EX-99.1 2 g16276exv99w1.htm EX-99.1 EX-99.1
EXHIBIT 99.1
         
 
  Contact:   Jim Bauer
 
      Investor Relations
 
      (678) 473-2647
 
      jim.bauer@arrisi.com
ARRIS ANNOUNCES PRELIMINARY AND UNAUDITED
THIRD QUARTER 2008 RESULTS
Suwanee, Ga. (October 28, 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 third quarter 2008.
Third quarter 2008 revenues of $297.6 million represent an increase of $16.5 million, or 6%, as compared to second quarter 2008 revenues of $281.1 million. Third quarter and first nine month 2008 revenues increased $42.9 million, or 17%, and $109.5 million, or 15%, respectively, as compared to the same periods in 2007, primarily as a result of the C-COR acquisition in December 2007. Third quarter 2008 gross margin was $106.1 million, or 35.7%, as compared to $92.9 million, or 33.0%, in the second quarter 2008 and $68.8 million, or 27.0%, in the third quarter 2007. Order backlog decreased to $144.1 million at the end of the third quarter 2008 as compared to $206.0 million at the end of the second quarter 2008. Book-to-bill ratio in the third quarter 2008 was 0.79.
GAAP net income in the third quarter 2008 was $0.19 per diluted share, as compared to $0.08 per diluted share in the second quarter 2008 and $0.25 per diluted share in the third quarter 2007. Adjusted (non-GAAP) net income in the third quarter 2008 was $0.24 per diluted share, as compared to $0.15 per diluted share in the second quarter 2008 and $0.21 in the third quarter 2007. Items excluded from the computed adjusted (non-GAAP) net income include amortization of intangibles, 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 third quarter 2008 with $329.6 million of cash and short-term investments, which compares to $297.8 million at the end of the second quarter 2008. The Company generated $44.9 million of cash from operating activities in the third quarter 2008.

 


 

The Company also announced that its flagship Cable Modem Termination System (CMTS), the ARRIS C4, continues to ship in record numbers to cable operators around the world. The ARRIS C4 CMTS supports downstream channel bonding capabilities for speeds up to 160 Mbp/s, which enables cable operators to deploy a cost-effective platform for new revenue generating video over IP applications, as well as far greater channel density per rack unit of space. The ARRIS C4 CMTS is deployed by the world’s largest cable operators and supports more than 18 million subscribers worldwide. ARRIS C4 DOCSIS 3.0 equipment has already been delivered to operators in the United States, Canada, South America, Europe, and Asia.
“Our CMTS business in the quarter was remarkably strong with record shipments as customers began their rollouts of new DOCSIS 3.0 wideband platforms,” said Bob Stanzione, ARRIS Chairman & CEO. “Partially offsetting our strong CMTS performance were the expected Access, Transport & Supplies results. Although the current economic climate may present some obstacles in the near term, demand for ARRIS products that enable high speed data and video traffic remains strong as both competition and traffic intensifies. In addition, opportunities in Latin America, Asia and Europe, give me optimism that our international sales will be a bright spot in ARRIS’ results in the coming year. ARRIS products for high speed data, VoIP, ad insertion, Operations Support System solutions and on-demand video were well received last month at the International Broadcasting Convention in Amsterdam. Therefore, I continue to be very optimistic about the future of ARRIS because even in light of the macro economic climate, consumers more than ever need to remain connected to the internet.”
“The ARRIS team delivered strong results in the third quarter in the face of difficult economic times,” said David Potts, ARRIS EVP & CFO. “We have made substantial progress toward the financial goals that we established earlier this year. At this point we now project that revenues for the Company in the fourth quarter 2008 will be in the range of $280 to $300 million with GAAP net income per diluted share in the range of $0.16 to $0.21 and adjusted (non-GAAP) net income per diluted share, in the range of $0.22 to $0.27. This guidance reflects a cumulative tax benefit of approximately $0.03 per diluted share associated with the recent passage of the extension of R&D tax credit legislation.
ARRIS management will conduct a conference call at 5:00pm EDT, today, Tuesday, October 28, 2008, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4218 or 617-213-4870 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 13270376 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 November 2, 2008 by dialing 888-286-8010 or 617-801-6888 for international calls and using

 


 

the pass code 63707556. 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:
    fourth quarter and 2008 revenues and net income;
 
    full year 2008 and 2009 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 fourth quarter as well as the general outlook for 2009 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;
 
    we operate in a capital intensive industry, and the recent disruptions in the financial markets may make it more difficult for our customers to expand and update their equipment, thereby, negatively impacting sales of equipment by us; 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 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 and the increasing trend of patent lawsuits being brought by financial investors in patents; 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 June 30, 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)
                                         
    September 30,     June 30,     March 31,             September 30,  
    2008     2008     2008     December 31,     2007  
    (unaudited)     (unaudited)     (unaudited)     2007     (unaudited)  
ASSETS
                                       
 
                                       
Current assets:
                                       
Cash and cash equivalents
  $ 305,987     $ 290,266     $ 243,515     $ 323,797     $ 370,708  
Short-term investments, at fair value
    23,571       7,503       49,513       68,011       217,845  
 
                             
Total cash, cash equivalents and short-term investments
    329,558       297,769       293,028       391,808       588,553  
Restricted cash
    5,768       7,051       7,186       6,977       3,142  
Accounts receivable, net
    168,121       168,664       159,881       166,953       130,216  
Other receivables
    5,180       9,067       6,074       4,330       5,000  
Inventories, net
    141,564       147,716       125,105       131,792       118,227  
Prepaids
    5,156       5,305       5,680       5,856       3,626  
Current deferred income tax assets
    37,999       43,749       47,051       44,939       19,602  
Other current assets
    20,167       15,707       8,209       4,841       13,703  
 
                             
Total current assets
    713,513       695,028       652,214       757,496       882,069  
 
                                       
Property, plant and equipment, net
    60,268       60,823       60,747       59,156       31,251  
Goodwill
    449,418       452,398       453,454       455,352       150,569  
Intangible assets, net
    236,689       244,575       257,029       269,893       115  
Investments
    12,784       9,937       10,200       6,412       8,916  
Noncurrent deferred income tax assets
    3,312       3,547       3,688       3,459       16,238  
Other assets
    11,282       11,383       12,624       10,181       9,084  
 
                             
 
  $ 1,487,266     $ 1,477,691     $ 1,449,956     $ 1,561,949     $ 1,098,242  
 
                             
 
                                       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
 
                                       
Current liabilities:
                                       
Accounts payable
  $ 54,304     $ 68,476     $ 60,490     $ 58,852     $ 35,540  
Accrued compensation, benefits and related taxes
    21,831       18,072       14,397       26,177       18,857  
Accrued warranty
    7,554       7,566       7,919       8,298       4,085  
Deferred revenue
    24,974       28,100       19,901       8,474       6,273  
Current portion of long-term debt
    234       314       310       35,305        
Other accrued liabilities
    25,490       23,221       27,980       42,121       20,854  
 
                             
Total current liabilities
    134,387       145,749       130,997       179,227       85,609  
Long-term debt, net of current portion
    276,371       276,606       276,686       276,765       276,000  
Accrued pension
    10,622       11,362       10,905       10,455       11,810  
Noncurrent income tax payable
    10,128       6,250       6,487       6,322       5,262  
Noncurrent deferred income tax liability
    42,337       48,725       47,090       45,255        
Other long-term liabilities
    15,655       18,694       19,704       18,158       8,404  
 
                             
Total liabilities
    489,500       507,386       491,869       536,182       387,085  
 
                                       
Stockholders’ equity:
                                       
Preferred stock
                             
Common stock
    1,360       1,358       1,357       1,356       1,104  
Capital in excess of par value
    1,102,112       1,098,581       1,095,716       1,093,498       789,348  
Treasury stock at cost
    (75,960 )     (76,007 )     (76,007 )     (572 )      
Unrealized gain (loss) on marketable securities
    (128 )     66       151       20       (151 )
Unfunded pension liability
    (3,358 )     (3,358 )     (3,358 )     (3,358 )     (4,462 )
Accumulated deficit
    (26,076 )     (50,151 )     (59,588 )     (64,993 )     (74,498 )
Cumulative translation adjustments
    (184 )     (184 )     (184 )     (184 )     (184 )
 
                             
Total stockholders’ equity
    997,766       970,305       958,087       1,025,767       711,157  
 
                             
 
  $ 1,487,266     $ 1,477,691     $ 1,449,956     $ 1,561,949     $ 1,098,242  
 
                             

 


 

ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
                                 
    For the Three Months     For the Nine Months  
    Ended September 30,     Ended September 30,  
    2008     2007     2008     2007  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
Net sales
  $ 297,551     $ 254,662     $ 852,167     $ 742,633  
Cost of sales
    191,417       185,828       567,901       532,676  
 
                       
Gross margin
    106,134       68,834       284,266       209,957  
Gross margin %
    35.7 %     27.0 %     33.4 %     28.3 %
 
                               
Operating expenses:
                               
Selling, general, and administrative expenses
    33,012       23,778       107,040       74,408  
Research and development expenses
    27,473       17,797       83,257       53,684  
Restructuring and impairment charges
    202             782       421  
Amortization of intangible assets
    9,146       57       34,854       173  
 
                       
 
    69,833       41,632       225,933       128,686  
 
                       
Operating income
    36,301       27,202       58,333       81,271  
Other expense (income):
                               
Interest expense
    1,738       1,683       4,964       5,003  
Loss (gain) on investments
    37       (3,453 )     210       (4,878 )
Loss (gain) on foreign currency
    382       (112 )     (258 )     64  
Interest income
    (1,504 )     (6,307 )     (5,891 )     (19,249 )
Gain related to terminated acquisition, net of expenses
                      (22,835 )
Other (income) expense, net
    (72 )     215       (43 )     331  
 
                       
Income from continuing operations before income taxes
    35,720       35,176       59,351       122,835  
Income tax expense
    11,645       7,654       20,434       34,395  
 
                       
Net income from continuing operations
    24,075       27,522       38,917       88,440  
Income from discontinued operations
          330             330  
 
                       
Net income
  $ 24,075     $ 27,852     $ 38,917     $ 88,770  
 
                       
 
                               
Net income per common share -
                               
 
                               
Basic:
                               
Income from continuing operations
  $ 0.20     $ 0.25     $ 0.31     $ 0.81  
Income from discontinued operations
                       
 
                       
Net income
  $ 0.20     $ 0.25     $ 0.31     $ 0.81  
 
                       
 
                               
Diluted:
                               
Income from continuing operations
  $ 0.19     $ 0.25     $ 0.31     $ 0.79  
Income from discontinued operations
                       
 
                       
Net income
  $ 0.19     $ 0.25     $ 0.31     $ 0.79  
 
                       
 
                               
Weighted average common shares:
                               
Basic
    122,922       110,178       125,466       109,354  
 
                       
Diluted
    125,420       112,085       127,249       111,595  
 
                       

 


 

ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                                 
    For the Three Months     For the Nine Months  
    Ended September 30,     Ended September 30,  
    2008     2007     2008     2007  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
Operating Activities:
                               
Net income
  $ 24,075     $ 27,852     $ 38,917     $ 88,770  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
                               
Depreciation
    5,426       2,858       15,521       8,003  
Amortization of intangible assets
    9,146       57       34,854       173  
Stock compensation expense
    2,895       2,676       8,286       8,710  
Deferred income tax provision
    5,889       4,693       10,461       14,319  
Amortization of deferred finance fees
    278       279       835       836  
Provision for doubtful accounts
    151       (112 )     365       484  
Gain related to previously written off receivables
                      (377 )
Gain on discontinued product line
          (330 )           (330 )
Loss (gain) on disposal of fixed assets
    (13 )     167       (15 )     167  
Loss (gain) on investments
    37       (3,453 )     210       (4,878 )
Gain related to terminated acquisition, net of expenses
                      (22,835 )
Excess tax benefits from stock-based compensation plans
    (145 )     (1,738 )     (145 )     (8,269 )
 
                               
Changes in operating assets & liabilities, net of effects of acquisitions and disposals:
                               
Accounts receivable
    913       (9,424 )     143       (15,396 )
Other receivables
    736       1,845       (4,001 )     (2,444 )
Inventory
    6,425       (27,685 )     (7,994 )     (24,001 )
Accounts payable and accrued liabilities
    (8,146 )     (8,540 )     (6,642 )     (32,080 )
Other, net
    (2,791 )     (2,420 )     (4,984 )     (262 )
 
                       
Net cash provided by (used in) operating activities
    44,876       (13,275 )     85,811       10,590  
 
                               
Investing Activities:
                               
Purchases of property, plant, and equipment
    (4,652 )     (4,083 )     (16,444 )     (11,138 )
Cash proceeds related to terminated acquisition, net of expenses paid
                      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 acquisitions, net of cash acquired
    (5,094 )           (9,513 )      
Cash proceeds from sale of property, plant & equipment
    13       3       250       3  
Cash proceeds from sale of short-term investments
                16        
Purchases of short-term-investments
    (66,111 )     (97,776 )     (82,998 )     (295,626 )
Disposals of short-term-investments
    50,006       37,792       122,470       162,902  
Purchases of investment securities
    (4,000 )           (4,000 )      
 
                       
Net cash provided by (used in) investing activities
    (29,838 )     (64,064 )     9,781       (121,024 )
 
                               
Financing Activities:
                               
Payment of debt and capital lease obligations
    (322 )           (35,518 )      
Repurchase of common stock
    47             (75,913 )      
Excess tax benefits from stock-based compensation plans
    145       1,738       145       8,269  
Employer repurchase of shares to satisfy minimum tax withholdings
          (1,402 )     (1,035 )     (3,092 )
Fees and proceeds from issuance of common stock, net
    813       3,691       (1,081 )     14,347  
 
                       
Net cash provided by (used in) financing activities
    683       4,027       (113,402 )     19,524  
Net increase (decrease) in cash and cash equivalents
    15,721       (73,312 )     (17,810 )     (90,910 )
Cash and cash equivalents at beginning of period
    290,266       444,020       323,797       461,618  
 
                       
Cash and cash equivalents at end of period
  $ 305,987     $ 370,708     $ 305,987     $ 370,708  
 
                       

 


 

ARRIS GROUP, INC.
SUPPLEMENTAL NET INCOME RECONCILIATION
(in thousands, except per share data)
(unaudited)
                                                                 
    Q1 2008     Q2 2008     Q3 2008     YTD 2008  
            Per Diluted             Per Diluted             Per Diluted             Per Diluted  
    Amount     Share     Amount     Share     Amount     Share     Amount     Share  
Net income
  $ 5,405     $ 0.04     $ 9,437     $ 0.08     $ 24,075     $ 0.19     $ 38,917       0.31  
 
                                                               
Highlighted items:
                                                               
Impacting gross margin:
                                                               
Stock compensation expense
    201             245             264       0.00       710       0.01  
 
                                                               
Impacting operating expenses:
                                                               
Integration costs
    427                                     427        
Restructuring charges — adj to existing accruals
    405             175             202       0.00       782       0.01  
Amortization of intangible assets
    13,254       0.10       12,454       0.10       9,146       0.07       34,854       0.27  
Stock compensation expense
    2,350       0.02       2,595       0.02       2,631       0.02       7,576       0.06  
 
                                                               
Impacting income tax expense:
                                                               
Adj of income tax valuation allowances and research & development credits and other
                            (1,565 )     (0.01 )     (1,565 )     (0.01 )
 
                                                               
Tax related to highlighted items above
    (6,294 )     (0.05 )     (5,732 )     (0.05 )     (4,150 )     (0.03 )     (16,176 )     (0.13 )
 
                                               
Total highlighted items
    10,343       0.08       9,737       0.08       6,528       0.05       26,608       0.21  
 
                                               
Net income excluding highlighted items
  $ 15,748     $ 0.12     $ 19,174     $ 0.15     $ 30,603     $ 0.24     $ 65,525     $ 0.51  
 
                                               
 
                                                               
 
            131,981               124,651               125,420               127,249  
 
                                                       
                                                                 
    Q1 2007     Q2 2007     Q3 2007     YTD 2007  
            Per Diluted             Per Diluted             Per Diluted             Per Diluted  
    Amount     Share     Amount     Share     Amount     Share     Amount     Share  
Net income
  $ 37,644     $ 0.34     $ 23,274     $ 0.21     $ 27,852     $ 0.25     $ 88,770       0.80  
 
                                                               
Highlighted items:
                                                               
Impacting gross margin:
                                                               
Stock compensation expense
    165             229             196       0.00       590       0.01  
 
                                                               
Impacting operating expenses:
                                                               
Gain related to previously written off receivables
    (377 )                                   (377 )      
Restructuring charges — adj to existing accruals
    421                                     421        
Amortization of intangible assets
    58             58             57       0.00       173        
Stock compensation expense
    2,491       0.02       3,149       0.03       2,480       0.02       8,120       0.07  
 
                                                               
Impacting net income from continuing operations:
                                                               
Gains related to terminated acquisition, net of expenses
    (22,835 )     (0.21 )                             (22,835 )     (0.20 )
Gain on investments
                (1,345 )     (0.01 )     (3,519 )     (0.03 )     (4,864 )     (0.04 )
 
                                                               
Impacting discontinued operations:
                                                               
Gains related to previously written off receivables
                            (330 )     (0.00 )     (330 )      
 
                                                               
Impacting income tax expense:
                                                               
Adjustments of income tax valuation allowances and research & development credits and other
    (3,246 )     (0.03 )                 (3,466 )     (0.03 )     (6,712 )     (0.06 )
 
                                                               
Tax related to highlighted items above
    7,754       0.07       (670 )     (0.01 )     423       0.00       7,507       0.07  
Total highlighted items
    (15,569 )     (0.14 )     1,421       0.01       (4,160 )     (0.04 )     (18,308 )     (0.16 )
 
                                               
Net income excluding highlighted items
  $ 22,075     $ 0.20     $ 24,695     $ 0.22     $ 23,692     $ 0.21     $ 70,463     $ 0.63  
 
                                               
 
                                                               
 
            110,988               111,698               112,085               111,595  
 
                                                       
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. ARRIS recognized a gain in both Q1 and Q3 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 third quarter of 2007, ARRIS bought and sold investments and realized a gain of $3.5 million. In the third quarter of 2007, a tax benefit of approximately $3.5 million was recorded for a reversal of valuation allowances and research and development tax credits related to a tax credit study that was undertaken for prior years (2001 — 2006). 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 the third quarter of 2008, ARRIS recorded a net tax benefit of $1.6 million related to provision to return differences resulting from the filing of the 2007 tax return.
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.
Net Income Reconciliation (unaudited)
Q4 EPS 2008 Guidance
         
Estimated GAAP EPS — diluted
  $ 0.16 - $0.21  
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
  $ 0.22 - $0.27  
 
     
See the Supplemental Net Income Reconciliation for a discussion regarding management’s reasoning for providing this non-GAAP financial measure