EX-99.1 2 g25009exv99w1.htm EX-99.1 exv99w1
Exhibit 99.1
         
FOR IMMEDIATE RELEASE
  Contact:   Jim Bauer
Investor Relations
(678) 473-2647
jim.bauer@arrisi.com
ARRIS ANNOUNCES PRELIMINARY AND UNAUDITED
THIRD QUARTER 2010 RESULTS
Suwanee, Ga. (October 27, 2010) ARRIS Group, Inc. (NASDAQ:ARRS), today announced preliminary and unaudited financial results for the third quarter 2010.
Revenues in the third quarter 2010 were $274.3 million, as compared to third quarter 2009 revenues of $275.8 million and compared to second quarter 2010 revenues of $280.4 million. Through the first three quarters of 2010 and 2009, revenues were $821.3 million and $807.8 million, respectively.
Adjusted net income (a non-GAAP measure) in the third quarter 2010 was $0.19 per diluted share, compared to $0.25 per diluted share for the third quarter 2009 and $0.24 per diluted share for the second quarter of 2010. Year to date, adjusted net income was $0.67 per diluted share for 2010 as compared to $0.69 per diluted share in 2009.
GAAP net income in the third quarter 2010 was $0.11 per diluted share, as compared to third quarter 2009 GAAP net income of $0.17 per diluted share and second quarter 2010 GAAP net income of $0.15 per diluted share. Year to date, GAAP net income was $0.41 per diluted share in 2010 as compared to GAAP net income of $0.45 per diluted share in 2009. Significant GAAP items that have been excluded in computing adjusted net income and adjusted net income per diluted share include amortization of intangible assets, equity compensation, non-cash interest expense, restructuring charges, and certain discrete tax items. A reconciliation of adjusted net income to GAAP net income per diluted share is attached to this release and also can be found on the Company’s website (www.arrisi.com).
Gross margin for the third quarter 2010 was 37.2%, which compares to the third quarter 2009 gross margin of 41.9% and the second quarter 2010 gross margin of 40.4%. As expected, margins declined as a result of a shift in product mix.
The Company ended the third quarter 2010 with $640.4 million of cash, cash equivalents and short-term investments, up in the aggregate by approximately $78.6 million from the end of the third quarter 2009 and down $23.0 million from the end of the second quarter 2010. The Company generated $12.5 million of cash from operating activities during the third quarter 2010 and $95.9 million through the first nine months of 2010, which compares to $63.1 million and $171.2 million during the same periods in 2009, respectively. Order backlog at

 


 

the end of the third quarter 2010 was $119.6 million as compared to $169.5 million and $174.1 million at the end of the third quarter 2009 and the second quarter 2010, respectively. The Company’s book-to-bill ratio in the third quarter 2010 was 0.80 as compared to the third quarter 2009 of 1.01 and the second quarter 2010 of 0.92.
“Third quarter financial results came in as we had forecast with CPE sales during the quarter at the highest level since 2007,” said Bob Stanzione, ARRIS Chairman & CEO. “As a result of our efforts to expand our portfolio with new IP video based products, as well as the increased demand that we anticipate for our core products, we continue to see our total addressable market growing significantly in the coming years.”
During the quarter the Company demonstrated its video, data and voice products at the IBC Show in Amsterdam. These product solutions provide European operators with a competitive technical and business case advantage based on the Company’s decades of expertise in developing IP technologies. The Company also demonstrated its video, data, fixed and wireless voice solutions to Brazilian cable operators at the ABTA Cable Exhibition in Sao Paulo, Brazil. In addition, the Company added two new customers in Korea for its CMTS platform and a major MSO customer in Germany for its universal edge QAM product.
“Of note, in the third quarter, we repurchased approximately 1.7 million shares of ARRIS common stock for $15.6 million and repurchased $14.0 million (face value) of Convertible Notes for $13.5 million. Year to date, we have repurchased 3.8 million shares and $19.0 million (face value) of Convertible Notes for an aggregate purchase price of $57.6 million. With respect to the fourth quarter 2010, we now project that revenues for the Company will be in the range of $250 to $275 million, with adjusted net income per diluted share in the range of $0.14 to $0.18 and GAAP net income per diluted share, in the range of $0.05 to $0.09.” said David Potts, ARRIS EVP & CFO.
ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, October 27, 2010, to discuss these results in detail. You may participate in this conference call by dialing 888-679-8038 or 617-213-4850 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 59527542 and Jim Bauer as the moderator. Please note that ARRIS will not accept any calls related to this earnings release until after the conclusion of the 5:00pm EDT conference call. A replay of the conference call can be accessed approximately two hours after the call through Tuesday, November 2, 2010 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 69800362. A replay also will be made available for a period of 12 months following the conference call on ARRIS’ website at www.arrisi.com.

 


 

About ARRIS
ARRIS is a global communications technology company specializing in the design, engineering and supply of technology supporting triple and quad-play broadband services for residential and business customers around the world. The Company supplies broadband operators with the tools and platforms they need to deliver converged IP video solutions, carrier-grade telephony, demand driven video, next-generation advertising, network and workforce management solutions, access and transport architectures and ultra high-speed data services. Headquartered in Suwanee, Georgia, USA, ARRIS has R&D centers in Suwanee, GA; Beaverton, OR; Chicago, IL; Kirkland, WA; State College, PA; Wallingford, CT; Waltham, MA; Cork, Ireland; and Shenzhen, China, and operates support and sales offices throughout the world. Information about ARRIS products and services can be found at www.arrisi.com.
Forward-looking statements:
Statements made in this press release, including those related to:
    growth expectations and business prospects;
 
    revenues and net income for the fourth quarter 2010, full year 2010, and beyond;
 
    expected sales levels and acceptance of new ARRIS products; and
 
    the general market outlook and industry trends
are forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. Among other things:
    projected results for the fourth quarter 2010 as well as the general outlook for 2011 and beyond are based on preliminary estimates, assumptions and projections that management believes to be reasonable at this time, but are beyond management’s control;
 
    ARRIS’ customers operate in a capital intensive consumer based industry, and the current volatility in the capital markets or changes in customer spending may adversely impact their ability or willingness to purchase the products that the Company offers; and
 
    because the market in which ARRIS operates is volatile, actions taken and contemplated may not achieve the desired impact relative to changing market conditions and the success of these strategies will be dependent on the effective implementation of those plans while minimizing organizational disruption.
In addition to the factors set forth elsewhere in this release, other factors that could cause results to differ from current expectations include: the uncertain current economic climate and its impact on our customers’ plans and access to capital; the impact of rapidly changing technologies; the impact of competition on product development and pricing; the ability of ARRIS to react to changes in

 


 

general industry and market conditions including regulatory developments; rights to intellectual property, market trends and the adoption of industry standards; and consolidations within the telecommunications industry of both the customer and supplier base. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the Company’s business. Additional information regarding these and other factors can be found in ARRIS’ reports filed with the Securities and Exchange Commission, including its Form 10-Q for the quarter ended June 30, 2010. In providing forward-looking statements, the Company expressly disclaims any obligation to update publicly or otherwise these statements, whether as a result of new information, future events or otherwise.
# # # # #

 


 

ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
                                         
    September 30,     June 30,     March 31,     December 31,     September 30,  
    2010     2010     2010     2009     2009  
 
ASSETS
                                       
Current assets:
                                       
Cash and cash equivalents
  $ 351,894     $ 370,932     $ 500,044     $ 500,565     $ 461,795  
Short-term investments, at fair value
    288,463       292,421       161,012       125,031       99,917  
 
                             
Total cash, cash equivalents and short term investments
    640,357       663,353       661,056       625,596       561,712  
 
Restricted cash
    4,480       4,478       4,476       4,475       4,473  
Accounts receivable, net
    133,915       139,673       139,207       143,708       119,125  
Other receivables
    2,654       6,368       3,057       6,113       2,235  
Inventories, net
    89,203       78,830       79,907       95,851       100,024  
Prepaids
    8,934       10,196       10,546       11,675       10,764  
Current deferred income tax assets
    28,585       30,469       37,324       35,994       32,883  
Income taxes recoverable
    17,094       5,943             3,106       2,026  
Other current assets
    11,253       15,386       14,328       15,790       15,167  
 
                             
Total current assets
    936,475       954,696       949,901       942,308       848,409  
 
Property, plant and equipment, net
    56,816       56,128       56,223       57,195       58,339  
Goodwill
    235,109       235,122       235,256       235,388       234,416  
Intangible assets, net
    177,560       186,529       195,551       204,572       201,351  
Investments
    29,591       29,485       25,435       20,618       30,574  
Noncurrent deferred income tax assets
    6,560       6,127       6,298       6,759       3,593  
Other assets
    6,129       6,755       8,050       8,776       7,648  
 
                             
 
  $ 1,448,240     $ 1,474,842     $ 1,476,714     $ 1,475,616     $ 1,384,330  
 
                             
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
 
Current liabilities:
                                       
Accounts payable
  $ 52,011     $ 72,652     $ 44,523     $ 53,979     $ 42,659  
Accrued compensation, benefits and related taxes
    25,913       20,696       23,639       36,936       27,054  
Accrued warranty
    3,504       3,539       3,632       4,265       5,292  
Deferred revenue
    36,029       44,913       53,024       47,044       35,423  
Current portion of long-term debt
    12       50       87       124       148  
Current deferred income tax liability
                            250  
Other accrued liabilities
    25,891       24,476       42,978       46,203       34,979  
 
                             
Total current liabilities
    143,360       166,326       167,883       188,551       145,805  
Long-term debt, net of current portion
    204,053       212,914       214,131       211,248       208,433  
Accrued pension
    17,383       17,058       16,733       16,408       18,914  
Noncurrent income taxes payable
    16,509       16,523       16,248       14,815       10,632  
Noncurrent deferred income tax liabilities
    32,193       28,705       33,577       37,204       35,188  
Other noncurrent liabilities
    14,926       15,704       16,871       16,021       15,301  
 
                             
Total liabilities
    428,424       457,230       465,443       484,247       434,273  
 
Stockholders’ equity:
                                       
Preferred stock
                             
Common stock
    1,406       1,405       1,402       1,388       1,385  
Capital in excess of par value
    1,199,184       1,194,829       1,187,854       1,183,872       1,177,958  
Treasury stock at cost
    (115,248 )     (99,645 )     (79,019 )     (75,960 )     (75,960 )
Unrealized gain (loss) on marketable securities
    (374 )     217       2       28       (60 )
Unfunded pension liability
    (6,041 )     (6,041 )     (6,041 )     (6,041 )     (8,070 )
Accumulated deficit
    (58,927 )     (72,969 )     (92,743 )     (111,734 )     (145,012 )
Cumulative translation adjustments
    (184 )     (184 )     (184 )     (184 )     (184 )
 
                             
Total stockholders’ equity
    1,019,816       1,017,612       1,011,271       991,369       950,057  
 
                             
 
  $ 1,448,240     $ 1,474,842     $ 1,476,714     $ 1,475,616     $ 1,384,330  
 
                             

 


 

ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
                                 
    For the Three Months     For the Nine Months  
    Ended September 30,     Ended September 30,  
    2010     2009     2010     2009  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
Net sales
  $ 274,286     $ 275,772     $ 821,338     $ 807,811  
Cost of sales
    172,299       160,299       493,562       479,548  
 
                       
Gross margin
    101,987       115,473       327,776       328,263  
 
Operating expenses:
                               
Selling, general, and administrative expenses
    33,913       36,311       103,489       110,782  
Research and development expenses
    35,138       30,909       105,041       89,447  
Restructuring charges
          73       73       785  
Amortization of intangible assets
    8,970       9,281       27,013       27,807  
 
                       
 
    78,021       76,574       235,616       228,821  
 
                       
Operating income
    23,966       38,899       92,160       99,442  
Other expense (income):
                               
Interest expense
    4,533       4,356       13,728       13,121  
Gain on investments
    (369 )     (238 )     (400 )     (453 )
Loss on foreign currency
    94       1,114       283       3,642  
Interest income
    (399 )     (424 )     (1,469 )     (1,172 )
Gain on debt retirement
    (263 )           (378 )     (4,152 )
Other (income) expense, net
    280       (263 )     107       (887 )
 
                       
Income from continuing operations before income taxes
    20,090       34,354       80,289       89,343  
Income tax expense
    6,048       12,655       27,482       31,853  
 
                         
 
                       
Net income
  $ 14,042     $ 21,699     $ 52,807     $ 57,490  
 
                       
 
Net income per common share
                               
Basic
  $ 0.11     $ 0.17     $ 0.42     $ 0.46  
 
                       
Diluted
  $ 0.11     $ 0.17     $ 0.41     $ 0.45  
 
                       
 
Weighted average common shares:
                               
Basic
    125,237       125,326       125,927       124,381  
 
                       
Diluted
    127,638       129,695       129,103       127,916  
 
                       

 


 

ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                                 
    For the Three Months     For the Nine Months  
    Ended September 30,     Ended September 30,  
    2010     2009     2010     2009  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
Operating Activities:
                               
Net income
  $ 14,042     $ 21,699     $ 52,807     $ 57,490  
Depreciation
    5,837       5,408       16,893       15,370  
Amortization of intangible assets
    8,969       9,281       27,012       27,807  
Stock compensation expense
    5,785       4,260       16,058       11,714  
Deferred income tax provision (benefit)
    4,939       9,751       2,598       13,678  
Amortization of deferred finance fees
    170       180       527       548  
Provision for doubtful accounts
    (209 )     11       83       1  
Gain on investments
    (370 )     (238 )     (401 )     (453 )
Loss (gain) on disposal of fixed assets
    337       (76 )     369       (46 )
Non-cash interest expense
    2,781       2,772       8,548       8,308  
Gain on debt retirement
    (263 )           (378 )     (4,152 )
Excess income tax benefits from stock-based compensation plans
    (36 )     (1,471 )     (2,683 )     (2,027 )
Changes in operating assets & liabilities, net of effects of acquisitions and disposals:
                               
Accounts receivable
    5,967       9,830       9,710       40,801  
Other receivables
    3,930       2,359       2,760       539  
Inventory
    (10,373 )     16,641       6,648       30,449  
Income taxes payable/recoverable
    (11,165 )     (4,800 )     (14,173 )     (2,868 )
Accounts payable and accrued liabilities
    (22,603 )     (9,757 )     (42,226 )     (32,620 )
Other, net
    4,796       (2,800 )     11,789       6,665  
 
                       
Net cash provided by operating activities
    12,534       63,050       95,941       171,204  
 
Investing Activities:
                               
Purchases of property, plant, and equipment
    (6,862 )     (3,459 )     (17,127 )     (14,327 )
Cash paid for acquisition, net of cash acquired
          (7,930 )           (8,130 )
Cash proceeds from sale of property, plant & equipment
          207       243       208  
Purchases of investments
    (100,461 )     (93,079 )     (331,547 )     (151,845 )
Disposals of investments
    104,760       20,479       159,914       54,416  
 
                       
Net cash used in investing activities
    (2,563 )     (83,782 )     (188,517 )     (119,678 )
 
Financing Activities:
                               
Payment of debt obligations
    (38 )     (49 )     (112 )     (121 )
Early redemption of long-term debt
    (13,531 )           (18,331 )     (10,556 )
Repurchase of common stock
    (15,603 )           (39,288 )      
Excess income tax benefits from stock-based compensation plans
    36       1,471       2,683       2,027  
Repurchase of shares to satisfy employee tax withholdings
    3             (6,422 )     (2,180 )
Proceeds from issuance of common stock
    124       4,259       5,375       11,205  
 
                       
Net cash provided by (used in) financing activities
    (29,009 )     5,681       (56,095 )     375  
Net increase (decrease) in cash and cash equivalents
    (19,038 )     (15,051 )     (148,671 )     51,901  
Cash and cash equivalents at beginning of period
    370,932       476,846       500,565       409,894  
 
                       
Cash and cash equivalents at end of period
  $ 351,894     $ 461,795     $ 351,894     $ 461,795  
 
                       

 


 

ARRIS GROUP, INC.
PRELIMINARY SUPPLEMENTAL NET INCOME RECONCILIATION
(in thousands, except per share data)
(unaudited)
                                                                         
      Q1 2010       Q2 2010       Q3 2010       September YTD 2010  
              Per Diluted               Per Diluted               Per Diluted               Per Diluted  
      Amount     Share       Amount     Share       Amount     Share       Amount     Share  
Net income
    $ 18,991     $ 0.15       $ 19,774     $ 0.15       $ 14,042     $ 0.11       $ 52,807     $ 0.41  
 
                                                                       
Highlighted items:
                                                                       
Impacting gross margin:
                                                                       
Stock compensation expense
      433               481               491               1,405       0.01  
 
                                                                       
Impacting operating expenses:
                                                                       
Acquisition costs, restructuring and other
      52               21                             73        
Amortization of intangible assets
      9,022       0.07         9,022       0.07         8,969       0.07         27,013       0.21  
Stock compensation expense
      4,088       0.03         5,272       0.04         5,294       0.04         14,654       0.11  
 
                                                                       
Impacting other (income) / expense:
                                                                       
Non-cash interest expense
      2,883       0.02         2,884       0.02         2,781       0.02         8,548       0.07  
Gain on retirement of debt
                    (115 )             (263 )             (378 )      
 
                                                                       
Impacting income tax expense:
                                                                       
Adjustments of income tax valuation allowances and research & development credits and other
      1,222       0.01         (351 )             (1,040 )     (0.01 )       (169 )      
Tax related to highlighted items above
      (5,505 )     (0.04 )       (6,170 )     (0.05 )       (6,133 )     (0.05 )       (17,808 )     (0.14 )
 
                                                       
Total highlighted items
      12,195       0.09         11,044       0.08         10,099       0.08         33,338       0.26  
 
                                                       
Net income excluding highlighted items
    $ 31,186     $ 0.24       $ 30,818     $ 0.24       $ 24,141     $ 0.19       $ 86,145     $ 0.67  
 
                                                       
 
                                                                       
Weighted average common shares — diluted
              129,975                 130,690                 127,638                 129,103  
 
                                                               
                                                                         
      Q1 2009       Q2 2009       Q3 2009       September YTD 2009  
              Per Diluted               Per Diluted               Per Diluted               Per Diluted  
      Amount     Share       Amount     Share       Amount     Share       Amount     Share  
Net income
    $ 12,882     $ 0.10       $ 22,909     $ 0.18       $ 21,699     $ 0.17       $ 57,490     $ 0.45  
 
                                                                       
Highlighted items:
                                                                       
Impacting gross margin:
                                                                       
Stock compensation expense
      303               366               394               1,063       0.01  
 
                                                                       
Impacting operating expenses:
                                                                       
Acquisition costs, restructuring and other
      120               592               348               1,060       0.01  
Amortization of intangible assets
      9,263       0.07         9,263       0.07         9,281       0.07         27,807       0.22  
Stock compensation expense
      3,098       0.02         3,687       0.03         3,866       0.03         10,651       0.08  
 
                                                                       
Impacting other (income) / expense:
                                                                       
Non-cash interest expense
      2,818       0.02         2,718       0.02         2,772       0.02         8,308       0.06  
Gain on retirement of debt
      (4,152 )     (0.03 )                                   (4,152 )     (0.03 )
 
                                                                       
Impacting income tax expense:
                                                                       
Adjustments of income tax valuation allowances and research & development credits and other
      1,455       0.01                       (166 )             1,289       0.01  
Tax related to highlighted items above
      (3,646 )     (0.03 )       (5,322 )     (0.04 )       (6,218 )     (0.05 )       (15,186 )     (0.12 )
 
                                                       
Total highlighted items
      9,259       0.07         11,304       0.09         10,277       0.08         30,840       0.24  
 
                                                       
Net income excluding highlighted items
    $ 22,141     $ 0.18       $ 34,213     $ 0.27       $ 31,976     $ 0.25       $ 88,330     $ 0.69  
 
                                                       
 
                                                                       
Weighted average common shares — diluted
              124,920                 128,054                 129,695                 127,916  
 
                                                               
With respect to stock compensation expense, ARRIS records non-cash compensation expense related to grants of options and restricted stock. Depending upon the size, timing and the terms of the grants, this non-cash compensation expense may vary significantly. With respect to amortization of intangibles, the intangibles being amortized relate to our acquisitions. The acquisition costs, restructuring, and other reflect items that, although they or similar items might recur, are of a nature and magnitude that identifying them separately provides investors with a greater ability to project ARRIS’ future performance. With respect to the convertible debt non-cash interest, ARRIS records non-cash interest expense related to the 2013 convertible debt as a result of the adoption of FSP ABP 14-1 on January 1, 2009. Disclosing the non-cash piece provides investors with the information regarding interest that will not be paid out in cash. In both 2010 and 2009, income tax expense adjustments were recorded for state valuation allowances and research and development tax credits. During the first quarter of 2009, and the second & third quarters of 2010, ARRIS repurchased a portion of their convertible debt and recognized a gain of approximately $4.2 million, $0.1 million and $0.3 million, respectively.
In assessing operating performance and preparing budgets and forecasts, ARRIS’ management considers performance after making these adjustments and believes that providing investors with the same information provides greater transparency and insight into management’s analysis.

 


 

ARRIS GROUP, INC.
PRELIMINARY SUPPLEMENTAL OPERATING INCOME RECONCILIATIONS
(unaudited)
(in thousands)
                                   
    Q1 2010   Q2 2010   Q3 2010     Sept 2010 YTD
           
Operating Income as reported
  $ 33,955     $ 34,239     $ 23,966       $ 92,160  
Operating Income as a % of sales
    13 %     12 %     9 %       11 %
Highlighted Items:
                                 
Stock compensation expense
    4,521       5,753       5,785         16,059  
Acquisition costs, restructuring and other
    52       21               73  
Amortization of intangible assets
    9,022       9,022       8,969         27,013  
           
Operating Income excluding highlighted items
    47,550       49,035       38,720         135,305  
Operating Income excluding highlighted items as a % of sales
    18 %     17 %     14 %       16 %
                                   
    Q1 2009   Q2 2009   Q3 2009     Sept 2009 YTD
           
Operating Income as reported
  $ 22,389     $ 38,154     $ 38,899       $ 99,442  
Operating Income as a % of sales
    9 %     14 %     14 %       12 %
Highlighted Items:
                                 
Stock compensation expense
    3,401       4,053       4,260         11,714  
Acquisition costs, restructuring and other
    120       592       348         1,060  
Amortization of intangible assets
    9,263       9,263       9,281         27,807  
           
Operating Income excluding highlighted items
    35,173       52,062       52,788         140,023  
Operating Income excluding highlighted items as a % of sales
    14 %     19 %     19 %       17 %
See the Preliminary Supplemental Net Income Reconciliation for a discussion regarding these adjustments and management’s reasoning for providing this adjusted financial measure.

 


 

ARRIS GROUP, INC.
Net Income Reconciliation (unaudited)
Q4 2010 EPS Guidance
         
Estimated GAAP EPS
  $ 0.05 - $0.09  
Reconciling Items
       
Amortization of Intangibles (after tax)
  $ 0.05  
Stock Compensation Expense (after tax)
  $ 0.03  
Non-Cash Interest — Convertible Debt (after tax)
  $ 0.01  
 
     
Subtotal
  $ 0.09  
 
     
Estimated Adjusted (Non-GAAP) EPS
  $ 0.14 - $0.18  
 
     
See the Preliminary Supplemental Net Income Reconciliation for a discussion regarding these adjustments and management’s reasoning for providing this adjusted financial measure.