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8-K - 8-K - ARRIS International plcd180937d8k.htm

Exhibit 99.1

ARRIS Announces Preliminary and Unaudited First Quarter 2016 Results

SUWANEE, Ga., May 4, 2016 – ARRIS International plc (NASDAQ:ARRS) today announced preliminary and unaudited financial results for the first quarter 2016.

First Quarter 2016 Financial Highlights

 

    Revenues were $1,614.7 million

 

    GAAP net income (loss) was $(1.06) per diluted share

 

    Adjusted net income (a non-GAAP measure) was $0.47 per diluted share

 

    End-of-quarter cash resources were $676.2 million

 

    Order backlog was $1,335.1 million

 

    Book-to-bill ratio was 1.24

 

    Repurchased approximately 6.4 million shares for $150 million

“We are off to a good start to 2016. Our first quarter, came in stronger than our non-GAAP guidance and we entered the second quarter with positive momentum. With respect to the second quarter 2016, we expect revenues will be in the range of $1,675 million to $1,725 million, with adjusted net income per diluted share in the range of $0.65 to $0.70 and GAAP net income per diluted share in the range of $0.09 to $0.14. We are increasingly confident that we are on track to meet the full year targets we laid out at our recent Investor Day,” said Bob Stanzione, ARRIS Chairman and CEO.

On January 4, 2016 the Company completed the acquisition of Pace plc (the “Combination”) and, as a result, comparisons to prior periods are materially affected. First quarter 2016 results include several acquisition related items that significantly impact GAAP earnings and cash flow.

Revenues in the first quarter 2016 of $1,614.7 million were up $399.5 million, or 33%, as compared to first quarter 2015 revenues of $1,215.2 million. First quarter revenues were also up $513 million, or 47%, as compared to fourth quarter 2015 revenues of $1,101.7 million.

GAAP net income (loss) in the first quarter 2016 was $(1.06) per diluted share, which includes the impact of various items related to the Combination: 1) withholding tax of $55 million, 2) restructuring costs of $51 million, 3) integration/other deal costs of $40 million, and 4) the impact of revaluing Pace’s inventory from historical cost to fair market value as required in purchase accounting of $30 million. First quarter 2015 GAAP net income was $0.13 per diluted share and fourth quarter 2015 GAAP net income was $0.20 per diluted share.

Adjusted net income (a non-GAAP measure) in the first quarter 2016 was $0.47 per diluted share, as compared to $0.44 per diluted share for the first quarter 2015, and the fourth quarter 2015 adjusted net income of $0.62 per diluted share.

A reconciliation of adjusted net income per diluted share to GAAP net income per diluted share is attached to this release and also can be found on the Company’s website (www.arris.com).

Cash & Cash Equivalents - The Company borrowed $800 million in the quarter to complete the Combination using $639 million to satisfy the cash portion of the purchase price and retiring $240 million of Pace debt. At close, $298 million of cash was acquired as part of the Combination. $225 million of cash was used for operating activities during the first quarter 2016, primarily the result of reducing the acquired accounts payable from Pace. The Company ended the first quarter 2016 with $676 million of cash resources, while down $203 million from the end of the fourth quarter 2015, the reduction included the repurchase of 6.4 million ordinary shares for $150 million.

Order backlog at the end of the first quarter 2016 was $1,335.1 million as compared to $725.7 million and $715.8 million at the end of the first quarter 2015 and the fourth quarter 2015, respectively. The Company’s book-to-bill ratio in the first quarter 2016 was 1.24 as compared to the first quarter 2015 of 1.08 and the fourth quarter 2015 of 1.14.

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, May 4, 2016, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4209 or 617-213-4863 for international calls prior to the start of the call and providing the ARRIS International plc name, conference pass code 11922388 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 11, 2016, by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 24260601. A replay also will be made available for a period of 12 months following the conference call on ARRIS’ website at www.arris.com.


Forward-Looking Statements

Statements made in this press release, including those related to:

 

    revenues and net income for the second quarter 2016, and beyond;

 

    integration of the recently acquired Pace 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 second quarter and full year 2016, as well as the general outlook for 2016 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;

 

    the strengthening U.S. Dollar may adversely impact our international customer’s ability or willingness to purchase products and the pricing of our products;

 

    we may fail to realize the expected benefits of the recently completed Pace acquisition and may incur significant additional transaction costs and/or unknown liabilities;

 

    regulatory changes, including those related to tax, could have an adverse impact on our operations and results of operations;

 

    our 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 we offer;

 

    because the market in which we operate 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; and

 

    announced and recently completed transactions within our customer base, including the proposed acquisition of Cablevision by Altice, and the announced acquisition of Time Warner by Charter, may have an impact on the amount and/or timing of customer’s spending.

In addition to the factors set forth elsewhere in this release, other factors that could cause results to differ from current expectations include: rights to intellectual property, including related litigation; the impact of rapidly changing technologies; market trends and the adoption of industry standards. 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 the Company’s reports filed with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2015. 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.

About ARRIS

ARRIS International plc (NASDAQ: ARRS) is a world leader in entertainment and communications technology. Our innovations combine hardware, software, and services across the cloud, network, and home to power TV and Internet for millions of people around the globe. The people of ARRIS collaborate with the world’s top service providers, content providers, and retailers to advance the state of our industry and pioneer tomorrow’s connected world. For more information, visit www.arris.com.

For the latest ARRIS news:

 

    Check out our blog: ARRIS EVERYWHERE

 

    Follow us on Twitter: @ARRIS

###

Contact:

Bob Puccini

Investor Relations

+1.720.895.7787

ARRIS and the ARRIS Logo are trademarks or registered trademarks of ARRIS Enterprises, LLC. All other trademarks are the property of their respective owners. © ARRIS Enterprises, LLC. 2016. All rights reserved.


ARRIS INTERNATIONAL PLC

PRELIMINARY CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 

     March 31,
2016
    December 31,
2015
    September 30,
2015
    June 30,
2015
    March 31,
2015
 

ASSETS

          

Current assets:

          

Cash and cash equivalents

   $ 659,181      $ 863,582      $ 673,346      $ 490,939      $ 499,482   

Short-term investments, at fair value

     17,069        15,470        107,777        128,852        129,073   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cash, cash equivalents and short term investments

     676,250        879,052        781,123        619,791        628,555   

Accounts receivable, net

     972,540        651,893        647,726        785,869        819,918   

Other receivables

     31,868        12,233        8,684        11,268        15,054   

Inventories, net

     662,287        401,592        367,536        389,556        372,379   

Prepaid income taxes

     22,349        25,624        29,071        26,413        13,380   

Prepaids

     37,285        19,319        26,430        36,746        31,814   

Current deferred income tax assets

     —          —          104,345        105,384        115,926   

Other current assets

     123,858        120,490        148,385        102,987        73,842   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     2,526,437        2,110,203        2,113,300        2,078,014        2,070,868   

Property, plant and equipment, net

     369,255        312,311        319,443        324,154        325,727   

Goodwill

     2,068,274        1,013,963        1,016,696        1,017,430        938,645   

Intangible assets, net

     2,036,791        810,448        868,054        923,837        919,876   

Investments

     72,115        69,542        74,924        75,381        76,492   

Noncurrent deferred income tax assets

     221,315        185,439        70,557        87,291        88,366   

Other assets

     18,849        21,610        26,843        27,842        28,185   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 7,313,036      $ 4,523,516      $ 4,489,817      $ 4,533,949      $ 4,448,159   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

          

Current liabilities:

          

Accounts payable

   $ 818,494      $ 514,877      $ 558,371      $ 608,133      $ 594,690   

Accrued compensation, benefits and related taxes

     97,346        111,389        97,326        78,333        75,849   

Accrued warranty

     58,812        27,630        35,488        29,176        36,824   

Deferred revenue

     144,603        137,606        97,490        107,632        107,230   

Current portion of LT debt & financing lease obligations

     94,119        43,591        43,506        43,446        75,685   

Current income taxes liability

     65,543        8,368        13,139        9,587        13,092   

Other accrued liabilities

     248,812        169,169        168,870        155,482        167,430   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     1,527,729        1,012,630        1,014,190        1,031,789        1,070,800   

Long-term debt & financing lease obligations, net of current portion

     2,242,071        1,496,243        1,507,172        1,518,063        1,487,547   

Accrued pension

     55,287        64,052        67,570        68,865        68,060   

Noncurrent income taxes payable

     68,974        42,197        38,145        43,586        42,282   

Noncurrent deferred income tax liabilities

     385,690        503        329        332        412   

Other noncurrent liabilities

     126,330        66,930        71,560        92,544        90,428   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     4,406,081        2,682,555        2,698,966        2,755,179        2,759,530   

Stockholders’ equity:

          

Ordinary shares

     2,824        —          —          —          —     

Common stock

     —          1,790        1,819        1,814        1,811   

Capital in excess of par value

     3,204,853        1,777,276        1,762,111        1,765,804        1,745,345   

Treasury stock at cost

     —          (331,329     (331,329     (331,331     (331,331

Accumulated other comprehensive loss

     (20,476     (12,646     (20,236     (12,664     (12,966

Retained earnings

     (324,667     358,823        328,782        302,525        285,768   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ARRIS Group Inc. stockholders’ equity

     2,862,534        1,793,914        1,741,147        1,726,150        1,688,629   

Stockholders’ equity attributable to noncontrolling interest

     44,421        47,047        49,704        52,620        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     2,906,955        1,840,961        1,790,851        1,778,770        1,688,629   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 7,313,036      $ 4,523,516      $ 4,489,817      $ 4,533,949      $ 4,448,159   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


ARRIS INTERNATIONAL PLC

PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

     For the Three Months
Ended March 31,
 
     2016     2015  

Net sales

     $1,614,705      $ 1,215,158   

Cost of sales

     1,230,801        878,602   
  

 

 

   

 

 

 

Gross margin

     383,904        336,556   

Operating expenses:

    

Selling, general, and administrative expenses

     120,158        100,324   

Research and development expenses

     161,488        132,469   

Amortization of intangible assets

     98,493        57,147   

Integration, acquisition, and restructuring costs

     90,919        898   
  

 

 

   

 

 

 
     471,058        290,838   
  

 

 

   

 

 

 

Operating (loss) income

     (87,154     45,718   

Other expense (income):

    

Interest expense

     19,626        13,367   

Loss on investments

     1,959        1,709   

Loss on foreign currency

     12,241        20   

Interest income

     (783     (721

Other (income) expense, net

     (1,014     7,063   
  

 

 

   

 

 

 

(Loss) income before income taxes

     (119,183     24,281   

Income tax expense

     86,013        5,154   
  

 

 

   

 

 

 

Consolidated net (loss) income

     (205,196     19,127   

Net loss attributable to noncontrolling interests

     (2,623     —     
  

 

 

   

 

 

 

Net (loss) income attributable to ARRIS International plc

     ($202,573     $19,127   
  

 

 

   

 

 

 

Net (loss) income per common share (1):

    

Basic

     $(1.06     $0.13   
  

 

 

   

 

 

 

Diluted

     $(1.06     $0.13   
  

 

 

   

 

 

 

Weighted average common shares:

    

Basic

     191,743        145,350   
  

 

 

   

 

 

 

Diluted

     191,743        148,986   
  

 

 

   

 

 

 

 

(1) Calculated based on net income attributable to shareowners of ARRIS International plc


ARRIS INTERNATIONAL PLC

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     For the Three Months
Ended March 31,
 
     2016     2015  

Operating Activities:

    

Consolidated net (loss) income

   $ (205,196   $ 19,126   

Depreciation

     23,871        19,884   

Amortization of intangible assets

     99,766        57,852   

Amortization of deferred finance fees and debt discount

     1,787        2,181   

Deferred income tax provision (benefit)

     (36,913     (18,189

Stock compensation expense

     14,276        13,974   

Provision for doubtful accounts

     845        267   

(Gain) loss on disposal of fixed assets

     (16     5,877   

Loss on investments

     1,959        1,709   

Excess tax benefits from stock-based compensation plans

     (2,354     (16,437

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

    

Accounts receivable

     130,461        (221,582

Other receivables

     13,261        (6,995

Inventory

     166,177        28,786   

Income taxes payable/recoverable

     72,959        (1,409

Accounts payable and accrued liabilities

     (535,651     55,950   

Prepaids and other, net

     29,929        (4,257
  

 

 

   

 

 

 

Net cash used in operating activities

     (224,839     (63,263

Investing Activities:

    

Purchases of investments

     (4,778     (11,063

Sales of investments

     2,093        10,169   

Purchases of property, plant & equipment, net

     (9,140     (10,919

Proceeds from sale-leaseback transaction

     —          24,960   

Acquisition, net of cash acquired

     (340,118     —     

Purchases of intangible assets

     (1,310     (34,340

Other, net

     2,932        2,904   
  

 

 

   

 

 

 

Net cash used in investing activities

     (350,321     (18,289

Financing Activities:

    

Proceeds from issuance of debt

     800,000        —     

Proceeds from sale-leaseback financing transaction

     —          58,729   

Repayment of accounts receivable financing facility

     (12,042  

Payment of financing lease obligation

     (164     —     

Payment of debt obligations

     (252,625     (13,750

Repurchase of shares

     (150,003     (24,999

Excess income tax benefits from stock-based compensation plans

     2,354        16,437   

Repurchase of shares to satisfy employee minimum tax withholdings

     (14,045     (21,194

Fees and proceeds from issuance of shares, net

     (2,716     21   
  

 

 

   

 

 

 

Net cash provided by financing activities

     370,759        15,244   

Net decrease in cash and cash equivalents

     (204,401     (66,308

Cash and cash equivalents at beginning of period

     863,582        565,790   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 659,181      $ 499,482   
  

 

 

   

 

 

 


ARRIS INTERNATIONAL PLC

PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION

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

 

(in thousands, except per share data)    Q1 2015     Q4 2015     Q1 2016  
     Amount     Per Diluted
Share
    Amount     Per Diluted
Share
    Amount     Per Diluted
Share
 

Net income (loss) attributable to ARRIS International plc

   $ 19,127      $ 0.13      $ 30,041        0.20      $ (202,573   $ (1.06

Highlighted items:

            

Impacting gross margin:

            

Stock compensation expense

     1,791        0.01        2,219        0.01        2,239        0.01   

Acquisition accounting impacts related to inventory valuation

     —          —          —          —          30,292        0.16   

Impacting operating expenses:

            

Integration, acquisition and restructuring costs

     898        0.01        8,281        0.06        90,919        0.47   

Amortization of intangible assets

     57,147        0.38        56,377        0.38        98,493        0.51   

Stock compensation expense

     12,183        0.08        15,443        0.10        12,037        0.06   

Noncontrolling interest share of Non-GAAP adjustments

     —          —          (1,357     (0.01     (776     —     

Impacting other (income) / expense:

            

Recovery on previously impaired investment

     —          —          (159     —          —          —     

Debt amendment fees

     —          —          291        —          —          —     

Credit facility - ticking fees

     —          —          1,022        0.01        —          —     

Foreign exchange contract losses related to cash consideration of Pace acquisition

     —          —          13,699        0.09        1,610        0.01   

Loss on sale of building

     5,142        0.03          —          —          —     

Impacting income tax expense:

            

Foreign withholding tax

     —          —          —          —          54,741        0.28   

Net tax items

     (30,533     (0.20     (32,363     (0.22     3,417        0.02   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total highlighted items

     46,628        0.31        63,453        0.42        292,972        1.51   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income excluding highlighted items

   $ 65,755      $ 0.44      $ 93,494      $ 0.62      $ 90,399      $ 0.47   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares - basic

       145,350          147,109          191,743   
    

 

 

     

 

 

     

 

 

 

Weighted average common shares - diluted

       148,986          149,842          193,591   
    

 

 

     

 

 

     

 

 

 


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:

Stock-Based Compensation Expense: We have excluded the effect of stock-based compensation expenses in calculating our non-GAAP operating expenses and net income (loss) 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 restricted stock units. 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 Accounting Impacts Related to Inventory Valuation: In connection with the accounting related to our acquisition, business combinations rules require the inventory be recorded at fair value on the opening balance sheet. This is different from historical cost. Essentially we are required to write the inventory up to end customer price less a reasonable margin as a distributor. We have excluded the resulting adjustments in inventory and cost of goods sold.

Integration, Acquisition and Restructuring 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 (loss) measures. We incurred expenses in connection with the ActiveVideo and the Pace acquisition, 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 consists of employee severance and abandoned facilities. 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 (loss) 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.

Noncontrolling Interest share of Non-GAAP Adjustments: The joint venture formed with Charter for the ActiveVideo is accounted for by ARRIS under the consolidation method. As a result, the consolidated statement of operations include the revenues, expenses, and gains and losses of the noncontrolling interest. The amount of net income (loss) related to the noncontrolling interest are reported and presented separately in the consolidated statement of operations. We have excluded the noncontrolling share of any non GAAP adjusted measures recorded by the joint venture, as we believe it is useful to understand the effect of excluding this item when evaluating our ongoing performance.

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).

Debt Amendment Fees: In 2015, the Company amended its credit agreement. This debt modification allowed us to improve the terms and conditions of the credit agreement, extend the maturities of certain loan facilities, increase the amount of the revolving credit facility, and add a new term A-1 loan facility. We have excluded the effect of the associated fees in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of this item in our other expense (income).

Credit Facility - Ticking Fees: In connection with our acquisition of Pace, the cash portion of the consideration was 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 item in our other expense (income).

Loss on Sale of Building: In the first quarter of 2015, the Company sold land and a building that qualified for sale-leaseback accounting and was classified as an operating lease. A loss has been recorded on the sale. We have excluded the effect of the loss on sale of property in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of excluding this item when evaluating our ongoing performance.

Foreign Withholding Tax: In connection with our acquisition of Pace, ARRIS US Holdings, Inc. transferred shares of its subsidiary ARRIS Financing II Sarl to ARRIS International plc. Under U.S. tax law, based on the best available information, we believe the transfer constituted a deemed distribution from ARRIS U.S. Holdings Inc. to ARRIS International plc that is treated as a dividend for U.S. tax purposes. A deemed dividend of this type is subject to U.S. withholding tax to the extent of the current and accumulated earnings and profits (as computed for tax purposes) (“E&P”) of ARRIS U.S. Holdings Inc., which include the E&P of the former ARRIS Group, Inc. and subsidiaries through December 31, 2016. Accordingly, ARRIS U.S. Holdings Inc. remitted U.S. withholding tax in the amount of $55 million based upon its estimated E&P of $1.1 billion and the U.S. dividend withholding tax rate of 5 percent (as provided in Article 10 (Dividends) of the United Kingdom-United States Tax Treaty). We have excluded the withholding tax in calculating our non-GAAP financial measures.

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 tax and legal restructuring, state valuation allowances, research and development tax credits and provision to return differences.