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8-K - FORM 8-K - ARRIS GROUP INCg26063e8vk.htm
EXHIBIT 99.1
         
FOR IMMEDIATE RELEASE
  Contact:   Jim Bauer
 
      Investor Relations
 
      (678) 473-2647
 
      jim.bauer@arrisi.com
ARRIS ANNOUNCES PRELIMINARY AND UNAUDITED
FOURTH QUARTER AND FULL YEAR 2010 RESULTS
Suwanee, Ga. (February 9, 2011) ARRIS Group, Inc. (NASDAQ:ARRS), today announced preliminary and unaudited financial results for the fourth quarter and full year 2010.
Revenues in the fourth quarter 2010 were $266.2 million as compared to fourth quarter 2009 revenues of $300.0 million, and as compared to third quarter 2010 revenues of $274.3 million. Full year 2010 and 2009 revenues were $1,087.5 million and $1,107.8 million, respectively.
Adjusted net income (a non-GAAP measure) in the fourth quarter 2010 was $0.19 per diluted share, compared to $0.32 per diluted share for the fourth quarter 2009 and $0.19 per diluted share for the third quarter of 2010. In the fourth quarter 2010, the Company recognized approximately $0.03 per diluted share of full year benefit associated with Congress passing the R&D tax credit legislation in late December. Adjusted net income was $0.85 per diluted share for the full year 2010 and compares to $1.01 per diluted share for the full year 2009.
GAAP net income in the fourth quarter 2010 was $0.09 per diluted share, as compared to fourth quarter 2009 GAAP net income of $0.26 per diluted share and third quarter 2010 GAAP net income of $0.11 per diluted share. Full year 2010 GAAP net income was $0.50 per diluted share as compared to $0.71 per diluted share in 2009. Significant GAAP items that have been excluded in computing adjusted net income and adjusted net income per diluted share include amortization of intangible assets, equity compensation, non-cash interest expense, restructuring charges, and certain discrete tax items. A reconciliation of adjusted net income to GAAP net income per diluted share is attached to this release and also can be found on the Company’s website (www.arrisi.com).
Gross margin for the fourth quarter 2010 was 36.2%, which compares to the fourth quarter 2009 gross margin of 44.8% and the third quarter 2010 gross margin of 37.2%. Year over year margin decline was the result of a shift in product mix.

 


 

The Company ended the fourth quarter 2010 with $620.1 million of cash, cash equivalents and short-term investments, as compared to $625.6 million at the end of the fourth quarter 2009 and $640.4 million at the end of the third quarter 2010. However, during the fourth quarter the Company used $30 million to repurchase 2.9 million shares of its common stock and $5 million to repurchase convertible notes. During 2010, the Company used a total of $92.6 million to repurchase 6.8 million shares of its common stock and $24 million in face value of convertible notes. The Company generated $22.6 million of cash from operating activities during the fourth quarter 2010 and $118.5 million during the full year 2010, which compares to $69.8 million and $241.0 million during the same periods in 2009.
Order backlog at the end of the fourth quarter 2010 was $140.4 million as compared to $144.4 million and $119.6 million at the end of the fourth quarter 2009 and the third quarter 2010, respectively. The Company’s book-to-bill ratio in the fourth quarter 2010 was 1.08 as compared to the fourth quarter 2009 of 0.92 and the third quarter 2010 of 0.80.
“Fourth quarter financial results closed in line with our expectations and we continued to strengthen our balance sheet during the quarter,” said Bob Stanzione, ARRIS Chairman & CEO. “ARRIS continues to invest aggressively in new IP based video products as the industry moves towards a convergence of conventional TV and IP based TV. In the meantime, internet traffic continues to grow, which will create ongoing demand for both our existing and new products as well.”
During the quarter the Company announced its highly-anticipated downstream module upgrade, significantly increasing the downstream density of the DOCSIS(R) 3.0 C4 CMTS. DOCSIS 3.0 was introduced initially in 2008 on the C4 CMTS with a 16 downstream channel single slot Cable Access Module (CAM). With this second generation DOCSIS 3.0 capability, the capacity of the 16D CAMs can be increased to 32 Annex B or 24 Annex A downstream channels.
“We are off to a good start in 2011. With respect to the first quarter 2011, we now project that revenues for the Company will be in the range of $260 to $280 million, with adjusted net income per diluted share in the range of $0.14 to $0.18 and GAAP net income per diluted share in the range of $0.05 to $0.09,” said David Potts, ARRIS EVP & CFO.
ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, February 9, 2011, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4216 or 617-213-4868 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 34755339 and Jim Bauer as the moderator. Please note that ARRIS will not accept any calls related to this earnings release

 


 

until after the conclusion of the 5:00 pm EDT conference call. A replay of the conference call can be accessed approximately two hours after the call through Monday, February 14, 2011 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 35140408. A replay also will be made available for a period of 12 months following the conference call on ARRIS’ website at www.arrisi.com.
About ARRIS
ARRIS is a global communications technology company specializing in the design, engineering and supply of technology supporting triple- and quad-play broadband services for residential and business customers around the world. The company supplies broadband operators with the tools and platforms they need to deliver converged IP video solutions, carrier-grade telephony, demand driven video, next-generation advertising, network and workforce management solutions, access and transport architectures and ultra high-speed data services. Headquartered in Suwanee, Georgia, USA, ARRIS has R&D centers in Suwanee, GA; Beaverton, OR; Chicago, IL; Kirkland, WA; State College, PA; Wallingford, CT; Waltham, MA; Cork, Ireland; and Shenzhen, China, and operates support and sales offices throughout the world. Information about ARRIS products and services can be found at www.arrisi.com.
Forward-looking statements:
Statements made in this press release, including those related to:
    growth expectations and business prospects;
 
    revenues and net income for the first quarter 2011, full year 2011, and beyond;
 
    expected sales levels and acceptance of new ARRIS products; and
 
    the general market outlook and industry trends
are forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. Among other things,
    projected results for the first quarter as well as the general outlook for 2011 and beyond are based on preliminary estimates, assumptions and projections that management believes to be reasonable at this time, but are beyond management’s control;
 
    ARRIS’ customers operate in a capital intensive consumer based industry, and the current volatility in the capital markets or changes in customer spending may adversely impact their ability or willingness to purchase the products that the Company offers; and

 


 

    because the market in which ARRIS operates is volatile, actions taken and contemplated may not achieve the desired impact relative to changing market conditions and the success of these strategies will be dependent on the effective implementation of those plans while minimizing organizational disruption.
In addition to the factors set forth elsewhere in this release, other factors that could cause results to differ materially from current expectations include: the uncertain current economic climate and its impact on our customers’ plans and access to capital; the impact of rapidly changing technologies; the impact of competition on product development and pricing; the ability of ARRIS to react to changes in general industry and market conditions including regulatory developments; rights to intellectual property, market trends and the adoption of industry standards; and consolidations within the telecommunications industry of both the customer and supplier base. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the Company’s business. Additional information regarding these and other factors can be found in ARRIS’ reports filed with the Securities and Exchange Commission, including its Form 10-Q for the quarter ended September 30, 2010. In providing forward-looking statements, the Company expressly disclaims any obligation to update publicly or otherwise these statements, whether as a result of new information, future events or otherwise.
# # # # #

 


 

ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
                                         
    December 31,     September 30,     June 30,     March 31,     December 31,  
    2010     2010     2010     2010     2009  
 
                                       
ASSETS
                                       
 
                                       
Current assets:
                                       
Cash and cash equivalents
  $ 353,121     $ 351,894     $ 370,932     $ 500,044     $ 500,565  
Short-term investments, at fair value
    266,981       288,463       292,421       161,012       125,031  
 
                             
Total cash, cash equivalents and short term investments
    620,102       640,357       663,353       661,056       625,596  
 
                                       
Restricted cash
    4,937       4,480       4,478       4,476       4,475  
Accounts receivable, net
    125,933       133,915       139,673       139,207       143,708  
Other receivables
    6,528       2,654       6,368       3,057       6,113  
Inventories, net
    101,763       89,203       78,830       79,907       95,851  
Prepaids
    9,237       8,934       10,196       10,546       11,675  
Current deferred income tax assets
    19,819       28,585       30,469       37,324       35,994  
Income taxes recoverable
    21,907       17,094       5,943             3,106  
Other current assets
    11,147       11,253       15,386       14,328       15,790  
 
                             
Total current assets
    921,373       936,475       954,696       949,901       942,308  
 
                                       
Property, plant and equipment, net
    56,306       56,816       56,128       56,223       57,195  
Goodwill
    234,963       235,109       235,122       235,256       235,388  
Intangible assets, net
    168,616       177,560       186,529       195,551       204,572  
Investments
    31,015       29,591       29,485       25,435       20,618  
Noncurrent deferred income tax assets
    6,294       6,560       6,127       6,298       6,759  
Other assets
    5,520       6,129       6,755       8,050       8,776  
 
                             
 
  $ 1,424,087     $ 1,448,240     $ 1,474,842     $ 1,476,714     $ 1,475,616  
 
                             
 
                                       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
 
                                       
Current liabilities:
                                       
Accounts payable
  $ 50,736     $ 52,011     $ 72,652     $ 44,523     $ 53,979  
Accrued compensation, benefits and related taxes
    28,778       25,913       20,696       23,639       36,936  
Accrued warranty
    2,945       3,504       3,539       3,632       4,265  
Deferred revenue
    31,625       36,029       44,913       53,024       47,044  
Current portion of long-term debt
          12       50       87       124  
Current deferred income tax liability
                             
Other accrued liabilities
    18,847       25,891       24,476       42,978       46,203  
 
                             
Total current liabilities
    132,931       143,360       166,326       167,883       188,551  
Long-term debt, net of current portion
    202,615       204,053       212,914       214,131       211,248  
Accrued pension
    17,213       17,383       17,058       16,733       16,408  
Noncurrent income taxes payable
    17,702       16,509       16,523       16,248       14,815  
Noncurrent deferred income tax liabilities
    29,151       32,193       28,705       33,577       37,204  
Other noncurrent liabilities
    15,406       14,926       15,704       16,871       16,021  
 
                             
Total liabilities
    415,018       428,424       457,230       465,443       484,247  
 
                                       
Stockholders’ equity:
                                       
Preferred stock
                             
Common stock
    1,409       1,406       1,405       1,402       1,388  
Capital in excess of par value
    1,206,157       1,199,184       1,194,829       1,187,854       1,183,872  
Treasury stock at cost
    (145,286 )     (115,248 )     (99,645 )     (79,019 )     (75,960 )
Unrealized gain (loss) on marketable securities
    392       (374 )     217       2       28  
Unfunded pension liability
    (5,813 )     (6,041 )     (6,041 )     (6,041 )     (6,041 )
Accumulated deficit
    (47,606 )     (58,927 )     (72,969 )     (92,743 )     (111,734 )
Cumulative translation adjustments
    (184 )     (184 )     (184 )     (184 )     (184 )
 
                             
Total stockholders’ equity
    1,009,069       1,019,816       1,017,612       1,011,271       991,369  
 
                             
 
  $ 1,424,087     $ 1,448,240     $ 1,474,842     $ 1,476,714     $ 1,475,616  
 
                             

 


 

ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
                                 
    For the Three Months     For the Twelve Months  
    Ended December 31,     Ended December 31,  
    2010     2009     2010     2009  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
Net sales
  $ 266,168     $ 299,995     $ 1,087,506     $ 1,107,806  
Cost of sales
    169,855       165,495       663,417       645,043  
 
                       
Gross margin
    96,313       134,500       424,089       462,763  
 
                               
Operating expenses:
                               
Selling, general, and administrative expenses
    34,205       37,622       137,694       148,403  
Research and development expenses
    35,427       35,102       140,468       124,550  
Restructuring charges
    (8 )     2,917       65       3,702  
Amortization of intangible assets
    8,944       9,554       35,957       37,361  
 
                       
 
    78,568       85,195       314,184       314,016  
 
                       
Operating income
    17,745       49,305       109,905       148,747  
Other expense (income):
                               
Interest expense
    4,237       4,549       17,965       17,670  
Gain on investments
    (13 )     (258 )     (414 )     (711 )
Loss (gain) on foreign currency
    (327 )     (198 )     (44 )     3,445  
Interest income
    (528 )     (237 )     (1,997 )     (1,409 )
Loss (gain) on debt retirement
    5             (373 )     (4,152 )
Other (income) expense, net
    31       174       138       (714 )
 
                       
Income from continuing operations before income taxes
    14,340       45,275       94,630       134,618  
Income tax expense
    3,019       11,996       30,502       43,849  
 
                       
Net income
  $ 11,321     $ 33,279     $ 64,128     $ 90,769  
 
                       
 
                               
Net income per common share
                               
Basic
  $ 0.09     $ 0.26     $ 0.51     $ 0.73  
 
                       
Diluted
  $ 0.09     $ 0.26     $ 0.50     $ 0.71  
 
                       
 
                               
Weighted average common shares:
                               
Basic
    122,866       125,698       125,157       124,716  
 
                       
Diluted
    125,758       129,524       128,271       128,085  
 
                       

 


 

ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                                 
    For the Three Months     For the Twelve Months  
    Ended December 31,     Ended December 31,  
    2010     2009     2010     2009  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
Operating Activities:
                               
Net income
  $ 11,321     $ 33,279     $ 64,128     $ 90,769  
Depreciation
    5,972       5,492       22,865       20,862  
Amortization of intangible assets
    8,944       9,554       35,957       37,361  
Stock compensation expense
    5,769       4,207       21,827       15,921  
Deferred income tax provision (benefit)
    5,483       (626 )     8,081       13,052  
Amortization of deferred finance fees
    164       180       691       728  
Provision for doubtful accounts
    (366 )     (1,281 )     (283 )     (1,280 )
Gain on investments
    (13 )     (258 )     (414 )     (711 )
Loss on disposal of fixed assets
    37       474       406       428  
Non-cash interest expense
    2,777       2,828       11,325       11,136  
Loss (gain) on debt retirement
    5             (373 )     (4,152 )
Excess income tax benefits from stock-based compensation plans
    (69 )     (980 )     (2,752 )     (3,007 )
Changes in operating assets & liabilities, net of effects of acquisitions and disposals:
                               
Accounts receivable
    8,348       (19,097 )     18,058       21,704  
Other receivables
    (2,819 )     (2,922 )     (59 )     (2,383 )
Inventory
    (12,560 )     8,457       (5,912 )     38,906  
Income taxes payable/recoverable
    (3,614 )     7,834       (17,787 )     4,966  
Accounts payable and accrued liabilities
    (6,082 )     37,031       (48,308 )     4,707  
Other, net
    (729 )     (14,399 )     11,059       (8,030 )
 
                       
Net cash provided by operating activities
    22,568       69,773       118,509       240,977  
 
                               
Investing Activities:
                               
Purchases of property, plant, and equipment
    (5,518 )     (4,336 )     (22,645 )     (18,663 )
Cash paid for acquisition, net of cash acquired
    (4,000 )     (14,604 )     (4,000 )     (22,734 )
Cash proceeds from sale of property, plant & equipment
    2       2       245       210  
Purchases of investments
    (182,829 )     (64,859 )     (514,376 )     (216,704 )
Disposals of investments
    204,163       50,072       364,077       104,488  
 
                       
Net cash provided by (used in) investing activities
    11,818       (33,725 )     (176,699 )     (153,403 )
 
                               
Financing Activities:
                               
Payment of debt obligations
    (12 )     (37 )     (124 )     (158 )
Early redemption of long-term debt
    (4,956 )           (23,287 )     (10,556 )
Repurchase of common stock
    (30,038 )           (69,326 )      
Excess income tax benefits from stock-based compensation plans
    69       980       2,752       3,007  
Repurchase of shares to satisfy employee tax withholdings
    (25 )           (6,447 )     (2,180 )
Proceeds from issuance of common stock
    1,803       1,779       7,178       12,984  
 
                       
Net cash provided by (used in) financing activities
    (33,159 )     2,722       (89,254 )     3,097  
Net increase (decrease) in cash and cash equivalents
    1,227       38,770       (147,444 )     90,671  
Cash and cash equivalents at beginning of period
    351,894       461,795       500,565       409,894  
 
                       
Cash and cash equivalents at end of period
  $ 353,121     $ 500,565     $ 353,121     $ 500,565  
 
                       

 


 

ARRIS GROUP, INC.
PRELIMINARY SUPPLEMENTAL NET INCOME RECONCILIATION
(in thousands, except per share data)
(unaudited)
                                                                 
    Q4 2010     Q4 2009     Year 2010     Year 2009  
            Per Diluted             Per Diluted             Per Diluted             Per Diluted  
    Amount     Share     Amount     Share     Amount     Share     Amount     Share  
Net income
  $ 11,321     $ 0.09     $ 33,279     $ 0.26     $ 64,128     $ 0.50     $ 90,769     $ 0.71  
 
                                                               
Highlighted items:
                                                               
Impacting gross margin:
                                                               
Stock compensation expense
    492             383       0.00       1,897       0.01       1,446       0.01  
 
                                                               
Impacting operating expenses:
                                                               
Acquisition costs, restructuring and other
    (8 )           2,917       0.02       65             3,977       0.03  
Amortization of intangible assets
    8,944       0.07       9,554       0.07       35,957       0.28       37,361       0.29  
Stock compensation expense
    5,277       0.05       3,824       0.03       19,930       0.15       14,475       0.11  
 
                                                               
Impacting other (income) / expense:
                                                               
Non-cash interest expense
    2,777       0.02       2,827       0.02       11,325       0.09       11,135       0.09  
Loss (gain) on retirement of debt
    5                         (373 )           (4,152 )     (0.03 )
 
                                                               
Impacting income tax expense:
                                                               
 
                                                               
Adjustments of income tax valuation allowances, research & development credits and other
    1,058       0.01       (4,422 )     (0.03 )     889       0.01       (3,133 )     (0.02 )
Tax related to highlighted items above
    (6,503 )     (0.05 )     (7,375 )     (0.06 )     (24,311 )     (0.19 )     (22,561 )     (0.18 )
 
                                                               
 
                                               
Total highlighted items
    12,042       0.10       7,708       0.06       45,379       0.35       38,548       0.30  
 
                                               
Net income excluding highlighted items
  $ 23,363     $ 0.19     $ 40,987     $ 0.32     $ 109,507     $ 0.85     $ 129,317     $ 1.01  
 
                                               
 
                                                               
Weighted average common shares — diluted
            125,758               129,524               128,271               128,085  
 
                                               
With respect to stock compensation expense, ARRIS records non-cash compensation expense related to grants of options and restricted stock. Depending upon the size, timing and the terms of the grants, this non-cash compensation expense may vary significantly. With respect to amortization of intangibles, the intangibles being amortized relate to our acquisitions. The acquisition costs, restructuring, and other reflect items that, although they or similar items might recur, are of a nature and magnitude that identifying them separately provides investors with a greater ability to project ARRIS’ future performance. With respect to the convertible debt non-cash interest, ARRIS records non-cash interest expense related to the 2013 convertible debt as a result of the adoption of FSP ABP 14-1 on January 1, 2009. Disclosing the non-cash piece provides investors with the information regarding interest that will not be paid out in cash. In the first and second quarters of 2010 and in the first and third quarter of 2009, income tax expense adjustments were recorded for state valuation allowances and research and development tax credits. During the first quarter of 2009, and the second, third & fourth quarters of 2010, ARRIS repurchased a portion of their convertible debt and recognized a gain of approximately $4.2 million, $0.1 million and $0.3 million and loss of $5 thousand, respectively.
In assessing operating performance and preparing budgets and forecasts, ARRIS’ management considers performance after making these adjustments and believes that providing investors with the same information provides greater transparency and insight into management’s analysis.

 


 

ARRIS GROUP, INC.
PRELIMINARY SUPPLEMENTAL OPERATING INCOME RECONCILIATIONS
(in thousands)
(Unaudited)
                                 
    Q4 2010     Q4 2009     Year 2010     Year 2009  
 
                               
Operating income as reported
  $ 17,745     $ 49,305     $ 109,905     $ 148,747  
Operating income as a % of sales
    7 %     16 %     10 %     13 %
Highligted Items:
                               
Stock compensation expense
    5,769       4,207       21,827       15,921  
Acquisition costs, restructuring and other
    (8 )     2,917       65       3,977  
Amortization of intangible assets
    8,944       9,554       35,957       37,361  
 
                       
Operating income excluding highlighted items
    32,450       65,983       167,754       206,006  
Operating income excluding highlighted items as a % of sales
    12 %     22 %     15 %     19 %
See the GAAP to Non-GAAP EPS reconciliation for a discussion regarding these adjustments and management’s reasoning for providing this Non-GAAP financial measure.

 


 

ARRIS GROUP, INC.
Net Income Reconciliation (unaudited)
Q1 2011 EPS Guidance
         
Estimated GAAP EPS — diluted
  $ 0.05 - $0.09  
Reconciling Items:
       
Amortization of intangibles, after tax
    0.05  
Stock compensation expense, after tax
    0.03  
Non-cash interest expense, after tax
    0.01  
 
     
Subtotal
    0.09  
 
     
Estimated adjusted (non-GAAP) EPS — diluted
  $ 0.14 - $0.18  
 
     
See the Supplemental Net Income Reconciliation for a discussion regarding these adjustments and management’s reasoning for providing this adjusted financial measure