EX-99.1 2 g14454exv99w1.htm EX-99.1 PRESS RELEASE EX-99.1 PRESS RELEASE
EXHIBIT 99.1
 
 
 
FOR IMMEDIATE RELEASE   Contact:   Jim Bauer
Investor Relations
(678) 473-2647
jim.bauer@arrisi.com
ARRIS ANNOUNCES PRELIMINARY AND UNAUDITED
SECOND QUARTER 2008 RESULTS
Suwanee, Ga. (July 30, 2008) ARRIS Group, Inc. (NASDAQ:ARRS), a global technology leader in advanced cable telephony and broadband access equipment, next generation high-speed data and video applications, and operations software solutions, today announced preliminary and unaudited financial results for the second quarter 2008.
Second quarter 2008 revenues of $281.1 million increased $7.6 million, or 2.8%, as compared to first quarter revenues of $273.5 million. Second quarter and first half 2008 revenues increased $28.4 million, or 11.2%, and $66.6 million, or 13.6%, respectively, as compared to the same periods in 2007, primarily due to the C-COR acquisition. Second quarter 2008 gross margin was $92.9 million, or 33.0%, as compared to $85.2, or 31.2%, in the first quarter 2008 and $72.4 million, or 28.6%, in the second quarter 2007. Order backlog increased to $206.0 million at the end of the second quarter as compared to $147.0 million at the end of the first quarter. Book-to-bill ratio in the second quarter was 1.21.
GAAP net income in the second quarter 2008 was $0.08 per diluted share, as compared to $0.21 per diluted share for the second quarter 2007. Adjusted (non-GAAP) net income in the second quarter 2008 was $0.15 per diluted share, as compared to $0.22 per diluted share for the second quarter 2007. Items excluded from the computed adjusted (non-GAAP) net income include: amortization of intangibles, certain acquisition gains and expenses, certain tax benefits and costs, equity compensation expense, and adjustments to restructuring accruals. A reconciliation of GAAP to adjusted (non-GAAP) earnings per share is attached to this release and also can be found on the Company’s website (www.arrisi.com).
The Company ended the second quarter 2008 with $297.8 million of cash and short-term investments, which compares to $293.0 million at the end of the first quarter 2008. The Company generated $10.4 million of cash from operating activities in the second quarter 2008.

 


 

“I am very pleased that despite the challenging economic climate, we can report that sales, earnings and margins are up quarter over quarter and we look for continuing strength in the second half of 2008 as we enter the third quarter with a healthy backlog,” said Bob Stanzione, ARRIS Chairman & CEO. “The demand for ARRIS products remains strong as our customers see increasing competition and new service demands in their markets. International opportunities continue to unfold as evidenced by our recent CMTS agreement last month with the largest cable operator in Germany and new opportunities in Canada and Mexico. We are well positioned to take advantage of customer and end user demands for high speed data services, VoIP, on-demand video, ad insertion, OSS solutions and network upgrades to accommodate increased high definition channel offerings and streaming video.”
“We enter the second half of 2008 with a strong order book and an improving margin profile,” said David Potts, ARRIS EVP & CFO. “I am also very pleased with the solid progress that we have made with the integration of C-COR and the progress that we have made towards the overall financial goals that we outlined at our Investor Conference in March. At this point, we project that revenues for the Company in the third quarter 2008 will be in the range of $288 to $308 million with GAAP net income per diluted share in the range of $0.13 to $0.18 and adjusted (non-GAAP) net income per diluted share, in the range of $0.19 to $0.24.
ARRIS management will conduct a conference call at 5:00pm EDT, today, Wednesday, July 30, 2008, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4209 or 617-213-4863 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference passcode 38778423 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 conference call. A replay of the conference call can be accessed approximately two hours after the call through August 4, 2008 by dialing 888-286-8010 or 617-801-6888 for international calls and using the passcode 25608915. A replay also will be made available for a period of 12 months following the conference call on ARRIS’ website at www.arrisi.com.
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 reliable telephony, demand driven video, next-generation advertising and high-speed data services. ARRIS products expand and help grow network capacity with access and outside plant construction equipment, reliably deliver voice, video and data services and assure optimal service delivery for end customers. Headquartered in Suwanee, Georgia, USA, ARRIS has R&D centers in Atlanta, Chicago, Beaverton, State College, Wallingford, Ireland and

 


 

China, and operates support and sales offices throughout the world. Information about ARRIS products and services can be found at http://www.arrisi.com.
Forward-looking statements:
Statements made in this press release, including those related to:
    third quarter and 2008 revenues, gross margin, and net income;
 
    full year 2008 outlook, and
 
    the general market outlook;
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 third quarter as well as the general outlook for 2008 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;
    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-K for the year ended December 31, 2007 and its Form 10-Q for the quarter ended March 31, 2008. 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.
CONSOLIDATED BALANCE SHEETS
(in thousands)
                                         
    June 30,     March 31,             September 30,     June 30,  
    2008     2008     December 31,     2007     2007  
    (unaudited)     (unaudited)     2007     (unaudited)     (unaudited)  
ASSETS
                                       
Current assets:
                                       
Cash and cash equivalents
  $ 290,266     $ 243,515     $ 323,797     $ 370,708     $ 444,020  
Short-term investments, at fair value
    7,503       49,513       68,011       217,845       160,315  
 
                             
Total cash, cash equivalents and short-term investments
    297,769       293,028       391,808       588,553       604,335  
 
                                       
Restricted cash
    7,051       7,186       6,977       3,142       3,136  
Accounts receivable, net
    168,664       159,881       166,953       130,216       120,680  
Other receivables
    9,067       6,074       4,330       5,000       6,845  
Inventories, net
    147,716       125,105       131,792       118,227       90,542  
Prepaids
    5,305       5,680       5,856       3,626       3,250  
Current deferred income tax assets
    43,749       47,051       44,939       19,602       23,239  
Other current assets
    15,707       8,209       4,841       13,703       10,773  
 
                             
Total current assets
    695,028       652,214       757,496       882,069       862,800  
 
                                       
Property, plant and equipment, net
    60,823       60,747       59,156       31,251       30,196  
Goodwill
    452,398       453,454       455,352       150,569       150,569  
Intangible assets, net
    244,575       257,029       269,893       115       172  
Investments
    9,937       10,200       6,412       8,916       3,151  
Noncurrent deferred income tax assets
    3,547       3,688       3,459       16,238       17,294  
Other assets
    11,383       12,624       10,181       9,084       7,517  
 
                             
 
  $ 1,477,691     $ 1,449,956     $ 1,561,949     $ 1,098,242     $ 1,071,699  
 
                             
 
                                       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
 
                                       
Current liabilities:
                                       
Accounts payable
  $ 68,476     $ 60,490     $ 58,852     $ 35,540     $ 46,015  
Accrued compensation, benefits and related taxes
    18,072       14,397       26,177       18,857       14,631  
Accrued warranty
    7,566       7,919       8,298       4,085       4,393  
Deferred revenue
    28,100       19,901       8,474       6,273       7,195  
Current portion of long-term debt
    314       310       35,305              
Other accrued liabilities
    23,221       27,980       42,121       20,854       20,806  
 
                             
Total current liabilities
    145,749       130,997       179,227       85,609       93,040  
Long-term debt, net of current portion
    276,606       276,686       276,765       276,000       276,000  
Accrued pension
    11,362       10,905       10,455       11,810       12,778  
Noncurrent income tax payable
    6,250       6,487       6,322       5,262       4,334  
Noncurrent deferred income tax liability
    48,725       47,090       45,255              
Other long-term liabilities
    18,694       19,704       18,158       8,404       8,724  
 
                             
Total liabilities
    507,386       491,869       536,182       387,085       394,876  
 
                                       
Stockholders’ equity:
                                       
Preferred stock
                             
Common stock
    1,358       1,357       1,356       1,104       1,102  
Capital in excess of par value
    1,098,581       1,095,716       1,093,498       789,348       782,717  
Treasury stock at cost
    (76,007 )     (76,007 )     (572 )            
Unrealized gain (loss) on marketable securities
    66       151       20       (151 )      
Unfunded pension liability
    (3,358 )     (3,358 )     (3,358 )     (4,462 )     (4,462 )
Accumulated deficit
    (50,151 )     (59,588 )     (64,993 )     (74,498 )     (102,350 )
Cumulative translation adjustments
    (184 )     (184 )     (184 )     (184 )     (184 )
 
                             
Total stockholders’ equity
    970,305       958,087       1,025,767       711,157       676,823  
 
                             
 
  $ 1,477,691     $ 1,449,956     $ 1,561,949     $ 1,098,242     $ 1,071,699  
 
                             


 

ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2008     2007     2008     2007  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
Net sales
  $ 281,110     $ 252,718     $ 554,616     $ 487,971  
Cost of sales
    188,226       180,342       376,484       346,848  
 
                       
Gross margin
    92,884       72,376       178,132       141,123  
Gross margin %
    33.0 %     28.6 %     32.1 %     28.9 %
 
                               
Operating expenses:
                               
Selling, general, and administrative expenses
    37,046       26,455       74,028       50,630  
Research and development expenses
    27,662       17,791       55,784       35,887  
Restructuring and impairment charges
    175             580       421  
Amortization of intangible assets
    12,454       58       25,708       116  
 
                       
 
    77,337       44,304       156,100       87,054  
 
                       
Operating income
    15,547       28,072       22,032       54,069  
Other expense (income):
                               
Interest expense
    1,722       1,652       3,226       3,320  
Loss (gain) on investments
    171       (1,444 )     173       (1,425 )
Loss (gain) on foreign currency
    350       (146 )     (640 )     176  
Interest income
    (1,702 )     (6,459 )     (4,387 )     (12,942 )
Gain related to terminated acquisition, net of expenses
                      (22,835 )
Other (income) expense, net
    65       51       29       116  
 
                       
Income from continuing operations before income taxes
    14,941       34,418       23,631       87,659  
Income tax expense
    5,504       11,144       8,789       26,741  
 
                       
Net income
  $ 9,437     $ 23,274     $ 14,842     $ 60,918  
 
                       
 
                               
Net income per common share:
                               
Basic
  $ 0.08     $ 0.21     $ 0.12     $ 0.56  
 
                       
Diluted
  $ 0.08     $ 0.21     $ 0.12     $ 0.55  
 
                       
 
                               
Weighted average common shares:
                               
Basic
    122,741       109,398       126,752       108,935  
 
                       
Diluted
    124,651       111,698       128,190       111,340  
 
                       


 

ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2008     2007     2008     2007  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
Operating Activities:
                               
Net income
  $ 9,437     $ 23,274     $ 14,842     $ 60,918  
Adjustments to reconcile net income to net cash provided by operating activities:
                               
Depreciation
    5,132       2,648       10,095       5,145  
Amortization of intangible assets
    12,454       58       25,708       116  
Stock compensation expense
    2,840       3,378       5,391       6,034  
Deferred income tax provision
    5,078       4,924       4,572       9,626  
Amortization of deferred finance fees
    278       278       557       557  
Provision for doubtful accounts
    9       225       214       596  
Gain related to previously written off receivables
                      (377 )
Gain on disposal of fixed assets
    (2 )           (2 )      
Loss on investments
    171       (1,444 )     173       (1,425 )
Gain related to terminated acquisition, net of expenses
                      (22,835 )
Excess tax benefits from stock-based compensation plans
          (1,676 )           (6,531 )
Changes in operating assets & liabilities, net of effects of acquisitions and disposals:
                               
Accounts receivable
    (8,272 )     4,851       (770 )     (5,972 )
Other receivables
    (2,993 )     3,043       (4,737 )     (4,289 )
Inventory
    (21,920 )     (12,356 )     (14,419 )     3,684  
Income taxes payable
    (3,078 )     (7,024 )     (2,997 )     (5,731 )
Accounts payable and accrued liabilities
    14,795       7,033       4,501       (17,809 )
Other, net
    (3,509 )     688       (2,193 )     2,158  
 
                       
Net cash provided by operating activities
    10,420       27,900       40,935       23,865  
 
                               
Investing Activities:
                               
Purchases of property, plant, and equipment
    (5,363 )     (4,768 )     (11,792 )     (7,055 )
Cash proceeds related to terminated acquisition, net of expenses paid
          (327 )           10,554  
Cash paid for hedge related to terminated acquisition
                      (26,469 )
Cash proceeds from hedge related to terminated acquisition
                      38,750  
Cash paid for acquisition, net of cash acquired
    (227 )           (4,419 )      
Cash proceeds from sale of property, plant & equipment
    13             237        
Cash proceeds from sale of short-term investments
    16             16        
Purchases of short-term-investments
          (69,715 )     (16,887 )     (197,850 )
Disposals of short-term-investments
    41,964       44,010       72,464       125,110  
 
                       
Net cash provided by (used in) investing activities
    36,403       (30,800 )     39,619       (56,960 )
 
                               
Financing Activities:
                               
Payment of debt and capital lease obligations
    (99 )           (35,196 )      
Treasury stock repurchase
                (75,960 )      
Excess tax benefits from stock-based compensation plans
          1,676             6,531  
Employer repurchase of shares to satisfy minimum tax withholdings
    (796 )     (1,690 )     (1,035 )     (1,690 )
Proceeds from issuance of stock and other
    823       5,617       (1,894 )     10,656  
 
                       
Net cash provided by (used in) financing activities
    (72 )     5,603       (114,085 )     15,497  
Net increase (decrease) in cash and cash equivalents
    46,751       2,703       (33,531 )     (17,598 )
Cash and cash equivalents at beginning of period
    243,515       441,317       323,797       461,618  
 
                       
Cash and cash equivalents at end of period
  $ 290,266     $ 444,020     $ 290,266     $ 444,020  
 
                       


 

ARRIS GROUP, INC.
SUPPLEMENTAL NET INCOME RECONCILIATION
(in thousands, except per share data)
(unaudited)
                                                 
    Q1 2008     Q2 2008     YTD 2008  
            Per Diluted             Per Diluted             Per Diluted  
    Amount     Share     Amount     Share     Amount     Share  
Net income
  $ 5,405     $ 0.04     $ 9,437     $ 0.08     $ 14,842       0.12  
 
                                               
Highlighted items:
                                               
Impacting gross margin:
                                               
Stock compensation expense
    201             245             446        
 
                                               
Impacting operating expenses:
                                               
Integration costs
    427                         427        
Restructuring charges — adjustments to existing accruals
    405             175             580        
Amortization of intangible assets
    13,254       0.10       12,454       0.10       25,708       0.20  
Stock compensation expense
    2,350       0.02       2,595       0.02       4,945       0.04  
 
                                               
Tax related to highlighted items above
    (6,294 )     (0.05 )     (5,732 )     (0.05 )     (12,026 )     (0.09 )
 
                                   
Total highlighted items
    10,343       0.08       9,737       0.08       20,080       0.16  
 
                                   
Net income excluding highlighted items
  $ 15,748     $ 0.12     $ 19,174     $ 0.15     $ 34,922     $ 0.27  
 
                                   
 
                                               
 
            131,981               124,651               128,190  
 
                                         
                                                 
    Q1 2007     Q2 2007     YTD 2007  
            Per Diluted             Per Diluted             Per Diluted  
    Amount     Share     Amount     Share     Amount     Share  
Net income
  $ 37,644     $ 0.34     $ 23,274     $ 0.21     $ 60,918       0.55  
 
                                               
Highlighted items:
                                               
Impacting gross margin:
                                               
Stock compensation expense
    165             229             394        
 
                                               
Impacting operating expenses:
                                               
Gains related to previously written off receivables
    (377 )                       (377 )      
Restructuring charges — adjustments to existing accruals
    421                         421        
Amortization of intangible assets
    58             58             116        
Stock compensation expense
    2,491       0.02       3,149       0.03       5,640       0.05  
 
                                               
Impacting net income (loss) from continuing operations:
                                               
Gains related to terminated acquisition, net of expenses
    (22,835 )     (0.21 )                 (22,835 )     (0.21 )
Gain on deferred compensation assets
                (1,345 )     (0.01 )     (1,345 )     (0.01 )
 
                                               
Impacting income tax expense:
                                               
Adjustments of income tax valuation allowances and research & development credits and other
    (3,246 )     (0.03 )                 (3,246 )     (0.03 )
 
                                               
Tax related to highlighted items above
    7,754       0.07       (670 )     (0.01 )     7,084       0.06  
 
                                               
Total highlighted items
    (15,569 )     (0.14 )     1,421       0.01       (14,148 )     (0.13 )
 
                                   
Net income excluding highlighted items
  $ 22,075     $ 0.20     $ 24,695     $ 0.22     $ 46,770     $ 0.42  
 
                                   
 
                                               
 
            110,988               111,698               111,340  
 
                                         
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. In prior periods, ARRIS recognized a gain in Q1 of 2007 associated with previously written off receivables. With respect to amortization of intangibles, the intangibles being amortized relate to our recent acquisition of C-COR. The restructuring charge adjustments 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. In the second quarter of 2007, ARRIS realized a gain before tax of $1.3 million on its deferred compensation asset that had been previously recorded as an unrealized gain on the balance sheet. During the first quarter of 2007, ARRIS announced that it entered into a transaction agreement with TANDBERG Television ASA, in which ARRIS was to buy all the outstanding shares of TANDBERG. ARRIS was subsequently outbid by another buyer and the transaction agreement was terminated during the first quarter 2007. ARRIS recorded gains, net before tax, of $22.8 million related to the termination of the transaction (termination fee, foreign exchange gains, and expenses). The net termination fee resulted in a capital gain which provided greater access to prior tax capital losses that had previously been viewed as more likely than not unrealizable. As a result, net income tax valuation allowances totaling $3.2 million were reversed in the first quarter 2007. During the first quarter of 2008, ARRIS recorded incremental costs of $0.4 million as a result of the C-COR integration.
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 expects to continue providing similar information in the future with schedules reconciling the differences between GAAP and non-GAAP financial measures.


 

ARRIS GROUP, INC.
Supplemental Third Quarter
Net Income Reconciliation (unaudited)
Q3 EPS 2008 Guidance
     
Estimated GAAP EPS — diluted
  $0.13 - $0.18
Reconciling Items
   
Amortization of intangibles, after tax
  0.05
Stock compensation expense, after tax
  0.01
 
   
Subtotal
  0.06
 
   
Estimated adjusted (non-GAAP) EPS — diluted
  $0.19 - $0.24
 
   
See the Supplemental Net Income Reconciliation for a discussion regarding management’s reasoning for providing this non-GAAP financial measure