EX-99.4 6 g74218ex99-4.txt FINANCIAL STATEMENTS OF ARRIS INTERACTIVE, LLC EXHIBIT 99.4 INDEX TO INTERIM FINANCIAL STATEMENTS Interim Financial Statements
Balance Sheets as of June 30, 2001 (unaudited) and December 31, 2000......1 Statements of Operations for the six month periods ended June 30, 2001 and 2000 (unaudited). .............................2 Statements of Cash Flows for the six month periods ended June 30, 2001 and 2000 (unaudited)...............................3 Notes to Interim Financial Statements.....................................4
ARRIS INTERACTIVE L.L.C. BALANCE SHEETS (IN THOUSANDS)
ASSETS June 30, 2001 DECEMBER 31, 2000 ------------- ----------------- (UNAUDITED) Current Assets: Cash and cash equivalents ............................... $ 6,193 $ 15,783 Trade accounts receivable: ANTEC ................................................ 112,543 84,465 Nortel Networks ...................................... 18,552 65,415 Other, net of allowance for doubtful accounts of $1,580 and $1,958, respectively ................ 4,166 13,820 Inventories ............................................. 78,247 62,251 Prepaid expenses ........................................ 659 484 Note receivable - Nortel Networks ....................... 700 700 --------- --------- 221,060 242,918 Property, Plant and Equipment - net ......................... 24,924 26,445 Note Receivable - Nortel Networks, net of current portion ... 631 579 --------- --------- $ 246,615 $ 269,942 ========= ========= LIABILITIES AND MEMBERS' CAPITAL DEFICIENCY Current Liabilities: Trade accounts payable: Nortel Networks ...................................... $ 113,836 $ 75,359 ANTEC ................................................ 550 1,015 Other ................................................ 19,308 61,845 Employee compensation ................................... 9,282 15,758 Other accrued liabilities ............................... 10,227 9,723 --------- --------- 153,203 163,700 Long Term Liabilities: Notes payable Nortel Networks ...................................... 152,365 124,637 ANTEC ................................................ 1,799 1,799 Employee compensation - net of current portion .......... 5,103 8,663 --------- --------- 159,267 135,099 Members' Capital Deficiency: Paid-in Capital ......................................... 103,332 103,332 Accumulated deficit ..................................... (169,187) (132,189) --------- --------- (65,855) (28,857) --------- --------- $ 246,615 $ 269,942 ========= =========
See notes to financial statements. 1 ARRIS INTERACTIVE L.L.C. STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED June 30, ----------------------------- 2001 2000 --------- --------- Revenue ANTEC ................................ $ 107,282 $ 123,199 Nortel Networks ...................... 34,034 130,327 Trade ................................ 299 277 --------- --------- Total Revenue ............................. 141,615 253,803 Cost of revenues ANTEC ................................ 100,441 84,487 Nortel Networks ...................... 27,656 95,586 Trade ................................ 226 190 --------- --------- Total cost of revenue ..................... 128,323 180,263 --------- --------- Gross profit ......................... 13,292 73,540 Operating expenses: Selling and marketing expense ........ 4,977 5,995 General and administrative expense ... 7,454 5,359 Research and development expense ..... 32,885 35,691 --------- --------- Total operating expenses .................. 45,316 47,045 --------- --------- Operating (loss) income ................... (32,024) 26,495 Interest income ........................... 681 1,175 Interest expense .......................... (5,655) (4,840) --------- --------- Net (loss) income ......................... $ (36,998) $ 22,830 ========= =========
See notes to financial statements. 2 ARRIS INTERACTIVE L.L.C. STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ---------------------- 2001 2000 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income ..................................................... $(36,998) $ 22,830 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization ..................................... 5,240 3,354 Long-term employee compensation ................................... (3,560) 715 Noncash interest expense .......................................... 5,655 4,839 Change in operating assets and liabilities: Decrease (increase) in accounts receivable ........................ 28,439 (40,446) Increase in inventories ........................................... (15,996) (15,575) Decrease (increase) in prepaids and other assets .................. (175) (645) Increase in notes receivable ...................................... (52) (75) Increase (decrease) in accounts payable and accrued liabilities ... 3,576 36,405 -------- -------- Net cash (used in) provided by operating activities ............... (13,871) 11,402 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment ........................... (3,719) (8,656) -------- -------- Net cash used in investing activities ............................. (3,719) (8,656) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Principal borrowings on notes payable ................................ 8,000 -- -------- -------- Net cash provided by financing activities ......................... 8,000 -- -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ..................... (9,590) 2,746 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......................... 15,783 23,896 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................... $ 6,193 $ 26,642 ======== ========
The Company did not make any payments during 2001 and 2000 for interest and income taxes. SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: During the six months ended June 30, 2001, the Company converted $14,073 of royalties payable to Nortel Networks to an interest-bearing note payable to Nortel Networks. See notes to financial statements. 3 ARRIS INTERACTIVE L.L.C. NOTES TO THE UNAUDITED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED) 1. ORGANIZATION AND DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION ORGANIZATION - Arris Interactive L.L.C. (the "Company") was established on November 9, 1995 under a Limited Liability Company Agreement("LLCA") by and between Nortel Networks LLC (which along with Nortel Networks Corporation and Nortel Networks Inc. are referred to herein as "Nortel Networks") and ANTEC Corporation ("ANTEC") (collectively, the ("Members"). The Company's legal formation as a limited liability company precludes the issuance of stock and its capital structure more closely resembles that of a partnership. As such, all of the Company's earnings and losses flow to the Members. Upon the Company's formation, its Members contributed cash of $100,000; $75,000 from Nortel Networks and $25,000 from ANTEC, which resulted in an initial ownership interest in the Company of 75% by Nortel Networks and 25% by ANTEC. The allocation of profit and loss and cash flows of the Company is defined in its limited liability agreement. This agreement generally results in a sharing of ongoing working capital requirements and profit and loss based on initial membership interests up until March 31, 1999 and adjusted thereafter to reflect Nortel Networks' contribution of LANcity to Arris for an increase from 75% to 81.25% of members capital deficiency. DESCRIPTION OF BUSINESS - The Company was founded as a joint venture to develop products for delivering voice, video and data services over hybrid fiber coax ("HFC") networks. The Company's principal products are marketed and sold under the brand name Cornerstone and are sold through the Members. ANTEC is the exclusive channel for Cornerstone to top multiple system operators ("MSO") in the United States. Nortel Networks is the exclusive channel for Cornerstone to telephone companies and other operators in North America and to the international market. From November 1995 through July 1997, the Company had two separate product lines operating in one business segment, Digital Video and Cornerstone, both of which did business domestically and internationally. On August 1, 1997, substantially all of the assets used to produce the Digital Video product were sold to an unrelated third party. BASIS OF PRESENTATION - The unaudited financial statements as of and for the six months ended June 30, 2001 and 2000 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission and on the same basis as the audited financial statements of the Company. In the opinion of management, these financial statements include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of its financial position, operating results and cash flows for the interim periods presented. The results of operations for the six months ended June 30, 2001 are not necessarily indicative of results to be expected for the full calendar year 2001 or any future period. 2. INVENTORIES Inventories consist of the following (in thousands):
June 30, 2001 December 31, (Unaudited) 2000 ----------- ----------- Raw materials $23,880 $30,157 Finished goods 54,367 32,094 ------- ------- $78,247 $62,251 ======= =======
4 3. RELATED PARTY TRANSACTIONS In November 1995, the Company was formed as a joint venture between Nortel Networks and ANTEC and much of the Company's operations are subject to the various agreements related to or contained in the LLCA. The Company's Cornerstone product line is sold exclusively through the Members. At June 30, 2001 (unaudited) and December 31, 2000, all of the receivables due from the Members were related to Cornerstone product sales. The Company's cash requirements are exclusively provided by the Members. As a result of the relationship with the Members, the Company has been able to obtain favorable terms with respect to a number of its business transactions including, but not limited to, employee benefit plans, capital and operating leases, and vendor pricing. The Company was not able to obtain such favorable terms without the Members. Some of these business transactions were in the form of allocated charges from the Members as described below. Management believes that the allocations were made on a reasonable basis; however, the allocations are not necessarily indicative of the level of expense that would have been incurred had the Company contracted with outside parties. In many cases, management did not make a study or any attempt to obtain quotations from third parties to determine what costs of obtaining such services from third parties would have been. All costs and expenses incurred by the Members on behalf of the Company have been reflected in the financial statements. COST OF REVENUES - The Company purchases certain components from the Members which are used in the manufacture of the Cornerstone products. In addition, the Company has contracted with Nortel Networks to manufacture some of its finished goods. The following table represents the Company's purchases included in cost of revenues by vendor (in thousands):
Six Months Ended June 30, -------------------------- 2001 2000 -------- -------- (Unaudited) Nortel Networks $ 1,089 $ 64,537 ANTEC 35 3,328 Other 127,199 112,398 -------- -------- Total $128,323 $180,263 ======== ========
ROYALTIES AND LICENSES - As part of the LLCA, the Company entered into nontransferable, nonexclusive licensing agreements with each of its Members for a period of 10 years. The license agreement with Nortel Networks provides for royalty payments to Nortel Networks of 5% of the defined royalty base for sales of Cornerstone products, as defined. The royalty base is defined as the sales price received by the Company less amounts paid to Nortel Networks for the manufacturing of the Cornerstone products. The royalty applies to the full sales price for Cornerstone products manufactured at non-Nortel Networks facilities. For the six months ended June 30, 2001 and 2000 (unaudited), the Company incurred royalty expense of $6,904 and $11,180, respectively. 5 3. RELATED PARTY TRANSACTIONS (CONTINUED) SELLING, GENERAL AND ADMINISTRATIVE - The Company contracts with its Members whereby the Members provide certain general and administrative services. These charges are allocated to the Company using procedures deemed appropriate for the nature of the expenses involved. The procedures utilized various allocation bases such as facility square footage, number of employees, net sales and direct effort expended and/or actual costs incurred. The following table represents the Company's general and administrative expenses by provider (in thousands):
Six Months Ended June 30, ------------------------ 2001 2000 ------- ------- (Unaudited) Nortel Networks $ 5,210 $ 4,056 ANTEC -- -- Other 7,221 7,298 ------- ------- Total $12,431 $11,354 ======= =======
RESEARCH AND DEVELOPMENT - The Company contracts with its Members whereby the Members provide certain research and development services. The charges are determined using a rate per head per hour. That rate includes salaries, benefits and overhead. The following table represents the Company's research and development expenses by provider (in thousands):
Six Months Ended June 30, ------------------------- 2001 2000 ------ ------- (Unaudited) Nortel Networks $ 3,779 $ 4,976 ANTEC 201 1,345 Other 28,905 29,370 ------- ------- Total $32,885 $35,691 ======= =======
6 4. SALES AND BUSINESS SEGMENT INFORMATION Sales of Cornerstone products are covered under separate distribution agreements entered into between the Company and each of its Members, which expire upon the earlier of December 31, 2005 or termination of the LLCA in accordance with LLCA provisions. The agreements provide a nontransferable, exclusive right to the Members to sell and distribute the Cornerstone suite of products. The agreements also set forth, among other things, sales levels, products, pricing, and customers. The Company operates in one reportable business segment to develop products for delivering voice, video and data services over the HFC networks. The Company's headquarters and its operations are principally located in the United States. The Company's research and development activities are conducted in the United States. The Company conducts its sales, marketing and customer services activities throughout the world. Geographic long-lived asset information is based on the physical location of the assets at the end of each period. Geographic revenue information is based on the location of the end customer. The following table sets forth the Company's identifiable, long-lived assets (principally property, plant and equipment) by geographic area (in thousands):
June 30, 2001 DECEMBER 31, 2000 -------------- ----------------- (UNAUDITED) United States $ 21,655 $ 22,632 Canada 22 28 Japan 91 108 Malaysia 24 34 Mexico 563 648 Philippines 2,569 2,995 -------- ------- Total $ 24,924 $26,445 ======== =======
7 4. SALES AND BUSINESS SEGMENT INFORMATION (CONTINUED) The following table sets forth the Company's sales by geographic area (in thousands):
SIX MONTHS ENDED JUNE 30, 2001 2000 --------------------------------- --------------------------------- UNITED UNITED INT'L STATES TOTAL INT'L STATES TOTAL ------- -------- -------- ------- -------- -------- Cornerstone ANTEC $ -- $107,282 $107,282 $ -- $123,199 $123,199 Cornerstone Nortel 30,443 3,591 34,034 99,663 30,664 130,327 Other -- 299 299 -- 277 277 ------- -------- -------- ------- -------- -------- Total $30,443 $111,172 $141,615 $99,663 $154,140 $253,803 ======= ======== ======== ======= ======== ========
(1) The breakdown between international and U.S. Cornerstone sales to Nortel Networks represents the Company's best estimates based on the latest available information on the end customers. Based on that information the Company believes the international sales were primarily to VTR in Chile, Titus Jupiter in Japan and UPC in Western Europe(Unaudited). 5. SUBSEQUENT EVENT On August 3, 2001, ANTEC completed the acquisition of Nortel Networks L.L.C.'s interest in exchange for 37 million shares of ANTEC's common stock. 8