ARRIS Announces Preliminary And Unaudited Fourth Quarter And Full Year 2014 Results

News provided by

ARRIS Group, Inc.

Feb 18, 2015, 04:01 ET

SUWANEE, Ga., Feb. 18, 2015 /PRNewswire/ -- ARRIS Group, Inc. (NASDAQ:ARRS) today announced preliminary and unaudited financial results for the fourth quarter and full year 2014.

Comparisons to prior periods may not be meaningful as a result of the Company's acquisition of Motorola Home, which closed on April 17, 2013.

Fourth Quarter 2014 Financial Highlights

  • Revenues were $1,263.4 million
  • Adjusted net income (a non-GAAP measure) was $0.78 per diluted share which includes a $0.12 per diluted share benefit related to research & development tax credits
  • GAAP net income was $1.29 per diluted share
  • The Company ended 2014 with $697.4 million of cash resources
  • Order backlog was $631.0 million
  • The Company's book-to-bill ratio  was 1.03
  • The Company recorded an additional $127 million of tax benefits related to the Motorola Home acquisition

"2014 was an outstanding year for ARRIS. We grew our revenues to over $5.3B, introduced several key products, made significant market share gains, and achieved important design wins scheduled for launch later in 2015.  I look forward to increasing momentum in 2015 as the year progresses and the pending industry transactions are completed." said Bob Stanzione, ARRIS Chairman and CEO.

"We posted strong fourth quarter and 2014 results.  We generated significant cash flow in the year, reduced leverage under our credit agreement to below 2x and enter 2015 with a strong balance sheet." said David Potts, ARRIS EVP & CFO.  "With respect to the first quarter 2015, we now project that revenues for the Company will be in the range of $1,200 to $1,240 million, with adjusted net income per diluted share in the range of $0.40 to $0.45 and GAAP net income per diluted share in the range of $0.08 to $0.13.  Our business in the first quarter is being impacted by anticipated reductions in volume, product mix, and price reductions implemented at the beginning of the year."

Revenues in the fourth quarter 2014 were $1,263.4 million as compared to fourth quarter 2013 revenues of $1,199.1 million. Third quarter 2014 revenues were $1,405.4 million.    

For the full year 2014 and 2013, revenues were $5,322.9 million and $3,620.9 million, respectively.  2013 revenues include the revenues of Motorola Home following the closing of the acquisition on April 17, 2013. 

Adjusted net income (a non-GAAP measure) in the fourth quarter 2014 was $0.78 per diluted share, compared to $0.54 per diluted share for the fourth quarter 2013.  Adjusted net income (a non-GAAP measure) for the third quarter 2014 was $0.81 per diluted share.    The fourth quarter 2014 adjusted net income includes a $0.12 benefit related to the full year impact of research & development tax credits resulting from Congress passing legislation in December 2014.

Full year, adjusted net income was $2.76 per diluted share for 2014 as compared to $1.66 per diluted share in 2013. 2013 excludes the adjusted net income of Motorola Home prior to April 17, 2013.  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.arris.com).

GAAP net income in the fourth quarter 2014 was $1.29 per diluted share, as compared to fourth quarter 2013 GAAP net loss of $(0.02) per diluted share and third quarter 2014 GAAP net income of $0.37 per diluted share. The fourth quarter 2014 GAAP net income includes a net $0.85 benefit associated with certain tax matters, in particular and as previously disclosed, the recording of tax assets related to the Motorola Home acquisition.   

Full year, GAAP net income was $2.21 per diluted share in 2014 as compared to GAAP net loss of $(0.37) per diluted share in 2013.  2013 includes the net income of Motorola Home following the closing of the acquisition on April 17, 2013. 

Cash & Cash Equivalents - The Company ended the fourth quarter 2014 with $697.4 million of cash resources, which includes $692.5 million of cash, cash equivalents and short-term investments, and $4.9 million of long-term marketable securities, as compared to $599.1 million, in the aggregate, at the end of the third quarter 2014.  The Company generated $125.5 million of cash from operating activities during the fourth quarter 2014, as compared to $190.6 million generated during the fourth quarter 2013.  During the full year of 2014, the Company generated $462.6 million of cash from operating activities, which compares to $570.8 million generated during 2013.   

Order backlog at the end of the fourth quarter 2014 was $631.0 million as compared to $538.6 million and $594.1 million at the end of the fourth quarter 2013 and the third quarter 2014, respectively. The Company's book-to-bill ratio in the fourth quarter 2014 was 1.03 as compared to the fourth quarter 2013 of 1.01 and the third quarter 2014 of 0.86.

ARRIS management will conduct a conference call at 5:00 pm EST, today, Wednesday, February 18, 2015, to discuss these results in detail. You may participate in this conference call by dialing 888-679-8035 or 617-213-4848 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 66180934 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 25, 2015 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 57670802. A replay also will be made available for a period of 12 months following the conference call on ARRIS' website at www.arris.com.

About ARRIS

ARRIS is a global innovator in IP, video and broadband technology. We have continually worked with our customers to transform the experience of entertainment and communications for millions of people around the world. The people of ARRIS are dedicated to the success of our customers, bringing a passion for invention that has fueled our history: We created digital TV, delivered the first wireless broadband gateway and are pioneering the standards and pathways for tomorrow's personalized, Ultra HD, multiscreen, and cloud services. We are dedicated to meeting today's challenges and preparing for the tasks the future holds. Collaborating with our customers, ARRIS will continue to solve the most pressing challenges of 21st century communications. Together, we are inventing the future. For more information: www.arris.com

Forward-looking statements:

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

  • growth expectations and business prospects;
  • revenues and net income for the first quarter 2015, 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 2015 as well as the general outlook for 2015 and beyond are based on preliminary estimates, assumptions and projections that management believes to be reasonable at this time, but are beyond management's control;
  • ARRIS' customers operate in a capital intensive consumer based industry, and 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;
  • the strengthening U.S. Dollar may adversely impact our international  customer's ability or willingness to purchase products and the pricing of our products;
  • labor disruptions at U.S. West Coast port facilities may delay our ability to deliver products and recognize related revenue as originally scheduled  and may increase our shipping costs;
  • 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; and
  • announced transactions within our customer base, including the proposed acquisition of Time Warner by Comcast, the proposed acquisition of DIRECTV by AT&T, and the proposed acquisition by Frontier Communications of several properties owned by Verizon may have an impact on 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:  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.  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, 2014.  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,


2014

2014

2014

2014

2013












ASSETS






















Current assets:










Cash and cash equivalents

$       565,790

$       526,999

$       483,277

$       440,707

$       442,438

Short-term investments, at fair value

126,748

66,817

68,586

80,818

67,360

Total cash, cash equivalents and short term investments

692,538

593,816

551,863

521,525

509,798












Restricted cash

966

1,022

1,096

1,076

1,079

Accounts receivable, net

598,603

684,722

723,527

714,072

619,571

Other receivables 

10,640

18,227

14,610

11,694

8,366

Inventories, net

401,165

368,628

297,848

286,058

330,129

Prepaid income taxes

11,023

4,431

32,802

51,758

13,034

Prepaids

27,497

34,311

33,715

15,986

61,482

Current deferred income tax assets

113,390

64,948

79,070

80,427

77,167

Other current assets

133,070

78,283

72,069

68,986

57,418

Total current assets

1,988,892

1,848,388

1,806,600

1,751,582

1,678,044












Property, plant and equipment, net 

294,811

371,496

376,509

388,653

396,152

Goodwill

936,067

938,265

944,115

940,149

940,402

Intangible assets, net

943,388

1,000,441

1,057,557

1,114,231

1,176,192

Investments

77,640

74,985

68,852

72,372

71,176

Noncurrent deferred income tax assets

71,686

12,567

20,468

21,862

7,678

Other assets

53,161

59,102

56,719

56,180

52,363


$     4,365,645

$     4,305,244

$     4,330,820

$     4,345,029

$     4,322,007
























LIABILITIES AND STOCKHOLDERS' EQUITY






















Current liabilities:










Accounts payable

$       480,150

$       577,319

$       636,283

$       545,702

$       606,340

Accrued compensation, benefits and related taxes

145,278

130,116

101,644

93,251

116,262

Accrued warranty

42,763

51,277

54,546

53,940

48,755

Deferred revenue

92,772

102,717

114,489

126,451

69,071

Current portion of long-term debt

73,956

67,062

60,171

53,268

53,254

Current income taxes liability

10,610

15,344

19,672

13,508

3,068

Other accrued liabilities

164,341

178,099

192,345

193,507

198,277

Total current liabilities

1,009,870

1,121,934

1,179,150

1,079,627

1,095,027

Long-term debt, net of current portion

1,467,370

1,487,585

1,507,796

1,677,712

1,691,034

Accrued pension

64,917

59,667

59,552

58,733

58,657

Noncurrent income taxes payable

41,082

31,141

22,597

21,913

21,048

Noncurrent deferred income tax liabilities

274

42,926

74,297

83,903

74,791

Other noncurrent liabilities

91,371

71,882

68,512

62,675

62,463

Total liabilities

2,674,884

2,815,135

2,911,904

2,984,563

3,003,020












Stockholders' equity:










Preferred stock

-

-

-

-

-

Common stock

1,796

1,792

1,795

1,794

1,766

Capital in excess of par value

1,739,700

1,725,383

1,710,845

1,689,907

1,688,782

Treasury stock at cost

(306,330)

(306,330)

(306,330)

(306,330)

(306,330)

Unrealized gain (loss) on marketable securities

25

(77)

150

27

306

Unfunded pension liability

(7,181)

(2,416)

(2,416)

(2,416)

(2,416)

Unrealized loss on derivative Instruments

(3,166)

(1,959)

(4,503)

(2,660)

(2,541)

Retained earnings (deficit)

266,642

73,881

19,255

(19,769)

(60,569)

Cumulative translation adjustments

(725)

(165)

120

(87)

(11)

Total stockholders' equity

1,690,761

1,490,109

1,418,916

1,360,466

1,318,987


$     4,365,645

$     4,305,244

$     4,330,820

$     4,345,029

$     4,322,007

 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,

2014

2013

2014

2013






Net sales

$  1,263,387

$   1,199,067

$   5,322,921

$ 3,620,902

Cost of sales

882,812

832,697

3,740,425

2,598,154

Gross margin

380,575

366,370

1,582,496

1,022,748

Operating expenses:






Selling, general, and administrative expenses

95,577

110,561

410,568

338,252

Research and development expenses

135,498

129,471

556,575

425,825

Amortization of intangible assets

56,685

65,066

236,521

193,637

Integration,acquisition, restructuring and other costs

3,252

11,921

37,498

83,047

291,012

317,019

1,241,162

1,040,761

Operating income (loss)

89,563

49,351

341,334

(18,013)

Other expense (income):






Interest expense

13,860

19,457

62,901

67,888

Loss (gain) on investments

(318)

4,242

10,961

2,698

Loss (gain) on foreign currency

(1,123)

(777)

2,637

(3,502)

Interest income

(652)

(626)

(2,590)

(2,936)

Other (income) expense, net

21,665

632

28,195

13,989

Income (loss) before income taxes

56,131

26,423

239,230

(96,150)

Income tax expense (benefit)

(136,630)

29,240

(87,981)

(47,390)

Net income (loss)

$     192,761

$        (2,817)

$     327,211

$     (48,760)






Net income (loss) per common share:






Basic

$           1.33

$          (0.02)

$           2.27

$         (0.37)

Diluted

$           1.29

$          (0.02)

$           2.21

$         (0.37)






Weighted average common shares:






Basic

145,281

139,333

144,387

131,980

Diluted

149,124

139,333

148,280

131,980

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,





2014

2013

2014

2013












Operating Activities:










Net income (loss)


$       192,761

$         (2,817)

$      327,211

$      (48,760)

Depreciation


18,775

18,949

78,988

61,516

Amortization of intangible assets


56,916

65,066

236,751

193,637

Amortization of deferred finance fees and debt discount


2,199

4,983

11,575

9,982

Non-cash interest expense


-

-

-

9,926

Deferred income tax provision (benefit)


(151,869)

(1,212)

(171,372)

(55,763)

Stock compensation expense


13,987

11,136

53,799

35,789

Reduction in revenue related to Comcast investment in ARRIS


-

-

-

13,182

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

-

-

-

13,189

Provision for doubtful accounts


51

(663)

5,336

(658)

Loss on disposal of fixed assets


1,119

1,282

4,247

1,657

Non-cash restructuring and related charges


-

-

-

6,761

Loss (gain) on investments


(316)

4,243

10,963

2,698

Excess tax benefits from stock-based compensation plans


1,157

(761)

(13,494)

(7,178)

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

disposals:










Accounts receivable


86,068

(8,552)

17,400

9,241

Other receivables


7,468

(3,277)

(2,997)

(2,182)

Inventory


(32,537)

13,766

(71,036)

74,111

Income taxes payable/recoverable


(1,385)

28,505

29,617

(9,214)

Accounts payable and accrued liabilities


(117,631)

92,037

(115,039)

247,301

Prepaids and other, net


48,747

(32,037)

60,652

15,611

Net cash provided by operating activities


125,510

190,648

462,601

570,846












Investing Activities:










Purchases of investments


(94,734)

(8,210)

(135,635)

(112,756)

Disposals of investments


30,360

86,547

59,679

479,781

Proceeds from equity investments


-

14,780

-

14,780

Purchases of property, plant & equipment, net


(14,829)

(18,060)

(56,588)

(71,443)

Sale of property, plant & equipment


-

30

19

120

Cash paid for acquisition, net of cash acquired


-

-

84

(2,208,114)

Net cash provided by (used in) investing activities


(79,203)

75,087

(132,441)

(1,897,632)












Financing Activities:










Proceeds from issuance of debt


-

-

-

1,925,000

Cash paid for debt discount


-

-

-

(9,853)

Payment of debt obligations


(13,750)

(372,784)

(209,653)

(404,409)

Early redemption of long-term debt


-

-

-

(79)

Deferred financing costs paid


-

(368)

-

(42,724)

Excess income tax benefits from stock-based compensation plans


(1,157)

761

13,494

7,178

Repurchase of shares to satisfy employee minimum tax withholdings


(240)

(141)

(29,845)

(12,664)

Fees and proceeds from issuance of common stock, net


7,631

8,121

19,196

175,072

Net cash provided by (used in) financing activities


(7,516)

(364,411)

(206,808)

1,637,521















Net increase (decrease) in cash and cash equivalents


38,791

(98,676)

123,352

310,735

Cash and cash equivalents at beginning of period


526,999

541,114

442,438

131,703

Cash and cash equivalents at end of period


$       565,790

$       442,438

$      565,790

$      442,438

ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION

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

























Q3 2013

Q4 2013

Q3 2014

Q4 2014

Year 2013 (1)

Year 2014


Per Diluted


Per Diluted


Per Diluted


Per Diluted









Amount

Share

Amount

Share

Amount

Share

Amount

Share

Amount


Amount


Sales 

$ 1,067,823


$ 1,199,067


$ 1,405,445


$ 1,263,387


$   3,620,877


$ 5,322,921



























Highlighted items:























Reduction in revenue related to Comcast investment in ARRIS

-


-


-


-


13,182


-


Acquisition accounting impacts of deferred revenue

1,556


3,148


780


616


7,121


5,091


Sales excluding highlighted items

$ 1,069,379


$ 1,202,215


$ 1,406,225


$ 1,264,003


$   3,641,180


$ 5,328,012





















































Q4 2013

Q4 2013

Q3 2014

Q4 2014

Year 2013 (1)

Year 2014


Per Diluted


Per Diluted


Per Diluted


Per Diluted


Per Diluted


Per Diluted

Amount

Share

Amount

Share

Amount

Share

Amount

Share

Amount

Share

Amount

Share

Net income (loss)

$      17,170

$           0.12

$      (2,817)

$          (0.02)

(2)

$      54,626

$           0.37

$    192,761

$           1.29

$      (48,760)

(0.37)

(2)

$    327,211

$           2.21
























Highlighted items:























Impacting gross margin:























Reduction in revenue related to Comcast investment in ARRIS

-

-

-

-

-

-

-

-

13,182

0.10

-

-

Acquisition accounting impacts related to inventory

-

-

(3,818)

(0.03)

-

-

-

-

53,782

0.40

-

-

Product rationalization

-

-

2,891

0.02

-

-

-

-

16,473

0.12

-

-

Stock compensation expense

1,248

0.01

1,324

0.01

1,824

0.01

1,782

0.01

4,269

0.03

6,716

0.05

Acquisition accounting impacts of deferred revenue

1,006

0.01

3,067

0.02

47

-

400

-

5,545

0.04

3,448

0.02

















































Impacting operating expenses:























Integration,acquisition, restructuring and other costs

12,278

0.09

11,921

0.08

10,226

0.07

3,252

0.02

83,047

0.61

37,498

0.25

Amortization of intangible assets

65,053

0.46

65,066

0.45

57,100

0.38

56,685

0.38

193,637

1.43

236,521

1.60

Stock compensation expense

9,481

0.07

9,812

0.07

11,671

0.08

12,206

0.08

31,520

0.23

47,084

0.32
























Impacting other (income) / expense:























Non-cash interest expense

3,374

0.02

-

-

-

-

-

-

9,926

0.07

-

-

Impairment on Investments 

-

-

-

-

4,000

0.03

50

-

-

-

7,050

0.05

Credit facility - ticking fees

-

-

-

-

-

-

-

-

865

0.01

-

-

Liability related to foreign tax credit benefits

-

-

-

-

-

-

20,492

0.14

-

-

20,492

0.14

Mark to market FV adjustment related to Comcast investment in ARRIS

-

-

-

-

-

-

-

-

13,189

0.10

-

-

Asset held for sale impairment

-

-

-

-

-

-

7

-

-

-

2,132

0.01




















-


Net tax items

(54,998)

(0.39)

(9,849)

(0.07)

(19,375)

(0.13)

(171,706)

(1.15)

(152,883)

(1.13)

(279,135)

(1.88)
























Total highlighted items

37,442

0.27

80,414

0.56

65,493

0.44

(76,832)

(0.52)

272,552

2.02

81,806

0.55

Net income excluding highlighted items

$      54,612

$           0.39

$      77,597

$           0.54

$    120,119

$           0.81

$    115,929

$           0.78

$      223,792

$           1.66

$    409,017

$           2.76
























Weighted average common shares - basic

138,478


139,333


144,967


145,281


131,980


144,387

Weighted average common shares - diluted

140,605


143,956


148,753


149,124


135,136


148,280



































































































(1) Excludes Motorola Home results prior to April 17, 2013















(2) Basic shares used for Q4 2013 and YTD 2013 as losses were reported for those periods and the inclusion of dilutive shares would be anti-dilutive



































See Notes to GAAP and Adjusted Non-GAAP Financial Measures






















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, 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 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 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).

Acquisition Accounting Impacts Related to Inventory:  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.  In addition, we have conformed other cost basis inventory valuation policies during the period.  We have excluded the resulting adjustments in inventory and cost of goods sold.

Product Rationalization:  In conjunction with the integration of Motorola Home, we have identified certain product lines which overlap.  In the second and fourth quarters 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.    

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.

Integration, Acquisition, Restructuring and Other 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 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 and integration 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. Additionally, 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.

Credit Facility - Ticking Fees:  In connection with our acquisition of Motorola Home, 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 non-cash item in our other expense (income). 

Liability Related to Foreign Tax Credit Benefits:  In connection with our acquisition of Motorola Home, we have obtained certain foreign tax credit benefits for which we have recorded a liability to Google resulting from certain provisions in the acquisition agreement.  The expense related to this liability has been recorded as part of other expense (income).  We have excluded the effect of the expense in the calculation of our non-GAAP financial measures.  We believe it is useful to understand the effects of this item on our total 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).

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). 

Asset Held for Sale Impairment:  In the second quarter of 2014, we entered into a contract to facilitate the sale of a building at less than its carrying value. The asset has been reclassified as held for sale and was measured at the lower of its carrying amount or fair value less cost to sell.  We have recorded an initial impairment charge to reduce the assets carrying amount to its fair  value less costs to sell in the period the held for sale criteria were met. We have excluded the effect of the asset held for sale impairment 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). 

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.

SOURCE ARRIS Group, Inc.