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8-K - FORM 8-K - ARRIS GROUP INCd526768d8k.htm

Exhibit 99.1

 

FOR IMMEDIATE RELEASE   Contact:    Bob Puccini
     Investor Relations
     (720) 895-7787
     bob.puccini@arrisi.com

ARRIS ANNOUNCES PRELIMINARY AND UNAUDITED

FIRST QUARTER 2013 RESULTS

Suwanee, Ga. (April 24, 2013) ARRIS Group, Inc. (NASDAQ:ARRS), today announced preliminary and unaudited financial results for the first quarter 2013.

Revenues in the first quarter 2013 reflect a $13.2 million reduction related to Comcast’s investment in ARRIS associated with the Company’s acquisition of Motorola Home, which closed on April 17, 2013. Prior to the adjustment, revenues were $366.8 million. Including the adjustment, revenues were $353.7 million as compared to first quarter 2012 revenues of $302.9 million and as compared to fourth quarter 2012 revenues of $344.0 million.

Adjusted net income (a non-GAAP measure) in the first quarter 2013 was $0.25 per diluted share, compared to $0.19 per diluted share for the first quarter 2012 and $0.28 per diluted share for the fourth quarter 2012. GAAP net loss in the first quarter 2013 was $(0.13) per diluted share, as compared to first quarter 2012 GAAP net income of $0.05 per diluted share and fourth quarter 2012 GAAP net income of $0.13 per diluted share. 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).

Excluding the reduction of revenue and a corresponding reduction in gross profit related to the investment in ARRIS by Comcast, gross margin for the first quarter 2013 was 33.2%. Gross margin including the adjustments for the first quarter 2013 was 30.7%. The Company ended the first quarter of 2013 with $631.3 million of cash resources, which included $608.4 million of cash, cash equivalents and short-term investments, and $22.9 million of long-term marketable security investments, as compared to $584.0 million, in the aggregate, at the end of the fourth quarter of 2012. The Company generated $50.1 million of cash from operating activities during the first quarter 2013, which compares to $35.3 million generated in the first quarter 2012.

Order backlog at the end of the first quarter 2013 was $282.1 million as compared to $277.7 million and $222.6 million at the end of the first quarter 2012 and the fourth quarter 2012, respectively. The Company’s book-to-bill ratio in the first quarter 2013 was 1.17 as compared to the first quarter 2012 of 1.43 and the fourth quarter 2012 of 1.11.

“Our record first quarter revenues reflect the culmination of a decade of growth during which ARRIS revenues have tripled. I am looking forward to continued


growth now that we have closed our acquisition of Motorola Home. We welcome all of our new employees to the ARRIS team. The combination will be very powerful for our customers and shareholders,” said Bob Stanzione, ARRIS Chairman and CEO.

“We are off to a good start to the year with sales and adjusted net income per share in the upper half of our guidance. As previously disclosed, the investment in ARRIS by Comcast in conjunction with the acquisition of the Motorola Home business resulted in fair value impacts on the balance sheet and income statement; $13.2 million was recorded as a reduction in revenue and gross margin, and $19.3 million was recorded as other expense in the first quarter 2013. An explanation of the accounting for these impacts is attached to the press release,” said David Potts, ARRIS EVP & CFO. “With the closure of our Motorola Home acquisition last week, we are now in the midst of reviewing our outlook for the second quarter and the balance of 2013. We plan on providing an update in the near future.”

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, April 24, 2013, to discuss these results in detail. You may participate in this conference call by dialing (888) 680-0892 or (617) 213-4858 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 78256359, 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 May 1, 2013 by dialing (888) 286-8010 or (617) 801-6888 and using the pass code 35756915. Live internet access to the call will be available through the Investor Relations section of the Company’s website at www.arrisi.com. A replay will also 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. Information about ARRIS products and services can be found at www.arrisi.com.

Forward-looking statements:

Statements made in this press release and in the related conference call, including those related to:


   

growth expectations and business prospects;

 

   

revenues and net income for the second quarter 2013 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 second quarter 2013 as well as the general outlook for 2013 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 economic uncertainty 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 current volatility in the capital markets, the potential impact on the business of the Motorola Home acquisition, the retention of employees and the ability of ARRIS to successfully integrate Motorola Home’s business opportunities, technology, personnel and operations; 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, 2012. 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)

 

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

ASSETS

        

Current assets:

        

Cash and cash equivalents

   $ 423,551      $ 131,703      $ 188,653      $ 199,395      $ 215,808   

Short-term investments, at fair value

     184,838        398,414        359,753        340,166        298,539   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cash, cash equivalents and short term investments

     608,389        530,117        548,406        539,561        514,347   

Restricted cash

     4,689        4,722        4,665        3,942        3,943   

Accounts receivable, net

     206,236        188,581        171,143        179,371        183,427   

Other receivables

     3,743        350        578        1,414        5,071   

Inventories, net

     126,530        133,848        137,496        102,361        105,114   

Prepaids

     13,227        11,682        12,408        12,124        12,436   

Current deferred income tax assets

     25,927        24,944        20,787        21,972        22,068   

Other current assets

     24,377        25,648        18,907        16,766        16,792   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     1,013,118        919,892        914,390        877,511        863,198   

Property, plant and equipment, net

     54,109        54,378        54,593        56,175        57,810   

Goodwill

     193,976        194,115        194,469        194,626        195,268   

Intangible assets, net

     86,926        94,529        102,258        110,000        117,444   

Investments

     55,938        86,164        57,483        70,967        82,968   

Noncurrent deferred income tax assets

     52,410        47,431        49,589        47,228        42,106   

Other assets

     11,089        9,385        9,913        10,575        11,699   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1,467,566      $ 1,405,894      $ 1,382,695      $ 1,367,082      $ 1,370,493   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

          

Current liabilities:

          

Accounts payable

   $ 47,783      $ 45,719      $ 49,061      $ 44,800      $ 54,576   

Accrued compensation, benefits and related taxes

     36,791        29,773        35,066        28,165        31,081   

Accrued warranty

     2,768        2,882        3,036        2,995        3,094   

Deferred revenue

     61,431        44,428        50,859        63,023        60,129   

Current portion of LT debt

     225,368        222,124        —          —          —     

Other accrued liabilities

     59,405        25,795        21,768        23,980        31,054   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     433,546        370,721        159,790        162,963        179,934   

Long-term debt, net of current portion

     —          —          218,943        215,823        212,765   

Accrued pension

     27,200        26,883        26,172        25,696        25,739   

Accrued severance liability, net of current portion

     4,262        4,119        3,895        3,758        3,884   

Noncurrent income taxes payable

     30,168        24,389        24,434        26,676        26,676   

Noncurrent deferred income tax liabilities

     351        351        334        340        352   

Other noncurrent liabilities

     18,836        19,043        20,362        21,039        22,372   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     514,363        445,506        453,930        456,295        471,722   

Stockholders’ equity:

          

Preferred stock

     —          —          —          —          —     

Common stock

     1,509        1,488        1,479        1,473        1,467   

Capital in excess of par value

     1,292,971        1,285,575        1,270,561        1,259,946        1,247,763   

Treasury stock at cost

     (306,330     (306,330     (306,330     (295,960     (280,724

Unrealized gain on marketable securities

     288        206        74        211        149   

Unfunded pension liability

     (8,592     (8,558     (10,231     (10,231     (10,231

Accumulated deficit

     (26,459     (11,809     (26,604     (44,468     (59,469

Cumulative translation adjustments

     (184     (184     (184     (184     (184
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     953,203        960,388        928,765        910,787        898,771   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1,467,566      $ 1,405,894      $ 1,382,695      $ 1,367,082      $ 1,370,493   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

     For the Three Months
Ended March 31,
 
     2013     2012  

Net sales

   $ 353,650      $ 302,901   

Cost of sales

     245,124        193,993   
  

 

 

   

 

 

 

Gross margin

     108,526        108,908   

Operating expenses:

    

Selling, general, and administrative expenses

     40,126        39,544   

Research and development expenses

     44,082        44,147   

Acquisition costs

     7,190        607   

Loss on sale of product line

     —           337   

Restructuring charges

     9        5,203   

Amortization of intangible assets

     7,603        7,379   
  

 

 

   

 

 

 
     99,010        97,217   
  

 

 

   

 

 

 

Operating income

     9,516        11,691   

Other expense (income):

    

Interest expense

     4,631        4,350   

Gain on investments

     (564     (961

Loss on foreign currency

     821        808   

Interest income

     (838     (755

Other (income) expense, net

     19,416        (436
  

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (13,950     8,685   

Income tax expense (benefit)

     700        2,886   
  

 

 

   

 

 

 

Net income (loss)

   $ (14,650   $ 5,799   
  

 

 

   

 

 

 

Net income (loss) per common share:

    

Basic

   $ (0.13   $ 0.05   
  

 

 

   

 

 

 

Diluted

   $ (0.13   $ 0.05   
  

 

 

   

 

 

 

Weighted average common shares:

    

Basic

     115,150        115,075   
  

 

 

   

 

 

 

Diluted

     115,150        117,597   
  

 

 

   

 

 

 


ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     For the Three Months
Ended March 31,
 
     2013     2012  

Operating Activities:

    

Net income (loss)

   $ (14,650   $ 5,799   

Depreciation

     6,509        7,195   

Amortization of intangible assets

     7,603        7,379   

Amortization of deferred finance fees

     160        160   

Non-cash interest expense

     3,244        2,999   

Deferred income tax provision (benefit)

     (5,995     (4,635

Stock compensation expense

     6,744        6,649   

Revenue reduction related to Comcast’s investment in ARRIS

     13,182        —     

Mark-to-market fair value adjustment related to Comcast’s investment in ARRIS

     19,348        —     

Provision for doubtful accounts

     —          54   

Loss on sale of product line

     —          337   

Loss (gain) on disposal of fixed assets

     (4     3   

Gain on investments

     (564     (961

Excess tax benefits from stock-based compensation plans

     (4,659     (1,654

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

    

Accounts receivable

     (17,655     (31,799

Other receivables

     (3,889     3,693   

Inventory

     7,318        7,243   

Income taxes payable/recoverable

     3,808        6,365   

Accounts payable and accrued liabilities

     28,014        22,398   

Other, net

     1,543        4,048   
  

 

 

   

 

 

 

Net cash provided by operating activities

     50,057        35,273   

Investing Activities:

    

Purchases of investments

     —          (77,766

Disposals of investments

     244,711        51,908   

Purchases of property & equipment, net

     (6,289     (3,762

Sale of property & equipment

     53        —     

Sale of product line

     —          3,249   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     238,475        (26,371

Financing Activities:

    

Repurchase of common stock

     —          (26,315

Excess income tax benefits from stock-based compensation plans

     4,659        1,654   

Repurchase of shares to satisfy employee tax withholdings

     (11,992     (8,033

Fees and proceeds from issuance of common stock, net

     10,649        3,725   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     3,316        (28,969

Net increase (decrease) in cash and cash equivalents

     291,848        (20,067

Cash and cash equivalents at beginning of period

     131,703        235,875   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 423,551      $ 215,808   
  

 

 

   

 

 

 


ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION

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

 

     Q1 2012     Q4 2012     Q1 2013  
     Amount           Amount           Amount        

Sales

   $ 302,901        $ 344,003        $ 353,650     

Highlighted items:

            

Acquisition accounting impacts of BigBand deferred revenue

     1,771          432          —       

Reduction in revenue related to Comcast’s investment in ARRIS

     —            —            13,182     
  

 

 

     

 

 

     

 

 

   

Sales excluding highlighted items

   $ 304,672        $ 344,435        $ 366,832     
  

 

 

     

 

 

     

 

 

   
     Q1 2012     Q4 2012     Q1 2013  
     Amount     Per Diluted
Share
    Amount     Per Diluted
Share
    Amount     Per Diluted
Share
 

Net income (loss)

   $ 5,799      $ 0.05      $ 14,795      $ 0.13      $ (14,650   $ (0.13

Highlighted items:

            

Impacting gross margin:

            

Acquisition accounting impacts of BigBand deferred revenue

     1,258        0.01        432        0.00        —          —     

Reduction in gross margin related to Comcast’s investment in ARRIS

     —          —          —          —          13,182        0.11   

Stock compensation expense

     750        0.01        802        0.01        831        0.01   

Impacting operating expenses:

            

Acquisition costs

     607        0.01        5,131        0.04        7,190        0.06   

Restructuring

     5,203        0.04        306        0.00        9        0.00   

Amortization of intangible assets

     7,379        0.06        7,729        0.07        7,603        0.06   

Loss of sale of product line

     337        0.00        —          —          —          —     

Settlement charge - pension

     —          —          3,064        0.03        —          —     

Stock compensation expense

     5,899        0.05        5,910        0.05        5,913        0.05   

Impacting other (income) / expense:

            

Non-cash interest expense

     2,999        0.03        3,181        0.03        3,244        0.03   

Impairment of investment

     —          —          67        0.00        —          —     

Credit facility - ticking fees

     —          —          —          —          388        0.00   

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

     —          —          —          —          19,348        0.16   

Impacting income tax expense:

            

Adjustments of income tax valuation allowances and other

     —          —          (475     (0.00     (7,516     (0.06

Tax related to highlighted items above

     (8,121     (0.07     (8,724     (0.07     (5,735     (0.05
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total highlighted items

     16,311        0.14        17,423        0.15        44,457        0.37   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income excluding highlighted items

   $ 22,110      $ 0.19      $ 32,218      $ 0.28      $ 29,807      $ 0.25   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares - Basic

       115,075          114,028          115,150   
    

 

 

     

 

 

     

 

 

 

Weighted average common shares - Diluted (1)

       117,597          117,013          119,022   
    

 

 

     

 

 

     

 

 

 

 

(1) 

Basic shares used for Q1 2013 as losses were reported for those periods and the inclusion of dilutive shares would be anti-dilutive

See Notes to GAAP and Adjust Non-GAAP Financial Measures


ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL RECONCILIATION

ADJUSTMENTS RELATED TO COMCAST’S INVESTMENT IN ARRIS

(unaudited)

 

Adjustments recorded in Q1 2013    Share
Price - $
           Share
Appreciation -  $
 

December 19, 2012 (date of signing with Google)

     14.11 (1)      
       >         1.24   

January 11, 2013 (date of signing with Comcast)

     15.35        
       >         1.82   

March 31, 2013 (quarter end)

     17.17        
                  Total Before Tax
Impact - $M
 
Revenue / Gross Margin Impact        

*  10.6M shares x $1.24

          13.2   

*  Recorded as contra revenue per ASC 605

       
Other (Income) Expense Impact        

*  10.6M shares x $1.82

          19.3   

*  Mark to market per fair value measurement guidance

       
       

 

 

 
          32.5   
       

 

 

 

 

(1) 

20 trading day trailing closing price


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 acquisition of 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.

Reduction in revenue related to Comcast of 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.

Acquisition Costs: We have excluded the effect of acquisition related and other expenses and the effect of restructuring expenses in calculating our non-GAAP operating expenses and net income measures. We incurred significant expenses in connection with our recent acquisition of BigBand, which we generally would not have otherwise incurred in the periods presented as part of our continuing operations. Acquisition related expenses consist of transaction costs, costs for transitional employees, other acquired employee related costs, and integration related outside services. We believe it is useful to understand the effects of these items on our total operating expenses.

Restructuring Costs: We have excluded the effect of restructuring charges in calculating our non-GAAP operating expenses and net income measures. Restructuring expenses consist of employee severance, abandoned facilities, and other exit costs. We believe it is useful to understand the effects of these items on our total operating expenses.

Loss on Sale of Product Line: 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.

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.

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).


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.