Arkle Res Regulatory News (ARK)

1 Aug 2007 07:00

ARC International (LSE:ARK), the world leader in configurablemultimedia subsystems and CPU/DSP processor cores, today announced itsunaudited financial results for the six months ended June 30, 2007. £ Highlights \* T -- Continued Revenue Growth -- Revenue up 18% to GBP 7.0 million (1H 2006: GBP 6.0 million) -- Royalties up 82% to GBP 2.8 million (1H 2006: GBP 1.5 million) -- Bookings up 61% to GBP 13.4 million (1H 2006: GBP 8.3 million) -- Current backlog (including deferred revenue) up 14% to GBP 4.1 million (1H 2006: GBP 3.6 million) -- Net Loss decreased 29% to GBP 1.2 million, excluding incremental operating expenses of acquired companies (1H 2006: GBP 1.7 million) -- Net Loss decreased 9% to GBP 1.5 million including incremental operating expenses of acquired companies -- New First-Time Royalty Contributions; Increase in ARC-Based(TM) Unit Shipments -- Post-2003 contracts contributing royalty revenues for the first time -- Unit shipments reported by ARC customers up 65% -- Completed 2 Strategic Acquisitions -- Asset acquisition of Teja Technologies accelerates creation of software platforms and development environments for VRaptor(TM) Multicore Architecture -- Acquisition of Tenison Technology EDA speeds time to market for customers' complex SoC designs -- Landmark Agreements Deepen ARC's Partnerships with "Tier 1" Customers -- $15 million multiyear license agreement with one of the largest consumer electronics companies -- Broadcom standardized on ARC's configurable technology for multimedia applications\* T £ Commenting on the company's performance, Carl Schlachte, presidentand chief executive officer, said, "The industry's adoption of ARC'sconfigurable solutions continues to strengthen. ARC's growth againoutpaced the semiconductor market, and revenue increased at close totwice the rate compared to ARC's performance in the first half of2006. The company continued to sign significant agreements with Tier 1customers. Also in the first six months ARC completed two strategicacquisitions, which enhances the company's ability to solve customers'chip design challenges by providing more of a complete, integratedsolution with optimized hardware and software elements. Increasinglythis is one of ARC's competitive differentiators, and the acquisitionsare expected to strengthen ARC's revenue growth in the coming years." £ Commenting on the financial results, Victor Young, chief financialofficer, said, "We are pleased to report higher-than-expectedroyalties for the first half, which included for the first timerevenue from recent contracts. This marks the beginning of plannedroyalty streams from customer engagements that were completed underthe new management team. The integration of personnel and productsfrom the two acquisitions already has been completed, and ARC hasintroduced a new modelling tool based upon Tenison's technology.Operating expenses excluding incremental operating expense of acquiredcompanies were virtually flat compared to 1H 2006. This was primarilydue to a reduction in the growth of hiring as management assessed theneed for new personnel in light of the Teja and Tenison acquisitions." £ Statement from the President and Chief Executive Officer £ Overview £ During the first half of 2007 ARC strengthened its market positionby again posting strong revenue growth that outpaced the rate ofgrowth of the worldwide semiconductor industry. Of particular notewere two strategic acquisitions and the contribution of royaltyrevenue from customer contracts completed since the end of 2003. Thesegenerally include terms and conditions that are more favorable to ARC,and therefore are expected to assist in growing the company's royaltyrevenue over the long term. ARC continued to complete multiyearlicensing agreements with industry leaders, including a $15 millioncontract with one of the world's largest consumer electronicscompanies. Helping diversify ARC's market focus beyond the high-volumemultimedia space, the company announced that its configurablesolutions were selected for implantable medical andsecurity/government devices. £ Growing Adoption of ARC's Configurable Subsystems and Cores £ The reputation of ARC's configurable products as the "solution ofchoice" for high-volume applications continues to improve. In thefirst six months of 2007 ARC publicized twenty customer agreementswith companies throughout North America, Europe, and Asia. While notall of these contracts were completed in the trading period, theyindicate the ongoing adoption of ARC's configurable products for agrowing diversity of end applications. Of note was the first-everannouncement of ARC customers using the company's configurable coresfor implantable medical devices, and new multiyear agreements withTier 1 companies. These twenty customer agreements were part of thelarger trend of increasing adoption of ARC-Based solutions that helpedpush royalties and ARC-Based units reported by customers in the firsthalf of 2007 to 82 percent and 65 percent increases, respectively. ARCcustomer agreements announced in the first six months of 2007: \* T -- Unnamed Large Consumer Electronics Company - signed a $15 million multiyear licensing agreement with ARC. The customer's identity is confidential, but is one of the largest consumer electronics companies in the world. -- Broadcom - extended its existing ARC relationship with a new ten year licensing agreement. Broadcom has standardized on ARC's configurable technology for high-volume multimedia applications. -- 11 Customers in North America - announced they have taken licenses for ARC's "best-in-class" low power configurable for a variety of applications including implantable medical devices, government and security products, multimedia solutions, and networking and peripheral applications. Medical Applications -- CVRx for implantable blood pressure monitoring and treatment systems -- Unnamed customer #1 for implantable pacemaker products -- Unnamed customer #2 for unspecified implantable medical devices Government/Security Applications -- Edgewater Computer Systems for military aircraft -- Unnamed customer #3 for military and government applications Multimedia Applications -- Augusta Technology for next-generation mobile solutions -- Qpixel Technology for video compression engines -- VisionFlow for ultra low power H.264 media devices Networking/Communications Applications -- iVivity for multi-protocol acceleration engines -- Teranetics for advanced communications applications -- Unnamed customer #4 for peripheral devices with combined functionalities -- 4 Customers in Asia - announced they have adopted ARC's configurable processors and subsystems to create SoCs for a range of end markets. These customers underscore ARC's increasing momentum throughout Asia. -- AD Technology of Korea for power line communications (PLC) chips -- Crystal Media of Taiwan for next-generation VoIP solutions -- Fullhan Microelectronics of China for advanced multimedia products -- Phison Electronics of Taiwan for next-generation flash NAND drives -- 3 Customers in Europe - announced they are using ARC's configurable subsystems and cores for high-growth applications. -- NemeriX for ultra low power GPS chipsets -- Semtech for mixed-signal semiconductor products -- SiConnect for PLC applications\* T £ Strategic Acquisitions £ The complex nature of today's electronic devices presents a numberof challenges to designers of system-on-chips (SoCs). They include thenever-ending drive to make silicon rapidly and at lower cost, as wellas the need to reduce power consumption while processing multipleprograms simultaneously. £ To solve this "design dilemma" and to efficiently handle taskssuch as advanced audio, high resolution video, and combined A/Vfunctionality, semiconductor companies are implementing numerousprocessing elements on a single chip. These can be comprised ofmultiple configurable ARC(R) cores either as connected, individualprocessors or as part of a multicore ARC subsystem. These chips alsocan include intellectual property (IP) from ARC and companies such asARM Holdings. £ Providing customers solutions that fit into either design approachrepresents an excellent opportunity for ARC International, and onedriving the company's strategy. This strategy is helping grow ARC'srevenue by expanding the serviceable available market (SAM) ofcustomers that can adopt ARC's configurable processors and/orsubsystems for their chips. £ During the first half of 2007 ARC completed two acquisitions thatsupport this strategy. Each brings to ARC key patents, technology, andpersonnel that are leading-edge in their respective areas of multicoreSoC design. The acquisitions were: \* T -- Teja Technologies ARC acquired the key assets of Teja, a privately held company based in San Jose, California and a technology leader that developed multicore software. The acquisition provides ARC with an acclaimed software development team that will help improve existing and create new application analysis, architectural co-design, and multicore runtime tools for products based upon ARC's VRaptor(TM) Multicore Architecture. These will complement ARC's current software and programming solutions, such as the MQX(R) operating system and MetaWare(R) Development Toolkit. Teja was founded in 1998 with funding from venture firms such as the Mayfield Fund and Intel Capital. Their customer list included Tier 1 companies such as Intel, Cisco Systems, Samsung, and Sun Microsystems. -- Tenison Technology EDA ARC acquired Tenison, a privately held company based in Cambridge that was a leading provider of software tools used to help create SoCs. The acquisition included fifteen key members of Tenison's engineering team, patents, and products such as the VTOC(TM) software suite and IP eXchange technology. The acquired Tenison products will provide highly accurate models of ARC's configurable processors and subsystems. Moreover, they will allow ARC customers to simulate virtually all logic on any ARC-Based chip, including those using non-ARC technologies such as customer-developed IP and IP from other suppliers. ARC already introduced a new modelling product based upon Tenison technology called the ARC xCAM Modeller. Tenison's customer list included Tier 1 companies such as Broadcom, Freescale, and Renesas.\* T £ These two acquisitions fit into ARC's business development roadmapthat serves as a guide for consideration of strategic acquisitions.Areas of focus of the roadmap include development tools, services,software, and multimedia IP. £ Technology and Low Power Leadership £ Helping drive adoption of ARC's patented configurable subsystemsand cores is the increasing recognition of ARC's technology leadershipwithin the worldwide semiconductor industry. This is based in part onthe pioneering work by ARC engineers in the field of configurableprocessors, and the company's development of the first multimediasubsystems using configurable cores. In recent years, ARC has wonindustry awards for its unique technology, including an award for its128-bit SIMD accelerator that is a vital part of ARC multimediasubsystems. Developments in the first half of 2007 that enhanced ARC'stechnology leadership included: \* T -- Establishment of an "Office of the CTO" (Chief Technology Officer) The group's charter is to advance research and development (R&D) and innovation of ARC's products in the areas of configurability, multicore architecture, and software platforms. Members of the Office work with ARC's hardware and software engineering teams and directly with senior members at ARC's Tier 1 customers and prospect companies. Current members of ARC's Office of the CTO include -- Dr. Akash Deshpande, the CTO and founder of Teja Technologies and a former professor at the University of California, Berkeley -- Dr. David Greaves, faculty member and lecturer at the University of Cambridge Computer Laboratory, a founder of Virata, and the founder and chief scientist of Tenison -- Dr. Tom Pennello, the CTO and co-founder MetaWare, ARC's technical director of software technology, and a former professor at the University of California, Santa Cruz -- Dr. Nigel Topham, ARC's chief architect, and the chair of Computer Systems and director of the Institute for Computing Systems Architecture at the University of Edinburgh -- ARC(R) Video Subsystem Wins "Best Technology Demonstration" Microprocessor Forum is a world renowned conference that serves as a showcase for leading-edge technologies and products from companies throughout the global semiconductor industry. During a head-to-head competition at the 2007 event, the configurable ARC Video Subsystem was voted best-of-show by hundreds of Forum attendees who compared it against products from close to 20 other companies. -- Enabling Low Power SoC Design ARC is extending its leadership in low power SoC design by building new reference methodologies that will enable customers to further reduce power consumption of the company's configurable subsystems and processors. The effort is being undertaken with the help of companies such as Cadence Design Systems, Magma Design Automation, and Virage Logic., and complements ongoing R&D initiatives between ARC and advanced computing departments at leading universities. The new methodologies are some of the first to be created leveraging industry standard formats, and will benefit customers developing chips for power sensitive applications.\* T £ Development and Introduction of New "Best-in-Class" ARC Products £ ARC's customer base continues to grow and diversify. This isdriving ARC to ensure the company's existing and new solutions cansolve an ever-changing set of SoC design challenges so that ARC'scustomers can meet their business goals. Accordingly, ARC isdeveloping new best-in-class configurable subsystems and cores,enhancing technologies such as the recently introduced VRaptorMulticore Architecture, and co-developing solutions by working withthird party companies throughout the semiconductor industry. \* T -- New ARC Video Subsystems to Offer High Quality Encode Early within the second half of 2007 ARC plans to introduce a new family of video subsystems that will offer high quality video encode and decode capabilities at very low power consumption. They will be the first to be based upon the VRaptor Multicore Architecture, and will enhance ARC's multimedia subsystems. Each new video subsystem will contain numerous hardware and software components that can effectively and efficiently process a wide range of video codecs. Market applications for these new solutions will include camera phones, camcorders, surveillance systems, and Internet-based cameras. -- Configurable Processors Specially Optimized for Low Power Consumption Today ARC's configurable cores offer some of the lowest power consumption of any in the semiconductor IP industry. This is a key reason behind their growing use in a diverse set of end markets. Within the second half of 2007 ARC is expected to offer the first in a new family of configurable cores with a new "intelligent low power technology." This is the result of ongoing investments in low power innovation, and will further extend ARC's leadership in power efficient solutions.\* T £ Expansion and Continued Success of the ConfigCon(TM) DeveloperConference Series £ ConfigCon is the industry's premier technical developer conferencethat educates SoC designers globally on the advantages of ARC'sconfigurable multimedia subsystems and processors. In 2006, more than1,000 semiconductor engineers and executives attended ConfigCon eventsthroughout Asia and in Silicon Valley. £ For 2007, the Series returns to Taiwan, China, Silicon Valley, andadds Israel to the roster. Within the first half of this year, threeevents have been completed with a 30 percent increase in registrationsat the Taiwan and China venues, and more than 200 attendees at theIsraeli conference. Of note, Microsoft and RealNetworks (both ARCpartners) delivered keynotes in Hsinchu, Taiwan about theirperspectives on the future of multimedia SoC design. At eachconference ARC executives, engineers, and sales managers interfacewith attendees who were eager to learn how ARC's products help solvetheir SoC design challenges. This bodes well for the ongoingdevelopment of sales leads for ARC. £ Strategic Organizational Changes £ Reflecting the rapid growth and evolution of ARC, the companyannounced a series of organizational changes that will increase thecompany's comprehensive focus on customer service, and high-qualitytechnology and product development. Accordingly, Derek Meyer has beenappointed as Chief Operating Officer. Formerly senior vice presidentof sales and marketing, Meyer's new role expands to include worldwideengineering as well as ARC's technology initiatives. Executivesreporting to Meyer include Paul Holt, who assumes the newly createdrole of vice president of product development and services.Furthermore, Steven Gunders has been appointed to the Board as a NonExecutive Director. Mr. Gunders is a qualified C.P.A. and holds an MBAfrom the University of Chicago. He is a former partner with Deloitteand Touche, and has more than 35 years of financial consultingexperience. £ Outlook £ The first half of 2007 was another strong financial period for ARCInternational. Revenue grew appreciably compared to the same periodone year ago, again outpacing the overall semiconductor market.Royalties increased to a record high with recent contractscontributing to royalty revenue for the first time. The completion oftwo strategic acquisitions strengthened ARC's industry position, andis expected to assist in growing revenue over the long term. £ For the second half of 2007 ARC will extend its leadership inmultimedia subsystems and low power configurable cores by offering newsolutions. ARC also will continue to focus on its strategy of focusedacquisitions that enhance the company's competitive differentiation.Management is confident in ARC's growing strength and future growthpotential. £ CHIEF FINANCIAL OFFICER'S REVIEW £ Six months ended 30 June 2007 £ Revenue £ Total revenue in 1H 2007 was GBP 7.0 million, up 18% over the sameperiod last year (1H 2006: GBP 6.0 million). Prior to currencytranslation, with virtually all sales in US dollars, revenue was up30%. License and engineering income was down 7% at GBP 3.2 million (1H2006: GBP 3.5 million). Maintenance and service income was up 7% atGBP 1.0 million (1H 2006: GBP 1.0 million). Royalty income increased82% to GBP 2.8 million (1H 2006: GBP 1.5 million). (Royalty income in1H 2007 includes advance non-refundable payments which represented 27%of the total royalties for the period). £ Sales in Europe were 14% (1H 2006: 18%) of total sales, NorthAmerica 71% (1H 2006: 55%) and Asia 15% (1H 2006: 27%). £ Costs £ Cost of sales decreased 15% to GBP 0.7 million (1H 2006: GBP 0.9million). Gross margin increased to 90% (1H 2006: 85%). Net operatingexpenses increased by 5% to GBP 8.7 million (1H 2006: GBP 8.3million). £ The company had 149 employees at 30 June 2007 compared with 123 at30 June 2006. Research and development costs increased 4% to GBP 3.4million (1H 2006: GBP 3.2 million). Sales and marketing costs werevirtually flat at GBP 2.7 million (1H 2006: GBP 2.7 million). Generaland administration costs increased 15% to GBP 1.8 million (1H 2006:GBP 1.6 million). Other expenses, comprised of depreciation,amortization and stock option expense, were virtually flat at GBP 0.8million (1H 2006: GBP 0.7 million). £ Interest £ Interest income was up 5% to GBP 0.8 million (1H 2006: GBP 0.7million) due to increase in the average interest rate on investments. £ Net loss £ Net loss was GBP 1.5 million (1H 2006: GBP 1.7 million). Loss pershare decreased to 1.05p (1H 2006: 1.17p). £ Cash flow and balance sheet £ The net cash outflow from operations was GBP 2.9 million (1H 2006:GBP 1.0 million). Capital expenditure was GBP 1.2 million (1H 2006:GBP 0.4 million). The movement in cash and short-term investmentsduring the six months was an outflow of GBP 5.6 million (1H 2006:outflow of GBP 0.2 million). Total assets at 30 June 2007 were GBP35.4 million (1H 2006, GBP 36.3 million), including cash andshort-term investments of GBP 26.0 million (1H 2006: GBP 32.2million). £ Dividend £ No interim dividend payment will be made for the six months ended30 June 2007 (1H 2006: GBP Nil). £ Acquisitions £ During the period ARC acquired the key assets of Teja Technologiesfor a total cash consideration of GBP 2,389,000 and Tenison TechnologyEDA Limited for a total cash consideration of GBP 1,067,000. See note6 for details. \* TConsolidated income statementFor the six months ended 30 June 2007 6 months 6 months 12 months ended ended ended 30 June 30 June 31 December 2007 2006 2006 (unaudited) (unaudited) (audited) Note GBP '000 GBP '000 GBP '000----------------------------- ---- ----------- ----------- ----------- Revenue 7,029 5,973 13,411Cost of sales (738) (870) (1,591)----------------------------- ---- ----------- ----------- -----------Gross profit 6,291 5,103 11,820Net operating expenses 2 (8,684) (8,271) (16,045)----------------------------- ---- ----------- ----------- -----------Operating loss (2,393) (3,168) (4,225)Interest receivable 751 717 1,509----------------------------- ---- ----------- ----------- -----------Loss before tax (1,642) (2,451) (2,716)Tax credit 99 763 1,583----------------------------- ---- ----------- ----------- -----------Loss for the period 4 (1,543) (1,688) (1,133)----------------------------- ---- ----------- ----------- ----------- Basic and diluted loss per share - pence (1.05) (1.17) (0.78)\* T \* TConsolidated statement of recognised income and expenseFor the six months ended 30 June 2007 6 months 6 months 12 months ended ended ended 30 June 30 June 31 December 2007 2006 2006 (unaudited) (unaudited) (audited) Notes GBP '000 GBP '000 GBP '000---------------------------- ----- ----------- ----------- -----------Loss for the period (1,543) (1,688) (1,133)Currency translation difference 4 (54) (56) (267)Change in value of ESOP reserve 4 76 27 40---------------------------- ----- ----------- ----------- -----------Total recognised expense for the period (1,521) (1,717) (1,360)---------------------------- ----- ----------- ----------- -----------\* T \* TConsolidated balance sheetAs at 30 June 2007 30 June 30 June 31 December 2007 2006 2006 (unaudited) (unaudited) (audited) Note GBP '000 GBP '000 GBP '000----------------------------- ---- ----------- ----------- -----------Non-current assetsIntangible assets 2,999 992 843Goodwill 886 - -Property, plant and equipment 1,297 394 424Trade and other receivables 372 - 372----------------------------- ---- ----------- ----------- ----------- 5,554 1,386 1,639Current assetsInventory 200 110 203Trade and other receivables 3,478 2,573 2,959Current corporation tax receivable 100 - 700Short term investments 19,484 19,539 13,500Cash and cash equivalents 6,555 12,665 18,146----------------------------- ---- ----------- ----------- ----------- 29,817 34,887 35,508Total assets 35,371 36,273 37,147Current liabilitiesTrade and other payables 2,989 4,438 4,762Other liabilities 1,112 151 -Provisions 5 216 77 306----------------------------- ---- ----------- ----------- ----------- 4,317 4,666 5,068Net current assets 25,500 30,221 30,440Non-current liabilitiesDeferred tax liabilities 138 - -Other payables - 35 -Provisions 5 - 170 38----------------------------- ---- ----------- ----------- ----------- 138 205 38Net assets 30,916 31,402 32,041Shareholders' equityOrdinary shares 152 150 151Share premium 3,538 3,081 3,256Capital redemption reserve 162 162 162Merger reserve 107 107 107Other reserves 60,595 60,369 60,482Cumulative translation adjustment (511) (239) (457)Retained earnings (33,127) (32,228) (31,660)----------------------------- ---- ----------- ----------- -----------Total Equity 4 30,916 31,402 32,041----------------------------- ---- ----------- ----------- -----------\* T \* TConsolidated cash flow statementFor the six months ended 30 June 2007 6 months 6 months 12 months ended ended ended 30 June 30 June 31 December 2007 2006 2006 (unaudited) (unaudited) (audited) Note GBP '000 GBP '000 GBP '000----------------------------- ---- ----------- ----------- -----------Cash flows from operating activitiesCash used in operations 3 (2,872) (1,024) (1,678)Interest received 856 851 1,474Tax paid (1) (59) (97)Tax refund 701 755 755----------------------------- ---- ----------- ----------- -----------Net cash generated (used) in operating activities (1,316) 523 454 Cash flows from investing activitiesPurchase of property, plant and equipment (901) (162) (353)Purchase of intangible assets (309) (264) (552)Capitalization of R&D assets - (21) (21)Movements on short term investments (5,984) (9,005) (2,966)Acquisition of Tenison Technology EDA Limited net of cash acquired 6 (997) - -Acquisition of Teja assets 6 (2,389) - ------------------------------ ---- ----------- ----------- -----------Net cash (used) in investing activities (10,580) (9,452) (3,892) Cash flows from financing activitiesNet proceeds from issue of ordinary shares and ESOP reserve 359 186 375----------------------------- ---- ----------- ----------- -----------Net cash generated in financing activities 359 186 375 Effects of exchange rate changes (54) (68) (267)----------------------------- ---- ----------- ----------- -----------Net (decrease) in cash and cash equivalents (11,591) (8,811) (3,330)Cash and cash equivalents at 1 January 18,146 21,476 21,476----------------------------- ---- ----------- ----------- -----------Cash and cash equivalents at end of period 6,555 12,665 18,146----------------------------- ---- ----------- ----------- -----------\* T £ Notes £ 1. Basis of preparation £ These consolidated interim financial statements have been preparedin accordance with the accounting policies set out in the AnnualReport of ARC International plc for the year ended 31 December 2006.The prior year comparatives are derived from audited financialinformation for ARC International plc as set out in the Annual Reportfor the year ended 31 December 2006 and the unaudited financialinformation in the consolidated interim financial statements for thesix months ended 30 June 2006. These consolidated interim financialstatements have been prepared under the historical cost convention,except in respect to certain financial instruments. In addition, theseconsolidated interim financial statements do not comply with all thedisclosures in IAS 34 on interim financial reporting and are thereforenot in full compliance with International Financial ReportingStandards as adopted by the EU ("IFRSs"). £ The consolidated accounts incorporate the accounts of the Companyand of each of its subsidiaries for the period to 30 June 2007. Allnew acquisitions are accounted for under the purchase method from thedate of acquisition. £ The preparation of financial statements in conformity with IFRSsrequires the use of certain critical accounting estimates. It alsorequires management to exercise its judgment in the process ofapplying the Group's accounting policies. Although these estimates arebased on management's best knowledge of the amount, event or actions,actual results ultimately may differ from those estimates. £ The consolidated interim financial statements for the six monthsended 30 June 2007 are unaudited but have been reviewed by theauditors. The consolidated interim financial statements for the sixmonths ended 30 June 2007 were approved by the directors on 31 July2007. £ The financial information contained in this interim statement doesnot constitute statutory accounts as defined by section 240 of theCompanies Act 1985. The statutory accounts for 2006, have beendelivered to the Registrar of Companies. The auditor's report on thefull financial statements for the year ended 31 December 2006 wasunqualified and did not contain statements under section 237 (2) ofthe Companies Act 1985 (regarding the adequacy of accounting recordsand returns), or under 237 (3) (regarding provision of necessaryinformation and explanations). £ 2. Summary of net operating expenses \* T 6 months ended 6 months ended 12 months ended 30 June 2007 30 June 2006 31 December 2006 (unaudited) (unaudited) (audited) GBP '000 GBP '000 GBP '000----------------------- -------------- -------------- ----------------Research and development (3,380) (3,240) (6,716)Sales and marketing (2,717) (2,684) (5,023)General and administrative (1,832) (1,599) (3,254)Other expenses (755) (748) (1,052)----------------------- -------------- -------------- ----------------Net operating expenses (8,684) (8,271) (16,045)----------------------- -------------- -------------- ----------------\* T £ 3. Reconciliation of net loss for the period to net cash outflowfrom operating activities \* T 6 months 6 months 12 months ended ended ended 30 June 30 June 31 December 2007 2006 2006 (unaudited) (unaudited) (audited) GBP '000 GBP '000 GBP '000---------------------------------- ----------- ----------- ----------- Net loss (1,543) (1,688) (1,133)Adjustments for:Interest receivable (751) (717) (1,509)Tax expense/(credit) (99) (763) (1,583)Loss on disposal of property, plant and equipment 17 - -Amortisation 492 471 823Depreciation 150 107 229Loss on disposal of property, plant and equipment - - 5Share based award expense 113 171 277(Increase)/decrease in inventories 3 (110) (203)(Increase)/decrease in trade and other receivables (261) 974 393Increase/(Decrease) in trade and other payables (865) 570 965Increase/(Decrease) in provisions (128) (39) 58---------------------------------------------- ----------- -----------Cash used in operations (2,872) (1,024) (1,678)---------------------------------------------- ----------- -----------\* T £ 4. Statement of changes in shareholders' equity \* T Capital Share Share Merger redemption Other capital premium reserve reserve reserves GBP '000 GBP '000 GBP '000 GBP '000 GBP '000---------------------- -------- -------- -------- ---------- --------At 1 January 2006 149 2,923 107 162 60,205---------------------- -------- -------- -------- ---------- -------- Shares issued 1 158Change in value of ESOP reserveShare based award Reserve 171Exchange gain(Loss) for the period---------------------- -------- -------- -------- ---------- --------At 30 June 2006 150 3,081 107 162 60,376---------------------- -------- -------- -------- ---------- -------- Shares issued 1 175Change in value of ESOP reserveShare based award reserve 106Exchange gainGain for the period ---------------------- -------- -------- -------- ---------- --------At 31 December 2006 151 3,256 107 162 60,482---------------------- -------- -------- -------- ---------- --------Shares issued 1 282Change in value of ESOP reserveShare based award reserve 113Exchange (loss)(Loss) for the period ---------------------- -------- -------- -------- ---------- --------At 30 June 2007 152 3,538 107 162 60,595---------------------- -------- -------- -------- ---------- -------- Cumulative Retained translation profit/ adjustment (loss) Total GBP '000 GBP '000 GBP '000---------------------- ---------------- -------------- ---------------At 1 January 2006 (190) (30,567) 32,789---------------------- ---------------- -------------- --------------- Shares issued 159Change in value of ESOP reserve 27 27Share based award Reserve 171Exchange gain (56) (56)(Loss) for the period (1,688) (1,688)---------------------- ---------------- -------------- ---------------At 30 June 2006 (246) (32,228) 31,402---------------------- ---------------- -------------- --------------- Shares issued 176Change in value of ESOP reserve 13 13Share based award reserve 106Exchange gain (211) (211)Gain for the period 555 555 ---------------------- ---------------- -------------- ---------------At 31 December 2006 (457) (31,660) 32,041---------------------- ---------------- -------------- ---------------Shares issued 283Change in value of ESOP reserve 76 76Share based award reserve 113Exchange (loss) (54) (54)(Loss) for the period (1,543) (1,543) ---------------------- ---------------- -------------- ---------------At 30 June 2007 (511) (33,127) 30,916---------------------- ---------------- -------------- ---------------\* T £ 5. Provisions \* T Current Non-current Total provision GBP '000s GBP '000s GBP '000s-------------------------------- --------- ----------- ---------------At 1 January 2006 77 209 286Utilized (39) - (39)Reclassified from long term to short term 39 (39) --------------------------------- --------- ----------- ---------------At 30 June 2006 77 170 247-------------------------------- --------- ----------- ---------------Utilized (38) - (38)Reclassified from long term to short term 170 (170) -Charges to the income statement 97 38 135-------------------------------- --------- ----------- ---------------At 31 December 2006 306 38 344-------------------------------- --------- ----------- ---------------Utilized (83) - (83)Release of provision due to termination of lease (45) - (45)Reclassified from long term to short term 38 (38) --------------------------------- --------- ----------- ---------------At 30 June 2007 216 - 216-------------------------------- --------- ----------- ---------------\* T £ The utilization of the provisions relates to onerous leasecommitments in Elstree, UK and Santa Cruz, USA (2006 Elstree alone).In 1H 2007, the Company reached an agreement with the Santa Cruzlandlord to terminate the lease. In exchange for paying the remaininglease payments in advance, GBP 45,000 of the lease obligation waswaived by the landlord. The balance of the provision GBP 216,000represents an onerous lease commitment and the associated restorationcosts for the Elstree, UK facility. Management anticipates fullutilisation of the Elstree provision in the second half of 2007, asthe lease terminates in July 2007. £ 6. Acquisitions £ The group purchased Tenison Technology EDA Limited on June 15,2007 for a total consideration of GBP 1,067,000, and certain assets ofTeja Technologies Inc on 2 April 2007 for GBP 2,389,000. £ Tenison Technology EDA £ In the Tenison purchase, 100% of the voting shares were acquired. £ All intangible assets were recognized at their respective fairvalues. The residual excess over the net assets acquired is recognizedas goodwill in the financial statements. The fair values are subjectto adjustments in respect of achieving specified net asset amounts,which affect intangible assets for developed core technology, nettangible assets, deferred tax, and goodwill. £ The fair value adjustments contain some provisional amounts thatwill be finalized in the 2007 annual accounts. Goodwill of GBP 874,000represents the value of synergies and assembled work force. £ Teja Technologies £ In the Teja purchase, only key assets were acquired. Theacquisition includes Teja's software products, key customer contracts,its engineering team, and patents for Teja's award-winning technology. £ The fair value of the Teja acquisition is predominantly forintangible developed core technology, and to a lesser extent, customerbacklog, trade receivables, and deferred revenue. £ The fair value adjustments contain some provisional amounts thatwill be finalized in the 2007 annual accounts. Goodwill of GBP 12,000represents the value of synergies and assembled work force. £ About ARC International plc £ ARC International is the world leader in configurable mediasubsystems and CPU/DSP processors. Used by over 140 companiesworldwide, ARC's configurable solutions enable the creation of highlydifferentiated SoCs that ship in hundreds of millions of devicesannually. ARC's patented subsystems and cores are smaller, consumeless power, and are less expensive to manufacture than competingproducts. £ ARC International maintains a worldwide presence with corporateand research and development offices in Silicon Valley and St. Albans,UK. For more information visit www.ARC.com. ARC International islisted on the London Stock Exchange as ARC International plc (LSE:ARK). £ ARC, ARC-Based, the ARC logo, ARChitect, MetaWare, MQX, VRaptor,ConfigCon, and VTOC are trademarks or registered trademarks of ARCInternational. All other brands or product names contained herein arethe property of their respective owners. This release may contain"forward-looking statements" including statements concerning plans,future events or performance and underlying assumptions and otherstatements that are other than statements of historical fact. ARC'sactual results for future periods may differ materially from thoseexpressed in any forward-looking statements made by or on behalf ofARC. The factors that could cause actual results to differ materiallyinclude, without limitation, general economic and business conditions;potential for fluctuations in and unpredictability of ARC's quarterlyresults; assumptions regarding ARC's future business strategy; theability of semiconductor partners to manufacture and marketmicroprocessors based on the ARC(R) architecture; the acceptance ofARC technology by systems companies; the availability of developmenttools, systems software and operating systems; the rapid change intechnology in the semiconductor industry and ARC's ability to developnew products in a timely manner; competition from other architectures;ARC's ability to protect its intellectual property; regulatorypolicies adopted by governmental authorities; risks associated withARC's international operations; management of ARC's growth; ARC'sability to attract and retain employees; and other uncertainties thatare discussed in the "Investment Considerations" section of ARC'slisting particulars dated 28 September 2000 filed with the UnitedKingdom Listing Authority and the Registrar of Companies in Englandand Wales. Copyright Business Wire 2007