EX-99.1 2 d678838dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

FOR IMMEDIATE RELEASE   Contact:   Bob Puccini
   

Investor Relations

(720) 895-7787

bob.puccini@arrisi.com

ARRIS ANNOUNCES PRELIMINARY AND UNAUDITED

FOURTH QUARTER and FULL YEAR 2013 RESULTS

Suwanee, Ga. (February 19, 2014) ARRIS Group, Inc. (NASDAQ:ARRS) today announced preliminary and unaudited financial results for the fourth quarter and full year 2013.

On April 17, 2013, the Company closed the acquisition of Motorola Home. As a result, comparisons to prior periods may not be meaningful.

Financial Highlights

 

    Revenues in the fourth quarter 2013 were $1,199.1 million

 

    Adjusted net income (a non-GAAP measure) in the fourth quarter 2013 was $0.54 per diluted share

 

    GAAP net loss in the fourth quarter 2013 was $(0.02) per diluted share

 

    The Company repaid $372.8 million of debt in the fourth quarter

 

    The Company ended the fourth quarter 2013 with $513.4 million of cash resources

 

    Order backlog at the end of the fourth quarter 2013 was $538.6 million

 

    The Company’s book-to-bill ratio in the fourth quarter 2013 was 1.01

“We had a great fourth quarter and made remarkable progress in 2013. As a result of our successful acquisition and integration of Motorola Home, we are a larger, stronger and much more relevant supplier to a growing worldwide customer community. Moreover, 2014 is looking to be our best year ever.” said Bob Stanzione, ARRIS Chairman and CEO.

“Our fourth quarter results were strong. Our revenues were up 12% from the third quarter, largely as a result of new product introductions, and we had strong cash generation. Also, in the quarter, we retired our remaining convertible notes for $232 million and repaid $141 million of our term loan debt, including a $125 million optional prepayment,” said David Potts, ARRIS EVP & CFO. “With respect to the first quarter 2014, we now project that revenues for the Company will be in the range of $1,170 to $1,210 million, with adjusted net income per diluted share in the range of $0.42 to $0.47 and GAAP net income per diluted share in the range of $0.05 to $0.10.”

Revenues in the fourth quarter 2013 were $1,199.1 million as compared to fourth quarter 2012 revenues of $344.0 million. Third quarter 2013 revenues were $1,067.8 million.


For the full year 2013 and 2012, revenues were $3,620.9 million and $1,353.7 million, respectively. 2013 revenues include the revenues of Motorola Home following the closing of the acquisition on April 17, 2013.

Adjusted net income (a non-GAAP measure) in the fourth quarter 2013 was $0.54 per diluted share, compared to $0.28 per diluted share for the fourth quarter 2012. Adjusted net income (a non-GAAP measure) for the third quarter 2013 was $0.39 per diluted share.

Year to date, adjusted net income was $1.66 per diluted share for 2013 as compared to $0.93 per diluted share in 2012. 2013 excludes the adjusted net income of Motorola Home prior to April 17, 2013. 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).

GAAP net loss in the fourth quarter 2013 was $(0.02) per diluted share, as compared to fourth quarter 2012 GAAP net income of $0.13 per diluted share and third quarter 2013 GAAP net income of $0.12 per diluted share. Year to date, GAAP net loss was $(0.37) per diluted share in 2013 as compared to GAAP net income of $0.46 per diluted share in 2012. 2013 includes the net income of Motorola Home following the closing of the acquisition on April 17, 2013.

Cash & Cash Equivalents - The Company ended the fourth quarter 2013 with $513.4 million of cash resources, which includes $509.8 million of cash, cash equivalents and short-term investments, and $3.6 million of long-term marketable securities, as compared to $695.0 million, in the aggregate, at the end of the third quarter 2013. The Company generated $190.9 million of cash from operating activities during the fourth quarter 2013, as compared to $11.8 million generated during the fourth quarter 2012. During the full year of 2013, the Company generated $570.9 million of cash from operating activities, which compares to $84.4 million generated during 2012.

Debt Retirements – In the fourth quarter 2013 the Company redeemed its remaining convertible notes for $232 million and 3.1 million shares of common stock. The Company also repaid $141 million of term loan debt, including $125 million of optional prepayments.

Order backlog at the end of the fourth quarter 2013 was $538.6 million as compared to $222.6 million and $523.7 million at the end of the fourth quarter 2012 and the third quarter 2013, respectively. The Company’s book-to-bill ratio in the fourth quarter 2013 was 1.01 as compared to the fourth quarter 2012 of 1.11 and the third quarter 2013 of 0.99.


ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, February 19, 2014, to discuss these results in detail. You may participate in this conference call by dialing 888-679-8034 or 617-213-4847 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 52957683 and Bob Puccini 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 February 26, 2014 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 57012703. 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 premier video and broadband technology company that transforms how service providers worldwide deliver entertainment and communications without boundaries. Its powerful end-to-end platforms enable service and content providers to improve the way people connect – with each other and with their favorite content. The Company’s vision and expertise continue to drive the industry’s innovations, as they have for more than 60 years. Headquartered north of Atlanta, in Suwanee, Georgia, ARRIS has R&D, sales and support centers throughout the world. For more information: 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 first quarter 2014, and beyond;

 

    the integration of the Motorola Home business

 

    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 first quarter 2014 as well as the general outlook for 2014 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 may encounter difficulties combining the Motorola Home operations with ours, including difficulties combining personnel, facilities, and other operations or preserving customer relationships.

 

    ARRIS’ customers operate in a capital intensive consumer based industry, and 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 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 September 30, 2013. 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)

 

     December 31,     September 30,     June 30,     March 31,     December 31,  
     2013     2013     2013     2013     2012  

ASSETS

          

Current assets:

          

Cash and cash equivalents

   $ 442,438      $ 541,114      $ 610,502      $ 423,551      $ 131,703   

Short-term investments, at fair value

     67,360        125,387        130,723        184,838        398,414   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cash, cash equivalents and short term investments

     509,798        666,501        741,225        608,389        530,117   

Restricted cash

     1,079        1,818        3,801        4,689        4,722   

Accounts receivable, net

     647,154        627,844        662,156        206,236        188,581   

Other receivables

     8,366        4,076        11,007        3,743        350   

Inventories, net

     330,129        343,895        311,608        126,530        133,848   

Prepaid income taxes

     13,034        49,447        38,186        10,703        9,235   

Prepaids

     61,482        18,881        17,296        13,227        11,682   

Current deferred income tax assets

     77,167        75,875        132,113        25,927        24,944   

Other current assets

     39,930        60,111        281,987        13,674        16,413   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     1,688,139        1,848,448        2,199,379        1,013,118        919,892   

Property, plant and equipment, net

     396,152        398,353        393,594        54,109        54,378   

Goodwill

     935,579        938,435        938,493        193,976        194,115   

Intangible assets, net

     1,176,192        1,241,258        1,270,211        86,926        94,529   

Investments

     71,176        96,711        95,551        55,938        86,164   

Noncurrent deferred income tax assets

     12,501        11,358        11,191        52,410        47,431   

Other assets

     52,363        52,300        54,847        11,089        9,385   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 4,332,102      $ 4,586,863      $ 4,963,266      $ 1,467,566      $ 1,405,894   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

          

Current liabilities:

          

Accounts payable

   $ 662,919      $ 573,673      $ 485,291      $ 47,783      $ 45,719   

Accrued compensation, benefits and related taxes

     116,262        101,233        88,494        36,791        29,773   

Accrued warranty

     48,755        46,536        57,532        2,768        2,882   

Deferred revenue

     69,071        77,267        80,254        61,431        44,428   

Current portion of LT debt

     53,254        293,399        289,990        225,368        222,124   

Current income taxes liability

     3,068        7,012        6,528        350        853   

Other accrued liabilities

     151,793        148,282        549,995        59,055        24,942   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     1,105,122        1,247,402        1,558,084        433,546        370,721   

Long-term debt, net of current portion

     1,691,034        1,822,941        1,837,952        —          —     

Accrued pension

     58,657        65,395        64,263        27,200        26,883   

Accrued severance liability, net of current portion

     3,814        3,870        3,782        4,262        4,119   

Noncurrent income taxes payable

     21,048        25,012        35,320        30,168        24,389   

Noncurrent deferred income tax liabilities

     74,791        74,242        146,086        351        351   

Other noncurrent liabilities

     58,649        53,465        48,196        18,836        19,043   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     3,013,115        3,292,327        3,693,683        514,363        445,506   

Stockholders’ equity:

          

Preferred stock

     —          —          —          —          —     

Common stock

     1,766        1,729        1,726        1,509        1,488   

Capital in excess of par value

     1,688,782        1,669,667        1,657,383        1,292,971        1,285,575   

Treasury stock at cost

     (306,330     (306,330     (306,330     (306,330     (306,330

Unrealized gain (loss) on marketable securities

     306        85        (19     288        206   

Unfunded pension liability

     (2,416     (8,558     (8,558     (8,592     (8,558

Unrealized gain (loss) on derivative Instruments

     (2,541     (4,277     —          —          —     

Accumulated deficit

     (60,569     (57,752     (74,922     (26,459     (11,809

Cumulative translation adjustments

     (11     (28     303        (184     (184
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     1,318,987        1,294,536        1,269,583        953,203        960,388   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 4,332,102      $ 4,586,863      $ 4,963,266      $ 1,467,566      $ 1,405,894   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

     For the Three Months     For the Twelve Months  
     Ended December 31,     Ended December 31,  
     2013     2012     2013     2012  

Net sales

   $ 1,199,067      $ 344,003      $ 3,620,902      $ 1,353,663   

Cost of sales

     832,696        220,812        2,598,154        891,086   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     366,371        123,191        1,022,748        462,577   

Operating expenses:

        

Selling, general, and administrative expenses

     110,562        43,794        338,252        161,338   

Research and development expenses

     129,471        40,700        425,825        170,706   

Acquisition, integration and other costs

     12,668        5,131        45,471        6,207   

Restructuring charges

     (747     306        37,576        6,761   

Amortization of intangible assets

     65,066        7,729        193,637        30,294   
  

 

 

   

 

 

   

 

 

   

 

 

 
     317,020        97,660        1,040,761        375,306   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     49,351        25,531        (18,013     87,271   

Other expense (income):

        

Interest expense

     19,457        4,546        67,888        17,797   

Loss (gain) on investments

     4,242        78        2,698        (1,405

Loss (gain) on foreign currency

     (777     (131     (3,502     786   

Interest income

     (626     (993     (2,936     (3,241

Other (income) expense, net

     632        (171     13,989        (962
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     26,423        22,202        (96,150     74,296   

Income tax expense (benefit)

     29,240        7,407        (47,390     20,837   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (2,817   $ 14,795      $ (48,760   $ 53,459   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common share:

        

Basic

   $ (0.02   $ 0.13      $ (0.37   $ 0.47   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ (0.02   $ 0.13      $ (0.37   $ 0.46   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares:

        

Basic

     139,333        114,028        131,980        114,161   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     139,333        117,013        131,980        116,514   
  

 

 

   

 

 

   

 

 

   

 

 

 


ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     For the Three Months
Ended December 31,
    For the Twelve Months
Ended December 31,
 
     2013     2012     2013     2012  

Operating Activities:

        

Net income (loss)

   $ (2,817   $ 14,795      $ (48,760   $ 53,459   

Adjustments to reconcile net income (loss) to cash provided by operating activities

     105,955        21,056        287,671        80,867   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income, including adjustments

     103,138        35,851        238,911        134,326   

Changes in operating assets & liabilities, net of effects of acquisitions and disposals:

       —            —     

Accounts receivable

     (18,647     (17,624     (854     (37,139

Other receivables

     (3,277     211        (2,182     8,398   

Inventory

     13,766        3,648        74,111        (21,491

Accounts payable and accrued liabilities

     102,132        (8,289     257,396        (5,675

Prepaids and other, net

     (6,252     (2,004     3,527        5,982   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     190,860        11,793        570,909        84,401   

Investing Activities:

        

Investments, net

     92,905        (69,654     381,593        (132,943

Property, plant and equipment, net

     (18,030     (6,861     (71,323     (21,368

Cash paid for acquisition, net of cash acquired

     —          —          (2,208,114     —     

Other, net

     —          —          —          3,249   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     74,875        (76,515     (1,897,844     (151,062

Financing Activities:

        

Proceeds from issuance of debt

     —          —          1,925,000        —     

Payment of debt obligations

     (372,784     —          (404,409     —     

Other, net

     8,373        7,772        117,079        (37,511
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (364,411     7,772        1,637,670        (37,511

Net increase (decrease) in cash and cash equivalents

     (98,676     (56,950     310,735        (104,172

Cash and cash equivalents at beginning of period

     541,114        188,653        131,703        235,875   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 442,438      $ 131,703      $ 442,438      $ 131,703   
  

 

 

   

 

 

   

 

 

   

 

 

 


ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION

(in thousands, except per share data) (unaudited)

 

(in thousands, except per share data)   Q4 2012     Q4 2013     Year 2012     Year 2013 (1)  
    Amount           Amount           Amount           Amount        

Sales

  $ 344,003        $ 1,199,067        $ 1,353,663        $ 3,620,902     

Highlighted items:

               

Acquisition accounting impacts related to Motorola Home and BigBand deferred revenue

    432          3,148          2,899          7,121     

Reduction in revenue related to Comcast investment in ARRIS

    —            —            —            13,182     
 

 

 

     

 

 

     

 

 

     

 

 

   

Sales excluding highlighted items

  $ 344,435        $ 1,202,215        $ 1,356,562        $ 3,641,205     
 

 

 

     

 

 

     

 

 

     

 

 

   
    Q4 2012     Q4 2013     Year 2012     Year 2013 (1)  
    Amount     Per Diluted
Share
    Amount     Per Diluted
Share
    Amount     Per Diluted
Share
    Amount     Per Diluted
Share
 

Net income (loss)

  $ 14,795      $ 0.13      $ (2,817   $ (0.02 ) (2)    $ 53,459      $ 0.46      $ (48,760   $ (0.37 ) (2) 

Highlighted items:

               

Impacting gross margin:

               

Acquisition accounting impacts related to Motorola Home inventory

    —          —          (3,818     (0.03     —          —          53,782        0.40   

Product rationalization

    —          —          2,891        0.02        —          —          16,473        0.12   

Acquisition accounting impacts related to Motorola Home and BigBand deferred revenue

    432        0.00        3,067        0.02        2,899        0.02        5,545        0.04   

Fair value impacts related to Comcast investment in ARRIS

    —          —          —          —          —          —          13,182        0.10   

Stock compensation expense

    802        0.01        1,324        0.01        3,169        0.03        4,269        0.03   

Impacting operating expenses:

               

Acquisition, integration and other costs

    5,131        0.04        12,667        0.09        6,207        0.05        45,471        0.34   

Restructuring

    306        0.00        (747     (0.01     6,761        0.06        37,575        0.28   

Amortization of intangible assets

    7,729        0.07        65,066        0.45        30,294        0.26        193,637        1.43   

Stock compensation expense

    5,910        0.05        9,812        0.07        24,737        0.21        31,520        0.23   

Impacting other (income) / expense:

               

Non-cash interest expense

    3,181        0.03        —          —          12,358        0.11        9,926        0.07   

Impairment of investment

    67        0.00        —          —          533        0.00        —          —     

Settlement charge - pension

    3,064        0.03        —          —          3,064        0.03        —          —     

Credit facility - ticking fees

    —          —          —          —          —          —          865        0.01   

Mark-to-market FV adjustment related to Comcast investment in ARRIS

    —          —          —          —          —          —          13,189        0.10   

Impacting income tax expense:

               

Net tax items

    (9,199     (0.08     (9,849     (0.07     (34,614     (0.30     (152,883     (1.13
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total highlighted items

    17,423        0.15        80,413        0.56        55,408        0.48        272,551        2.02   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income excluding highlighted items

  $ 32,218      $ 0.28      $ 77,596      $ 0.54      $ 108,867      $ 0.93      $ 223,791      $ 1.66   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares - Basic

      114,028          139,333          114,161          131,980   
   

 

 

     

 

 

     

 

 

     

 

 

 

Weighted average common shares - diluted

      117,013          143,956          116,514          135,136   
   

 

 

     

 

 

     

 

 

     

 

 

 

 

(1) Excludes Motorola Home results prior to April 17, 2013
(2) Basic shares used for Q4 2013 and YTD 2013 as losses were reported for those periods and the inclusion of dilutive shares would be anti-dilutive

See Notes to GAAP and Adjusted Non-GAAP Financial Measures


Notes to GAAP to Adjusted Non-GAAP Financial Measures

The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP” or referred to herein as “reported”). However, management believes that certain non-GAAP financial measures provide management and other users with additional meaningful financial information that should be considered when assessing our ongoing performance. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the factors management uses in planning for and forecasting future periods. Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, the Company’s reported results prepared in accordance with GAAP. Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:

Acquisition Accounting Impacts Related to Deferred Revenue: In connection with our acquisitions of Motorola Home and BigBand, business combination rules require us to account for the fair values of arrangements for which acceptance has not been obtained, and post contract support in our purchase accounting. The non-GAAP adjustment to our sales and cost of sales is intended to include the full amounts of such revenues. We believe the adjustment to these revenues is useful as a measure of the ongoing performance of our business. We have historically experienced high renewal rates related to our support agreements and our objective is to increase the renewal rates on acquired post contract support agreements; however, we cannot be certain that our customers will renew our contracts.

Inventory Valuation: In connection with our acquisition of Motorola Home, business combinations rules require the inventory be recorded at fair value on the opening balance sheet. This is different from historical cost. Essentially we were required to write the inventory up to end customer price less a reasonable margin as a distributor. In addition, we have conformed other cost basis inventory valuation policies during the period. We have excluded the resulting adjustments in inventory and cost of goods sold.

Product Rationalization: In conjunction with the integration of Motorola Home, we have identified certain product lines which overlap. In the second and fourth quarters of 2013, we made the decision to eliminate certain products. As a result, we recorded expenses related to the elimination of inventory and certain vendor liabilities. We believe it is useful to understand the effects of this item on our total cost of goods sold.

Reduction in Revenue Related to Comcast Investment in ARRIS: In connection with our acquisition of Motorola Home, Comcast was given an opportunity to invest in ARRIS. The accounting guidance requires that we record the implied fair value of benefit received by Comcast as a reduction in revenue. Until the closing of the deal, changes in the value of the investment will be marked to market and flow through other expense (income). We have excluded the effect of the implied fair value in calculating our non-GAAP financial measures. We believe it is useful to understand the effects of these items on our total revenues and other expense (income).

Stock-Based Compensation Expense: We have excluded the effect of stock-based compensation expenses in calculating our non-GAAP operating expenses and net income measures. Although stock-based compensation is a key incentive offered to our employees, we continue to evaluate our business performance excluding stock-based compensation expenses. We record non-cash compensation expense related to grants of options and restricted stock. Depending upon the size, timing and the terms of the grants, the non-cash compensation expense may vary significantly but will recur in future periods.

Restructuring, Acquisition, Integration and Other Costs: We have excluded the effect of acquisition, integration, and other expenses and the effect of restructuring expenses in calculating our non-GAAP operating expenses and net income measures. We will incur significant expenses in connection with our recent acquisition of Motorola Home, which we generally would not otherwise incur in the periods presented as part of our continuing operations. Acquisition and integration expenses consist of transaction costs, costs for transitional employees, other acquired employee related costs, and integration related outside services. Restructuring expenses consist of employee severance, abandoned facilities, and other exit costs. Additionally, we have excluded the effect of a loss on the sale of a product line in calculating our non-GAAP operating expenses and net income measures. We believe it is useful to understand the effects of these items on our total operating expenses.

Amortization of Intangible Assets: We have excluded the effect of amortization of intangible assets in calculating our non-GAAP operating expenses and net income measures. Amortization of intangible assets is non-cash, and is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.

Non-Cash Interest on Convertible Debt: We have excluded the effect of non-cash interest in calculating our non-GAAP operating expenses and net income measures. We record the accretion of the debt discount related to the equity component non-cash interest expense. We believe it is useful to understand the component of interest expense that will not be paid out in cash.

Impairment of Investment: We have excluded the effect of an other-than-temporary impairment of a cost method investment in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of this non-cash item in our other expense (income).

Settlement Charge - Pension: In an effort to reduce volatility and administrative expense in connection with the Company’s pension plan, we have offered certain participants an opportunity to voluntarily elect an early payout of their pension benefits. We exclude this charge in Non-GAAP measures, as this is a one-time charge that is not considered by management in their review of financial results.

Credit Facility - Ticking Fees: In connection with our acquisition of Motorola Home, the cash portion of the consideration is funded through debt financing commitments. A ticking fee is a fee paid to our banks to compensate for the time lag between the commitment allocation on a loan and the actual funding. We have excluded the effect of the ticking fee in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of this non-cash item in our other expense (income).


Mark To Market Fair Value Adjustment Related To Comcast Investment in ARRIS: : In connection with our acquisition of Motorola Home, Comcast was given an opportunity to invest in ARRIS. The accounting guidance requires we mark to market the changes in the value of the investment and flow through other expense (income). We have excluded the effect of the implied fair value in calculating our non-GAAP financial measures. We believe it is useful to understand the effects of these items on our total other expense (income).

Income Tax Expense (Benefit): We have excluded the tax effect of the non-GAAP items mentioned above. Additionally, we have excluded the effects of certain tax adjustments related to state valuation allowances, research and development tax credits and provision to return differences.