ARRIS GROUP INC - FORM 8-K - EX-99.1

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8-K - FORM 8-K - ARRIS GROUP INC	d581879d8k.htm

Exhibit 99.1

FOR IMMEDIATE RELEASE

Contact:

Bob Puccini

Investor Relations

(720) 895-7787

bob.puccini@arrisi.com

ARRIS ANNOUNCES PRELIMINARY AND UNAUDITED

SECOND QUARTER 2013 RESULTS

Suwanee, Ga. (August 7, 2013) ARRIS Group, Inc. (NASDAQ:ARRS), today announced preliminary and unaudited financial results for the second quarter 2013.

On April 17, 2013 the Company closed the acquisition of Motorola Home. As a result, comparisons to prior periods will be significantly impacted.

Revenues in the second quarter 2013 were $1,000.4 million as compared to second quarter 2012 revenues of $349.3 million and as compared to first quarter 2013 revenues of $353.7 million. The Company estimates that prior to the close of the acquisition, Motorola Home recorded approximately $66 million of revenue in the second quarter. Through the first two quarters of 2013 and 2012, revenues were $1,354.0 million and $652.2 million, respectively. As previously disclosed, the first quarter 2013 revenue reflects a $13.2 million reduction related to Comcast’s investment in ARRIS associated with the Company’s acquisition of Motorola Home.

Adjusted net income (a non-GAAP measure) in the second quarter 2013 was $0.46 per diluted share, compared to $0.25 per diluted share for the first quarter 2013 and $0.25 per diluted share for the second quarter 2012. The Company estimates that prior to the close of the acquisition, Motorola Home generated an operating loss of approximately $(30) million or an equivalent impact of $(0.15) per share had that result been included in the Company’s second quarter results. Year to date, adjusted net income was $0.72 per diluted share for 2013 as compared to $0.44 per diluted share in 2012.

GAAP net loss in the second quarter 2013 was $(0.37) per diluted share, as compared to second quarter 2012 GAAP net income of $0.13 per diluted share and first quarter 2013 GAAP net loss of $(0.13) per diluted share. Year to date, GAAP net loss was $(0.52) per diluted share in 2013 as compared to GAAP net income of $0.18 per diluted share in 2012. 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).

The Company ended the second quarter 2013 with $764.1 million of cash resources, which includes $741.2 million of cash, cash equivalents and short-term investments, and $22.9 million of long-term marketable security investments, as compared to $631.3 million, in the aggregate, at the end of the

first quarter 2013. The Company generated $294.0 million of cash from operating activities during the second quarter 2013 and $344.0 million through the first six months of 2013, which compares to $30.6 million and $65.9 million generated during the same periods in 2012. Much of the cash from operating activities relates to working capital changes, in particular accounts payable and inventory. Accounts payable was affected by transitional services provided by Google, following the Motorola Home acquisition. In the third quarter 2013 the Company anticipates decreasing accounts payable and accrued liabilities by approximately $200 million. The Company and Google have settled certain litigation matters for which the Company’s maximum liability is $50 million under the terms of the acquisition agreement. The Company anticipates paying the litigation settlement in the third quarter 2013.

Order backlog at the end of the second quarter 2013 was $534.9 million as compared to $251.9 million and $282.1 million at the end of the second quarter 2012 and the first quarter 2013, respectively. The Company’s book-to-bill ratio in the second quarter 2013 was 0.95 as compared to the second quarter 2012 of 0.93 and the first quarter 2013 of 1.17.

“I am very pleased with our second quarter and first half results. The industry continues to react positively to our Motorola Home acquisition. Our integration plans are well on their way and ahead of schedule.” said Bob Stanzione, ARRIS Chairman and CEO. “I am encouraged by the progress we are making in delivering new products to our customers and by an improving business climate.”

“Our second quarter results were in line with our previously announced revenue guidance and above our Non GAAP EPS guidance, reflecting a strong start to our integration actions,” said David Potts, ARRIS EVP & CFO. “With respect to the third quarter 2013, we now project that revenues for the Company will be in the range of $1,050 to $1,080 million, with adjusted net income per diluted share in the range of $0.32 to $0.37 and GAAP net loss per diluted share in the range of $(0.07) to $(0.12).”

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, August 7, 2013, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4213 or 617-213-4865 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 18982813 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 August 12, 2013 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 24874293. 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 third quarter 2013, 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 third quarter 2013 as well as the general outlook for 2013 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 may encounter difficulties in 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 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 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 March 31, 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)


	June 30,			March 31,			December 31,			September 30,			June 30,
	2013			2013			2012			2012			2012
ASSETS
Current assets:
Cash and cash equivalents	$	610,502		$	423,551		$	131,703		$	188,653		$	199,395
Short-term investments, at fair value		130,723			184,838			398,414			359,753			340,166

Total cash, cash equivalents and short term investments		741,225			608,389			530,117			548,406			539,561

Restricted cash		3,801			4,689			4,722			4,665			3,942
Accounts receivable, net		662,156			206,236			188,581			171,143			179,371
Other receivables		11,007			3,743			350			578			1,414
Inventories, net		320,778			126,530			133,848			137,496			102,361
Prepaid income taxes		38,186			10,703			9,235			8,300			4,090
Prepaids		17,296			13,227			11,682			12,408			12,124
Current deferred income tax assets		127,225			25,927			24,944			20,787			21,972
Other current assets		283,491			13,674			16,413			10,607			12,676

Total current assets		2,205,165			1,013,118			919,892			914,390			877,511

Property, plant and equipment, net		404,157			54,109			54,378			54,593			56,175
Goodwill		807,142			193,976			194,115			194,469			194,626
Intangible assets, net		1,372,196			86,926			94,529			102,258			110,000
Investments		78,733			55,938			86,164			57,483			70,967
Noncurrent deferred income tax assets		12,340			52,410			47,431			49,589			47,228
Other assets		55,476			11,089			9,385			9,913			10,575

	$	4,935,209		$	1,467,566		$	1,405,894		$	1,382,695		$	1,367,082

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	485,291		$	47,783		$	45,719		$	49,061		$	44,800
Accrued compensation, benefits and related taxes		88,382			36,791			29,773			35,066			28,165
Accrued warranty		40,206			2,768			2,882			3,036			2,995
Deferred revenue		80,254			61,431			44,428			50,859			63,023
Current portion of LT debt		289,990			225,368			222,124			—			—
Current income taxes liability		8,887			350			853			—			56
Other accrued liabilities		498,788			59,055			24,942			21,768			23,924

Total current liabilities		1,491,798			433,546			370,721			159,790			162,963
Long-term debt, net of current portion		1,837,952			—			—			218,943			215,823
Accrued pension		60,216			27,200			26,883			26,172			25,696
Accrued severance liability, net of current portion		3,782			4,262			4,119			3,895			3,758
Noncurrent income taxes payable		35,320			30,168			24,389			24,434			26,676
Noncurrent deferred income tax liabilities		190,176			351			351			334			340
Other noncurrent liabilities		48,196			18,836			19,043			20,362			21,039

Total liabilities		3,667,440			514,363			445,506			453,930			456,295

Stockholders’ equity:
Preferred stock		—			—			—			—			—
Common stock		1,726			1,509			1,488			1,479			1,473
Capital in excess of par value		1,657,383			1,292,971			1,285,575			1,270,561			1,259,946
Treasury stock at cost		(306,330	)		(306,330	)		(306,330	)		(306,330	)		(295,960	)
Unrealized gain (loss) on marketable securities		(19	)		288			206			74			211
Unfunded pension liability		(8,558	)		(8,592	)		(8,558	)		(10,231	)		(10,231	)
Accumulated deficit		(76,736	)		(26,459	)		(11,809	)		(26,604	)		(44,468	)
Cumulative translation adjustments		303			(184	)		(184	)		(184	)		(184	)

Total stockholders’ equity		1,267,769			953,203			960,388			928,765			910,787

	$	4,935,209		$	1,467,566		$	1,405,894		$	1,382,695		$	1,367,082

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2013			2012			2013			2012
Net sales	$	1,000,362		$	349,327		$	1,354,012		$	652,227
Cost of sales		769,285			230,801			1,014,409			424,793

Gross margin		231,077			118,526			339,603			227,434

Operating expenses:
Selling, general, and administrative expenses		87,774			40,135			127,900			79,678
Research and development expenses		123,400			42,881			167,482			87,028
Acquisition and other costs		19,392			102			26,582			709
Loss on sale of product line		—			—			—			337
Restructuring charges		32,257			1,039			32,266			6,242
Amortization of intangible assets		58,130			7,444			65,733			14,823

		320,953			91,601			419,963			188,817

Operating income		(89,876	)		26,925			(80,360	)		38,617
Other expense (income):
Interest expense		18,612			4,422			23,243			8,772
Loss (gain) on investments		(728	)		356			(1,293	)		(605	)
Loss on foreign currency		206			540			1,027			1,348
Interest income		(640	)		(729	)		(1,478	)		(1,484	)
Other (income) expense, net		(7,735	)		(226	)		11,681			(662	)

Income (loss) from continuing operations before income taxes		(99,591	)		22,562			(113,540	)		31,248
Income tax expense (benefit)		(49,314	)		7,561			(48,613	)		10,448

Net income (loss)	$	(50,277	)	$	15,001		$	(64,927	)	$	20,800

Net income (loss) per common share:
Basic	$	(0.37	)	$	0.13		$	(0.52	)	$	0.18

Diluted	$	(0.37	)	$	0.13		$	(0.52	)	$	0.18

Weighted average common shares:
Basic		134,626			113,842			124,940			114,457

Diluted		134,626			115,111			124,940			116,352

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2013			2012			2013			2012
Operating Activities:
Net income	$	(50,277	)	$	15,001		$	(64,927	)	$	20,800
Depreciation		15,609			6,982			22,118			14,177
Amortization of intangible assets		58,130			7,444			65,733			14,823
Amortization of deferred finance fees		2,077			160			2,237			320
Non-cash interest expense		3,308			3,058			6,552			6,057
Deferred income tax provision (benefit)		(35,202	)		(5,085	)		(41,197	)		(9,720	)
Stock compensation expense		7,180			7,867			13,924			14,516
Reduction in revenue related to Comcast investment in ARRIS		—			—			13,182			—
Mark-to-market fair value adjustment related to Comcast investment in ARRIS		(6,159	)		—			13,189			—
Provision for doubtful accounts		—			—			—			54
Loss on sale of product line		—			—			—			337
Loss (gain) on disposal of fixed assets		(34	)		3			(38	)		6
Gain on investments		(428	)		356			(992	)		(605	)
Gain on equity investments		(301	)		—			(301	)		—
Excess tax benefits from stock-based compensation plans		(1,111	)		(806	)		(5,770	)		(2,460	)
Changes in operating assets & liabilities, net of effects of acquisitions and disposals:
Accounts receivable		1,141			4,056			(16,514	)		(27,743	)
Other receivables		(3,238	)		3,700			(7,127	)		7,393
Inventory		85,314			2,753			92,632			9,996
Income taxes payable/recoverable		(20,441	)		2,087			(16,633	)		8,452
Accounts payable and accrued liabilities		223,282			(17,262	)		251,296			5,136
Other, net		15,102			279			16,645			4,327

Net cash provided by operating activities		293,952			30,593			344,009			65,866

Investing Activities:
Purchases of investments		(58,021	)		(62,587	)		(58,021	)		(140,353	)
Disposals of investments		113,310			31,253			358,021			83,161
Purchases of property & equipment, net		(15,113	)		(5,494	)		(21,402	)		(9,256	)
Sale of property & equipment		37			—			90			—
Cash paid for acquisition, net of cash acquired		(2,159,762	)		—			(2,159,762	)		—
Sale of product line		—			—			—			3,249

Net cash used in investing activities		(2,119,549	)		(36,828	)		(1,881,074	)		(63,199	)

Financing Activities:
Proceeds from issuance of debt		1,925,000			—			1,925,000			—
Cash paid for debt discount		(9,853	)		—			(9,853	)		—
Payment of debt obligations		(15,813	)		—			(15,813	)		—
Early redemption of long-term debt		(79	)		—			(79	)		—
Deferred financing costs paid		(42,207	)		—			(42,207	)		—
Repurchase of common stock		—			(15,236	)		—			(41,551	)
Excess income tax benefits from stock-based compensation plans		1,111			806			5,770			2,460
Repurchase of shares to satisfy employee tax withholdings		(415	)		(19	)		(12,407	)		(8,052	)
Fees and proceeds from issuance of common stock, net		154,804			4,271			165,453			7,996

Net cash used in financing activities		2,012,548			(10,178	)		2,015,864			(39,147	)

Net increase (decrease) in cash and cash equivalents		186,951			(16,413	)		478,799			(36,480	)
Cash and cash equivalents at beginning of period		423,551			215,808			131,703			235,875

Cash and cash equivalents at end of period	$	610,502		$	199,395		$	610,502		$	199,395

ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION


(in thousands, except per share data)	Q1 2013						Q2 2013						YTD 2013
				Per Diluted						Per Diluted
	Amount			Share			Amount			Share			Amount
Sales	$	353,650					$	1,000,362					$	1,354,012

Highlighted items:
Reduction in revenue related to Comcast investment in ARRIS		13,182						—						13,182
Purchase accounting impacts of deferred revenue		—						2,417						2,417

Sales excluding highlighted items	$	366,832					$	1,002,779					$	1,369,611


	Q1 2013						Q2 2013						YTD 2013
				Per Diluted						Per Diluted						Per Diluted
	Amount			Share			Amount			Share			Amount			Share
Net income (loss)	$	(14,650	)	$	(0.13	)	$	(50,277	)	$	(0.37	)	$	(64,927	)	$	(0.52	)

Highlighted items:
Impacting gross margin:
Reduction in revenue related to Comcast investment in ARRIS		13,182			0.11			—			—			13,182			0.10
Acquisition accounting impacts related to Motorola Home fair value of inventory		—			—			57,600			0.42			57,600			0.45
Product rationalization		—			—			13,582			0.10			13,582			0.11
Stock compensation expense		831			0.01			866			0.01			1,697			0.01
Acquisition accounting impacts related to Motorola Home deferred revenue		—			—			1,472			0.01			1,472			0.01

Impacting operating expenses:
Acquisition costs and other		7,190			0.06			19,392			0.14			26,582			0.21
Restructuring		9			—			32,257			0.24			32,266			0.25
Amortization of intangible assets		7,603			0.06			58,130			0.43			65,733			0.51
Stock compensation expense		5,913			0.05			6,314			0.05			12,227			0.10

Impacting other (income) / expense:
Non-cash interest expense		3,244			0.03			3,308			0.02			6,552			0.05
Credit facility - ticking Fees		388			—			477			—			865			0.01
Mark to market FV adjustment related to Comcast investment in ARRIS		19,348			0.16			(6,159	)		(0.05	)		13,189			0.10

Impacting income tax expense:
Adjustments of income tax valuation allowances and other		(7,516	)		(0.06	)		—			—			(7,516	)		(0.06	)

Tax related to highlighted items above		(5,735	)		(0.05	)		(74,784	)		(0.55	)		(80,520	)		(0.63	)

Total highlighted items		44,457			0.37			112,455			0.82			156,911			1.23

Net income excluding highlighted items	$	29,807		$	0.25		$	62,178		$	0.46		$	91,984		$	0.72

Weighted average common shares - basic					115,150						134,626						124,940

Weighted average common shares - diluted					119,022						136,626						127,731


(in thousands, except per share data)	Q1 2012						Q2 2012						YTD 2012
				Per Diluted						Per Diluted
	Amount			Share			Amount			Share			Amount
Sales	$	302,901					$	349,327					$	652,228

Highlighted items:
Purchase accounting impacts of deferred revenue		1,258			0.01			663			—			1,921

Sales excluding highlighted items	$	304,159					$	349,990					$	654,149


	Q1 2012						Q2 2012						YTD 2012
				Per Diluted						Per Diluted						Per Diluted
	Amount			Share			Amount			Share			Amount			Share
Net income	$	5,799		$	0.05		$	15,001		$	0.13		$	20,800		$	0.18

Highlighted items:
Impacting gross margin:
Acquisition accounting impacts related to Motorola Home deferred revenue		1,258			0.01			663			—			1,921			0.02
Stock compensation expense		750			0.01			809			0.01			1,559			0.01

Impacting operating expenses:
Acquisition costs and other		944			0.01			102			—			1,046			0.01
Restructuring		5,203			0.04			1,039			0.01			6,242			0.05
Amortization of intangible assets		7,379			0.06			7,444			0.05			14,823			0.12
Stock compensation expense		5,899			0.05			7,058			0.05			12,957			0.10

Impacting other (income) / expense:
Non-cash interest expense		2,999			0.03			3,058			0.02			6,057			0.05
Impairment of investment		—			—			466			—			466			—

Tax related to highlighted items above		(8,121	)		(0.07	)		(6,749	)		(0.05	)		(14,870	)		(0.12	)

Total highlighted items		16,311			0.14			13,890			0.12			30,201			0.26

Net income excluding highlighted items	$	22,110		$	0.19		$	28,891		$	0.25		$	51,001		$	0.44

Weighted average common shares - diluted					117,597						115,111						116,514

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. This resulted in an increase in the value of inventory and will result in higher cost of goods sold as it is sold.

Product Rationalization: In conjunction with the integration of Motorola Home, we have identified certain product lines which overlap. In the second quarter 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 purchased shares of ARRIS common stock to fund a portion of the acquisition price. 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 were marked to market and flowed 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 and Integration 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 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 related 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. 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.

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 was funded primarily 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 purchased shares of ARRIS common stock. 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.

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