.6			42.0
Compensation charge in respect of share-based payments				59.2			68.5			70.5
Provision for impairment of available-for-sale assets (including non-cash exceptional item of £59.5 million in 2013)				66.3			1.0			0.3
Profit on disposal of available-for-sale financial assets				(3.3	)		(0.3	)		(5.6	)
Loss on disposal of property, plant and equipment				0.6			0.1			0.2
Provision for doubtful debts				4.0			0.3			(0.1	)
Non-cash foreign currency losses/ (gains)				(3.6	)		3.4			2.9
Movement in fair value of currency exchange contracts				(3.7	)		9.9			(1.6	)
Movement in fair value of embedded derivatives				4.4			(9.6	)		(4.3	)
Changes in working capital
Accounts receivable				(19.8	)		(4.0	)		(37.2	)
Inventories				(0.7	)		0.3			0.9
Prepaid expenses and other assets				(8.8	)		(9.9	)		(17.4	)
Accounts payable				1.1			4.5			0.4
Deferred revenue				53.1			(24.8	)		(26.2	)
Accrued and other liabilities				8.3			(11.6	)		22.5
Cash generated by operations before tax				338.6			372.4			453.4
Income taxes paid				(23.3	)		(30.8	)		(73.9	)
Net cash from operating activities				315.3			341.6			379.5
Investing activities
Interest received				13.4			13.6			11.4
Interest paid				(0.2	)		(0.3	)		(0.3	)
Purchases of property, plant and equipment				(13.5	)		(20.4	)		(30.5	)
Purchases of other intangible assets				(31.8	)		(10.0	)		(10.5	)
Purchases of available-for-sale financial assets		11		(8.9	)		(5.0	)		(3.8	)
Proceeds on disposal of available-for-sale financial assets				5.5			2.2			6.4
Purchase of short and long-term deposits and similar instruments, net				(188.5	)		(145.1	)		(102.8	)
Purchase of subsidiaries, net of cash and borrowings acquired		20		(21.1	)		(12.8	)		(62.3	)
Investment in joint ventures		27		(3.7	)		—			(2.7	)
Provision of loan to joint venture				(0.7	)		—			(2.9	)
Net cash used in investing activities				(249.5	)		(177.8	)		(198.0	)
Financing activities
Proceeds received on issuance of shares		18		5.9			6.8			2.3
Proceeds received on issuance of shares from treasury				—			—			7.1
Purchase of own shares		19		—			(66.9	)		(92.2	)
Dividends paid to shareholders		8		(68.9	)		(86.1	)		(107.8	)
Repayment of borrowings				(1.1	)		(1.2	)		—
Repayment of finance lease liabilities				(3.3	)		(6.4	)		(5.1	)
Net cash used in financing activities				(67.4	)		(153.8	)		(195.7	)

F-5

	Note	2013 £ million			2014 £ million		2014 £ million
Net (decrease)/ increase in cash and cash equivalents			(1.6	)		10.0		(14.2	)
Cash and cash equivalents at beginning of the year			46.3			43.8		54.1
Effect of foreign exchange rate changes			(0.9	)		0.3		0.6
Cash and cash equivalents at end of the year			43.8			54.1		40.5

______________

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

F-6

Consolidated Statement of Changes in Shareholders’ Equity
for the Year Ended December 31

	Attributable to equity holders of the Company
	Share capital £ million		Share premium account £ million		Capital reserve* £ million		Share option reserve ** £ million		Retained earnings £ million			Revaluation reserve*** £ million			Cumulative translation adjustment £ million			Total £ million
Balance at January 1, 2013		0.7		12.2		354.3		61.4		703.3			—			74.2			1,206.1
Profit for the year		—		—		—		—		104.8			—			—			104.8
Other comprehensive income
Currency translation adjustment		—		—		—		—		—			—			(17.9	)		(17.9	)
Total comprehensive income for the year		—		—		—		—		104.8			—			(17.9	)		86.9
Shares issued on exercise of share options and awards (note 18)		—		5.9		—		—		—			—			—			5.9
Dividends (see note 8)		—		—		—		—		(68.9	)		—			—			(68.9	)
Credit in respect of employee share schemes		—		—		—		—		59.2			—			—			59.2
Movement on tax arising on share options and awards		—		—		—		—		22.2			—			—			22.2
		—		5.9		—		—		12.5			—			—			18.4
Balance at December 31, 2013		0.7		18.1		354.3		61.4		820.6			—			56.3			1,311.4
Profit for the year		—		—		—		—		255.4			—			—			255.4
Other comprehensive income
Unrealized holding gain on available-for-sale financial assets (net of tax of £1.1 million)		—		—		—		—		—			4.3			—			4.3
Currency translation adjustment		—		—		—		—		—			—			34.6			34.6
Total comprehensive income for the year		—		—		—		—		255.4			4.3			34.6			294.3
Shares issued on exercise of share options and awards (note 18)		—		6.8		—		—		—			—			—			6.8
Dividends (see note 8)		—		—		—		—		(86.1	)		—			—			(86.1	)
Purchase of own shares (see note 19)		—		—		—		—		(66.9	)		—			—			(66.9	)
Credit in respect of employee share schemes		—		—		—		—		68.5			—			—			68.5
Movement on tax arising on share options and awards		—		—		—		—		0.3			—			—			0.3
		—		6.8		—		—		(84.2	)		—			—			(77.4	)
Balance at December 31, 2014		0.7		24.9		354.3		61.4		991.8			4.3			90.9			1,528.3
Profit for the year		—		—		—		—		339.7			—			—			339.7
Other comprehensive income
Unrealized holding gain on available-for-sale financial assets (net of tax of £4.4 million)		—		—		—		—		—			17.7			—			17.7
Unrealized holding gain on available-for-sale financial assets reclassified to income statement (net of tax of £1.1 million)		—		—		—		—		—			(4.3	)		—			(4.3	)
Currency translation adjustment		—		—		—		—		—			—			32.1			32.1
Total comprehensive income for the year		—		—		—		—		339.7			13.4			32.1			385.2
Shares issued on exercise of share options and awards (note 18)		—		2.3		—		—		—			—			—			2.3
Dividends (see note 8)		—		—		—		—		(107.8	)		—			—			(107.8	)
Purchase of own shares (see note 19)		—		—		—		—		(92.2	)		—			—			(92.2	)
Proceeds from sales of own shares		—		—		—		—		7.1			—			—			7.1
Credit in respect of employee share schemes		—		—		—		—		70.5			—			—			70.5
Movement on tax arising on share options and awards		—		—		—		—		4.2			—			—			4.2
		—		2.3		—		—		(118.2	)		—			—			(115.9	)
Balance at December 31, 2015		0.7		27.2		354.3		61.4		1,213.3			17.7			123.0			1,797.6

F-7

________________

* 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.

** Share option reserve. This represents the fair value of options granted on the acquisition of Artisan Components Inc. in 2004.

*** Revaluation reserve. The Company includes on its balance sheet equity investments, which are classified as available-for-sale financial assets. These are carried at fair value. Unrealized 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 recognized within the income statement).

F-8

NOTES TO THE FINANCIAL STATEMENTS

1 The Company and a summary of its significant accounting policies and financial risk management

1a General information about the Company

The business of the Company

ARM Holdings plc and its subsidiary companies (“ARM” or “the Company”) design microprocessors, physical IP and related technology and software, and sell development tools to enhance the performance, cost-effectiveness and energy-efficiency of high-volume embedded microprocessor applications.

The Company 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 utilize ARM’s technology, the Company 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, enterprise networking and servers, and smart cards and microcontrollers.

The Company also licenses and sells development tools direct to systems companies and provides support services to its licensees, systems companies and other systems designers.

The Company’s principal geographic markets are Europe, the United States 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 October 16, 1990, as a joint venture between Apple Computer (UK) Limited and Acorn Computers Limited, and operated under the name Advanced RISC Machines Holdings Limited until March 10, 1998, when its name was changed to ARM Holdings plc. Its initial public offering was on April 17, 1998.

Company undertakings include ARM Limited (incorporated in England and Wales), Geomerics Limited (incorporated in England and Wales), 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 Finland Oy (incorporated in Finland), ARM Ireland Limited (incorporated in Republic of Ireland), ARM Hungary KFT (incorporated in Hungary), ARM Inc. (incorporated in the US), ARM Technologies Israel Limited (incorporated in Israel), ARM Electronic Technology (Shanghai) Co. Limited (incorporated in PR China), ARM KK (incorporated in Japan), ARM Korea Limited (incorporated in South Korea), ARM Taiwan Limited (incorporated in Taiwan), and ARM Embedded Technologies Pvt. Limited (incorporated in India).

1b Summary of significant accounting policies

The significant 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 issued by the IASB, IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements were authorized for issue on February 17, 2016 by the Board of directors.

The consolidated financial statements have been prepared on a going concern basis and in accordance with the historical cost convention as modified by: the revaluation to fair value of available-for-sale (AFS) financial assets

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and financial assets and liabilities at fair value through the income statement (including embedded derivatives and derivative instruments).

Critical accounting estimates and judgments

The preparation of financial statements in accordance with IFRS 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.

Segmental reporting

The Company’s internal operational structure was re-organized on January 1, 2014, to create an organization that is more scalable and more accountable, and that offers a more integrated product portfolio. As at December 31, 2014 and December 31, 2015, the Company’s internal organization and management structure reflected this change and this is the primary way in which the Chief Operating Decision Maker (CODM) was provided with financial information. The CODM assesses performance and allocates resources based on consolidated results of operations. The directors believe that the CODM is the Chief Executive Officer and the Executive Committee of the Company. The result of this re-organization is that the Company has one reportable segment, namely the IP Group (IPG). Other revenue and costs not related to IPG are seperately disclosed in Note 2.

Impairment of goodwill

The Company tests goodwill for impairment at least annually. This requires an estimation of the value-in-use of the assets to which goodwill is allocated. As discussed in detail in note 13, estimating the value-in-use requires the Company to make an estimate of the expected future cash flows from the assets 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 Company’s weighted average cost of capital. The Company uses a post-tax discount rate of 10% (2014: 10%) (pre-tax discount rate of approximately 11% (2014: 11%)). The Company reviews the carrying value of its assets including goodwill at the cash-generating unit level.

Revenue recognition

The Company makes significant estimates in applying its revenue recognition policies. In particular, as discussed in detail in the revenue recognition policy below, 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 can be anticipated with reasonable certainty. The use of the percentage-of-completion method is itself based on the assumption that, at the outset of license agreements, there is an insignificant risk that customer acceptance is not obtained. The Company also makes assessments, based on prior experience, of the extent to which future milestone receipts represent a probable future economic benefit to the Company. In addition, when allocating revenue to various components of arrangements involving several components, it is assumed that the fair value of each element can be estimated reliably. The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent with the application of the revenue recognition policy 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.

Legal settlements and other contingencies

Determining the amount to be accrued for legal settlements requires the directors to estimate the committed future legal and settlement fees the Company is expecting to incur, either where suits are filed against the Company for infringement of patents, or where the Company 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.

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Participation in trust to acquire patent rights

During 2013, the Company participated in a consortium, via a trust, to acquire certain patent rights and has made various judgments regarding these transactions.

The directors believe that the Company does not control or have significant influence over the trust since, amongst other factors it does not have voting rights on the board or significant influence over the relevant activities of the trust. The results of the trust have therefore not been consolidated or equity accounted in the Company financial statements. The Company determined that the participation in the consortium conferred on the Company two separate rights: an intangible asset, conferring the right to use the assets in the Company’s own business, and an AFS financial asset conferring the right to certain potential future revenue streams arising from the licensing activities of the trust. The amount expected to be recovered through this licensing program was estimated by the Company in conjunction with the management of the trust, which has considerable experience of managing the assets of similar trusts.

The Company assesses its intangible assets for impairment at each reporting date and has reviewed the valuation of the patent rights acquired in this transaction. Given the design freedom that these rights provide and the size of the future opportunity afforded, the directors have concluded that no impairment of the patent rights is required.

In Q4 2013, the trust made a strategic decision not to pursue a licensing program and the portfolio was instead put up for sale by auction. The Company acquired the patents in January 2014 for $4.0 million (£2.4 million), which have been accounted for as an additional intangible asset.

The auction process means that there are no further potential cash flows in relation to the AFS financial asset and at the end of 2013, the asset was therefore impaired down to the value of the Company’s share of the auction proceeds, resulting in a non-cash exceptional charge of $98.5 million (£59.5 million).

New standards, amendments and interpretations

New and amended standards adopted by the Company

There are no new or amended standards adopted by the Company in the year which have had a material impact on the Company.

Standards, amendments and interpretations that are not yet effective and have not been early adopted

IFRS 9 “Financial instruments” addresses the classification and measurement of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortized cost, fair value through Other Comprehensive Income (OCI) and fair value through profit and loss. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit and loss with the irrevocable option at inception to present changes in fair value in OCI but not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit and loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and the hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually uses for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after January 1, 2018. Early adoption is permitted. The Company is currently assessing IFRS 9’s full impact.

IFRS 15 “Revenue recognition” deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognized when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 “Revenue” and IAS 11 “Construction contracts” and related interpretations. The standard

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has been deferred pending further discussion regarding its implementation and is now effective for annual periods beginning on or after 1 January 2018. Earlier application is permitted. The Company continues to assess the impact of IFRS 15 and is developing processes and systems to enable the transition to the new standard.

IFRS 16 “Leases” replaces the current guidance in IAS 17. Under IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 now requires lessees to recognize a lease liability reflecting future lease payments and a ‘right-of-use asset’ for virtually all lease contracts. The standard applies to annual periods beginning on or after 1 January 2019, with earlier application permitted if IFRS 15, ‘Revenue from Contracts with Customers’, is also applied. The Company is currently assessing IFRS 16’s full impact.

Revenue recognition

The Company follows the principles of IAS 18, “Revenue”, in determining appropriate revenue recognition policies. In principle, therefore, revenue associated with the sale of goods is recognized when all of the following conditions have been satisfied:

· the Company has transferred to the buyer the significant risks and rewards of ownership of the goods;

· the Company 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 Company; 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 recognized 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 Company;

· 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 Company.

Revenue comprises the value of sales of licenses to ARM technology, royalties arising from the resulting sale of licensees’ ARM technology-based products, revenues from support, maintenance and training and the sale of development boards and software toolkits.

License revenues:

Revenue from standard license products that are not modified to meet the specific requirements of each customer is recognized 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 license arrangement has been agreed and the IP has been delivered to the customer;

· continuing managerial involvement and effective control over licensed IP is relinquished at the point at which the IP is delivered to the customer;

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· 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

· it is probable that the economic benefits associated with the transaction will flow to the Company; any economic benefits of the transaction that are deemed unlikely to flow to the Company are deferred until it becomes probable that they will flow to the Company.

The majority of the Company’s revenues come from the licensing of IP 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 Company’s suppliers.

Many license agreements are for products which are designed to meet the specific requirements of each customer. Revenue from the sale of such licenses is recognized on a percentage-of-completion basis over the period from signing of the license to completion of ARM’s contractual obligations. Under the percentage-of-completion method, provisions for estimated losses on uncompleted contracts are recognized 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. After project completion, provisions for additional post-delivery warranty work are recognized in research and development expenses.

Where invoicing milestones in license arrangements are such that the receipts fall due significantly outside the period over which the customization is expected to be performed or significantly outside its normal payment terms for standard license arrangements, the Company evaluates whether it is probable that economic benefits associated with these milestones will flow to the Company 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 Company’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 Company considers that there is insufficient evidence that it is probable that the economic benefits associated with such future milestones will flow to the Company, 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 Company. The Company 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 selling price of 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 components of a contract are linked and fair values cannot be allocated to the individual components, the revenue recognition criteria are applied to the components as if they were a single component.

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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 recognized 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.

Royalty revenues:

Royalty revenues are earned on sales by the Company’s customers of products containing ARM technology. Royalty revenues are recognized when it is probable that the economic benefits associated with the transaction will flow to the Company and the amount of revenue can be reliably measured, which the Company considers to be receipt of notification from the customer of product sales. Notification is typically received in the quarter following shipment of the products by the customer.

Other revenues:

In addition to license 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 recognized based on fair value, which is determined with reference to contractual renewal rates. Where renewal rates are specified, revenue for post-delivery service support is recognized on a straight-line basis over the period for which support and maintenance is contractually agreed by the Company with the licensee. Services (such as training) that the Company 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 recognized as services are performed and it is probable that the economic benefits associated with the transaction will flow to the Company.

Sales of software, including development systems, which are not specifically designed for a given license (such as off-the-shelf software) are recognized upon delivery, when the significant risks and rewards of ownership have been transferred to the customer. At that time, the Company has no further obligations except that, where necessary, the costs associated with providing post-delivery service support have been accrued.

For all types of revenue, if the amount of revenue recognized exceeds the amounts invoiced to customers, the excess amount is recorded as amounts recoverable on contracts within accounts receivable. The excess of amounts invoiced over revenue recognized is recorded as deferred revenue.

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 amortized 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 the probability of any performance conditions being met and thus whether any further consideration will be payable.

(b) Other intangible assets Computer software, purchased patents and licenses to use technology are capitalized at cost and amortized on a straight-line basis over an estimate of the time that the Company is expected to benefit from them. Costs that are directly attributable to the development of new business application software and that are incurred during the period prior to the date that the software is placed into operational use, are capitalized. External costs and internal costs are capitalized to the extent they enhance the future economic benefit of the asset acquired.

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.

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 amortization commences when the assets are brought into use.

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Order backlog is derecognized when it has been fully amortized.

Amortization 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 licenses	Three to eleven years
In-process research and development	One to five years
Developed technology	One to seven 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

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 Company’s subsidiaries operate and generate taxable income. Management periodically evaluates individual 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.

The benefit of UK research and development is recognized under the UK’s Research and Development Expenditure Credit (RDEC) scheme. The benefit is recorded as income included in profit before tax, netted against research and development expenses as the RDEC is of the nature of a government grant.

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 recognized to the extent that it is probable that future taxable profits will arise against which the temporary differences will be utilized.

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 Company 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, where the taxation authority permits a single net payment.

In 2013, a decision to elect into the UK patent box regime was made. The UK patent box regime seeks to tax all profits attributable to patented technology at a reduced rate of 10%.  The rules are to be phased in over five years from April 1, 2013 – a company will be entitled to only 60% of the deduction in financial year 2013/14, rising to 100% by 2017/18. As ‘relevant’ patent box profits are taxed at 10% and other profits are taxed at UK statutory rates, deferred tax assets and liabilities are measured using the average rates expected to apply on realization or settlement.

In the UK and the US, the Company 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 Company’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.

The Company recognizes liabilities for anticipated tax audit issues based on best estimates of potential additional taxes payable. Provisions are calculated individually based upon advice received from tax advisors and

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relevant correspondence received from tax authorities. Provisions are re-assessed by management at each period end date based upon any relevant new information received. Where the final tax outcome of these matters is different from the amounts recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Impairment of assets

Non-financial assets that have an indefinite useful life, for example goodwill, are not subject to amortization but are tested annually for impairment. Non-financial assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognized for the amount by which the non-financial 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. 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 2015 and 2014 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 Company’s other intangible assets.

The Company considers at each reporting date whether there is any indication that tangible fixed assets are impaired. If there is such an indication, the Company 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 recognized, and the assets are written down to their recoverable amounts.

In the case of equity securities classified as AFS, 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 AFS 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 recognized in the income statement – is recognized in the income statement. Impairment losses recognized in the income statement on equity instruments are not reversed.

Impairment testing of trade receivables is described under “Accounts receivable” below.

Provisions

Provisions for legal claims are recognized when: the Company has a present legal or constructive obligation as a result of past events; and 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.

Exceptional items

Exceptional items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Company. They are material items of income or expense that have been shown separately due to the significance of their nature.

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Segment reporting

The Company’s internal operational structure was re-organized on January 1, 2014, to create an organisation that is more scalable and more accountable, and that offers a more integrated product portfolio. As at December 31, 2014 and December 31, 2015, the Company’s internal organization and management structure reflected this change and this is the primary way in which the Chief Operating Decision Maker (CODM) was provided with financial information. The CODM assesses performance and allocates resources based on consolidated results of operations. The directors believe that the CODM is the Chief Executive Officer and the Executive Committee of the Company. The result of this re-organization is that the Company has one reportable segment, namely the IP Group (IPG). Other revenue and costs not allocated to IPG are separately disclosed in Note 2.

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 structured entities) over which the Company has control.  The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date that control ceases.

Associates Associates are all entities over which the Company 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 recognized at cost, and the carrying amount is increased or decreased to recognize the Company’s share of the profit or loss of the investee after the date of acquisition.

Joint ventures Joint ventures are all arrangements in which the Company has joint control with one or more other parties, whereby each party has a right to a share of the net assets of the arrangement. Investments in joint ventures are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognized at cost, and the carrying amount is increased or decreased to recognize the Company’s share of the profit or loss of the investee after the date of acquisition.

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 capitalized and amortized on a straight-line basis over the estimated useful life of the respective product. The Company 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 capitalized to date.

Where no internally generated intangible asset can be recognized, development expenditure is recognized as an expense in the period in which it is incurred. Any collaborative agreement whereby a third-party agrees to partially fund the Company’s research and development is recognized over the period of the agreement as a credit within research and development expenses.

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Government grants

Grants in respect of specific research and development projects are recognized as receivable when there is reasonable assurance that they will be received and the conditions to obtain them have been complied with. They are credited to the income statement in the same period as the related research and development costs for which the grant is compensating. The grant income is presented as a deduction from the related expense.

Share-based payments

The Company 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 predominantly measured by use of the Black-Scholes pricing model. A Monte Carlo simulation is used for certain share awards that have market-based performance conditions. 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 Company’s estimate of the number of shares that will eventually vest.

The Company operates Save As You Earn (SAYE) schemes in the United Kingdom and an Employee Share Purchase Plan (ESPP) in the UK, US, India, Asia Pac countries and certain European countries. 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 Company has recognized a compensation charge in respect of the SAYE plans and ESPPs. The charges for these are calculated as detailed above.

The Company also has an LTIP on which it is also required to recognize 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 IFRS2, 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, pro-rated over the vesting period of the options and awards.

Retirement benefit costs

The Company contributes to defined contribution plans substantially covering all employees in Europe and the US and to government pension schemes for employees in Japan, South Korea, Taiwan, PR China, Israel and India. The Company 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 recognized as assets of the Company 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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Foreign currency translation

(a) Functional and presentation currency. The functional currency of each Company entity is the currency of the primary economic environment in which that entity operates (except that of ARM Technologies Israel Limited which is in US dollars). The consolidated financial statements are presented in sterling, which is the presentation currency of the Company.

(b) Transactions and balances. Transactions denominated in foreign currencies have been translated into the functional currency of each Company 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 Company 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 recognized 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 recognized through other comprehensive income are recognized 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.

Derivative financial instruments

The Company utilizes 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 Company’s currency exchange contracts do not subject the Company to risk from exchange rate movements because the gains and losses on such contracts offset losses and gains, respectively, on the transactions being hedged. 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 recognized gains and losses resulting from the settlement of the contracts are recorded within general and administrative expenses in the income statement. The Company does not enter into currency exchange contracts for the purpose of hedging anticipated transactions.

Embedded derivatives

In accordance with IAS 39, “Financial instruments: recognition and measurement,” the Company 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 Company may enter into contracts denominated in a currency (typically US dollars) that is neither the functional currency of the Company entity nor the functional currency of the customer or the collaborative partner. Where there are uninvoiced amounts on such contracts, the Company carries such derivatives at fair value. The resulting gain or loss is recognized in the income statement under general and administrative expenses.

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.

F-19

Dividends

Distributions to owners of the Company are not recognized 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 recognized 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 those held as treasury shares, which are treated as canceled.

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 and contingently issuable shares granted under the Company’s RSU, DAB plan, and LTIP schemes. As at December 31, 2015, no shares granted under the 2013, 2014 and 2015 LTIPs with market-based performance conditions were included since the current expectation is that these shares will not vest. Shares granted with EPS related performance conditions have been included to the extent that it is expected that the shares will vest.

Reconciliations of the earnings and weighted average number of shares used in the calculations are shown on the face of the consolidated income statement.

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. The carrying amount approximates to fair value because of the short-term maturity of these instruments.

Short- and long-term deposits and similar instruments

The Company 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.

The Company has also placed money with certain banks in the form of Guaranteed Senior Secured Notes which have similar characteristics to term deposits and may be short- or long-term.

Accounts receivable

Accounts receivable are initially recognized at fair value. A provision for impairment of trade receivables is established when there is objective evidence that the Company 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 reorganization, 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 recognized 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.

F-20

Property, plant and equipment

Property, plant and equipment is stated at historic cost less accumulated depreciation and any recognized impairment loss. 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 capitalized to the extent they enhance the future economic benefit of the asset.

Assets in the course of construction are carried at cost less any recognized 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, 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 recognized within general and administrative expenses in the income statement.

Financial assets

The Company 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 recognized at fair value with transaction costs being expensed in the income statement. Specifically, the Company’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 and similar instruments” are classified as “Loans and receivables.” (See note 17).

Loans and receivables are measured initially at fair value and then subsequently measured at amortized cost.

(c) Available-for-sale financial assets (AFS). AFS 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.

Publicly traded investments are classified as AFS. Initially recognized at fair value plus transaction costs on the trade date, they are revalued at market value at each period end. Unrealized holding gains or losses on such securities are recognized, net of related taxes, through other comprehensive income via a revaluation reserve except where there is evidence of permanent impairment (see below).

Equity investments that are not publicly traded are also classified as AFS and are initially recorded at fair value plus transaction costs. Given that the markets for these assets are not active, the Company establishes fair value by using valuation techniques. The estimated fair value of these investments approximated to cost less any permanent

F-21

diminution in value (based on estimates determined by management), except where independent valuation information is obtained. Unrealized holding gains or losses on such securities are recognized, 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 recognized through the income statement within general and administrative expenses or exceptional items where appropriate). When securities classified as AFS are sold, the accumulated fair value adjustments recognized through other comprehensive income are recycled through the income statement.

Accounts payable

Accounts payable are recognized at face value as they are settled within 12 months.

Treasury shares

Where the Company purchases its own equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the owners of the Company until the shares are canceled 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.

1c Financial risk management

The Company operates in the intensely competitive semiconductor industry, which has been characterized by price erosion, rapid technological change, short product life cycles, cyclical market patterns, and heightened foreign and domestic competition. Significant technological changes in the industry could affect operating results.

The Company’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 Company, 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 Company’s finance and treasury departments. The Company 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 Company’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 Company 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 license deals and royalty receipts) in comparison with its requirement to settle certain expenses in US dollars. The Company 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 Company is also exposed to currency risk in respect of the foreign currency denominated assets and liabilities of its overseas subsidiaries. At present, the Company does not consider this to be a significant risk since the Company does not intend to move assets between group companies.

The Company 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.

F-22

In addition, certain customers remit royalties and license fees in other currencies, primarily the Euro and Japanese yen. The Company 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 Company does not take out forward-settling currency exchange contracts in these currencies.

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 AFS financial assets, are not directly exposed to interest rate risk.

The Company 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 Company’s cash flow is carefully monitored on a daily basis. Excess cash, considering expected future cash flows, is placed on either short- or long-term deposits to maximize the interest income thereon. Daily surpluses are swept into higher-interest earning accounts overnight.

Securities price risk

The Company is exposed to equity securities price risk on AFS 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 Company’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 Company. 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 Company’s financial results.

Credit risk

Credit risk is managed on a Company 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 December 31, 2014 and 2015, the Company 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.

The Company markets and sells to a relatively small number of customers with individually large value transactions. The Company 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.

The Company generally does not require collateral on accounts receivable, as many of its customers are large, well-established companies. The Company has not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area.

No credit limits were exceeded during the reporting period and the directors do not expect any significant losses from non-performance by these counterparties, other than those already provided for.

Liquidity risk

The Company’s policy is to maintain balances of cash and cash equivalents and short- and long-term deposits and similar instruments, such that highly liquid resources exceed the Company’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 Company’s cash receipts and payments over the short to medium term).

F-23

Management monitors rolling forecasts of the Company’s short and medium-term expected cash flows. This is carried out at both a local and a Company level with the local subsidiaries being funded by the Company as required.

Capital risk management

The Company’s objectives when managing capital are to safeguard the Company’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 to have sufficient capital to make strategic investments, including acquisitions. The capital structure of the Company 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.

The Company’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 Company introduced a dividend in 2004 which has grown each year since. Between 2005 and 2008, an ongoing share buyback program was in place whereby 16% of the issued share capital was bought back at an average price of £1.22. In 2015, the interim dividend was increased by 25% and the directors are proposing a 25% increase in the final dividend, reflecting the Board’s long-term confidence in the business. As well as continuing to grow the dividend, the Board has undertaken a limited share buyback program to maintain a flat share-count over time. During 2015, 9.0 million shares (2014: 7.9 million) were repurchased for £92.2 million (2014: £66.9 million). The capital structure is continually monitored by the Company.

In order to maintain or adjust the capital structure, the Company 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.

Valuation hierarchy

The Company classifies its financial instruments as follows: level 1 instruments are those valued using unadjusted quoted prices in active markets for identical instruments; level 2 instruments are those valued using techniques based significantly on observable market data; and level 3 instruments are those valued using information other than observable market data. The Company recognises transfers into and out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer.

The Company has a team that performs the valuations of financial assets required for financial reporting purposes, including level 3 fair values. This team reports to the Chief Financial Officer and to the Audit Committee.

The fair value of accounts and other receivables, other current financial assets, cash and cash equivalents, short- and long-term deposits and similar instruments, and accounts and other payables approximate to their carrying amount.

2 Segmental reporting

The Company’s internal operational structure was re-organized on January 1, 2014, to create an organisation that is more scalable and more accountable, and that offers a more integrated product portfolio. As at December 31, 2014 and December 31, 2015, the Company’s internal organization and management structure reflected this change and this is the primary way in which the Chief Operating Decision Maker (CODM) was provided with financial information. The CODM assesses performance and allocates resources based on consolidated results of operations. The directors believe that the CODM is the Chief Executive Officer and the Executive Committee of the Group. The result of this re-organization is that the Company has one reportable segment, namely the IP Group (IPG).

In the year ended December 31, 2015, the Company incurred other costs of £19 million and generated other revenues of £4 million that were not related to IPG.

During the year ended December 31, 2015, no customer accounted for more than 10% of the Company’s total revenues (2014: no customer accounted for more than 10%).

F-24

Geographical information

The Company manages its business on a global basis. The operations are based in three main geographical areas. The United Kingdom 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*:

	2013 £ million		2014 £ million		2015 £ million
United States		280.3		321.8		365.7
PR China		90.0		116.8		187.0
Taiwan		99.4		133.7		141.8
South Korea		101.7		68.5		99.8
Japan		47.6		60.4		70.9
Singapore		24.6		18.5		29.9
Switzerland		24.8		17.9		26.7
Germany		13.4		12.3		11.1
Netherlands		8.5		8.1		9.4
Russia		0.5		11.3		2.5
Rest of Europe		19.2		21.9		19.5
Rest of Asia Pacific		3.6		2.4		3.5
Rest of North America		1.0		1.6		0.5
		714.6		795.2		968.3

________________

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

The Company’s revenue within the home country of the parent company amounted to £5.1 million, £7.8 million and £4.9 million for the years ended December 31, 2015, 2014 and 2013, respectively.

The Company’s exports from the United Kingdom were £950.7 million, £778.9 million and £699.2 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Analysis of revenue by origin:

	2013 £ million		2014 £ million		2015 £ million
Europe*		705.3		786.9		960.3
United States		9.3		8.3		8.0
		714.6		795.2		968.3

________________

* Includes the United Kingdom, which had total revenues of £955.8 million in 2015 (2014: £786.7 million, 2013: £704.1 million).

Analysis of revenue by revenue stream:

	2013 £ million		2014 £ million		2015 £ million
Royalties – Processors		317.5		326.0		463.1
Royalties – Physical IP		40.8		36.5		46.9
Licensing – Processors		244.4		309.1		326.6

F-25

	2013 £ million		2014 £ million		2015 £ million
Licensing – Physical IP		41.2		52.1		54.0
Software and tools		36.4		35.0		37.3
Services		34.3		36.5		40.4
		714.6		795.2		968.3

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

	2013 £ million		2014 £ million		2015 £ million
Europe*		172.0		237.7		343.9
United States		7.2		23.4		28.1
Asia Pacific		5.0		5.2		9.2
		184.2		266.3		381.2

________________

* Includes the United Kingdom which had non-current assets (excluding deferred tax assets, goodwill and other intangible assets) of £341.0 million in 2015 (2014: £235.5 million, 2013: £171.0 million), of which long-term deposits accounted for £298.0 million (2014: £191.4 million, 2013: £125.6 million).

3 Key management compensation and directors’ emoluments

Key management compensation

The directors are of the opinion that the key management of the Company 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 December 31, 2015, key management comprised 20 people (2014: 20).

The aggregate amounts of key management compensation are set out below:

	2013 £ million		2014 £ million		2015 £ million
Salaries and short-term employee benefits		9.5		6.9		8.1
Share-based payments		6.1		7.9		6.0
Post-employment benefits		0.2		0.4		0.3
		15.8		15.2		14.4

Directors’ emoluments

The aggregate emoluments of the directors of the Company are set out below:

	2013 £ million		2014 £ million		2015 £ million
Aggregate emoluments in respect of qualifying services		3.8		2.8		3.8
Aggregate payments for pension-related benefits		0.2		0.2		0.1
Aggregate gains on exercise of share options		3.9		0.1		-
Aggregate amounts receivable in shares under the Deferred Annual Bonus Plan		12.9		2.5		5.3
Aggregate amounts receivable under the Long Term Incentive Plan		17.2		2.5		2.0
		38.0		8.1		11.2

4 Employee information

The average number of persons, including executive directors, employed by the Company during the year was:

F-26

	2013 Number		2014 Number		2015 Number
By activity
Research and development		1,803		2,173		2,639
Sales and marketing		425		481		498
General and administrative		370		418		465
		2,598		3,072		3,602

	2013 £ million			2014 £ million			2015 £ million
Staff costs (for the above persons)
Wages and salaries		185.4			203.6			246.7
Medical care costs		5.5			6.1			9.0
Share-based payments (note 21)		59.2			68.5			70.5
Social security costs		35.1			29.1			32.7
Movement on provision for social security costs on share awards		(1.4	)		(2.4	)		(1.4	)
Other pension costs		8.7			11.5			13.1
		292.5			316.4			370.6

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:

	2013 £ million			2014 £ million			2015 £ million
Staff costs, including share-based payments (note 4)		292.5			316.4			370.6
Cost of inventories recognized as an expense		2.8			3.8			3.5
Depreciation of property, plant and equipment – owned assets (note 12)		11.6			14.1			17.3
Depreciation of property, plant and equipment – under finance leases (note 12)		2.8			5.0			5.4
Amortization of other intangible assets (note 14)
Cost of revenues		0.3			0.3			0.3
Research and development expenses		6.9			7.5			9.7
Sales and marketing expenses		0.6			0.2			0.1
General and administrative expenses		5.8			8.5			9.2
Government grants – research and development expenditure credit		(5.8	)		(8.8	)		(9.6	)
Exceptional items (note 6)
Impairment of current AFS asset		59.5			—			—
IP indemnity and similar charges		41.8			—			—
Impairment of non-current AFS financial assets (note 11)		6.8			1.0			0.3
Net profit on disposal of AFS financial assets		(3.3	)		(0.3	)		(5.7	)
Other operating lease rentals payable:
Plant and machinery		26.2			26.0			28.4
Property		8.7			11.3			16.3
Accounts receivables impairment (including movement in provision) (note 9)		4.0			0.3			(0.1	)
Fair value movement on embedded derivatives		4.5			(9.6	)		(4.3	)
Other foreign exchange (gains)/losses		(3.3	)		6.8			(3.2	)

Services provided by the Company’s auditor and its associates

During the year the Company (including its overseas subsidiaries) obtained the following services from the Company’s auditor and its associates:

F-27

	2013 £ million		2014 £ million		2015 £ million
Fees payable to the Company’s auditor and its associates for the audit of the Company and consolidated financial statements		0.3		0.3		0.3
Fees payable to the Company’s auditor and its associates for other services:
The audit of the Company’s subsidiaries		0.2		0.2		0.2
Audit related assurance services (services pursuant to Section 404 of the Sarbanes-Oxley Act)		0.3		0.4		0.4
Other assurance services		0.1		—		—
Statutory audit, financial reporting and other related services		0.9		0.9		0.9
Tax advisory services		0.1		0.1		0.1
All other non-audit services*		0.1		0.1		—
		1.1		1.1		1.0

* All other non-audit services includes the provision of advice relating to the Company’s procurement model in 2014 and fees for the performance of royalty audits in 2013.

6 Exceptional items

IP indemnity and similar charges

During 2013, the Company incurred indemnification costs amounting to $18.0 million. Further in relation to legal proceedings regarding the same patent portfolio, for a consideration of $45.4 million, the Group entered into a license agreement with a third party covering patents being asserted against ARM technology in litigation between the patentee and a number of licensees of ARM technology. The license was entered into in full and final settlement of any indemnity claims with respect to the asserted patents and will prevent any future assertion of the patents against ARM technology. Total indemnification, settlement and license costs of $63.4 million (£41.8 million) were expensed as an exceptional item in 2013, resulting in a tax deduction in current tax of £9.7 million.

Impairment of available for sale financial assets (current)

During 2013, the Company has participated in a consortium, via a trust, to acquire certain patent rights. These rights were not subject to actual or threatened legal proceedings. Of the Company’s total contribution to the consortium, $100.5 million was classified within current AFS financial assets (£60.7 million after translation at December 31, 2013 exchange rates) and $67 million, the residual, was classified within other intangible assets (£37.4 million after amortization to December 31, 2013). The AFS financial asset represented ARM’s right to receive cash from the Company's financial interest in the consortium as it was anticipated that a program of licensing the patents to third parties would be undertaken by the trust. The other intangible asset consists of IP rights that are being amortized over a period of eight and a half years from March 2013, being the average remaining life of the underlying patent portfolio.

In Q4 2013, the trust made a strategic decision not to pursue a licensing program and the portfolio was instead put up for sale by auction. The Company acquired the patents in January 2014 for $4.0 million (£2.4 million) which have been accounted for as an additional intangible asset. As there was no longer an expectation of any future cash flows with respect to licensing of the patents by the trust at December 31, 2013, the AFS financial asset was impaired down to the value of the Company’s share of the auction proceeds, giving rise to a non-cash exceptional charge in 2013 of $98.5 million (£59.5 million). As disclosed in note 7, a deferred tax asset was not recognized in relation to this exceptional item, increasing the current tax charge by £18.3 million in 2013.

There were no exceptional items in 2014 or 2015.

7 Tax

Analysis of charge in the year:

	2013 £ million	2014 £ million	2015 £ million
Current tax:

F-28

	2013 £ million			2014 £ million			2015 £ million
Current tax on profits for the year		56.5			54.5			71.3
Adjustments in respect of prior years		(0.2	)		(1.0	)		(1.9	)
Total current tax		56.3			53.5			69.4
Deferred tax:
Origination and reversal of temporary differences		(4.1	)		8.6			5.7
Adjustment in respect of prior years		—			(1.0	)		—
Impact of change in the UK statutory tax rate		0.1			—			—
Impact of change due to UK patent box regime		5.5			—			—
Total deferred tax		1.5			7.6			5.7
Income tax expense		57.8			61.1			75.1

Analysis of tax on items charged to equity:

	2013 £ million			2014 £ million			2015 £ million
Deferred tax charge on outstanding share options and awards		4.8			10.6			4.0
Current tax benefit on share options and awards		(27.0	)		(10.9	)		(8.2	)
Deferred tax charge on AFS financial assets		—			1.1			3.3

The tax charge for the year was different from the standard rate of corporation tax in the UK as explained below:

	2013 £ million			2014 £ million			2015 £ million
Profit before tax		162.6			316.5			414.8
Profit before tax at the corporation tax rate of 20.25% (2014: 21.5%, 2013: 23.25%)		37.8			68.1			84.0
Effects of:
Adjustments tax in respect of prior years		(0.2	)		(2.0	)		(1.9	)
Adjustments in respect of foreign tax rates		4.1			6.3			6.9
Research and development tax credits		(6.6	)		(3.7	)		(3.8	)
Current impact of the UK patent box regime		(4.8	)		(15.9	)		(21.9	)
Remeasurement of deferred tax assets due to reduction in UK statutory tax rates		0.1			—			—
Remeasurement of deferred tax assets due to the UK patent box regime		5.5			—			—
U.S. deferred tax assets not recognized*		17.5			0.9			—
Foreign withholding tax		3.0			(2.5	)		1.6
Impact of share-based payments		(1.5	)		5.2			3.8
Other**		2.9			4.7			6.4
Total taxation		57.8			61.1			75.1

____________________

* 2014 amount includes California R&D tax credits not recognized as future California tax is not expected to absorb all of the tax benefit.

** Includes expenditure disallowable for tax purposes and potential additional tax payable on income.

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:

F-29

	2013 £ million			2014 £ million			2015 £ million
At January 1		70.1			65.2			55.5
Amount acquired with subsidiary undertaking		(1.2	)		(0.4	)		(4.7	)
Income statement charge		(1.5	)		(7.6	)		(5.7	)
Adjustment in respect of share-based payments		(4.8	)		(10.6	)		(4.0	)
Movement from current tax assets		3.0			9.3			6.4
Revaluation of AFS financial assets		—			(1.1	)		(3.3	)
Exchange differences		(0.4	)		0.7			0.6
At December 31		65.2			55.5			44.8

Deferred tax assets have been partially recognized in respect of tax losses and other temporary differences giving rise to deferred tax assets because it is not probable that the unrecognized portion of these assets will be recovered.

The amount of deferred tax assets unrecognized at December 31, 2015 was £5.6 million (2014: £5.8 million, 2013: £23.2 million). The unrecognized deferred tax assets relate to historic losses of acquired subsidiaries and California research and development tax credits. The losses may remain unutilized due to restrictions imposed by local tax legislation and availability of relevant future profits.

No deferred tax has been recognized in respect of a further £49.3 million (2014: £43.1 million, 2013: £33.2 million) of unremitted earnings of overseas subsidiaries because the Company is in a position to control the timing of the reversal of the differences and either it is possible that such differences will not reverse in the foreseeable future or no tax is payable on the reversal.

During 2015, the UK Government published draft legislation introducing a new Patent Box regime based on the newly adopted modified nexus approach for IP assets submitted after June 30, 2016. UK taxpayers that have already submitted assets under the current form of the Patent Box will be allowed to continue to claim benefit through the current regime until June 30, 2021 for those assets. If these taxpayers also submit assets post June 30, 2016 then the benefits relating to these assets will be claimed under the new regime. Such taxpayers will operate under both regimes until June 30, 2021 when all benefits claimed through the Patent Box will be through the modified nexus approach. These changes have not been enacted at the balance sheet date and therefore are not taken into account in the measurement of deferred tax.

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.

Deferred tax assets

	Amounts relating to share-based payments £ million			Temporary differences relating to fixed assets £ million			Tax losses and R&D tax credits carried forward £ million			Temporary differences relating to liabilities £ million		Other £ million		Total £ million
At January 1, 2015		24.3			1.7			25.9			8.1		—		60.0
Amount acquired with subsidiary undertaking		—			—			0.1			—		—		0.1
Movement from current tax assets		—			—			6.4			—		—		6.4
Income statement credit/(charge)		1.3			(1.7	)		(7.6	)		0.5		1.8		(5.7	)
Movement on deferred tax arising on outstanding share options and awards		(4.0	)		—			—			—		—		(4.0	)
Exchange differences		—			—			0.9			—		—		0.9
At December 31, 2015 (prior to offsetting)		21.6			—			25.7			8.6		1.8		57.7

F-30

	Amounts relating to share-based payments £ million			Temporary differences relating to fixed assets £ million			Tax losses and R&D tax credits carried forward £ million			Temporary differences relating to liabilities £ million		Other £ million			Total £ million
Offsetting of deferred tax liabilities																(9.7	)
At December 31, 2015 (after offsetting)																48.0
At January 1, 2014		32.8			3.9			22.1			8.0		0.9			67.7
Movement from current tax assets		—			—			9.3			—		—			9.3
Income statement credit/(charge)		2.1			(2.2	)		(6.2	)		0.1		(0.9	)		(7.1	)
Movement on deferred tax arising on outstanding share options and awards		(10.6	)		—			—			—		—			(10.6	)
Exchange differences		—			—			0.7			—		—			0.7
At December 31, 2014 (prior to offsetting)		24.3			1.7			25.9			8.1		—			60.0
Offsetting of deferred tax liabilities																(4.1	)
At December 31, 2014 (after offsetting)																55.9

The deferred tax asset to be recovered after more than one year is £29.7 million (2014: £32.0 million)

Deferred tax liabilities

	Amounts relating to intangible assets arising on acquisition £ million		Temporary difference on AFS financial assets £ million		Other £ million		Total £ million
At January 1, 2015		3.1		1.1		0.3		4.5
Amount acquired with subsidiary undertaking		4.8		—		—		4.8
Movement through reserves		—		3.3		—		3.3
Exchange differences		0.3		—		—		0.3
At December 31, 2015 (prior to offsetting)		8.2		4.4		0.3		12.9
Offsetting of deferred tax assets								(9.7	)
At December 31, 2015 (after offsetting)								3.2
At January 1, 2014		2.5		—		—		2.5
Amount acquired with subsidiary undertaking		0.4		—		—		0.4
Income statement charge		0.2		—		0.3		0.5
Movement through reserves		—		1.1		—		1.1
At December 31, 2014 (prior to offsetting)		3.1		1.1		0.3		4.5
Offsetting of deferred tax assets								(4.1	)
At December 31, 2014 (after offsetting)								0.4

The deferred tax liability due after more than one year prior to offsetting is £1.3 million (2014: £1.0 million, 2013: £1.2 million).

F-31

8 Dividends

	2013 £ million		2014 £ million		2015 £ million
Final 2012 paid at 2.83 pence per share		39.5		—		—
Interim 2013 paid at 2.1 pence per share		29.4		—		—
Final 2013 paid at 3.6 pence per share		—		50.7		—
Interim 2014 paid at 2.52 pence per share		—		35.4		—
Final 2014 paid at 4.50 pence per share		—		—		63.5
Interim 2015 paid at 3.15 pence per share		—		—		44.3
		68.9		86.1		107.8

In addition, the directors are proposing a final dividend in respect of the financial year ended December 31, 2015 of 5.63 pence per share, which will absorb an estimated £79 million of shareholders’ funds. Subject to approval at the 2016 AGM, it will be paid on May 13, 2016 to shareholders who are on the register of members on April 22, 2016.

9 Accounts receivable

	2014 £ million			2015 £ million
Trade debtors (including receivables from related parties – see note 25)		138.5			133.5
Less: Provision for impairment of trade debtors		(9.0	)		(1.0	)
Trade debtors, net		129.5			132.5
Amounts recoverable on contracts		9.1			51.2
Current accounts receivable		138.6			183.7

Movements in the Company’s provision for impairment of trade debtors are as follows:

	2013 £ million			2014 £ million			2015 £ million
At January 1		(2.4	)		(9.7	)		(9.0	)
Charge to income statement		(4.0	)		(0.3	)		0.1
Utilized		—			2.5			6.5
Reclassified from deferred income		(3.5	)		(1.4	)		1.5
Foreign exchange		0.2			(0.1	)		(0.1	)
At December 31		(9.7	)		(9.0	)		(1.0	)

See also note 17 for further disclosure regarding the credit quality of the Company’s gross trade debtors.

10 Prepaid expenses and other assets

	2014 £ million		2015 £ million
Other receivables		19.3		22.9
Prepayments		23.9		28.7
Current prepaid expenses and other assets		43.2		51.6
Plus: non-current prepaid expenses and other assets		1.7		1.4
Total prepaid expenses and other assets		44.9		53.0

11 Available-for-sale financial assets

Non-current available-for-sale financial assets	2014 £ million		2015 £ million
Net book value
At January 1		13.9		23.7
Additions		5.0		3.8

F-32

Non-current available-for-sale financial assets	2014 £ million			2015 £ million
Revaluation recognized through other comprehensive income		5.4			2.8
Transfer to current		—			(3.8	)
Disposals		—			(15.0	)
Foreign exchange translation		0.4			0.4
Impairment recognized through income statement (general and  administrative expenses)		(1.0	)		(0.3	)
At December 31		23.7			11.6

Current available-for-sale financial assets	2014 £ million			2015 £ million
Net book value
At January 1		1.2			—
Revaluation recognized through other comprehensive income		—			19.3
Transfers from non-current		—			3.8
Disposals		(1.2	)		—
At December 31		—			23.1

Non-current investments

Those unlisted companies in which the Company 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. Non-current available-for-sale investments noted above are considered to be level 3 financial assets (see note 17).

Included within the £15.0 million disposals noted above were £8.7 million ($12.9 million) of convertible loan notes in Sunrise Micro Devices, Inc which were converted on acquisition on April 15, 2015 (see note 20).

A permanent 10% fall in the underlying value of those unlisted companies in which the Company has invested and does not have independent valuation information (e.g. through the occurrence of transactions in the relevant entity’s equity instruments) as at December 31, 2015 would have reduced the Company’s post-tax profit by £1.0 million (2014: £1.5 million) and resulted in a £nil (2014: £nil) reduction in other components of equity.

Current investments

During 2015 there has been a transfer out of level 3 and into level 1 financial instrument assets. This is a result of Thunder Software Technology Co. Ltd listing on the Shenzhen Stock Exchange in China. This financial asset is considered to be a current level 1 asset since it has an active market. The value of this investment as at December 31, 2015 is £23.1 million. At December 31, 2014, the Company had no listed investments.

The Company’s investments include the following companies:

· Ambiq Micro Inc.

· Cambridge Innovation Capital plc

· Cyclos Semiconductor Inc.

· Marmalade Technologies Ltd. (formerly Ideaworks 3D Limited)

· Shanghai Walden Venture Capital Enterprise

F-33

· Thunder Software Technology Co. Ltd.

· Triad Semiconductor Inc.

Available-for-sale financial assets include the following:

	2014 £ million		2015 £ million
Current:
Listed equity securities – China		—		23.1
Non-current:
Unlisted equity securities – UK		6.5		6.6
Unlisted equity securities – US		1.6		1.6
Unlisted equity securities – ROW		7.4		3.4
Convertible loan notes – UK		1.3		—
Convertible loan notes – US		6.9		—
Total available-for-sale financial assets		23.7		34.7

Available-for-sale financial assets are held in the following currencies:

	2014 £ million		2015 £ million
Sterling		15.5		11.6
US dollars		8.2		—
Chinese Yuan		—		23.1
Total available-for-sale financial assets		23.7		34.7

12 Property, plant and equipment

	Freehold buildings £ million		Leasehold improvements £ million			Computer equipment £ million			Fixtures, fittings and motor vehicles £ million			Assets in the course of construction £ million			Total £ million
Cost
At January 1, 2015		0.2		20.0			70.5			8.2			1.0			99.9
Additions		—		10.1			24.7			4.2			0.6			39.6
Acquisitions		—		0.1			0.4			0.1			—			0.6
Transfers		—		—			1.4			—			(1.4	)		—
Disposals		—		(5.2	)		(9.9	)		(1.1	)		(0.1	)		(16.3	)
Exchange differences		—		0.6			1.1			0.3			—			2.0
At December 31, 2015		0.2		25.6			88.2			11.7			0.1			125.8
Accumulated depreciation
At January 1, 2015		0.1		9.8			41.4			5.2			—			56.5
Charge for the year		—		3.3			17.7			1.7			—			22.7
Disposals		—		(5.2	)		(9.7	)		(1.1	)		—			(16.0	)
Exchange differences		—		0.3			0.6			0.1			—			1.0
At December 31, 2015		0.1		8.2			50.0			5.9			—			64.2
Net book value At December 31, 2015		0.1		17.4			38.2			5.8			0.1			61.6

F-34

	Freehold buildings £ million		Leasehold improvements £ million			Computer equipment £ million			Fixtures, fittings and motor vehicles £ million			Assets in the course of construction £ million			Total £ million
Cost
At January 1, 2014		0.2		24.2			49.4			7.0			0.7			81.5
Additions		—		3.0			21.8			1.6			1.9			28.3
Acquisitions		—		—			0.1			0.2			—			0.3
Transfers		—		—			1.0			—			(1.0	)		—
Reclassification*		—		—			—			—			(0.3	)		(0.3	)
Disposals		—		(7.8	)		(3.6	)		(0.6	)		—			(12.0	)
Exchange differences		—		0.6			1.8			—			(0.3	)		2.1
At December 31, 2014		0.2		20.0			70.5			8.2			1.0			99.9
Accumulated depreciation
At January 1, 2014		0.1		14.5			28.9			4.4			—			47.9
Charge for the year		—		2.8			15.1			1.2			—			19.1
Acquisitions		—		—			0.1			0.1			—			0.2
Disposals		—		(7.7	)		(3.3	)		(0.6	)		—			(11.6	)
Exchange differences		—		0.2			0.6			0.1			—			0.9
At December 31, 2014		0.1		9.8			41.4			5.2			—			56.5
Net book value At December 31, 2014		0.1		10.2			29.1			3.0			1.0			43.4

*Reclassification from property plant and equipment to intangible assets (software).

Included within computer equipment are assets with net book value of £13.7 million (2014: £9.5 million) held under finance leases.

13 Goodwill

	IP Group   £ million		IoT   £ million		Total  £ million
At January 1, 2014		520.1		5.8		525.9
Exchange differences		29.7		0.4		30.1
Acquisition – Duolog (note 20)		10.7		—		10.7
Acquisition – Offspark (note 20)		—		0.3		0.3
At December 31, 2014		560.5		6.5		567.0
Exchange differences		26.4		1.6		28.0
Acquisition – Wicentric (note 20)		1.8		—		1.8
Acquisition – SMD (note 20)		6.5		—		6.5
Acquisition – Sansa (note 20)		7.1		28.7		35.8
Acquisition – Carbon (note 20)		11.6		—		11.6
At December 31, 2015		613.9		36.8		650.7

The Company has been investing in activities related to the Internet-of-Things (IoT). On July 30, 2015, the Company acquired the share capital of Discretix, Inc (trading as Sansa Security, Inc (Sansa)). The majority of the goodwill and assets acquired as part of this acquisition are considered to be related to IoT. IoT is now considered to be a separate cash-generating unit from IPG. The goodwill allocated to IoT has been subject to a separate impairment review, as goodwill is monitored by the Company at the cash-generating unit level.

During the fourth quarter of 2015, the directors tested the Company’s goodwill balances for impairment in accordance with IAS 36 “Impairment of assets”. Their recoverable amounts have been measured based on a value-in-use calculation.

F-35

The key assumptions in the value-in-use calculations were:

IP Group

Period of projected cash flows The directors have used a ten-year forecast period with an assumed terminal growth rate after 2025 of 3% per annum. The ten year forecast is based on the Company’s detailed strategic plan for years one to three extrapolated for the remaining years. 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.

Operating margins Operating margins have been assumed to rise steadily over the period of the calculation.

Discount rate Future cash flows are discounted at a rate of 10% per annum post tax.

Conclusion The directors are confident that the amount of goodwill is appropriate and that the assumptions used in estimating its recoverable amount 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 recoverable amount exceeds the carrying value.

IoT

Period of projected cash flows The directors have used a ten-year forecast period with an assumed terminal growth rate after 2025 of 3% per annum. The ten year forecast is based on the Company’s detailed strategic plan for years one to three extrapolated for the remaining years. Given the long-term nature of the plan for this cash-generating unit, 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. Significant revenue growth is planned starting from the current immaterial level.

Operating margins Operating margins have been assumed to improve from losses in the early years to approximately 40% over the period of the calculation.

Discount rate Future cash flows are discounted at a rate of 10% per annum post tax.

Conclusion The directors are confident that the amount of goodwill is appropriate and that the assumptions used in estimating its recoverable amount are appropriate. In making this assessment the directors have considered possible scenarios that could result in an impairment. The calculation is most sensitive to variations in the revenue assumptions where a reduction in planned revenues of greater than 30% could result in an impairment of goodwill.

Whilst it is conceivable that a key assumption in the calculation or the Company’s current plans for this cash-generating unit could change, the directors believe that based on the existing strategy it is reasonable to value the goodwill attributed to IoT at its purchased value and that no impairment is necessary as at December 31, 2015.

14 Other intangible assets

	Computer software £ million		Patents and licenses £ million		In-process research and development £ million		Developed technology £ million		Existing agreements and customer relationships £ million		Core technology £ million		Trademarks and tradenames £ million		Total £ million
Cost
At January 1,		20.7		99.1		6.2		50.3		55.2		17.5		4.7		253.7

F-36

	Computer software £ million			Patents and licenses £ million		In-process research and development £ million		Developed technology £ million		Existing agreements and customer relationships £ million		Core technology £ million		Trademarks and tradenames £ million		Total £ million
2015
Additions		2.3			9.1		—		—		—		—		—		11.4
Acquisitions		—			—		3.0		18.2		1.2		—		—		22.4
Disposals		(0.6	)		—		—		—		—		—		—		(0.6	)
Exchange differences		0.1			—		0.4		1.1		2.2		0.9		0.2		4.9
At December 31, 2015		22.5			108.2		9.6		69.6		58.6		18.4		4.9		291.8
Accumulated amortization
At January 1, 2015		15.5			35.5		6.2		41.9		55.2		17.5		4.7		176.5
Charge for the year		3.1			12.7		0.2		3.2		0.1		—		—		19.3
Disposals		(0.6	)		—		—		—		—		—		—		(0.6	)
Exchange differences		0.1			—		0.3		0.9		2.2		0.9		0.2		4.6
At December 31, 2015		18.1			48.2		6.7		46.0		57.5		18.4		4.9		199.8
Net book value at December 31, 2015		4.4			60.0		2.9		23.6		1.1		—		—		92.0

	Computer software £ million			Patents and licenses £ million			In-process research and development £ million		Developed technology £ million		Existing agreements and customer relationships £ million		Core technology £ million		Trademarks and tradenames £ million		Total £ million
Cost
At January 1, 2014		19.4			100.9			5.8		46.7		52.8		16.5		4.4		246.5
Additions		2.6			5.1			—		—		—		—		—		7.7
Acquisitions		—			—			—		2.7		—		—		—		2.7
Reclassification*		0.3			—			—		—		—		—		—		0.3
Disposals		(1.7	)		(6.9	)		—		—		—		—		—		(8.6	)
Exchange differences		0.1			—			0.4		0.9		2.4		1.0		0.3		5.1
At December 31, 2014		20.7			99.1			6.2		50.3		55.2		17.5		4.7		253.7
Accumulated amortization
At January 1, 2014		14.3			31.4			5.8		39.0		52.6		16.1		4.4		163.6
Charge for the year		3.0			11.0			—		1.9		0.2		0.4		—		16.5
Disposals		(1.9	)		(6.9	)		—		—		—		—		—		(8.8	)
Exchange differences		0.1			—			0.4		1.0		2.4		1.0		0.3		5.2
At December 31, 2014		15.5			35.5			6.2		41.9		55.2		17.5		4.7		176.5
Net book value at December 31, 2014		5.2			63.6			—		8.4		—		—		—		77.2

*Reclassification from property, plant and equipment to intangible assets (software).

The net book value of patents and licenses includes a patent license agreement for interconnect technology used in SoCs, with a carrying value of £12.5 million at December 31, 2015 (2014: £14.2 million) and a remaining useful life of seven years, and IP rights acquired with a carrying value of £27.7 million at December 31, 2015 (2014: £32.5 million) and a remaining useful life of six years.

F-37

15 Accrued and other liabilities

	2014 £ million		2015 £ million
Accruals
Provision for payroll taxes on share awards		12.8		11.4
Employee bonus and sales commissions		19.3		28.2
Other accruals (including £6.3 million non-current (2014: £nil))		37.3		55.0
Total Accruals		69.4		94.6
Other taxation and social security		4.7		5.2
Other payables		6.5		7.2
Total accrued and other liabilities		80.6		107.0

16 Finance lease liabilities

	2014 £ million			2015 £ million
Gross finance lease liabilities – minimum lease payments:
Within one year		4.1			5.5
In the second to fifth years inclusive		2.6			6.2
Less: future finance charges		(0.2	)		(0.4	)
Present value of lease obligations		6.5			11.3
Amounts due for settlement within 12 months		3.9			5.2
Amounts due for settlement after 12 months		2.6			6.1
Present value of lease obligations		6.5			11.3

The Company has entered into three- and four- year finance lease arrangements in respect of certain IT equipment.

17 Financial instruments

(a) Financial instruments by category

The accounting policies for financial instruments have been applied to the line items below:

Financial assets

	Loans and receivables £ million		Assets at fair value through the income statement £ million		Available-for-sale £ million		Total £ million
At December 31, 2015
Cash and cash equivalents		40.5		—		—		40.5
Short-term deposits and similar instruments		617.8		—		—		617.8
Embedded derivatives		—		6.9		—		6.9
Accounts receivable (gross of impairment provision)		184.7		—		—		184.7
Available-for-sales financial assets - listed		—		—		23.1		23.1
Total current financial assets		843.0		6.9		23.1		873.0
Long-term deposits and similar instruments		298.0		—		—		298.0
Loans and receivables		6.0		—		—		6.0
Available-for-sale financial assets - unlisted		—		—		11.6		11.6
Total non-current financial assets		304.0		—		11.6		315.6
Total financial assets		1,147.0		6.9		34.7		1,188.6

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	Loans and receivables £ million		Assets at fair value through the income statement £ million		Available-for-sale £ million		Total £ million
At December 31, 2014
Cash and cash equivalents		54.1		—		—		54.1
Short-term deposits and similar instruments		620.8		—		—		620.8
Embedded derivatives		—		2.6		—		2.6
Accounts receivable (gross of impairment provision)		147.6		—		—		147.6
Total current financial assets		822.5		2.6		—		825.1
Long-term deposits and similar instruments		191.4		—		—		191.4
Loans and receivables		3.0		—		—		3.0
Available-for-sale financial assets - unlisted		—		—		23.7		23.7
Total non-current financial assets		194.4		—		23.7		218.1
Total financial assets		1,016.9		2.6		23.7		1,043.2

Financial liabilities

	2014 £ million		2015 £ million
Liabilities at amortized cost at December 31:
Accounts payable		11.7		12.7
Accrued and other liabilities *		46.8		57.0
Finance lease liabilities		6.5		11.3
		65.0		81.0
Liabilities at fair value through the income statement at December 31:
Fair value  of currency exchange contracts		4.8		3.2
Total financial liabilities		69.8		84.2

_______________

* Non-financial liabilities are excluded from the accrued and other liabilities balance as this analysis is required only for financial instruments

Valuation hierarchy

As at December 31, 2015, the Company’s financial instrument assets consisted of embedded derivatives (level 2) of £6.9 million (2014: £2.6 million) and AFS financial assets (level 1) of £23.1 million (current) (2014: £nil (current)) and (level 3) of £11.6 million (non-current) (2014: £23.7 million non-current).

As at December 31, 2015, the Company’s financial instrument liabilities consisted of currency exchange contracts at fair value through the income statement (level 2) of £3.2 million (2014: £4.8 million).

Level 1 AFS financial assets consists of a listed equity investment. The fair value is determined with reference to prices quoted on the relevant exchange at the balance sheet date.

Level 2 currency exchange contracts comprise forward exchange contracts and foreign currency options. The fair value of the forward exchange contracts is determined using forward exchange rates as quoted in an active market. The fair value of foreign currency options is based upon valuations performed by management and the respective banks holding the currency instruments.

Level 2 embedded derivatives are fair valued using forward exchange rates that are quoted in an active market.

Level 3 AFS financial assets consist of unlisted equity investments and other current investments. The estimated fair value of the unlisted equity investments approximates to cost less any permanent diminution in value (based on management’s estimate of forecast profitability and achievement of set objectives by the relevant entity), except where independent valuation information is obtained, e.g. through the occurrence of funding or other transactions in the relevant entity's equity instruments.

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Whilst it is conceivable that a key assumption in the level 3 calculation could change, the directors believe that no reasonably foreseeable changes to key assumptions would result in a significant change in fair value.

Maturity of financial liabilities

The table below analyzes the Company’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.

	Less than six months		Between six months and one year		Between one year and two years		Over two years
	£ million		£ million		£ million		£ million
At December 31, 2015:
Accounts payable		12.7		—		—		—
Accrued and other liabilities		54.3		0.9		1.8		—
Finance lease liabilities		3.0		2.2		3.5		2.6
Fair value of currency exchange contracts		2.4		0.8		—		—
At December 31, 2014:
Accounts payable		11.7		—		—		—
Accrued and other liabilities		46.8		—		—		—
Finance lease liabilities		2.3		1.6		2.1		0.5
Fair value of currency exchange contracts		3.2		1.2		0.4		—

Loans and receivables

During 2010 the Company invested £2.5 million in an interest-free charitable bond with Future Business. This was recognized 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 recognized as interest payable and similar charges during 2010. During 2013, the Company invested a further £0.7 million with Future Business.

In addition, the Company is owed a balance of £2.9 million from its joint venture Trustonic at December 31, 2015 (2014: £nil) in respect of loans and other amounts receivable.

The carrying value of the total loans amounted to £6.0 million at December 31, 2015 (2014: £3.0 million), with £0.1 million being recognized as interest receivable during 2015 (2014: £0.1 million).

The Company had no borrowings during 2015 and 2014.

Short-term deposits and similar instruments

The effective interest rate on short-term deposits and similar instruments outstanding at the year end was 1.35% (2014: 1.29%) and these deposits have an average maturity of 189 days (2014: 205 days).

Long-term deposits and similar instruments

The effective interest rate on long-term deposits and similar instruments outstanding at the year end was 1.52% (2014: 1.61%) and these deposits have an average maturity of 522 days (2014: 576 days).

Derivative financial instruments

The table analyzes the Company’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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	Less than three months million		Over three months but less than six months million		Between six months and one year million		Greater than one year million
Foreign exchange forward contracts – held-for-trading at December 31, 2015
Outflow	$	160.0	$	40.0	$	20.0	$	—
Inflow	£	106.3	£	26.5	£	13.4	£	—
Foreign exchange options – held-for-trading at December 31, 2015
Outflow (maximum)	$	51.8	$	51.8	$	59.5	$	—
Inflow (maximum)	£	35.1	£	35.1	£	40.4	£	—
Foreign exchange forward contracts – held-for-trading at December 31, 2014
Outflow	$	133.0	$	28.0	$	13.0	$	—
Inflow	£	83.6	£	17.9	£	8.4	£	—
Foreign exchange options – held-for-trading at December 31, 2014
Outflow (maximum)	$	59.1	$	59.3	$	88.5	$	24.0
Inflow (maximum)	£	37.3	£	37.4	£	56.6	£	16.0

Fair value of currency exchange contracts

The fair value of currency exchange contracts is estimated using the forward rates. The estimation of the fair value of the liability in respect of currency exchange contracts was £3.2 million at December 31, 2015 (2014: £4.8 million). The resulting gains and losses on the movement of the fair value of currency exchange contracts are recognized in the income statement under general and administrative expenses, amounting to a gain of £1.6 million (2014: loss of £9.4 million).

(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 Company’s finance team.

	2014 £ million		2015 £ million
Trade debtors (gross of impairment provision):
Not yet due		86.5		101.6
Under 90 days overdue		31.0		26.4
Over 90 days but not provided for		12.0		4.5
Fully provided for		9.0		1.0
Total		138.5		133.5

As shown above, at December 31, 2015 trade debtors less than 90 days overdue (excluding those amounts that are not yet due) amounted to £26.4 million. Of those outstanding at December 31, 2015, £18.6 million had been collected by February 15, 2016 and £6.9 million was owed by large, established customers. Similarly, debtors more than 90 days overdue and not provided for amounted to £4.5 million of which £0.6 million had been collected by February 15, 2016 and £2.5 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 Company’s future results.

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As shown above, at December 31, 2015, trade debtors fully provided for amounted to £1.0 million (2014: £9.0 million). All of the trade debtors provided for at December 31, 2015 and December 31, 2014 are over six months overdue.

At December 31, 2015 one customer (2014: no customer) accounted for over 10% of accounts receivable.

Credit Risk

Financial instrument counterparties are subject to pre-approval by the directors and such approval is limited to financial institutions with either 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 December 31, 2015 and 2014, the majority of the Company’s cash and cash equivalents, short- and long-term deposits and similar instruments 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 three years. At December 31, 2015, over 99% (2014: 99%) of the Company’s cash and cash equivalents, and short- and long-term deposits and similar instruments were deposited with major clearing banks and building societies fulfilling these criteria.

Interest rate risk

At December 31, 2015, the Company had £956.1 million (2014: £873.1 million) of interest-bearing assets. At December 31, 2015, 95% (2014: 93%) of interest-bearing assets (comprising cash and cash equivalents, short- and long-term deposits and similar instruments, loans and receivables, and the Company’s loan to joint venture) are at fixed rates and are therefore exposed to fair value interest rate risk. Had interest rates been 1% (100 basis points) lower throughout the year, interest receivable would have reduced by approximately £8.5 million (2014: £7.3 million) and profit after tax by £6.8 million (2014: £5.8 million).

Currency risk

At December 31, 2015, the Company had outstanding currency exchange contracts to sell $220 million (2014: $174 million) for sterling. In addition, the Company utilizes option instruments which have various provisions that, depending on the spot rate at maturity, give either the Company or the counterparty the option to exercise. At December 31, 2015, the Company had outstanding currency options under which the Company may, under certain circumstances, be required to sell up to $163 million (2014: $231 million) for sterling. A common scenario with options of this type is that the spot price at expiry is such that neither the Company nor the counterparty chooses to exercise the option. At December 31, 2015, the Company had $196 million (2014: $212 million) of accounts receivable denominated in US dollars at that date, and US dollar cash and cash equivalents, and short-term deposits of $18 million (2014: $41 million). Thus the Company’s US dollar assets were less than its currency exchange contracts and currency options outstanding 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 Company’s cash flows, the Company typically has a greater value of currency exchange contracts outstanding than US dollar assets held.

At December 31, 2015, if sterling had strengthened by 10% against foreign currencies with all other variables held constant, post-tax profit for the year would have been £5.3 million lower (2014: £4.0 million lower), mainly as a result of the mix of financial instruments at respective year ends.

18 Share capital

Authorized	2014 £ million		2015 £ million
2,200,000,000 ordinary shares of 0.05 pence each (2014: 2,200,000,000)		1.1		1.1

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	2014				2015
	Number of shares (millions)		Value £ million		Number of shares (millions)		Value £ million
Issued and fully paid
At January 1		1,400.3		0.7		1,412.2		0.7
Allotted under employee incentive schemes		11.9		—		0.2		—
December 31		1,412.2		0.7		1,412.4		0.7

During 2015, the aggregate consideration received on issue of new share capital allotted under employee incentive schemes was £2.3 million (2014: £6.8 million).

19 Own shares held

	Treasury stock £ million
At January 1, 2015		66.9
Purchase of own shares		92.2
Issuance of shares		(87.1	)
December 31, 2015		72.0

During the year £92.2 million (2014: £66.9 million) of shares were repurchased, representing 9.0 million (2014: 7.9 million) shares. At December 31, 2015, 7.2 million (2014: 7.9 million) shares were held as treasury stock. Own shares held have a nominal value of 0.05 pence and in total represent 0.5% of called-up share capital.

20 Acquisitions

The Company acquired the entire share capital of three companies in 2015: Wicentric, Inc., acquired on February 5, 2015, Sunrise Micro Devices, Inc. (SMD), acquired on April 15, 2015 and Discretix, Inc (trading as Sansa Security, Inc. (Sansa)), acquired on July 30, 2015. In addition the Company acquired the trade and certain assets of Carbon Design Systems, Inc. (Carbon), on October 19, 2015.

Wicentric is a Bluetooth® Smart stack and profile provider and SMD is a provider of sub-one volt radio IP. The IP of both companies is being integrated to form a portfolio that will complement ARM’s existing processor and physical IP, targeting end markets requiring low-power wireless communications such as the IoT.

The following table summarises the consideration and provisional fair values of the assets acquired and liabilities assumed at the date of each acquisition.

	Wicentric February 5, 2015					SMD April 15, 2015
		£ million		$ million			£ million		$ million
Cash, accounts receivable, other current assets and property, plant and equipment		0.2		0.3			0.9		1.3
Intangible assets		0.4		0.6			4.6		6.7
Accrued and other liabilities		(0.1	)	(0.2	)		(0.5	)	(0.7	)
Deferred tax liabilities (net)		(0.1	)	(0.2	)		(1.6	)	(2.3	)
Net assets acquired		0.4		0.5			3.4		5.0
Goodwill		1.8		2.7			6.5		9.6
Consideration		2.2		3.2			9.9		14.6

The full consideration was paid in cash for Wicentric. The majority of the consideration for SMD consisted of convertible loan notes (and interest accrued) with a fair value of £9.2 million ($13.5 million), with the remainder of

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the consideration settled in cash. All transaction expenses incurred by the Company have been charged to the income statement.

From their dates of acquisition to December 31, 2015, the acquisitions of Wicentric and SMD contributed £1.0 million in revenue and incurred a pre-tax loss of £3.5 million. If both companies had been consolidated from January 1, 2015, the consolidated income statement would have included an additional £1.0 million of revenue and £5.2 million of pre-tax loss.

Sansa is a provider of hardware security IP and software for advanced system-on-chip components deployed in IoT and mobile devices. The company currently enables security in more than 150 million products a year and Sansa technology is deployed across a range of smart connected devices and enterprise systems. The acquisition complements the ARM security portfolio, which includes ARM TrustZone® technology and SecurCore® processor IP.

Carbon is a leading supplier of cycle-accurate virtual prototyping solutions, to deliver design optimization, time-to-market and cost-efficiency gains for its Partners.

The following table summarises the consideration and provisional fair values of the assets acquired and liabilities assumed at the date of each acquisition.

	Sansa July 30, 2015					Carbon October 19, 2015
		£ million		$ million			£ million		$ million
Cash, accounts receivable, other current assets and property, plant and equipment		4.8		7.4			0.1		0.1
Intangible assets		11.5		17.8			5.9		9.1
Accrued and other liabilities		(3.1	)	(4.8	)		(1.8	)	(2.8	)
Deferred tax liabilities (net)		(3.0	)	(4.7	)		—		—
Net assets acquired		10.2		15.7			4.2		6.4
Goodwill		35.8		55.6			11.6		18.0
Consideration		46.0		71.3			15.8		24.4

The full consideration was paid in cash for both Sansa and Carbon. All transaction expenses incurred by the Company have been charged to the income statement. The rationale for the acquisition of Sansa is to accelerate the Company’s business into the IoT services market and to enhance future revenue streams rather than to directly exploit the IP acquired. Consequently the majority of the value to the Company is as an enabler to the existing business which has resulted in the high proportion of goodwill as a percentage of the consideration.

From July 30, 2015 to December 31, 2015, the acquisition of Sansa contributed £4.3 million in revenue and incurred a pre-tax profit of £0.4 million. If Sansa had been consolidated from January 1, 2015, the consolidated income statement would have included an additional £10.2 million of revenue and £0.5 million of pre-tax loss.

From October 19, 2015 to December 31, 2015, the acquisition of Carbon contributed £0.7 million in revenue and incurred a pre-tax profit of £0.1 million. If Carbon had been consolidated from January 1, 2015, the consolidated income statement would have included an additional £4.0 million of revenue and no pre-tax profit or loss.

For the above reasons, combined with the ability to hire the workforce of the companies, including the founders and the management teams, the Group paid a premium for all four companies, giving rise to goodwill. All intangible assets were recognized at their fair values, with the residual excess over net assets being recognized as goodwill.

Two acquisitions were made in 2014: Duolog Holdings Limited, acquired on May 27, 2014 for €13.9 million (£11.4 million), and Offspark BV, acquired on November 14, 2014 for €1.5 million (£1.2 million). The Company acquired the entire share capital of both entities, which have been accounted for as acquisitions.

Duolog, a company based in Ireland and Hungary, is a leader in design configuration and integration technology for the semiconductor industry. The acquisition strengthens the Company’s IP configuration and integration capability, helping ARM Partners design and deploy system IP and manage increasing SoC integration complexity.

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Offspark BV, a company based in the Netherlands, is a company providing specialized services in the field of digital security focusing on online security, secure hardware and software and (practical) cryptography.

For the above reasons, combined with the ability to hire the workforce of the companies, including the founders and the management team, the Company paid a premium for both companies, giving rise to goodwill. All intangible assets were recognized at their fair values, with the residual excess over net assets being recognized as goodwill.

The following table summarizes the consideration and final fair values of the assets acquired and liabilities assumed at the date of each acquisition.

	Duolog May 27, 2014					Offspark November 14, 2013
		£ million		€ million			£ million		€ million
Cash, accounts receivable, other current assets and property, plant and equipment		1.2		1.6			0.1		0.2
Intangible assets		1.7		2.0			1.0		1.2
Accrued and other liabilities		(0.8	)	(1.0	)		—		—
Loans payable		(1.2	)	(1.5	)		—		—
Deferred tax liabilities (net)		(0.2	)	(0.3	)		(0.2	)	(0.3	)
Net assets acquired		0.7		0.8			0.9		1.1
Goodwill		10.7		13.1			0.3		0.4
Consideration		11.4		13.9			1.2		1.5

The consideration for both acquisitions was paid in cash. All transaction expenses incurred by the Company have been charged to the income statement within general and administrative expenses.

From May 27, 2014 to December 31, 2014, the acquisition of Duolog contributed £1.3 million in revenue and incurred a pre-tax loss of £0.7 million. If Duolog had been consolidated from January 1, 2014, the consolidated income statement would have included £3.1 million of revenue and £0.5 million of pre-tax loss. The trading results of Offspark would have had no significant impact on the results of the Company.

Other

During 2015 the Company also made payments in respect of time-based and performance bonuses of £1.1 million (2014: £1.4 million) due as a result of the acquisition of Prolific Inc in 2011, £0.3 million (2014: £0.3million) due as a result of the acquisition of Sensinode in 2013, £0.3 million (2014: £nil) due as a result of the acquisition of Duolog and £0.2 million (2014: £nil) due as a result of the acquisition of Geomerics in 2014.

During 2014 the Company made a payment of £1.8 million in respect of time-based and performance bonuses due as a result of the acquisition of Obsidian Software Inc in 2011.

21 Share-based payments

Since 2006, the Company has issued 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.

Additionally, the Company operates a DAB plan. Under the DAB plan, which is for directors and selected senior management within the Company, 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. This scheme was replaced after the February 2014 grant with a cash-only bonus.

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The Company also operates the LTIP, also for directors and selected senior management, whereby share awards are made and vest depending on the Company’s TSR performance and normalized EPS performance over the three-year performance period. Grants were made for the last time under the former LTIP scheme in February 2013, for which the number of shares vesting depend only on the TSR performance of the Company.

The Company also offers SAYE schemes for UK employees and executive directors of the Company. The number of options granted is related to the value of savings made by the employee. The period of savings is three or five years. 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 UK, US, India, Asia Pac countries and certain European countries, namely the 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 Company has in the past issued share options under several additional schemes, whereby shares in the Company can be granted to employees and directors. Options are granted with a fixed exercise price equal to the market price of the shares under option at the date of grant. These schemes are the UK Inland Revenue Executive Approved Share Option Plan (the “Executive Scheme”), the Unapproved Scheme (the “Unapproved Scheme”), the French Scheme and various schemes that the Company assumed on the acquisition of Artisan in 2004. Share options in these schemes are no longer granted, although the Company reserves the right to award options to employees going forward. Shares relating to these schemes have all vested in prior years and therefore there is no share-based payment charge associated with them for 2013, 2014, or 2015. All shares issued under these schemes have either lapsed or been exercised as at December 31, 2014.

As disclosed in note 4, staff expenses arising from these share-based compensation schemes of £70.5 million (2014: £68.5 million; 2013: £59.2 million) were charged to the income statement in the year. This is in line with the Company’s policies for recognition and measurement of the costs associated with these remuneration schemes as outlined in note 1b.

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 2013, 2014 and 2015 were as follows:

Grant date	Jun 26, 2015			Apr 30, 2015		Oct 31, 2015		Jun 23, 2014			Apr 30, 2014
Scheme	SAYE			ESPP		ESPP		SAYE			ESPP
Share price at grant date	£	11.480		£	11.140	£	10.250	£	8.89		£	9.095
Exercise price	£	9.344		£	7.438	£	8.712	£	7.344		£	7.73
Number of employees		410			935		1,629		520			684
Shares under option		327,021			403,562		482,833		651,142			280,996
Vesting period (years)		3-5			—		—		3-5			—
Expected volatility		29%-34%			—		—		33%-35%			—
Expected life (years)		3-5			—		—		3-5			—
Risk-free rate		0.5	%		—		—		0.5	%		—
Dividend yield		0.61	%		—		—		0.64	%		—
Fair value per option	£	3.247-4.094		£	3.7025	£	1.5380	£	2.630-3.180		£	1.365

Grant date	Oct 31, 2014		Feb 16, 2013		Jun 23, 2013		Apr 30, 2013		Oct 31, 2013
Scheme	ESPP		ESPP		SAYE		ESPP		ESPP
Share price at grant date	£	8.385	£	9.25	£	7.725	£	9.96	£	9.94
Exercise price	£	7.13	£	4.964	£	7.9616	£	5.6525	£	8.449
Number of employees		892		391		350		151		605
Shares under option		361,083		330,676		210,605		35,386		228,335
Vesting period (years)		—		—		3-5		—		—
Expected volatility		—		—		37%-40%		—		—
Expected life (years)		—		—		3-5		—		—

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Grant date	Oct 31, 2014		Feb 16, 2013		Jun 23, 2013			Apr 30, 2013		Oct 31, 2013
Scheme	ESPP		ESPP		SAYE			ESPP		ESPP
Risk-free rate		—		—		0.5	%		—		—
Dividend yield		—		—		0.58	%		—		—
Fair value per option	£	1.258	£	4.286	£	1.828-2.510		£	4.3075	£	1.491

The fair value of RSUs 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 fair value of LTIP awards granted in 2013 and those granted in 2014 and 2015 with non-market-based performance conditions (i.e. based on EPS performance) have also been estimated using the Black-Scholes option pricing model.

For LTIP awards with market-based performance conditions issued in 2014 the fair value was based upon Monte-Carlo simulation of the performance of the comparator companies in the FTSE 350 and the FTSE All World Technology Index (AWTI). The Monte Carlo simulation incorporates a range of other assumptions based on the TSR comparator companies; the assumptions given below relate to the Company.

The following assumptions for each grant during 2015, 2014 and 2013 were as follows:

Black-Scholes model assumptions:

Grant date	Feb 12, 2015			Feb 12, 2015			Feb 12, 2015			May 8, 2015			May 8, 2015
Scheme	RSU			French RSU			LTIP (EPS)			RSU			French RSU
Share price at grant date	£	10.87		£	10.87		£	10.87		£	11.35		£	11.35
Number of employees		3,052			126			58			145			13
Shares awarded		4,403,182			145,485			615,651			324,414			19,304
Vesting period (years)		1-4			2-4			3			1-4			2-4
Expected volatility		28%-33%			30%-33%			30	%		28%-32%			29%-32%
Expected life (years)		1-4			2-4			3			1-4			2-4
Risk-free rate		0.5	%		0.5	%		0.5	%		0.5	%		0.5	%
Dividend yield		0.65	%		0.65	%		0.65	%		0.62	%		0.62	%
Fair value per share	£	10.593-10.800		£	10.593-10.731		£	10.661		£	11.073-11.280		£	11.073-11.210

Grant date	Aug 13, 2015			Aug 13, 2015			Nov 12, 2015			Nov 12, 2015
Scheme	RSU			French RSU			RSU			French RSU
Share price at grant date	£	9.16		£	9.16		£	10.53		£	10.53
Number of employees		618			16			286			7
Shares awarded		1,589,361			19,187			646,514			6,627
Vesting period (years)		1-4			2-4			1-4			2-4
Expected volatility		29%-32%			29%-32%			30	%		30	%
Expected life (years)		1-4			2-4			1-4			2-4
Risk-free rate		0.5	%		0.5	%		0.5	%		0.5	%
Dividend yield		0.84	%		0.84	%		0.73	%		0.73	%
Fair value per share	£	8.859-9.084		£	8.859-9.008		£	10.228-10.454		£	10.228-10.378

F-47

Grant date	Feb 8, 2014			Feb 8, 2014			Feb 8, 2014			Feb 8, 2014
Scheme	DAB			RSU			French RSU			LTIP (EPS)
Share price at grant date	£	8.96		£	8.96		£	8.96		£	8.96
Number of employees		54			2,625			114			59
Shares awarded		509,078			4,455,185			165,927			745,615
Vesting period (years)		3			1-4			2-4			3
Expected volatility		35	%		31%-36%			31%-36%			35	%
Expected life (years)		3			1-4			2-4			3-5
Risk-free rate		0.5	%		0.5	%		0.5	%		0.5	%
Dividend yield		0.64	%		0.64	%		0.64	%		0.64	%
Fair value per share	£	8.791			£ 8.735-8.903			£ 8.735-8.847		£	8.791

Grant date	May 8, 2014			May 8, 2014			Aug 13, 2014			Aug 13, 2014
Scheme	RSU			French RSU			RSU			French RSU
Share price at grant date	£	8.715		£	8.715		£	8.95		£	8.95
Number of employees		149			6			170			2
Shares awarded		391,556			7,089			380,617			6,882
Vesting period (years)		1-4			2-4			1-4			2-4
Expected volatility		31%-36%			31%-36%			29%-35%			30%-35%
Expected life (years)		1-4			2-4			1-4			2-4
Risk-free rate		0.5	%		0.5	%		0.5	%		0.5	%
Dividend yield		0.65	%		0.65	%		0.68	%		0.68	%
Fair value per share	£	8.490-8.658		£	8.490-8.602		£	8.709-8.889		£	8.709-8.828

Grant date	Nov 12, 2014			Nov 12, 2014
Scheme	RSU			French RSU
Share price at grant date	£	8.745		£	8.745
Number of employees		333			2
Shares awarded		755,115			2,092
Vesting period (years)		1-4			2-4
Expected volatility		29%-34%			30%-34%
Expected life (years)		1-4			2-4
Risk-free rate		0.5	%		0.5	%
Dividend yield		0.70	%		0.70	%
Fair value per share	£	8.504-8.684		£	8.504-8.623

Monte Carlo model assumptions for LTIP:

Grant date	Feb 12, 2015			Feb 12, 2015			Nov 12, 2015			Nov 12, 2015
Scheme	FTSE 350			FTSE AWTI			FTSE 350			FTSE AWTI
Share price at grant date	£	10.87		£	10.87		£	10.53		£	10.53
Number of employees		58			58			2			2
Shares awarded		307,884			307,885			8,618			8,618
Vesting period (years)		3			3			3			3
Expected volatility		31	%		31	%		30	%		30	%
Expected life (years)		3-5			3-5			3-5			3-5
Risk-free rate		0.64	%		0.64	%		0.64	%		0.64	%
Dividend yield		0	%		0	%		0	%		0	%
Fair value per share	£	13.242		£	13.479		£	11.092		£	12.343

Grant date	Feb 8, 2014		Feb 8, 2014
Scheme	LTIP (FTSE 350)		LTIP (FTSE AWTI)
Share price at grant date	£	8.96	£	8.96

F-48

Grant date	Feb 8, 2014			Feb 8, 2014
Scheme	LTIP (FTSE 350)			LTIP (FTSE AWTI)
Number of employees		59			59
Shares awarded		372,793			372,793
Vesting period (years)		3			3
Expected volatility		35	%		35	%
Expected life (years)		3-5			3-5
Risk-free rate		1.0	%		1.0	%
Dividend yield		0	%		0	%
Fair value per share	£	6.952		£	7.560

Grant date	Feb 8, 2013			Feb 8, 2013			Feb 8, 2013			Feb 8, 2013
Scheme	DAB			RSU			French RSU			LTIP
Share price at grant date	£	9.245		£	9.245		£	9.245		£	9.245
Number of employees		53			2,207			93			55
Shares awarded		466,174			7,686,539			286,900			742,469
Vesting period (years)		3			1-4			2-4			3
Expected volatility		37	%		30%-37%			35%-37%			37	%
Expected life (years)		3			1-4			2-4			3
Risk-free rate		0.5	%		0.5	%		0.5	%		0.5	%
Dividend yield		0.49	%		0.49	%		0.49	%		0.49	%
Fair value per share	£	9.111		£	9.067-9.200		£	9.067-9.155		£	9.111

Grant date	May 8, 2013			May 8, 2013			Aug 13, 2013			Aug 13, 2013
Scheme	RSU			French RSU			RSU			French RSU
Share price at grant date	£	10.46		£	10.46		£	8.89		£	8.89
Number of employees		102			3			134			4
Shares awarded		258,224			6,645			318,934			6,347
Vesting period (years)		1-4			2-4			1-4			2-4
Expected volatility		30%-38%			34%-38%			31%-36%			32%-36%
Expected life (years)		1-4			2-4			1-4			2-4
Risk-free rate		0.5	%		0.5	%		0.5	%		0.5	%
Dividend yield		0.43	%		0.43	%		0.55	%		0.55	%
Fair value per share	£	10.282-10.415		£	10.282-10.37		£	8.69-8.836		£	8.69-8.787

Grant date	Aug 13, 2013			Nov 12, 2013			Nov 12, 2013
Scheme	LTIP			RSU			French RSU
Share price at grant date	£	8.89		£	9.495		£	9.495
Number of employees		1			252			9
Shares awarded		11,280			494,746			16,478
Vesting period (years)		3			1-4			2-4
Expected volatility		36	%		31%-36%			31%-36%
Expected life (years)		3			1-4			2-4
Risk-free rate		0.5	%		0.5	%		0.5	%
Dividend yield		0.55	%		0.52	%		0.52	%
Fair value per share	£	8.738		£	9.30-9.446		£	9.30-9.397

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.

F-49

A reconciliation of option and share award movements over the year to December 31, 2015 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.

	2014					2015
	Options Number		Weighted average exercise price	RSUs/ LTIP/DAB Number		Options Number		Weighted average exercise price	RSUs/ LTIP/DAB Number
Outstanding at January 1	1,969,919		£3.385	20,227,656		1,575,069		£5.661	18,897,280
Granted	1,293,221		£7.368	9,666,289		1,213,416		£8.459	9,718,744
Forfeited	(90,322	)	£5.197	(667,923	)	(81,879	)	£6.804	(1,003,267	)
Lapsed	(29,458	)	£0.725	—		—		—	—
Exercised	(1,568,291	)	£4.329	(10,328,742	)	(1,499,297	)	£6.276	(8,398,143	)
Outstanding at December 31	1,575,069		£5.661	18,897,280		1,207,309		£7.632	19,214,614
Exercisable at December 31	4,283		£4.464	—		1,363		£3.962	—

	2013
	Options Number		Weighted average exercise price	RSUs/ LTIP/DAB Number
Outstanding at January 1	3,738,922		£1.994	23,255,834
Granted	805,002		6.765	14,972,806
Forfeited	(57,969	)	4.257	(974,255	)
Lapsed	(47,313	)	0.575	—
Exercised	(2,468,723	)	2.414	(17,026,729	)
Outstanding at December 31	1,969,919		£3.385	20,227,656
Exercisable at December 31	392,451		£0.723	—

The weighted average share price at the date of exercise or vest of the above share options and awards was £10.72 (2014: £8.94; 2013: £9.29).

The following options over ordinary shares were in existence at December 31:

2015 Exercise price (£)	Number outstanding		Weighted average exercise price £		Weighted average remaining life Expected Years		Weighted average remaining life Contractual Years
Outstanding options:
3.962-9.344		1,207,309		7.63		2.27		2.52
Total		1,207,309		7.63		2.27		2.52
Outstanding RSU/LTIP/DAB awards:
0.00 (RSUs)		15,553,164		—		1.32		1.32
0.00 (LTIP)		2,975,379		—		1.36		1.36
0.00 (DAB)		686,071		—		0.70		0.70
Total		19,214,614		—		1.30		1.30

2014 Exercise price (£)	Number outstanding		Weighted average exercise price £		Weighted average remaining life Expected Years		Weighted average remaining life Contractual Years
Outstanding options:
1.948–7.96		1,575,069		5.66		2.10		2.35
Total		1,575,069		5.66		2.10		2.35
Outstanding RSU/LTIP/DAB awards:
0.00 (RSUs)		14,702,277		—		1.26		1.26
0.00 (LTIP)		2,800,003		—		1.36		1.36

F-50

2014 Exercise price (£)	Number outstanding		Weighted average exercise price £		Weighted average remaining life Expected Years		Weighted average remaining life Contractual Years
0.00 (DAB)		1,395,000		—		1.06		1.06
Total		18,897,280		—		1.26		1.26

2013 Exercise price (£)	Number outstanding		Weighted average exercise price £		Weighted average remaining life Expected Years		Weighted average remaining life Contractual Years
Outstanding options:
0.7–0.854		571,846		0.76		0.49		0.78
1.01–1.055		19,166		1.04		0.52		1.05
1.25		1,360		1.25		0.04		0.08
1.948–7.96		1,377,547		4.51		2.00		2.25
Total		1,969,919		3.38		1.55		1.81
Outstanding RSU/LTIP/DAB awards:
0.00 (RSUs)		16,792,567		—		1.20		1.20
0.00 (LTIP)		2,054,203		—		1.12		1.12
0.00 (DAB)		1,380,886		—		1.06		1.06
Total		20,227,656		—		1.18		1.18

22 Capital and other financial commitments

	2014 £ million		2015 £ million
Contracts placed for future capital expenditure not provided in the financial statements		2.9		7.5
Other financial commitments (expenditure on investments)		5.4		3.2

23 Operating lease commitments–minimum lease payments

At December 31, 2014 and 2015, the Company had commitments under non-cancelable operating leases as follows:

	2014				2015
		Land and buildings £ million	Other £ million	Total £ million		Land and buildings £ million	Other £ million	Total £ million
The future aggregate minimum lease payments under non-cancelable operating leases are as follows:
Within one year		11.6	5.3	16.9		15.1	20.0	35.1
Later than one year and less than five years		31.7	—	31.7		38.4	24.3	62.7
After five years		9.3	—	9.3		15.0	—	15.0
At December 31		52.6	5.3	57.9		68.5	44.3	112.8

The Company leases office buildings and EDA tools software under non-cancelable operating lease agreements. The remaining lease terms are between one and nine years, and the majority of lease agreements are renewable at the end of the lease period at market rate.

F-51

24 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 IP of a third party. Consistent with such practice, the Company provides such indemnification to its licensees. The obligation for the Company to indemnify its licensees is subject to certain provisos and is usually contingent upon a third party bringing an action against the licensee alleging that the technology licensed by the Company to the licensee infringes such third party’s IP rights. The indemnification obligations typically survive any termination of the license and will continue in perpetuity.

The Company 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 Company 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 Company. Currently, there are legal proceedings against some of the Company’s licensees in which it is asserted that certain of the Company’s technology infringes third-party patents, but in each of those proceedings the Company 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 Company does not believe that it is probable that the resolution of such proceedings will result in a material liability for the Company. If preconditions to indemnification are satisfied then an indemnification obligation may arise which could result in a material liability for the Company.

25 Related party transactions

During the year ended December 31, 2015 the Company incurred subscription costs of £7.0 million from Linaro Limited (Linaro), an associated company of the Company, representing ARM’s committed aggregate contributions to Linaro for a period of two years (2014: £nil million). In respect of the subscription fees, the Company was invoiced £3.5 million during the year to December 31, 2015 (2014: £3.5 million). As at December 31, 2015, £1.1 million (2014: £1.1 million) was owed to Linaro.

In addition the Company provided consulting and other services to Linaro amounting to £1.3 million (2014: £1.1 million). All fees have been charged in accordance with the terms of the agreement. As at 31 December 2015, £0.4 million (2014: £0.3 million) was owed to the Company.

Further information relating to Linaro is disclosed in note 27.

Key management compensation is disclosed in note 3.

There were no other related party transactions during 2015 which require disclosure.

26 Post-balance sheet events

After the year end, the directors proposed payment of a final dividend in respect of 2015 of 5.63 pence per share. Subject to shareholder approval, the final dividend will be paid on May 13, 2016 to shareholders on the register on April 22, 2016. The final dividend has not been recognized as a distribution during the year ended December 31, 2015.

27 Subsidiaries, associates and joint ventures

Details of subsidiary undertakings are shown below. All investments are indirectly held unless otherwise shown.

F-52

Name of undertaking	Country of incorporation	Principal activity	Parent proportion of nominal value of issued shares held (%)	Proportion of total Group nominal value of issued shares held (%)
ARM Limited	England and Wales	Marketing, research and development of RISC-based microprocessors and graphics IP	Less than 1	100*
ARM Belgium Services BVBA	Belgium	Administration	—	100
ARM Electronic Technology (Shanghai) Co. Limited	PR China	Marketing, research and development of RISC-based microprocessors and graphics IP.	—	100
ARM Embedded Technologies Pvt. Limited	India	Marketing, research and development of RISC-based microprocessors and physical IP.	—	100
ARM Finance Overseas Limited	England and Wales	Holding company	100	100
ARM Finance UK Limited	England and Wales	Holding company	100	100
ARM Finance UK Three Limited	England and Wales	Holding company	—	100
ARM Finance UK Two Limited	England and Wales	Holding company	—	100
ARM Finland Oy	Finland	Development of IoT Technology	—	100
ARM France SAS	France	Marketing, research and development of RISC-based microprocessors and physical IP	—	100
ARM Germany GmbH	Germany	Marketing of RISC-based microprocessor IP. Marketing, and research and development of microcontroller tools	—	100
ARM Germany d.o.o	Slovenia	Marketing of RISC-based microprocessor IP. Marketing, and research and development of microcontroller tools	—	100
ARM Holdings US, Inc	US	Holding company	—	100
ARM Hungary KFT	Hungary	Development of system IP	—	100
ARM Inc.	US	Marketing, research and development of RISC-based	—	100

F-53

Name of undertaking	Country of incorporation	Principal activity	Parent proportion of nominal value of issued shares held (%)	Proportion of total Group nominal value of issued shares held (%)
		microprocessors and physical IP.
ARM Ireland Holdings Limited	Ireland	Holding company	—	100
ARM Ireland Limited	Ireland	Development of system IP	—	100
ARM Ireland Research Limited	Ireland	Development of system IP	—	100
ARM IP Limited	England and Wales	IP holding company	100	100
ARM Korea Limited	South Korea	Marketing of RISC-based microprocessor IP	—	100
ARM KK	Japan	Marketing of RISC-based microprocessor IP	—	100
ARM Norway AS	Norway	Research and development of graphics IP	—	100
ARM PIPD Holdings One, LLC	US	Holding company	—	100
ARM PIPD Holdings Two, LLC	US	Holding company	—	100
ARM Sweden AB	Sweden	Research and development of graphics IP	—	100
ARM Sansa Holdings, Inc	US	Dormant	—	100
ARM Taiwan Limited	Taiwan	Marketing, research and development of RISC-based microprocessors and physical IP.	—	100
ARM Technologies Israel Ltd	Israel	Development of IoT Technology and system IP	—	100
ARM Technologies Investments Limited	England and Wales	Holding company	100	100
ARM UK Holdings Limited	England and Wales	Holding company	—	100
Discretix KK	Japan	Dormant	—	100
Duolog Technologies Corp	Ireland	Dormant	—	100
Geomerics Limited	England and Wales	Research and development of graphics IP	—	100
Keil Software, Inc	US	Dormant	—	100
Obsidian Software, Inc	US	Dormant	—	100
Offspark B.V	Netherlands	Dormant	—	100
Sunrise Micro Devices, Inc	US	Dormant	—	100
Advanced RISC Machines Limited	England and Wales	Dormant	—	100

____________________

* 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 Company.

F-54

Associate

During 2010, the Company became a founder member of Linaro, a not-for-profit engineering company created to foster innovation in the Linux community. Linaro (a company incorporated in England and Wales) is a company limited by guarantee and as such has no shareholders. The Company controls only 25% of the board and therefore considers Linaro to be an associate rather than a subsidiary. The Company has not recognized any associate profit or loss, or net assets on the basis that the entity is not-for-profit.

Joint venture

In 2012, the Company invested £7.5 million ($12.0 million) in a joint venture, Trustonic Limited (a company incorporated in England and Wales, based in Cambridge, UK), with a further investment during 2013 amounting to £3.7 million (€4.4 million), maintaining a 40% shareholding. The other two joint venture parties each owned 30% of the joint venture. With the establishment of industry standards and demand for security enhanced services the focus of Trustonic is to accelerate the wide deployment of secure, smart devices. This investment has been classified as a joint venture since the Company and its venture partner have joint control over the relevant activities of the business, including the appointment of directors and the determination of the operations of the company.

The joint venture was reorganized in May 2015 such that the shareholding of one party has been acquired by the other two joint venture members. The joint venture is now controlled and owned equally by ARM and one other party, both with 50% shareholdings as at December 31, 2015. The reorganisation generated goodwill of £1.4 million. The carrying value of the Company’s investment is of £1.0 million at December 31, 2015.

In 2015, the Company invested £1.6 million (CNY 15.9 million) in a joint venture, ARM Innovation Ecosystem Accelerator Co. Ltd (AIEA) (a company incorporated in PR China, based in Beijing), representing a 49.9% shareholding. The collaboration creates an Internet of Things one-stop shop for startups and established OEMs, providing integrated hardware and software expertise as well as resources from the ARM ecosystem. This investment has been classified as a joint venture since the Company and its venture partner have joint control over the relevant activities of the business, including the appointment of directors and the determination of the operations of the company.

Investment in joint venture	2013 £ million		2014 £ million		2015 £ million
At January 1	6.8		6.5		3.0
Investment	3.7		—		2.7
Share of results for period	(4.0	)	(3.5	)	(3.1	)
At December 31	6.5		3.0		2.6

The Company’s share of the results of the joint ventures, and its aggregated assets and liabilities are as follows:

	Current assets £ million	Non-current assets £ million	Current liabilities £ million		Non-current liabilities £million		Currency translation £ million		Income £ million	Expenses £ million		Tax £ million	Loss for the year £ million
Trustonic Limited
At December 31, 2015	3.1	3.6	(5.1	)	(2.0	)	—		3.6	(6.8	)	0.1	(3.1	)
At December 31, 2014	2.6	4.6	(4.2	)	(0.3	)	0.3		3.2	(6.9	)	0.2	(3.5	)
At December 31, 2013	3.9	6.5	(3.9	)	—		(0.1	)	2.5	(6.7	)	0.2	(4.0	)

F-55

	Current assets £ million	Non-current assets £ million	Current liabilities £ million	Non-current liabilities £million	Currency translation £ million	Income £ million	Expenses £ million	Tax £ million	Loss for the year £ million
AIEA
At December 31, 2015	1.6	—	—	—	—	—	—	—	—
At December 31, 2014	—	—	—	—	—	—	—	—	—
At December 31, 2013	—	—	—	—	—	—	—	—	—

The Company’s share of joint venture capital commitments amount was £nil at December 31,2015 (2014: £0.2 million).

F-56