arc international plc annual report and accounts 2002
arc international plc annual report and accounts 2002 contents
2 arc at a glance
4 chairman’s statement
5 chief executive officer’s review
12 financial review
14 directors and advisers
16 directors’ report
18 remuneration report
22 corporate governance
25 statement of directors’ responsibilities
26 independent auditors’ report
27 consolidated profit and loss account
consolidated statement of total recognised 
gains and losses
28 consolidated balance sheet
29 consolidated cash flow statement
30 notes to the accounts
48 locations of principal operating companies
ibc shareholder information 1
arc’s mission is to be the world leader in supplying integrated embedded system
solutions for our target markets
our purpose is to make it easy for our customers to create embedded systems usually 
a systemonchip soc we do this by simplifying the complexity of designing verifying
and producing integrated circuits and the software that runs on these integrated circuits
with a unique system that results from the integration of arc’s riscdsp processors
compilers realtime operating system rtos application software and peripherals
the arc system allows users to create new soc solutions in less time at a lower cost
and lower risk than alternatives we will continue to reduce the number of technology
suppliers our customers have to deal with as the library of arc technology continues 
to expand this will reduce our customers’ time to market cost and risk arc international plc annual report and accounts 2002
at a glance
2
turnover up at £117 million the highest in the companys history compared with 
£114 million in 2001
operating expenses before exceptionals amortisation and depreciation significantly reduced 
by 18 to £293 million
preexceptional net loss reduced by 16 to £205 million
cash burn down 20 to £20 million 
expanded customer base with 29 design wins 20 new arctangent™ customers and 
16 peripheral licensees achieved in 2002 and over 50 new software customers each quarter
successfully diversified product offering with usb onthego and wlan launched in 
june 2002 and january 2003 respectively
recruitment of senior management team complete
completed strategic review and announced £485 million share repurchase 
launched into asia with 6 of revenues from this region in the fourth quarter 2002
1998 1999 2000 2001 2002
913
1914
10564
11450
11702
turnover by year £000 3
q2 q4
2764
4305
3195
5050
us000 £000
q3 q1
2731
3902
3011
4402
turnover by quarter 2002
processor tools software peripherals
3195
3011
2731
2764
q2 q4 q3 q1
revenue by product line by quarter 2002 £000
3195
3011
2731
asia europe north america
2764
q2 q4 q3 q1
revenue by geography by quarter 2002 £000 arc international plc annual report and accounts 2002
4
i am very pleased to report that the company has made solid progress
during the first full year of mike gulett’s tenure as chief executive officer
decisive action has been taken to improve all areas of the business and 
we have ended the year in a much stronger competitive position 
we reported record turnover for 2002 despite very difficult market conditions and achieved our objective of growing 
the business organically whilst successfully reducing the overall cost structure
in the past 12 months arc’s management team has been significantly strengthened with new senior executives in finance
marketing engineering legal human resources and corporate development the senior executive staff now has an average
of more than 25 years’ experience in developing successful technology companies we continue to invest in people to drive
the business towards profitability and are confident that we have the right executive team in place to deliver this we also
appointed jeremy jez san obe to the board as nonexecutive director with effect from 4 november jez is chief executive
officer of argonaut games plc and a founder of arc international
our product strategy and customer proposition is clearer than ever before we have diversified from selling just processor
cores to providing a more integrated approach to product design with development tools software and peripheral ip 
most recently we have launched usb now ™ and wlan now ™ to complement our existing and new versions of the
arctangent™ processors we believe that this has improved our competitive position in the intellectual property ip market
and attracted new strategic partnerships and customers as a result of these changes our customer profile has improved 
and we are now actively targeting the larger semiconductor and systems businesses
in november we appointed westlb panmure as joint corporate broker and financial adviser to the company we then
carried out a review to address the capital requirements of the business the review showed that arc had sufficient working
capital funding to bring the company to profitability on the basis of reasonably prudent assumptions and we announced 
the intention to repurchase £485 million of arc’s stock during the first half of 2003 thereby optimising shareholders’
potential for future returns when the process is completed we will still have a strong balance sheet with sufficient cash
resources for the longer term as well as the flexibility to make complementary acquisitions where appropriate
my threeyear appointment to the board has come to an end and on 5 february 2003 i announced that i would be
resigning from the board with effect from the agm on 24 april 2003 i want to thank my colleagues on the board 
for an inspiring time with many challenges and much hard work and i wish them and arc all the best for the future 
the board will announce a new chairman shortly
finally i’d like to thank all of our employees for their very hard and dedicated work this past year and i look forward 
to arc’s successes in 2003
jan tufvesson chairman
27 february 2003
chairman’s statement 5
2002 was a year of achievement for arc and we reported the 
highest turnover in the company’s history despite very challenging 
market conditions fourthquarter revenues grew by 41 year on year 
overview net loss was reduced to £220 million from £299 million in 2001 and operating costs were significantly
lower than the previous year 2002 was also an important transitional year for arc and under the leadership of a new
experienced management team the company has completed a major restructuring
the management team completely refocused the business and product strategies completing the integration of all acquired
subsidiaries allowed us to leverage the technology to create a systemlevel approach to product development which
accelerated the introduction of important new products and expanded our customer base beyond our traditional markets 
we maintained a diversified product offering in fiscal 2002 47 of turnover came from processor cores 20 from
peripherals and 33 from software products this diversification resulted in the expansion of our customer base and we
have begun actively targeting the larger semiconductor and systems businesses in 2002 we won 29 new arctangent™
processor design wins and 16 peripheral licensees in addition we shipped software and development tools to more than
50 customers in each quarter
our customers continue to develop products for our traditional markets of wired and wireless communications as well 
as consumer electronics but our new systemslevel approach opened opportunities in computer security and encryption 
as well as the rapidly growing storage area network market
in 2002 we expanded successfully into asia with sales and support channels in taiwan and japan 6 of fourthquarter
revenues came from asia up from zero in the first two quarters of 2002 we expect this trend to continue
we consolidated the engineering teams to promote synergies in software product development the engineering operation
in ottawa was closed but many of the engineers relocated to the santa cruz california software development centre 
this is one of the areas where we made significant cost reductions
product strategy and customer focus our goal is to be the leading supplier of embedded systems technology 
we have reduced the number of ip vendors that our customers need which reduces their design risk reduces their
development time and reduces their costs unlike our competitors in the ip space arc can guarantee that all the key
hardware and software components for a specific design will work together because we provide most of the technology
arc continues to enjoy the benefits of shifting its product strategy from a processorcentric approach to a systemlevel
approach and the customer response has been very encouraging 
in 2002 we announced relationships with intel microelectronics services oak technologies hifn amlogic synopsys
mentor graphics and others in early 2003 we will announce the details of our relationships with several other companies
we are developing products that expand our capability in consumer electronics wired and wireless communications 
and some new markets including computer security encryption and storage area networking
chief executive officer’s review arc international plc annual report and accounts 2002
6
chief executive officer’s review continued
arctangent™ processor arc was the first company to introduce a usercustomisable riscdsp
processor the arctangent™ is sythesisable configurable and extensible so users can readily modify
and extend the architecture for their specific applications arc currently provides two families of
arctangent™ processor cores the a4 and the a5 arc is the world leader in delivering user
customisable riscdsp processors – we have secured more than 120 design wins since this product
was introduced the company achieved 29 new design licences for the arctangent™ processor in 
2002 20 of these licensees were new customers
in october 2002 arc introduced the arctangent™a5 a design that is targeted at those designers
developing communications and consumer electronic products with design cycles of six months or less
this product integrates a singlesoftware development chain and applicationspecific extensions with 
the arctangent™a5 processor 
usb now ™ in june 2002 arc introduced the world’s first usb 20 hispeed onthego controller
and as of today we are the only supplier of this vital new technology in the fourth quarter we added
six licensees for this product for a sixmonth total of 13 
according to instat an industry analyst firm the market for universal serial bus “usb” in nonpc
applications is growing twice as fast as demand in the pc market arc’s usb onthego “usbotg”
product is strategically positioned to leverage the growing demand for mobility usbotg eliminates 
the need to connect peripherals through a pc 
wlan now ™ with the broadening acceptance of 80211 as the wireless lan technology of
choice there is rapidly increasing market demand to enable all electronic devices with wireless
technology this includes but is not limited to personal digital assistants pdas consumer electronics
audio video games wireless terminals home networking devices and broadband gateways dsl
cable settop boxes existing products are served with 80211 chipsets these chipsets are too
expensive require too much power and occupy too much area to be used effectively within consumer
handheld and embedded products
with all kinds of digital electronics devices coming to market users could become more
productive if they could mix and match the functionality of their portable devices the vast
majority of computer peripherals currently communicate to each other through a computer via
the universal serial bus “usb” although that is changing an update to this standard interface
called usb onthego “otg” eliminates the need to use a pc as the host interface arc is
the leader in usb 20 hispeed otg technology in june we introduced the industry’s first usb
onthego ip platform usb now ™ using arc’s usb onthegobased products for example
your digital cameras will be able to directly connect to cell phones and send images over the
internet usb now ™ has been a major success with 13 licences signed in 2002 and is still 
the only product of its kind on the market
usb onthego eliminates the role of the pc 
as a gobetween  7
integration
“arc helped make the task of porting the software as seamless as the hardware integration
effort ultimately we found that arc’s documentation and technical support were superior 
to other thirdparty processor core companies”  
john zhong chairman president and ceo amlogic
amlogic inc a leading supplier of highly integrated systemonchip solutions for the fast growing
multimedia and internet consumer markets selected the arctangent™a4 core to be the brain
of a progressive scan dvd controller the design objectives for the aml3300 chip were to
achieve the highest level of integration to support new features while minimising the lowest cost
of ownership the arctangent™ processor combined with arc’s rtos complier and debugger
tool suite delivered according to amlogic “the highest performance in the smallest footprint”
amlogic’s singlechip progressive scan dvd 
controller is arcenabled
first configurable and extensible risc processor optimised for soc implementations
arc is the world leader in usercustomisable riscdsp processors 8
integration
metrowerks an independently operated subsidiary of motorola inc develops and markets
popular development tools for the powerpc
®
peripheral these tools are used by thousands 
of developers worldwide in july the two companies reached a joint marketing agreement that
will allow metrowerks to bundle and distribute arc’s software to its worldwide customer base
arc signs software marketing agreement 
with metrowerksmotorola
singlesource solution for embedded software and development tools 9
arc international plc annual report and accounts 2002
chief executive officer’s review continued
arc launched wlan now ™ the 80211 multiprotocol mac and baseband product in early 2003 
a lowcost small footprint technology offering that is suitable for integration at the chip level into
consumer handheld and embedded products
other new products arc is on target to introduce several additional products during the rest of
2003 arc will continue to innovate in an ongoing effort to make it easy for our customers to create
embedded systems by simplifying the complexity of designing verifying and producing integrated
circuits and the software that runs on these integrated circuits
asia sales expansion asia offers a huge opportunity for arc through strategic alliances and
partnerships arc is bringing its entire portfolio of intellectual property to the asian market in may 
we hired a sales manager for asia in july we established a partnership with emdt and hynix
semiconductor to provide full turnkey design services for products based on our technology in china 
and korea in august we signed edom technology as the distributor of arc’s products in taiwan 
and china in november we announced the opening of our office in taiwan and announced plans 
to open an office in japan this preliminary effort resulted in an increase in our asia revenue from 
zero in the first two quarters of the year to 6 of total revenue in the fourth quarter
strategic alliances strategic alliances are very important for arc to achieve the goal of building a
longterm profitable business we have announced several strategic alliances this year and will continue
to partner with those companies that provide “best of breed” technology to complement our approach 
to product design in addition to relationships with synopsys standard microsystems hynix emdt 
and denali software we negotiated alliances with 


Summary:
 5
2002 was a year of achievement for arc and we reported the 
highest turnover in the company’s history despite very challenging 
market conditions fourthquarter revenues grew by 41 year on year 
overview net loss was reduced to £220 million from £299 million in 2001 and operating costs were significantly
lower than the previous year 2002 was also an important transitional year for arc and under the leadership of a new
experienced management team the company has completed a major restructuring
the management team completely refocused the business and product strategies completing the integration of all acquired
subsidiaries allowed us to leverage the technology to create a systemlevel approach to product development which
accelerated the introduction of important new products and expanded our customer base beyond our traditional markets 
we maintained a diversified product offering in fiscal 2002 47 of turnover came from processor cores 20 from
peripherals and 33 from software products this diversification resulted in the expansion of our customer base and we
have begun actively targeting the larger semiconductor and systems businesses in 2002 we won 29 new arctangent™
processor design wins and 16 peripheral licensees in addition we shipped software and development tools to more than
50 customers in each quarter
our customers continue to develop products for our traditional markets of wired and wireless communications as well 
as consumer electronics but our new systemslevel approach opened opportunities in computer security and encryption 
as well as the rapidly growing storage area network market
in 2002 we expanded successfully into asia with sales and support channels in taiwan and japan 6 of fourthquarter
revenues came from asia up from zero in the first two quarters of 2002 we expect this trend to continue
we consolidated the engineering teams to promote synergies in software product development the engineering operation
in ottawa was closed but many of the engineers relocated to the santa cruz california software development centre 
this is one of the areas where we made significant cost reductions
product strategy and customer focus our goal is to be the leading supplier of embedded systems technology 
we have reduced the number of ip vendors that our customers need which reduces their design risk reduces their
development time and reduces their costs unlike our competitors in the ip space arc can guarantee that all the key
hardware and software components for a specific design will work together because we provide most of the technology
arc continues to enjoy the benefits of shifting its product strategy from a processorcentric approach to a systemlevel
approach and the customer response has been very encouraging 
in 2002 we announced relationships with intel microelectronics services oak technologies hifn amlogic synopsys
mentor graphics and others in early 2003 we will announce the details of our relationships with several other companies
we are developing products that expand our capability in consumer electronics wired and wireless communications 
and some new markets including computer security encryption and storage area networking
chief executive officer’s review arc international plc annual report and accounts 2002
6
chief executive officer’s review continued
arctangent™ processor arc was the first company to introduce a usercustomisable riscdsp
processor the arctangent™ is sythesisable configurable and extensible so users can readily modify
and extend the architecture for their specific applications arc currently provides two families of
arctangent™ processor cores the a4 and the a5 arc is the world leader in delivering user
customisable riscdsp processors – we have secured more than 120 design wins since this product
was introduced the company achieved 29 new design licences for the arctangent™ processor in 
2002 20 of these licensees were new customers
in october 2002 arc introduced the arctangent™a5 a design that is targeted at those designers
developing communications and consumer electronic products with design cycles of six months or less
this product integrates a singlesoftware development chain and applicationspecific extensions with 
the arctangent™a5 processor 
usb now ™ in june 2002 arc introduced the world’s first usb 20 hispeed onthego controller
and as of today we are the only supplier of this vital new technology in the fourth quarter we added
six licensees for this product for a sixmonth total of 13 
according to instat an industry analyst firm the market for universal serial bus “usb” in nonpc
applications is growing twice as fast as demand in the pc market arc’s usb onthego “usbotg”
product is strategically positioned to leverage the growing demand for mobility usbotg eliminates 
the need to connect peripherals through a pc 
wlan now ™ with the broadening acceptance of 80211 as the wireless lan technology of
choice there is rapidly increasing market demand to enable all electronic devices with wireless
technology this includes but is not limited to personal digital assistants pdas consumer electronics
audio video games wireless terminals home networking devices and broadband gateways dsl
cable settop boxes existing products are served with 80211 chipsets these chipsets are too
expensive require too much power and occupy too much area to be used effectively within consumer
handheld and embedded products
with all kinds of digital electronics devices coming to market users could become more
productive if they could mix and match the functionality of their portable devices the vast
majority of computer peripherals currently communicate to each other through a computer via
the universal serial bus “usb” although that is changing an update to this standard interface
called usb onthego “otg” eliminates the need to use a pc as the host interface arc is
the leader in usb 20 hispeed otg technology in june we introduced the industry’s first usb
onthego ip platform usb now ™ using arc’s usb onthegobased products for example
your digital cameras will be able to directly connect to cell phones and send images over the
internet usb now ™ has been a major success with 13 licences signed in 2002 and is still 
the only product of its kind on the market
usb onthego eliminates the role of the pc 
as a gobetween  7
integration
“arc helped make the task of porting the software as seamless as the hardware integration
effort ultimately we found that arc’s documentation and technical support were superior 
to other thirdparty processor core companies”  
john zhong chairman president and ceo amlogic
amlogic inc a leading supplier of highly integrated systemonchip solutions for the fast growing
multimedia and internet consumer markets selected the arctangent™a4 core to be the brain
of a progressive scan dvd controller the design objectives for the aml3300 chip were to
achieve the highest level of integration to support new features while minimising the lowest cost
of ownership the arctangent™ processor combined with arc’s rtos complier and debugger
tool suite delivered according to amlogic “the highest performance in the smallest footprint”
amlogic’s singlechip progressive scan dvd 
controller is arcenabled
first configurable and extensible risc processor optimised for soc implementations
arc is the world leader in usercustomisable riscdsp processors 8
integration
metrowerks an independently operated subsidiary of motorola inc develops and markets
popular development tools for the powerpc
®
peripheral these tools are used by thousands 
of developers worldwide in july the two companies reached a joint marketing agreement that
will allow metrowerks to bundle and distribute arc’s software to its worldwide customer base
arc signs software marketing agreement 
with metrowerksmotorola
singlesource solution for embedded software and development tools 9
arc international plc annual report and accounts 2002
chief executive officer’s review continued
arc launched wlan now ™ the 80211 multiprotocol mac and baseband product in early 2003 
a lowcost small footprint technology offering that is suitable for integration at the chip level into
consumer handheld and embedded products
other new products arc is on target to introduce several additional products during the rest of
2003 arc will continue to innovate in an ongoing effort to make it easy for our customers to create
embedded systems by simplifying the complexity of designing verifying and producing integrated
circuits and the software that runs on these integrated circuits
asia sales expansion asia offers a huge opportunity for arc through strategic alliances and
partnerships arc is bringing its entire portfolio of intellectual property to the asian market in may 
we hired a sales manager for asia in july we established a partnership with emdt and hynix
semiconductor to provide full turnkey design services for products based on our technology in china 
and korea in august we signed edom technology as the distributor of arc’s products in taiwan 
and china in november we announced the opening of our office in taiwan and announced plans 
to open an office in japan this preliminary effort resulted in an increase in our asia revenue from 
zero in the first two quarters of the year to 6 of total revenue in the fourth quarter
strategic alliances strategic alliances are very important for arc to achieve the goal of building a
longterm profitable business we have announced several strategic alliances this year and will continue
to partner with those companies that provide “best of breed” technology to complement our approach 
to product design in addition to relationships with synopsys standard microsystems hynix emdt 
and denali software we negotiated alliances with