ARRIS Announces Preliminary And Unaudited Fourth Quarter And Full Year 2012 Results

SUWANEE, Ga., Feb. 6, 2013 /PRNewswire/ -- ARRIS Group, Inc. (NASDAQ: ARRS), today announced preliminary and unaudited financial results for the fourth quarter and full year 2012.

Revenues in the fourth quarter 2012 were $344.0 million as compared to fourth quarter 2011 revenues of $281.1 million and as compared to third quarter 2012 revenues of $357.5 million.  Full year 2012 and 2011 revenues were $1,353.7 million and $1,088.7 million, respectively. 

Adjusted net income (a non-GAAP measure) in the fourth quarter 2012 was $0.28 per diluted share, compared to $0.21 per diluted share for the fourth quarter 2011 and $0.22 per diluted share for the third quarter 2012.  Adjusted net income was $0.93 per diluted share for the full year 2012 and compares to $0.81 per diluted share for the full year 2011.

GAAP net income in the fourth quarter 2012 was $0.13 per diluted share, as compared to fourth quarter 2011 GAAP net loss of $(0.51) per diluted share and third quarter 2012 GAAP net income of $0.15 per diluted share. Full year 2012 GAAP net income was $0.46 per diluted share as compared to GAAP net loss of $(0.15) per diluted share in full year 2011.  Significant GAAP items that have been adjusted in computing adjusted net income and adjusted net income per diluted share include: acquisition accounting impacts related to acquired deferred revenue; amortization of intangible assets; long-term investment impairment; loss on the sale of a product line; early pension settlement costs; equity compensation; non-cash interest expense; acquisition and 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 can also be found on the Company's website (www.arrisi.com).

Gross margin for the fourth quarter 2012 was 35.8%, which compares to the fourth quarter 2011 gross margin of 37.9% and the third quarter 2012 gross margin of 31.3%.

The Company ended the fourth quarter of 2012 with $584.0 million of cash resources, which includes $530.1 million of cash, cash equivalents and short-term investments, and $53.9 million of long-term marketable security investments, as compared to $571.2 million, in the aggregate, at the end of the third quarter of 2012.  During 2012 the Company repurchased approximately 4.5 million of its shares for $51.9 million.  The Company generated $11.8 million of cash from operating activities during the fourth quarter 2012 and $84.4 million during the full year 2012, which compares to $60.9 million and $113.2 million, respectively, during the same periods in 2011.

Order backlog at the end of the fourth quarter 2012 was $222.6 million as compared to $148.5 million and $185.8 million at the end of the fourth quarter 2011 and the third quarter 2012, respectively. The Company's book-to-bill ratio in the fourth quarter 2012 was 1.11 as compared to the fourth quarter 2011 of 0.98 and the third quarter 2012 of 0.82.

"I am delighted with our overall 2012 results.  The past year has delivered a 24% year over year improvement in revenue and a 15% increase in our non-GAAP EPS.  Our R&D investments have allowed us to bring a number of new, well received, products to market," said Bob Stanzione, ARRIS Chairman and CEO.  "Work on the previously announced acquisition of the Motorola Home business is progressing and I am very excited about our prospects resulting from the combination." 

"2012 was a strong year for ARRIS.  We continued to execute on our strategy, which has resulted in improved performance," said David Potts, ARRIS EVP & CFO.  "With respect to the first quarter 2013, we now project that adjusted non-GAAP revenues for the Company will be in the range of $350 to $370 million, which excludes a $13 million non-cash accounting impact associated with the planned investment in ARRIS by Comcast as part of the pending Motorola Home acquisition.  As a result, GAAP revenues are expected to be in the range of $337 to $357 million.  We project that adjusted (non-GAAP) net income per diluted share will be in the  range of $0.22 to $0.26 and GAAP net income per diluted share in the range of $0.02 to $0.06, reflecting a higher mix of our CPE product line, as compared to the fourth quarter 2012.  The EPS guidance excludes any mark-to-market fair value adjustments related to the Comcast investment."

ARRIS management will conduct a conference call at 5:00 pm EST, today, Wednesday, February 6, 2013, to discuss these results in detail. You may participate in this conference call by dialing (888) 713-4215 or (617) 213-4867 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 61284341, and Bob Puccini as the moderator. Please note that ARRIS will not accept any calls related to this earnings release until after the conclusion of the conference call. A replay of the conference call can be accessed approximately two hours after the call through February 13, 2013 by dialing (888) 286-8010 or (617) 801-6888 and using the pass code 43355976. 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 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, GA, USA, ARRIS has R&D centers in Suwanee, GA; Beaverton, OR; Lisle, IL; Kirkland, WA; State College, PA; Tel Aviv, Israel; 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;
  • completion of the Motorola Home business acquisition;
  • revenues and net income for the first 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 first 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;
  • ARRIS' completion of the Motorola Home acquisition is subject to satisfaction of a number of conditions outside of its control, including receipt of necessary regulatory approvals; 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; 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, 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)

























December 31,


September 30,


June 30,


March 31,


December 31,



2012


2012


2012


2012


2011












ASSETS






















Current assets:











Cash and cash equivalents


$       131,703


$       188,653


$       199,395


$       215,808


$       235,875

Short-term investments, at fair value


398,414


359,753


340,166


298,539


282,904

Total cash, cash equivalents and short term investments

530,117


548,406


539,561


514,347


518,779












Restricted cash


4,722


4,665


3,942


3,943


4,101

Accounts receivable, net


188,581


171,143


179,371


183,427


152,437

Other receivables 


350


578


1,414


5,071


8,789

Inventories, net


133,848


137,496


102,361


105,114


115,912

Prepaids


11,682


12,408


12,124


12,436


10,408

Current deferred income tax assets


24,944


20,787


21,972


22,068


22,048

Other current assets


25,648


18,907


16,766


16,792


27,071

Total current assets


919,892


914,390


877,511


863,198


859,545












Property, plant and equipment, net 


54,378


54,593


56,175


57,810


61,375

Goodwill


194,115


194,469


194,626


195,268


194,542

Intangible assets, net


94,529


102,258


110,000


117,444


124,823

Investments


86,164


57,483


70,967


82,968


71,095

Noncurrent deferred income tax assets


47,431


49,589


47,228


42,106


38,433

Other assets


9,385


9,913


10,575


11,699


10,997



$     1,405,894


$     1,382,695


$     1,367,082


$     1,370,493


$     1,360,810























LIABILITIES AND STOCKHOLDERS' EQUITY






















Current liabilities:











Accounts payable


$         45,719


$         49,061


$         44,800


$         54,576


$         40,671

Accrued compensation, benefits and related taxes


29,773


35,066


28,165


31,081


36,764

Accrued warranty


2,882


3,036


2,995


3,094


3,350

Deferred revenue


44,428


50,859


63,023


60,129


43,746

Current portion of LT debt


222,124


-


-


-


-

Other accrued liabilities


25,795


21,768


23,980


31,054


33,325

Total current liabilities


370,721


159,790


162,963


179,934


157,856

Long-term debt, net of current portion


-


218,943


215,823


212,765


209,766

Accrued pension


26,883


26,172


25,696


25,739


25,260

Accrued severance liability, net of current portion


4,119


3,895


3,758


3,884


4,191

Noncurrent income taxes payable


24,389


24,434


26,676


26,676


24,450

Noncurrent deferred income tax liabilities


351


334


340


352


337

Other noncurrent liabilities


19,043


20,362


21,039


22,372


22,745

Total liabilities


445,506


453,930


456,295


471,722


444,605












Stockholders' equity:











Preferred stock


-


-


-


-


-

Common stock


1,488


1,479


1,473


1,467


1,449

Capital in excess of par value


1,285,575


1,270,561


1,259,946


1,247,763


1,245,115

Treasury stock at cost


(306,330)


(306,330)


(295,960)


(280,724)


(254,409)

Unrealized gain (loss) on marketable securities


206


74


211


149


(267)

Unfunded pension liability


(8,558)


(10,231)


(10,231)


(10,231)


(10,231)

Accumulated deficit


(11,809)


(26,604)


(44,468)


(59,469)


(65,268)

Cumulative translation adjustments


(184)


(184)


(184)


(184)


(184)

Total stockholders' equity


960,388


928,765


910,787


898,771


916,205



$     1,405,894


$     1,382,695


$     1,367,082


$     1,370,493


$     1,360,810












 

 









 ARRIS GROUP, INC.

 PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)










For the Three Months


For the Twelve Months


Ended December 31,


Ended December 31,


2012


2011


2012


2011









Net sales

$   344,003


$    281,076


$1,353,663


$1,088,685

Cost of sales

220,812


174,531


891,086


678,172

Gross margin

123,191


106,545


462,577


410,513









Operating expenses:








Selling, general, and administrative expenses

43,794


40,829


161,338


148,755

Research and development expenses

40,700


37,785


170,706


146,519

Acquisition costs

5,131


2,730


5,870


3,205

Loss on sale of product line

-


-


337


-

Restructuring charges

306


3,391


6,761


4,360

Impairment of goodwill & intangibles

-


88,633


-


88,633

Amortization of intangible assets

7,729


6,817


30,294


33,649


97,660


180,185


375,306


425,121

Operating income 

25,531


(73,640)


87,271


(14,608)

Other expense (income):








Interest expense

4,546


4,258


17,797


16,939

Loss (gain) on investments

78


2,074


(1,405)


1,570

Loss (gain) on foreign currency

(131)


(705)


786


(580)

Interest income

(993)


(715)


(3,241)


(3,154)

Loss on debt redemption

-


-


-


19

Other (income) expense, net

(171)


(211)


(962)


(891)

Income (loss) from continuing operations before income taxes

22,202


(78,341)


74,296


(28,511)

Income tax expense (benefit)

7,407


(18,712)


20,837


(10,849)

Net income 

$     14,795


$    (59,629)


$     53,459


$    (17,662)









Net income (loss) per common share:








Basic

$        0.13


$        (0.51)


$        0.47


$       (0.15)

Diluted

$        0.13


$        (0.51)


$        0.46


$       (0.15)









Weighted average common shares:








Basic

114,028


117,316


114,161


120,157

Diluted

117,013


117,316


116,514


120,157









 

 

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)






For the Three Months


For the Twelve Months






Ended December 31,


Ended December 31,






2012


2011


2012


2011













Operating Activities:










Net income (loss)


$         14,795


$        (59,629)


$       53,459


$      (17,662)



Depreciation


6,988


6,589


27,953


24,139



Amortization of intangible assets


7,729


6,817


30,294


33,649



Amortization of deferred finance fees


160


160


639


647



Impairment of goodwill & intangibles


-


88,633


-


88,633



Non-cash interest expense


3,181


2,941


12,358


11,545



Deferred income tax provision (benefit)


(3,085)


3,343


(13,989)


(12,144)



Deferred income tax related to goodwill & intangible impairment

-


(25,584)


-


(25,584)



Stock compensation expense


6,712


5,108


27,906


22,055



Provision for doubtful accounts


186


201


240


200



Loss on debt retirement


-


-


-


19



Loss on sale of product line


-


-


337


-



Loss on disposal of fixed assets


42


10


82


16



Loss (gain) on investments


78


2,074


(1,404)


1,570



Excess tax benefits from stock-based compensation plans

(935)


(679)


(3,549)


(3,668)


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











Accounts receivable


(17,624)


17,794


(37,139)


(22,093)



Other receivables


211


(1,618)


8,398


(1,635)



Inventory


3,648


7,862


(21,491)


(7,144)



Accounts payable and accrued liabilities


(8,289)


6,765


(5,675)


433



Other, net


(2,004)


95


5,982


20,177




Net cash provided by operating activities


11,793


60,882


84,401


113,153













Investing Activities:










Purchases of investments


(180,582)


(49,833)


(415,930)


(277,937)


Sales of investments


110,928


36,547


282,987


296,774


Purchases of property & equipment


(6,987)


(4,359)


(21,507)


(23,307)


Sale of property & equipment


126


14


139


84


Acquisition, net of cash acquired (1)


-


(130,227)


-


(130,227)


Sale of product line


-


-


3,249


-




Net cash used in investing activities


(76,515)


(147,858)


(151,062)


(134,613)













Financing Activities:










Early redemption of convertible notes


-


-


-


(4,984)


Repurchase of common stock


-


(34,375)


(51,921)


(109,123)


Excess income tax benefits from stock-based compensation plans

935


679


3,549


3,668


Repurchase of shares to satisfy employee tax withholdings


(1,259)


(72)


(9,443)


(8,332)


Fees and proceeds from issuance of common stock, net


8,096


1,960


20,304


22,985




Net cash provided by (used in) financing activities


7,772


(31,808)


(37,511)


(95,786)




Net increase (decrease) in cash and cash equivalents

(56,950)


(118,784)


(104,172)


(117,246)

Cash and cash equivalents at beginning of period


188,653


354,659


235,875


353,121

Cash and cash equivalents at end of period


$       131,703


$       235,875


$      131,703


$      235,875



























(1)

Excludes $77,074 thousand of short and long-term investments acquired from BigBand in 2011
















 

 



















ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION

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




















(in thousands, except per share data)

Q4 2012


YTD 2012


Q4 2011


YTD 2011






















Amount




Amount




Amount




Amount





Sales 

$  344,003




$ 1,353,663




$  281,076




$   1,088,685























Highlighted items:


















Purchase accounting impacts of deferred revenue

432




3,412




4,332




4,332





Sales excluding highlighted items

$  344,435




$ 1,357,075




$  285,408




$   1,093,017










































Q4 2012


YTD 2012


Q4 2011


YTD 2011






Per Diluted




Per Diluted




Per Diluted




Per Diluted




Amount


Share


Amount


Share


Amount


Share


Amount


Share



Net income (loss)

$    14,795


0.13


$      53,459


$           0.46


$   (59,629)


$          (0.51)


$      (17,662)


$          (0.15)





















Highlighted items:


















Impacting gross margin:


















Purchase accounting impacts of deferred revenue

432


-


2,899


0.02


3,126


0.03


3,126


0.03



Stock compensation expense

802


0.01


3,169


0.03


521


-


2,040


0.02





















Impacting operating expenses:


















Acquisition costs

5,131


0.04


5,870


0.05


2,730


0.02


3,205


0.03



Restructuring

306


-


6,761


0.06


3,391


0.03


4,360


0.04



Amortization of intangible assets

7,729


0.07


30,294


0.26


6,817


0.06


33,649


0.27



Goodwill and intangibles impairment

-


-


-


-


88,633


0.74


88,633


0.72



Loss of sale of product line

-


-


337


-


-


-


-


-



Settlement charge - pension

3,064


0.03


3,064


0.03


-


-


-


-



Stock compensation expense

5,910


0.05


24,737


0.21


4,586


0.04


20,014


0.16





















Impacting other (income) / expense:


















Non-cash interest expense

3,181


0.03


12,358


0.11


2,941


0.02


11,545


0.09



Impairment of investment

67


-


533


-


3,000


0.03


3,000


0.02



Loss on retirement of debt

-


-


-


-


-


-


19


-





















Impacting income tax expense:


















Adjustments of income tax valuation allowances and other

(475)


-


(4,658)


(0.04)


3,032


0.03


(2,885)


(0.02)



Tax impact related to goodwill and intangibles impairment

-


-


-


-


(25,584)


(0.21)


(25,584)


(0.21)



Tax related to highlighted items above

(8,724)


(0.07)


(29,957)


(0.26)


(8,553)


(0.07)


(23,757)


(0.19)





















Total highlighted items

17,423


0.15


55,407


0.48


84,640


0.71


117,365


0.96



Net income excluding highlighted items(1)

$    32,218


$           0.28


$    108,866


$           0.93


$    25,011


$           0.21


$       99,703


$           0.81





















Weighted average common shares - basic



114,028




114,161




117,316




120,157



Weighted average common shares - diluted



117,013




116,514




119,609




122,555







































See Notes to GAAP and Adjust Non-GAAP Financial Measures


































(1)

Although net income for 2011 is a loss, dilutive shares are used for purposes of this calculation per share as earnings excluding highlighted items is net income. 






































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:

Purchase 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. 

Implied Fair Value of Benefit Received by Comcast of Planned Investment in ARRIS:  In connection with our pending 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 planned 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.

Impairment of Goodwill and Intangibles: We have excluded the effect of the estimated impairment of goodwill and intangible assets in calculating our non-GAAP operating expenses and net income (loss) measures. Although an impairment does not directly impact the Company's current cash position, such expense represents the declining value of the technology and other intangibles assets that were acquired. We exclude these impairments when significant and they are  not reflective of ongoing business and operating results.

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). 

Loss (Gain) on Retirement of Debt:  We have excluded the effect of the loss (gain) on retirement of debt in calculating our non-GAAP financial measures.  We believe it is useful for investors to understand the effect of this non-cash item in our 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.

SOURCE ARRIS Group, Inc.



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