ARRIS Announces Preliminary and Unaudited Fourth Quarter and Full Year 2015 Results

17 Feb, 2016, 16:02 ET from ARRIS

SUWANEE, Ga., Feb. 17, 2016 /PRNewswire/ -- ARRIS International plc (NASDAQ: ARRS) today announced preliminary and unaudited financial results for the fourth quarter and full year 2015.

Financial Highlights

  • Revenues were $1,101.7 million
  • Adjusted net income (a non-GAAP measure) was $0.62 per diluted share, which includes a $0.14 per diluted share benefit related to research & development tax credits
  • GAAP net income was $0.20 per diluted share
  • Ended 2015 with $879.1 million of cash resources
  • Order backlog was $715.8 million
  • Book-to-bill ratio was 1.14
  • Approved $300 million share repurchase program

"Our fourth quarter sales were in line with our expectations, and our earnings were stronger than anticipated as a result of stronger CCAP E6000 sales, as well as the full year impact of R&D tax credits enacted by Congress late in the year," said Bob Stanzione, ARRIS Chairman and CEO.  "We closed the Pace acquisition on January 4 and have made substantial progress on our integration activities.  With respect to the first quarter 2016, we project that revenues for the Company will be in the range of $1,560 to $1,610 million, with adjusted net income per diluted share in the range of $0.37 to $0.42 and GAAP net income per diluted share in the range of $0.01 to $0.06." 

The Company also announced that on February 16, 2016, the Board of Directors of ARRIS approved a new $300 million share repurchase authorization replacing all prior programs.

ARRIS will host its 2016 Investor & Analyst Day on Wednesday, March 16 at The Westin at Times Square, New York City.  The event, which is open to investors and analysts, will begin at 7:30 a.m. Eastern with breakfast and registration. Presentations will begin at 8:00 am and conclude at approximately 12:00 pm. A live audio webcast of the conference with slide presentations will be accessible via the Investors section of Company's web site: www.arris.com.  Registration for the event can be found at www.etouches.com/161362.  

Revenues in the fourth quarter 2015 were $1,101.7 million as compared to fourth quarter 2014 revenues of $1,263.4 million. Third quarter 2015 revenues were $1,221.4 million.    

For the full year 2015 and 2014, revenues were $4,798.3 million and $5,322.9 million, respectively. 

Adjusted net income (a non-GAAP measure) in the fourth quarter 2015 was $0.62 per diluted share, compared to $0.78 per diluted share for the fourth quarter 2014.  Adjusted net income (a non-GAAP measure) for the third quarter 2015 was $0.56 per diluted share.    The fourth quarter 2015 adjusted net income includes a $0.14 benefit related to the full year impact of research & development tax credits resulting from Congress passing legislation in December 2015.

Full year, adjusted net income was $2.16 per diluted share for 2015 as compared to $2.76 per diluted share in 2014.  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 web site (www.arris.com).

GAAP net income in the fourth quarter 2015 was $0.20 per diluted share, as compared to fourth quarter 2014 GAAP net income of $1.29 per diluted share and third quarter 2015 GAAP net income of $0.18 per diluted share. The fourth quarter 2015 GAAP net income includes a net $0.14 benefit associated with the full year impact of research & development tax credits.   

Full year, GAAP net income was $0.62 per diluted share in 2015 as compared to GAAP net income of $2.21 per diluted share in 2014. 

Cash & Cash Equivalents - The Company ended the fourth quarter 2015 with $879.1 million of cash resources, which includes cash, cash equivalents and short-term investments, as compared to $781.1 million, in the aggregate, at the end of the third quarter 2015.  The Company generated $127.4 million of cash from operating activities during the fourth quarter 2015, as compared to $130.0 million generated during the fourth quarter 2014.  During the full year of 2015, the Company generated $351.9 million of cash from operating activities, which compares to $459.3 million generated during 2014.   

Order backlog at the end of the fourth quarter 2015 was $715.8 million as compared to $631.0 million and $559.0 million at the end of the fourth quarter 2014 and the third quarter 2015, respectively. The Company's book-to-bill ratio in the fourth quarter 2015 was 1.14 as compared to the fourth quarter 2014 of 1.03 and the third quarter 2015 of 0.92.

ARRIS management will conduct a conference call at 5:00 pm Eastern, today, Wednesday, February 17, 2016, to discuss these results in detail. You may participate in this conference call by dialing 888-680-0879 or +1-617-213-4856 for international calls prior to the start of the call and providing the ARRIS International plc name, conference  and Bob Puccini as the moderator, pass code 498 383 20. 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 24, 2016 by dialing 888-286-8010 or +1-617-801-6888 for international calls and using the pass code 65231367. A replay also will be made available for a period of 12 months following the conference call on ARRIS's web site at www.arris.com.

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. Together, we are inventing the future. For more information, visit www.arris.com.

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

  • revenues and net income for the first 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 first quarter 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;
  • ARRIS may fail to realize the expected benefits of the recently completed Pace acquisition and may incur significant 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;
  • ARRIS's 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;
  • 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 by Frontier Communications of several properties owned by Verizon, 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:  the impact of rapidly changing technologies; 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 Group, Inc.'s reports (as predecessor registrant to ARRIS International plc) filed with the Securities and Exchange Commission, including its Form 10-Q for the quarter ended September 30, 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.

 

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

December 31,

September 30,

June 30,

March 31,

December 31,

2015

2015

2015

2015

2014

ASSETS

Current assets:

Cash and cash equivalents

$863,582

$673,346

$490,939

$499,482

$565,790

Short-term investments, at fair value

15,470

107,777

128,852

129,073

126,748

Total cash, cash equivalents and short term investments

879,052

781,123

619,791

628,555

692,538

Accounts receivable, net

651,893

647,726

785,869

819,918

598,603

Other receivables 

12,233

8,684

11,268

15,054

10,640

Inventories, net

401,592

367,536

389,556

372,379

401,165

Prepaid income taxes

25,624

29,071

26,413

13,380

11,023

Prepaids

19,319

26,430

36,746

31,814

27,497

Current deferred income tax assets

-

104,345

105,384

115,926

113,390

Other current assets

120,490

148,385

102,987

73,842

55,257

Total current assets

2,110,203

2,113,300

2,078,014

2,070,868

1,910,113

Property, plant and equipment, net 

312,311

319,443

324,154

325,727

366,431

Goodwill

1,013,963

1,016,696

1,017,430

938,645

936,067

Intangible assets, net

810,448

868,054

923,837

919,876

943,388

Investments

69,542

74,924

75,381

76,492

77,640

Noncurrent deferred income tax assets

180,526

70,557

87,291

88,366

71,686

Other assets

21,610

26,843

27,842

28,185

35,717

$4,518,603

$4,489,817

$4,533,949

$4,448,159

$4,341,042

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$514,877

$558,371

$608,133

$594,690

$480,150

Accrued compensation, benefits and related taxes

111,389

97,326

78,333

75,849

145,278

Accrued warranty

27,630

35,488

29,176

36,824

42,763

Deferred revenue

137,606

97,490

107,632

107,230

92,772

Current portion of LT debt & financing lease obligations

43,591

43,506

43,446

75,685

67,024

Current income taxes liability

8,368

13,139

9,587

13,092

10,610

Other accrued liabilities

169,169

168,870

155,482

167,430

165,080

Total current liabilities

1,012,630

1,014,190

1,031,789

1,070,800

1,003,677

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

1,496,243

1,507,172

1,518,063

1,487,547

1,448,960

Accrued pension

64,052

67,570

68,865

68,060

64,917

Noncurrent income taxes payable

37,284

38,145

43,586

42,282

41,082

Noncurrent deferred income tax liabilities

503

329

332

412

274

Other noncurrent liabilities

66,930

71,560

92,544

90,428

91,371

Total liabilities

2,677,642

2,698,966

2,755,179

2,759,529

2,650,281

Stockholders' equity:

Preferred stock

-

-

-

-

-

Common stock

1,790

1,819

1,814

1,811

1,796

Capital in excess of par value

1,777,276

1,762,111

1,765,804

1,745,345

1,739,700

Treasury stock at cost

(331,329)

(331,329)

(331,329)

(331,329)

(306,330)

Accumulated other comprehensive loss

(12,646)

(20,236)

(12,664)

(12,966)

(11,047)

Retained earnings 

358,823

328,782

302,525

285,768

266,642

Total ARRIS Group Inc. stockholders' equity

1,793,914

1,741,147

1,726,150

1,688,629

1,690,761

Stockholders' equity attributable to noncontrolling interest

47,047

49,704

52,620

-

-

Total stockholders' equity

1,840,961

1,790,851

1,778,770

1,688,629

1,690,761

$4,518,603

$4,489,817

$4,533,949

$4,448,159

$4,341,042

 

 

 

 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

2015

2014

2015

2014

Net sales

$1,101,681

$1,263,388

$4,798,332

$5,322,921

Cost of sales

743,008

882,812

3,379,409

3,740,425

Gross margin

358,673

380,576

1,418,923

1,582,496

Operating expenses:

Selling, general, and administrative expenses

107,866

95,576

417,085

410,568

Research and development expenses

133,236

135,498

534,168

556,575

Amortization of intangible assets

56,378

56,686

227,440

236,521

Integration, acquisition, restructuring and other costs

8,281

3,251

29,277

37,498

305,761

291,011

1,207,970

1,241,162

Operating income 

52,912

89,565

210,953

341,334

Other expense (income):

Interest expense

14,367

13,860

70,936

62,901

(Gain) loss on investments

(345)

(317)

6,220

10,961

Loss (gain) on foreign currency

16,557

(1,123)

20,761

2,637

Interest income

(587)

(652)

(2,379)

(2,590)

Other (income) expense, net

3,192

21,666

8,362

28,195

Income before income taxes

19,728

56,131

107,053

239,230

Income tax (benefit) expense 

(7,116)

(136,630)

22,594

(87,981)

Consolidated net income

26,844

192,761

84,459

327,211

Net loss attributable to noncontrolling interests

(3,197)

-

(7,722)

-

Net income attributable to ARRIS Group, Inc.

$30,040

$192,761

$92,181

$327,211

Net income per common share (1):

Basic

$          0.20

$       1.33

$           0.63

$         2.27

Diluted

$          0.20

$       1.29

$           0.62

$         2.21

Weighted average common shares:

Basic

147,109

145,281

146,388

144,386

Diluted

149,842

149,124

149,359

148,280

(1)  Calculated based on net income attributable to shareowners of ARRIS Group, Inc.

 

 

 

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,

2015

2014

2015

2014

Operating Activities:

Consolidated net income

$         26,844

$       192,761

$      84,459

$      327,211

Depreciation

17,537

18,775

71,780

78,988

Amortization of intangible assets

57,606

56,916

231,590

236,751

Amortization of deferred finance fees and debt discount

1,671

2,199

9,646

11,575

Deferred income tax provision (benefit)

(9,857)

(143,982)

5,111

(163,485)

Stock compensation expense

17,662

13,987

64,218

53,799

Provision for doubtful accounts

744

51

2,997

5,336

Loss (gain) on disposal of fixed assets

1,718

1,119

7,776

4,247

Loss (gain) on investments

(345)

(318)

6,220

10,961

Excess tax benefits from stock-based compensation plans

(3,643)

5,692

(3,997)

(8,959)

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

Accounts receivable

(4,911)

86,068

(55,132)

16,796

Other receivables

(6,766)

7,468

(6,017)

(2,997)

Inventory

(34,056)

(32,537)

(6,685)

(71,036)

Income taxes payable/recoverable

(2,185)

(1,385)

(23,488)

29,617

Accounts payable and accrued liabilities

8,937

(119,774)

15,065

(116,909)

Prepaids and other, net

56,429

43,005

(51,660)

47,386

Net cash provided by operating activities

127,385

130,045

351,883

459,281

Investing Activities:

Purchases of investments

(8,952)

(94,734)

(56,577)

(127,780)

Sales of investments

100,399

30,360

161,824

59,679

Purchases of property, plant & equipment, net

(12,192)

(14,829)

(49,890)

(56,588)

Proceeds from sale-leaseback transaction

-

-

24,960

-

Acquisition, net of cash acquired

-

-

(97,905)

84

Purchases of intangible assets

(2,000)

-

(39,340)

-

Other, net

-

-

2,971

19

Net cash provided by (used in) investing activities

77,255

(79,203)

(53,957)

(124,586)

Financing Activities:

Proceeds from sale-leaseback financing transaction

-

-

58,729

-

Payment of financing lease obligation

(161)

-

(425)

-

Payment of debt obligations

(12,375)

(13,750)

(53,500)

(209,653)

Payment for debt discount

-

-

(3,247)

-

Payment for deferred financing costs 

-

-

(4,992)

-

Repurchase of common stock

-

-

(24,999)

-

Excess income tax benefits from stock-based compensation plans

3,643

(5,692)

3,997

8,959

Repurchase of shares to satisfy employee minimum tax withholdings

(14,228)

(240)

(46,680)

(29,845)

Fees and proceeds from issuance of common stock, net

8,173

7,631

16,189

19,196

Capital contribution from non-controlling interest

544

-

54,794

-

Net cash used in financing activities

(14,404)

(12,051)

(134)

(211,343)

Net increase in cash and cash equivalents

190,236

38,791

297,792

123,352

Cash and cash equivalents at beginning of period

673,346

526,999

565,790

442,438

Cash and cash equivalents at end of period

$       863,582

$       565,790

$      863,582

$      565,790

 

 

 

ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION

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

(in thousands, except per share data)

Q4 2014

Q3 2015

Q4 2015

Dec YTD 2014

Dec YTD 2015

Per Diluted

Per Diluted

Per Diluted

Amount

Share

Amount

Share

Amount

Share

Amount

Amount

Sales 

$  1,263,387

$ 1,221,416

$ 1,101,681

$   5,322,920

$   4,798,332

Highlighted items:

Acquisition accounting impacts of deferred revenue

616

$         5,091

$              -

Sales excluding highlighted items

$  1,264,003

$ 1,221,416

$ 1,101,681

$   5,328,011

$   4,798,332

Q4 2014

Q3 2015

Q4 2015

Dec YTD 2014

Dec YTD 2015

Per Diluted

Per Diluted

Per Diluted

Per Diluted

Per Diluted

Amount

Share

Amount

Share

Amount

Share

Amount

Share

Amount

Share

Net income attributable to ARRIS Group, Inc.

$     192,761

$           1.29

$      26,257

$           0.18

$      30,040

$           0.20

$      327,211

$           2.21

$       92,181

$           0.62

Highlighted items:

Impacting gross margin:

Stock compensation expense

1,782

0.01

2,284

0.02

2,219

0.01

6,716

0.05

8,508

0.06

Acquisition accounting impacts of deferred revenue

400

-

-

-

-

-

3,448

0.02

-

-

Impacting operating expenses:

Integration, acquisition, restructuring and other costs

3,251

0.02

7,531

0.05

8,281

0.06

37,498

0.25

29,277

0.20

Amortization of intangible assets

56,686

0.38

57,132

0.38

56,378

0.38

236,521

1.60

227,440

1.52

Stock compensation expense

12,206

0.08

14,005

0.09

15,443

0.10

47,084

0.32

55,710

0.37

Noncontrolling interest share of non-GAAP adjustments

-

-

(791)

(0.01)

(1,357)

(0.01)

-

-

(2,947)

(0.02)

Impacting other (income) / expense:

Impairment on Investments 

50

-

-

-

(159)

-

7,050

0.05

(9)

-

Debt amendment fees

-

-

669

-

291

-

-

-

15,342

0.10

Credit facility - ticking fees

-

-

678

-

1,022

0.01

-

-

1,700

0.01

Asset held for sale impairment

7

-

-

-

-

2,132

0.01

-

-

Foreign exchange contract (gains) losses related to cash consideration of Pace acquisition 

-

-

15,429

0.10

13,699

0.09

-

-

22,283

0.15

Liability/adjustment related to foreign tax credit benefits

20,482

0.14

(3,669)

(0.02)

-

-

20,492

0.14

(3,669)

(0.02)

Loss on sale of building

-

-

-

-

-

-

-

-

5,142

0.03

-

-

Impacting income tax expense:

Net tax items

(171,706)

(1.15)

(35,845)

(0.24)

(32,363)

(0.22)

(279,135)

(1.88)

(128,863)

(0.86)

Total highlighted items

(76,842)

(0.52)

57,423

0.38

63,454

0.42

81,806

0.55

229,914

1.54

Net income excluding highlighted items

$     115,919

$           0.78

$      83,680

$           0.56

$      93,494

$           0.62

$      409,017

$           2.76

$      322,095

$           2.16

Weighted average common shares - diluted

149,124

149,422

149,842

148,280

149,359

 

 

Notes to GAAP to Adjusted Non-GAAP Financial Measures

The Company reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP" or referred to herein as "reported"). However, management believes that certain non-GAAP financial measures provide management and other users with additional meaningful financial information that should be considered when assessing our ongoing performance. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the factors management uses in planning for and forecasting future periods.  Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, the Company's reported results prepared in accordance with GAAP.  Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:

Acquisition Accounting Impacts Related to Deferred Revenue: In connection with our acquisition of 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. 

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 incurred expenses in connection with the Active Video Joint Venture, the Motorola Home acquisition, the anticipated Pace acquisition and, 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 and other costs consist of employee severance, abandoned facilities, product line disposition and other exit costs. 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.

Noncontrolling Interest share of Non-GAAP Adjustments: In the second quarter of 2015, ARRIS and Charter formed a joint venture that acquired Active Video Networks, Inc. ARRIS and Charter own 65% and 35%, respectively, of the joint venture.  The joint venture 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 other-than-temporary impairments 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. It is our intent that the new term A-1 loan facility be funded upon the closing of the Pace acquisition. If the Pace acquisition does not close, the entire facility is available to ARRIS so long as the first $400 million drawn is used to reduce other debt; the remaining $400 million can be used for general corporate purposes. Certain fees related to the debt modification have already been paid, and other fees related to the new term A-1 loan facility will be paid upon funding.  We believe it is useful to understand the effect of this on our other expense (income).

Credit Facility - Ticking Fees:  In connection with our acquisition of Pace plc, 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 / Adjustment 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 and subsequent adjustments 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).

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). 

Foreign Exchange Contract (Gains) Losses Related to Cash Consideration of Pace Acquisition: In the second quarter of 2015, the Company announced its intent to acquire Pace plc in exchange for stock and cash.  We subsequently entered into foreign exchange forward contracts in order to hedge the foreign currency risk associated with the cash consideration of the Pace acquisition.  These foreign exchange forward contracts were not designated as hedges, and accordingly, all changes in the fair value of these instruments are recognized as a loss (gain) on foreign currency in the Consolidated Statements of Operations.  We believe it is useful to understand the effect of this on 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.

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



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