Interim Results

Arc International PLC 01 August 2007 Company Contact: Financial PR Contacts: Lee Garvin Flanagin Juliet Clarke / Matt Dixon ARC International Financial Dynamics +1 408 437 3433 +44 20 7831 3113 lee.flanagin@arc.com juliet.clarke@fd.com ARC International plc Announces Unaudited Preliminary Results For the Six Months Ended June 30, 2007 18% Growth in Revenue; 82% Increase in Royalties; 2 Strategic Acquisitions Completed ST. ALBANS, England, August 1, 2007 - ARC International (LSE: ARK), the world leader in configurable multimedia subsystems and CPU/DSP processor cores, today announced its unaudited financial results for the six months ended June 30, 2007. Highlights • Continued Revenue Growth o Revenue up 18% to £7.0 million (1H 2006: £6.0 million) o Royalties up 82% to £2.8 million (1H 2006: £1.5 million) o Bookings up 61% to £13.4 million (1H 2006: £8.3 million) o Current backlog (including deferred revenue) up 14% to £4.1 million (1H 2006: £3.6 million) • Net Loss decreased 29% to £1.2 million, excluding incremental operating expenses of acquired companies (1H 2006: £1.7 million) o Net Loss decreased 9% to £1.5 million including incremental operating expenses of acquired companies • New First-Time Royalty Contributions; Increase in ARC-Based(TM)Unit Shipments o Post-2003 contracts contributing royalty revenues for the first time o Unit shipments reported by ARC customers up 65% • Completed 2 Strategic Acquisitions o Asset acquisition of Teja Technologies accelerates creation of software platforms and development environments for VRaptor(TM)Multicore Architecture o Acquisition of Tenison Technology EDA speeds time to market for customers' complex SoC designs • Landmark Agreements Deepen ARC's Partnerships with "Tier 1" Customers o $15 million multiyear license agreement with one of the largest consumer electronics companies o Broadcom standardized on ARC's configurable technology for multimedia applications Commenting on the company's performance, Carl Schlachte, president and chief executive officer, said, "The industry's adoption of ARC's configurable solutions continues to strengthen. ARC's growth again outpaced the semiconductor market, and revenue increased at close to twice the rate compared to ARC's performance in the first half of 2006. The company continued to sign significant agreements with Tier 1 customers. Also in the first six months ARC completed two strategic acquisitions, which enhances the company's ability to solve customers' chip design challenges by providing more of a complete, integrated solution with optimized hardware and software elements. Increasingly this is one of ARC's competitive differentiators, and the acquisitions are expected to strengthen ARC's revenue growth in the coming years." Commenting on the financial results, Victor Young, chief financial officer, said, "We are pleased to report higher-than-expected royalties for the first half, which included for the first time revenue from recent contracts. This marks the beginning of planned royalty streams from customer engagements that were completed under the new management team. The integration of personnel and products from the two acquisitions already has been completed, and ARC has introduced a new modelling tool based upon Tenison's technology. Operating expenses excluding incremental operating expense of acquired companies were virtually flat compared to 1H 2006. This was primarily due to a reduction in the growth of hiring as management assessed the need 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 position by again posting strong revenue growth that outpaced the rate of growth of the worldwide semiconductor industry. Of particular note were two strategic acquisitions and the contribution of royalty revenue from customer contracts completed since the end of 2003. These generally include terms and conditions that are more favorable to ARC, and therefore are expected to assist in growing the company's royalty revenue over the long term. ARC continued to complete multiyear licensing agreements with industry leaders, including a $15 million contract with one of the world's largest consumer electronics companies. Helping diversify ARC's market focus beyond the high-volume multimedia space, the company announced that its configurable solutions were selected for implantable medical and security/government devices. Growing Adoption of ARC's Configurable Subsystems and Cores The reputation of ARC's configurable products as the "solution of choice" for high-volume applications continues to improve. In the first six months of 2007 ARC publicized twenty customer agreements with companies throughout North America, Europe, and Asia. While not all of these contracts were completed in the trading period, they indicate the ongoing adoption of ARC's configurable products for a growing diversity of end applications. Of note was the first-ever announcement of ARC customers using the company's configurable cores for implantable medical devices, and new multiyear agreements with Tier 1 companies. These twenty customer agreements were part of the larger trend of increasing adoption of ARC-Based solutions that helped push royalties and ARC-Based units reported by customers in the first half of 2007 to 82 percent and 65 percent increases, respectively. ARC customer agreements announced in the first six months of 2007: • 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 o CVRx for implantable blood pressure monitoring and treatment systems o Unnamed customer #1 for implantable pacemaker products o Unnamed customer #2 for unspecified implantable medical devices Government/Security Applications o Edgewater Computer Systems for military aircraft o Unnamed customer #3 for military and government applications Multimedia Applications o Augusta Technology for next-generation mobile solutions o Qpixel Technology for video compression engines o VisionFlow for ultra low power H.264 media devices Networking/Communications Applications o iVivity for multi-protocol acceleration engines o Teranetics for advanced communications applications o 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. o AD Technology of Korea for power line communications (PLC) chips o Crystal Media of Taiwan for next-generation VoIP solutions o Fullhan Microelectronics of China for advanced multimedia products o 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. o NemeriX for ultra low power GPS chipsets o Semtech for mixed-signal semiconductor products o SiConnect for PLC applications Strategic Acquisitions The complex nature of today's electronic devices presents a number of challenges to designers of system-on-chips (SoCs). They include the never-ending drive to make silicon rapidly and at lower cost, as well as the need to reduce power consumption while processing multiple programs simultaneously. To solve this "design dilemma" and to efficiently handle tasks such as advanced audio, high resolution video, and combined A/V functionality, semiconductor companies are implementing numerous processing elements on a single chip. These can be comprised of multiple configurable ARC(R) cores either as connected, individual processors or as part of a multicore ARC subsystem. These chips also can include intellectual property (IP) from ARC and companies such as ARM Holdings. Providing customers solutions that fit into either design approach represents an excellent opportunity for ARC International, and one driving the company's strategy. This strategy is helping grow ARC's revenue by expanding the serviceable available market (SAM) of customers that can adopt ARC's configurable processors and/or subsystems for their chips. During the first half of 2007 ARC completed two acquisitions that support this strategy. Each brings to ARC key patents, technology, and personnel that are leading-edge in their respective areas of multicore SoC design. The acquisitions were: • 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. These two acquisitions fit into ARC's business development roadmap that 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 subsystems and cores is the increasing recognition of ARC's technology leadership within the worldwide semiconductor industry. This is based in part on the pioneering work by ARC engineers in the field of configurable processors, and the company's development of the first multimedia subsystems using configurable cores. In recent years, ARC has won industry awards for its unique technology, including an award for its 128-bit SIMD accelerator that is a vital part of ARC multimedia subsystems. Developments in the first half of 2007 that enhanced ARC's technology leadership included: • 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 o Dr. Akash Deshpande, the CTO and founder of Teja Technologies and a former professor at the University of California, Berkeley o 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 o 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 o 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. Development and Introduction of New "Best-in-Class" ARC Products ARC's customer base continues to grow and diversify. This is driving ARC to ensure the company's existing and new solutions can solve an ever-changing set of SoC design challenges so that ARC's customers can meet their business goals. Accordingly, ARC is developing new best-in-class configurable subsystems and cores, enhancing technologies such as the recently introduced VRaptor Multicore Architecture, and co-developing solutions by working with third party companies throughout the semiconductor industry. • 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. Expansion and Continued Success of the ConfigCon(TM)Developer Conference Series ConfigCon is the industry's premier technical developer conference that educates SoC designers globally on the advantages of ARC's configurable multimedia subsystems and processors. In 2006, more than 1,000 semiconductor engineers and executives attended ConfigCon events throughout Asia and in Silicon Valley. For 2007, the Series returns to Taiwan, China, Silicon Valley, and adds Israel to the roster. Within the first half of this year, three events have been completed with a 30 percent increase in registrations at the Taiwan and China venues, and more than 200 attendees at the Israeli conference. Of note, Microsoft and RealNetworks (both ARC partners) delivered keynotes in Hsinchu, Taiwan about their perspectives on the future of multimedia SoC design. At each conference ARC executives, engineers, and sales managers interface with attendees who were eager to learn how ARC's products help solve their SoC design challenges. This bodes well for the ongoing development of sales leads for ARC. Strategic Organizational Changes Reflecting the rapid growth and evolution of ARC, the company announced a series of organizational changes that will increase the company's comprehensive focus on customer service, and high-quality technology and product development. Accordingly, Derek Meyer has been appointed as Chief Operating Officer. Formerly senior vice president of sales and marketing, Meyer's new role expands to include worldwide engineering as well as ARC's technology initiatives. Executives reporting to Meyer include Paul Holt, who assumes the newly created role of vice president of product development and services. Furthermore, Steven Gunders has been appointed to the Board as a Non Executive Director. Mr. Gunders is a qualified C.P.A. and holds an MBA from the University of Chicago. He is a former partner with Deloitte and Touche, and has more than 35 years of financial consulting experience. Outlook The first half of 2007 was another strong financial period for ARC International. Revenue grew appreciably compared to the same period one year ago, again outpacing the overall semiconductor market. Royalties increased to a record high with recent contracts contributing to royalty revenue for the first time. The completion of two strategic acquisitions strengthened ARC's industry position, and is expected to assist in growing revenue over the long term. For the second half of 2007 ARC will extend its leadership in multimedia subsystems and low power configurable cores by offering new solutions. ARC also will continue to focus on its strategy of focused acquisitions that enhance the company's competitive differentiation. Management is confident in ARC's growing strength and future growth potential. CHIEF FINANCIAL OFFICER'S REVIEW Six months ended 30 June 2007 Revenue Total revenue in 1H 2007 was £7.0 million, up 18% over the same period last year (1H 2006: £6.0 million). Prior to currency translation, with virtually all sales in US dollars, revenue was up 30%. License and engineering income was down 7% at £3.2 million (1H 2006: £3.5 million). Maintenance and service income was up 7% at £1.0 million (1H 2006: £1.0 million). Royalty income increased 82% to £2.8 million (1H 2006: £1.5 million). (Royalty income in 1H 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, North America 71% (1H 2006: 55%) and Asia 15% (1H 2006: 27%). Costs Cost of sales decreased 15% to £0.7 million (1H 2006: £0.9 million). Gross margin increased to 90% (1H 2006: 85%). Net operating expenses increased by 5% to £8.7 million (1H 2006: £8.3 million). The company had 149 employees at 30 June 2007 compared with 123 at 30 June 2006. Research and development costs increased 4% to £3.4 million (1H 2006: £3.2 million). Sales and marketing costs were virtually flat at £2.7 million (1H 2006: £2.7 million). General and administration costs increased 15% to £1.8 million (1H 2006: £1.6 million). Other expenses, comprised of depreciation, amortization and stock option expense, were virtually flat at £0.8 million (1H 2006: £0.7 million). Interest Interest income was up 5% to £0.8 million (1H 2006: £0.7 million) due to increase in the average interest rate on investments. Net loss Net loss was £1.5 million (1H 2006: £1.7 million). Loss per share decreased to 1.05p (1H 2006: 1.17p). Cash flow and balance sheet The net cash outflow from operations was £2.9 million (1H 2006: £1.0 million). Capital expenditure was £1.2 million (1H 2006: £0.4 million). The movement in cash and short-term investments during the six months was an outflow of £5.6 million (1H 2006: outflow of £0.2 million). Total assets at 30 June 2007 were £35.4 million (1H 2006, £36.3 million), including cash and short-term investments of £26.0 million (1H 2006: £32.2 million). Dividend No interim dividend payment will be made for the six months ended 30 June 2007 (1H 2006: £Nil). Acquisitions During the period ARC acquired the key assets of Teja Technologies for a total cash consideration of £2,389,000 and Tenison Technology EDA Limited for a total cash consideration of £1,067,000. See note 6 for details. Consolidated income statement For 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 £'000 £'000 £'000 Revenue 7,029 5,973 13,411 Cost of sales (738) (870) (1,591) Gross profit 6,291 5,103 11,820 Net 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) Consolidated statement of recognised income and expense For 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 £'000 £'000 £'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) The notes on pages 10-14 form part of the interim financial information Consolidated balance sheet As at 30 June 2007 30 June 30 June 31 December 2007 2006 2006 (unaudited) (unaudited) (audited) Note £'000 £'000 £'000 Non-current assets Intangible assets 2,999 992 843 Goodwill 886 - - Property, plant and equipment 1,297 394 424 Trade and other receivables 372 - 372 5,554 1,386 1,639 Current assets Inventory 200 110 203 Trade and other receivables 3,478 2,573 2,959 Current corporation tax receivable 100 - 700 Short term investments 19,484 19,539 13,500 Cash and cash equivalents 6,555 12,665 18,146 29,817 34,887 35,508 Total assets 35,371 36,273 37,147 Current liabilities Trade and other payables 2,989 4,438 4,762 Other liabilities 1,112 151 - Provisions 5 216 77 306 4,317 4,666 5,068 Net current assets 25,500 30,221 30,440 Non-current liabilities Deferred tax liabilities 138 - - Other payables - 35 - Provisions 5 - 170 38 138 205 38 Net assets 30,916 31,402 32,041 Shareholders' equity Ordinary shares 152 150 151 Share premium 3,538 3,081 3,256 Capital redemption reserve 162 162 162 Merger reserve 107 107 107 Other reserves 60,595 60,369 60,482 Cumulative translation adjustment (511) (239) (457) Retained earnings (33,127) (32,228) (31,660) Total Equity 4 30,916 31,402 32,041 The notes on pages 10-14 form part of the interim financial information. Consolidated cash flow statement For 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 £'000 £'000 £'000 Cash flows from operating activities Cash used in operations 3 (2,872) (1,024) (1,678) Interest received 856 851 1,474 Tax paid (1) (59) (97) Tax refund 701 755 755 Net cash generated (used) in operating (1,316) 523 454 activities Cash flows from investing activities Purchase of property, plant and equipment (901) (162) (353) Purchase of intangible assets (309) (264) (552) Capitalisation 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 activities Net proceeds from issue of ordinary shares and 359 186 375 ESOP reserve Net cash generated in financing 359 186 375 activities Effects of exchange rate changes (54) (68) (267) Net (decrease) in cash and cash (11,591) (8,811) (3,330) equivalents Cash and cash equivalents at 1 January 18,146 21,476 21,476 Cash and cash equivalents at end of 6,555 12,665 18,146 period The notes on pages 10-14 form part of the interim financial information. Notes 1. Basis of preparation These consolidated interim financial statements have been prepared in accordance with the accounting policies set out in the Annual Report of ARC International plc for the year ended 31 December 2006. The prior year comparatives are derived from audited financial information for ARC International plc as set out in the Annual Report for the year ended 31 December 2006 and the unaudited financial information in the consolidated interim financial statements for the six months ended 30 June 2006. These consolidated interim financial statements have been prepared under the historical cost convention, except in respect to certain financial instruments. In addition, these consolidated interim financial statements do not comply with all the disclosures in IAS 34 on interim financial reporting and are therefore not in full compliance with International Financial Reporting Standards as adopted by the EU ("IFRSs"). The consolidated accounts incorporate the accounts of the Company and of each of its subsidiaries for the period to 30 June 2007. All new acquisitions are accounted for under the purchase method from the date of acquisition. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. Although these estimates are based 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 months ended 30 June 2007 are unaudited but have been reviewed by the auditors. The consolidated interim financial statements for the six months ended 30 June 2007 were approved by the directors on 31 July 2007. The financial information contained in this interim statement does not constitute statutory accounts as defined by section 240 of the Companies Act 1985. The statutory accounts for 2006, have been delivered to the Registrar of Companies. The auditor's report on the full financial statements for the year ended 31 December 2006 was unqualified and did not contain statements under section 237 (2) of the Companies Act 1985 (regarding the adequacy of accounting records and returns), or under 237 (3) (regarding provision of necessary information and explanations). 2. Summary of net operating expenses 6 months ended 6 months ended 12 months ended 30 June 2007 30 June 2006 31 December 2006 (unaudited) (unaudited) (audited) £'000 £'000 £'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) 3. Reconciliation of net loss for the period to net cash outflow from operating activities 6 months 6 months 12 months ended ended ended 30 June 30 June 31 December 2007 2006 2006 (unaudited) (unaudited) (audited) £'000 £'000 £'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 492 471 823 Depreciation 150 107 229 Goodwill impairment - - - Loss on disposal of property, plant and equipment - - 5 Release of backlog (from Teja) - - - Share based award expense 113 171 277 (Increase)/decrease in inventories 3 (110) (203) (Increase)/decrease in trade and other receivables (261) 974 393 Increase/(Decrease) in trade and other payables (865) 570 965 Increase/(Decrease) in provisions (128) (39) 58 Cash used in operations (2,872) (1,024) (1,678) 4. Statement of changes in shareholders' equity Capital Cumulative Retained Share Share Merger redemption Other translation profit/ capital premium reserve reserve reserves adjustment (loss) Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 January 2006 149 2,923 107 162 60,205 (190) (30,567) 32,789 Shares issued 1 158 159 Change in value of ESOP reserve 27 27 Share based award reserve 171 171 Exchange gain (56) (56) (Loss) for the period (1,688) (1,688) At 30 June 2006 150 3,081 107 162 60,376 (246) (32,228) 31,402 Shares issued 1 175 176 Change in value of ESOP reserve 13 13 Share based award reserve 106 106 Exchange gain (211) (211) Gain for the period 555 555 At 31 December 2006 151 3,256 107 162 60,482 (457) (31,660) 32,041 Shares issued 1 282 283 Change in value of ESOP reserve 76 76 Share based award reserve 113 113 Exchange (loss) (54) (54) (Loss) for the period (1,543) (1,543) At 30 June 2007 152 3,538 107 162 60,595 (511) (33,127) 30,916 5. Provisions Current Non-current Total provision £'000s £'000s £'000s At 1 January 2006 77 209 286 Utilised (39) - (39) Reclassified from long term to short term 39 (39) - At 30 June 2006 77 170 247 Utilised (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 Utilised (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 The utilisation of the provisions relates to onerous lease commitments in Elstree, UK and Santa Cruz, USA (2006 Elstree alone). In 1H 2007, the Company reached an agreement with the Santa Cruz landlord to terminate the lease. In exchange for paying the remaining lease payments in advance, £45,000 of the lease obligation was waived by the landlord. The balance of the provision £216,000 represents an onerous lease commitment and the associated restoration costs for the Elstree, UK facility. Management anticipates full utilisation of the Elstree provision in the second half of 2007, as the lease terminates in July 2007. 6. Acquisitions The group purchased Tenison Technology EDA Limited on June 15, 2007 for a total consideration of £1,067,000, and certain assets of Teja Technologies Inc on 2 April 2007 for £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 fair values. The residual excess over the net assets acquired is recognized as goodwill in the financial statements. The fair values are subject to adjustments in respect of achieving specified net asset amounts, which affect intangible assets for developed core technology, net tangible assets, deferred tax, and goodwill. The fair value adjustments contain some provisional amounts that will be finalized in the 2007 annual accounts. Goodwill of £874,000 represents the value of synergies and assembled work force. Teja Technologies In the Teja purchase, only key assets were acquired. The acquisition 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 for intangible developed core technology, and to a lesser extent, customer backlog, trade receivables, and deferred revenue. The fair value adjustments contain some provisional amounts that will be finalized in the 2007 annual accounts. Goodwill of £12,000 represents the value of synergies and assembled work force. About ARC International plc ARC International is the world leader in configurable media subsystems and CPU/ DSP processors. Used by over 140 companies worldwide, ARC's configurable solutions enable the creation of highly differentiated SoCs that ship in hundreds of millions of devices annually. ARC's patented subsystems and cores are smaller, consume less power, and are less expensive to manufacture than competing products. ARC International maintains a worldwide presence with corporate and research and development offices in Silicon Valley and St. Albans, UK. For more information visit www.ARC.com. ARC International is listed 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 ARC International. All other brands or product names contained herein are the property of their respective owners. This release may contain "forward-looking statements" including statements concerning plans, future events or performance and underlying assumptions and other statements that are other than statements of historical fact. ARC's actual results for future periods may differ materially from those expressed in any forward-looking statements made by or on behalf of ARC. The factors that could cause actual results to differ materially include, without limitation, general economic and business conditions; potential for fluctuations in and unpredictability of ARC's quarterly results; assumptions regarding ARC's future business strategy; the ability of semiconductor partners to manufacture and market microprocessors based on the ARC(R) architecture; the acceptance of ARC technology by systems companies; the availability of development tools, systems software and operating systems; the rapid change in technology in the semiconductor industry and ARC's ability to develop new products in a timely manner; competition from other architectures; ARC's ability to protect its intellectual property; regulatory policies adopted by governmental authorities; risks associated with ARC's international operations; management of ARC's growth; ARC's ability to attract and retain employees; and other uncertainties that are discussed in the "Investment Considerations" section of ARC's listing particulars dated 28 September 2000 filed with the United Kingdom Listing Authority and the Registrar of Companies in England and Wales. 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