2014

ARRIS Announces Preliminary And Unaudited Second Quarter 2013 Results

SUWANEE, Ga., Aug. 7, 2013 /PRNewswire/ -- ARRIS Group, Inc. (NASDAQ: ARRS), today announced preliminary and unaudited financial results for the second quarter 2013.

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

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

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

GAAP net loss in the second quarter 2013 was $(0.37) per diluted share, as compared to second quarter 2012 GAAP net income of $0.13 per diluted share and first quarter 2013 GAAP net loss of $(0.13) per diluted share. Year to date, GAAP net loss was $(0.52) per diluted share in 2013 as compared to GAAP net income of $0.18 per diluted share in 2012.  A reconciliation of adjusted net income to GAAP net income per diluted share is attached to this release and also can be found on the Company's website (www.arrisi.com).

The Company ended the second quarter 2013 with $764.1 million of cash resources, which includes $741.2 million of cash, cash equivalents and short-term investments, and $22.9 million of long-term marketable security investments, as compared to $631.3 million, in the aggregate, at the end of the first quarter 2013.   The Company generated $294.0 million of cash from operating activities during the second quarter 2013 and $344.0 million through the first six months of 2013, which compares to $30.6 million and $65.9 million generated during the same periods in 2012.  Much of the cash from operating activities relates to working capital changes, in particular accounts payable and inventory. Accounts payable was affected by transitional services provided by Google, following the Motorola Home acquisition. In the third quarter 2013 the Company anticipates decreasing accounts payable and accrued liabilities by approximately $200 million.  The Company and Google have settled certain litigation matters for which the Company's maximum liability is $50 million under the terms of the acquisition agreement.  The Company anticipates paying the litigation settlement in the third quarter 2013. 

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

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

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

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, August 7, 2013, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4213 or 617-213-4865 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 18982813 and Bob Puccini as the moderator. Please note that ARRIS will not accept any calls related to this earnings release until after the conclusion of the conference call. A replay of the conference call can be accessed approximately two hours after the call through August 12, 2013 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 24874293. A replay also will be made available for a period of 12 months following the conference call on ARRIS' website at www.arrisi.com.

About ARRIS

ARRIS is a premier video and broadband technology company that transforms how service providers worldwide deliver entertainment and communications without boundaries.  Its powerful end-to-end platforms enable service and content providers to improve the way people connect – with each other and with their favorite content.  The Company's vision and expertise continue to drive the industry's innovations, as they have for more than 60 years. Headquartered north of Atlanta, in Suwanee, Georgia, ARRIS has R&D, sales and support centers throughout the world. For more information: www.arrisi.com

Forward-looking statements:

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

  • growth expectations and business prospects;
  • revenues and net income for the third quarter 2013, and beyond;
  • the integration of the Motorola Home business
  • expected sales levels and acceptance of new ARRIS products; and
  • the general market outlook and industry trends

are forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements.  Among other things,

  • projected results for the third quarter 2013 as well as the general outlook for 2013 and beyond are based on preliminary estimates, assumptions and projections that management believes to be reasonable at this time, but are beyond management's control;
  • we may encounter difficulties in combining the Motorola Home operations with ours, including difficulties combining personnel, facilities, and other operations or preserving customer relationships;
  • ARRIS' customers operate in a capital intensive consumer based industry, and the current volatility in the capital markets or changes in customer spending may adversely impact their ability or willingness  to purchase the products that the Company offers; and
  • because the market in which ARRIS operates is volatile, actions taken and contemplated may not achieve the desired impact relative to changing market conditions and the success of these strategies will be dependent on the effective implementation of those plans while minimizing organizational disruption.

In addition to the factors set forth elsewhere in this release, other factors that could cause results to differ from current expectations include: the uncertain current economic climate and its impact on our customers' plans and access to capital; the impact of rapidly changing technologies; the impact of competition on product development and pricing; the ability of ARRIS to react to changes in general industry and market conditions including regulatory developments; rights to intellectual property, market trends and the adoption of industry standards; and consolidations within the telecommunications industry of both the customer and supplier base.  These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the Company's business. Additional information regarding these and other factors can be found in ARRIS' reports filed with the Securities and Exchange Commission, including its Form 10-Q for the quarter ended March 31, 2013.  In providing forward-looking statements, the Company expressly disclaims any obligation to update publicly or otherwise these statements, whether as a result of new information, future events or otherwise.

 

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)



























June 30,


March 31,


December 31,


September 30,


June 30,




2013


2013


2012


2012


2012














ASSETS
























Current assets:












Cash and cash equivalents


$       610,502


$       423,551


$       131,703


$       188,653


$       199,395


Short-term investments, at fair value


130,723


184,838


398,414


359,753


340,166


   Total cash, cash equivalents and short term investments


741,225


608,389


530,117


548,406


539,561














Restricted cash


3,801


4,689


4,722


4,665


3,942


Accounts receivable, net


662,156


206,236


188,581


171,143


179,371


Other receivables 


11,007


3,743


350


578


1,414


Inventories, net


320,778


126,530


133,848


137,496


102,361


Prepaid income taxes


38,186


10,703


9,235


8,300


4,090


Prepaids


17,296


13,227


11,682


12,408


12,124


Current deferred income tax assets


127,225


25,927


24,944


20,787


21,972


Other current assets


283,491


13,674


16,413


10,607


12,676


   Total current assets


2,205,165


1,013,118


919,892


914,390


877,511














Property, plant and equipment, net 


404,157


54,109


54,378


54,593


56,175


Goodwill


807,142


193,976


194,115


194,469


194,626


Intangible assets, net


1,372,196


86,926


94,529


102,258


110,000


Investments


78,733


55,938


86,164


57,483


70,967


Noncurrent deferred income tax assets


12,340


52,410


47,431


49,589


47,228


Other assets


55,476


11,089


9,385


9,913


10,575




$     4,935,209


$     1,467,566


$     1,405,894


$     1,382,695


$     1,367,082


























LIABILITIES AND STOCKHOLDERS' EQUITY
























Current liabilities:












Accounts payable


$       485,291


$         47,783


$         45,719


$         49,061


$         44,800


Accrued compensation, benefits and related taxes


88,382


36,791


29,773


35,066


28,165


Accrued warranty


40,206


2,768


2,882


3,036


2,995


Deferred revenue


80,254


61,431


44,428


50,859


63,023


Current portion of LT debt


289,990


225,368


222,124


-


-


Current income taxes liability


8,887


350


853


-


56


Other accrued liabilities


498,788


59,055


24,942


21,768


23,924


   Total current liabilities


1,491,798


433,546


370,721


159,790


162,963


Long-term debt, net of current portion


1,837,952


-


-


218,943


215,823


Accrued pension


60,216


27,200


26,883


26,172


25,696


Accrued severance liability, net of current portion


3,782


4,262


4,119


3,895


3,758


Noncurrent income taxes payable


35,320


30,168


24,389


24,434


26,676


Noncurrent deferred income tax liabilities


190,176


351


351


334


340


Other noncurrent liabilities


48,196


18,836


19,043


20,362


21,039


Total liabilities


3,667,440


514,363


445,506


453,930


456,295














Stockholders' equity:












Preferred stock


-


-


-


-


-


Common stock


1,726


1,509


1,488


1,479


1,473


Capital in excess of par value


1,657,383


1,292,971


1,285,575


1,270,561


1,259,946


Treasury stock at cost


(306,330)


(306,330)


(306,330)


(306,330)


(295,960)


Unrealized gain (loss) on marketable securities


(19)


288


206


74


211


Unfunded pension liability


(8,558)


(8,592)


(8,558)


(10,231)


(10,231)


Accumulated deficit


(76,736)


(26,459)


(11,809)


(26,604)


(44,468)


Cumulative translation adjustments


303


(184)


(184)


(184)


(184)


   Total stockholders' equity


1,267,769


953,203


960,388


928,765


910,787




$     4,935,209


$     1,467,566


$     1,405,894


$     1,382,695


$     1,367,082


 

 

 ARRIS GROUP, INC.

 PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)










For the Three Months


For the Six Months


Ended June 30,


Ended June 30,


2013


2012


2013


2012









Net sales

$1,000,362


$    349,327


$1,354,012


$   652,227

Cost of sales

769,285


230,801


1,014,409


424,793

Gross margin

231,077


118,526


339,603


227,434

 

Operating expenses:








Selling, general, and administrative expenses

87,774


40,135


127,900


79,678

Research and development expenses

123,400


42,881


167,482


87,028

Acquisition and other costs

19,392


102


26,582


709

Loss on sale of product line

-


-


-


337

Restructuring charges

32,257


1,039


32,266


6,242

Amortization of intangible assets

58,130


7,444


65,733


14,823


320,953


91,601


419,963


188,817

Operating income 

(89,876)


26,925


(80,360)


38,617

Other expense (income):








Interest expense

18,612


4,422


23,243


8,772

Loss (gain) on investments

(728)


356


(1,293)


(605)

Loss on foreign currency

206


540


1,027


1,348

Interest income

(640)


(729)


(1,478)


(1,484)

Other (income) expense, net

(7,735)


(226)


11,681


(662)

Income (loss) from continuing operations before income taxes

(99,591)


22,562


(113,540)


31,248

Income tax expense (benefit)

(49,314)


7,561


(48,613)


10,448

   Net income (loss)

$    (50,277)


$     15,001


$    (64,927)


$     20,800









Net income (loss) per common share:








Basic

$       (0.37)


$         0.13


$       (0.52)


$        0.18

Diluted

$       (0.37)


$         0.13


$       (0.52)


$        0.18









Weighted average common shares:








Basic

134,626


113,842


124,940


114,457

Diluted

134,626


115,111


124,940


116,352

 

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)






For the Three Months


For the Six Months






Ended June 30,


Ended June 30,






2013


2012


2013


2012













Operating Activities:










Net income


$        (50,277)


$         15,001


$      (64,927)


$       20,800



Depreciation


15,609


6,982


22,118


14,177



Amortization of intangible assets


58,130


7,444


65,733


14,823



Amortization of deferred finance fees


2,077


160


2,237


320



Non-cash interest expense


3,308


3,058


6,552


6,057



Deferred income tax provision (benefit)


(35,202)


(5,085)


(41,197)


(9,720)



Stock compensation expense


7,180


7,867


13,924


14,516



Reduction in revenue related to Comcast investment in ARRIS


-


-


13,182


-



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

(6,159)


-


13,189


-



Provision for doubtful accounts


-


-


-


54



Loss on sale of product line


-


-


-


337



Loss (gain) on disposal of fixed assets


(34)


3


(38)


6



Gain on investments


(428)


356


(992)


(605)



Gain on equity investments


(301)


-


(301)


-



Excess tax benefits from stock-based compensation plans


(1,111)


(806)


(5,770)


(2,460)


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











Accounts receivable


1,141


4,056


(16,514)


(27,743)



Other receivables


(3,238)


3,700


(7,127)


7,393



Inventory


85,314


2,753


92,632


9,996



Income taxes payable/recoverable


(20,441)


2,087


(16,633)


8,452



Accounts payable and accrued liabilities


223,282


(17,262)


251,296


5,136



Other, net


15,102


279


16,645


4,327




Net cash provided by operating activities


293,952


30,593


344,009


65,866













Investing Activities:










Purchases of investments


(58,021)


(62,587)


(58,021)


(140,353)


Disposals of investments


113,310


31,253


358,021


83,161


Purchases of property & equipment, net


(15,113)


(5,494)


(21,402)


(9,256)


Sale of property & equipment


37


-


90


-


Cash paid for acquisition, net of cash acquired


(2,159,762)


-


(2,159,762)


-


Sale of product line


-


-


-


3,249




Net cash used in investing activities


(2,119,549)


(36,828)


(1,881,074)


(63,199)













Financing Activities:










Proceeds from issuance of debt


1,925,000


-


1,925,000


-


Cash paid for debt discount


(9,853)


-


(9,853)


-


Payment of debt obligations


(15,813)


-


(15,813)


-


Early redemption of long-term debt


(79)


-


(79)


-


Deferred financing costs paid


(42,207)


-


(42,207)


-


Repurchase of common stock


-


(15,236)


-


(41,551)


Excess income tax benefits from stock-based compensation plans


1,111


806


5,770


2,460


Repurchase of shares to satisfy employee tax withholdings


(415)


(19)


(12,407)


(8,052)


Fees and proceeds from issuance of common stock, net


154,804


4,271


165,453


7,996




Net cash used in financing activities


2,012,548


(10,178)


2,015,864


(39,147)




Net increase (decrease) in cash and cash equivalents


186,951


(16,413)


478,799


(36,480)

Cash and cash equivalents at beginning of period


423,551


215,808


131,703


235,875

Cash and cash equivalents at end of period


$       610,502


$       199,395


$      610,502


$      199,395

 

ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION
















(in thousands, except per share data)

Q1 2013


Q2 2013


YTD 2013





Per Diluted




Per Diluted







Amount


Share


Amount


Share


Amount




Sales 

$  353,650




$ 1,000,362




$ 1,354,012

















Highlighted items:













   Reduction in revenue related to Comcast investment in ARRIS

13,182




-




13,182




   Purchase accounting impacts of deferred revenue

-




2,417




2,417




Sales excluding highlighted items

$  366,832




$ 1,002,779




$ 1,369,611































Q1 2013


Q2 2013


YTD 2013





Per Diluted




Per Diluted




Per Diluted



Amount


Share


Amount


Share


Amount


Share


Net income (loss)

$   (14,650)


$          (0.13)


$     (50,277)


$          (0.37)


$     (64,927)


$          (0.52)















Highlighted items:













  Impacting gross margin:













     Reduction in revenue related to Comcast investment in ARRIS

13,182


0.11


-


-


13,182


0.10


     Acquisition accounting impacts related to Motorola Home fair value of inventory

-


-


57,600


0.42


57,600


0.45


     Product rationalization

-


-


13,582


0.10


13,582


0.11


     Stock compensation expense

831


0.01


866


0.01


1,697


0.01


     Acquisition accounting impacts related to Motorola Home deferred revenue

-


-


1,472


0.01


1,472


0.01




























  Impacting operating expenses:













     Acquisition costs and other

7,190


0.06


19,392


0.14


26,582


0.21


     Restructuring

9


-


32,257


0.24


32,266


0.25


     Amortization of intangible assets

7,603


0.06


58,130


0.43


65,733


0.51


     Stock compensation expense

5,913


0.05


6,314


0.05


12,227


0.10















  Impacting other (income) / expense:













     Non-cash interest expense

3,244


0.03


3,308


0.02


6,552


0.05


     Credit facility - ticking Fees

388


-


477


-


865


0.01


     Mark to market FV adjustment related to Comcast investment in ARRIS

19,348


0.16


(6,159)


(0.05)


13,189


0.10















  Impacting income tax expense:













     Adjustments of income tax valuation allowances and other

(7,516)


(0.06)


-


-


(7,516)


(0.06)


  Tax related to highlighted items above

(5,735)


(0.05)


(74,784)


(0.55)


(80,520)


(0.63)















Total highlighted items

44,457


0.37


112,455


0.82


156,911


1.23


Net income excluding highlighted items

$    29,807


$           0.25


$      62,178


$           0.46


$      91,984


$           0.72















Weighted average common shares - basic



115,150




134,626




124,940


Weighted average common shares - diluted



119,022




136,626




127,731









































(in thousands, except per share data)

Q1 2012


Q2 2012


YTD 2012





Per Diluted




Per Diluted







Amount


Share


Amount


Share


Amount




Sales 

$  302,901




$    349,327




$    652,228

















Highlighted items:













     Purchase accounting impacts of deferred revenue

1,258


0.01


663


-


1,921




Sales excluding highlighted items

$  304,159




$    349,990




$    654,149































Q1 2012


Q2 2012


YTD 2012





Per Diluted




Per Diluted




Per Diluted



Amount


Share


Amount


Share


Amount


Share


Net income

$     5,799


$           0.05


$      15,001


$           0.13


$      20,800


$           0.18















Highlighted items:













  Impacting gross margin:













     Acquisition accounting impacts related to Motorola Home deferred revenue

1,258


0.01


663


-


1,921


0.02


     Stock compensation expense

750


0.01


809


0.01


1,559


0.01















  Impacting operating expenses:













     Acquisition costs and other

944


0.01


102


-


1,046


0.01


     Restructuring

5,203


0.04


1,039


0.01


6,242


0.05


     Amortization of intangible assets

7,379


0.06


7,444


0.05


14,823


0.12


     Stock compensation expense

5,899


0.05


7,058


0.05


12,957


0.10















  Impacting other (income) / expense:













     Non-cash interest expense

2,999


0.03


3,058


0.02


6,057


0.05


     Impairment of investment

-


-


466


-


466


-















  Tax related to highlighted items above

(8,121)


(0.07)


(6,749)


(0.05)


(14,870)


(0.12)















Total highlighted items

16,311


0.14


13,890


0.12


30,201


0.26


Net income excluding highlighted items

$    22,110


$           0.19


$      28,891


$           0.25


$      51,001


$           0.44




























Weighted average common shares - diluted



117,597




115,111




116,514



























 

 

 

SOURCE ARRIS Group, Inc.



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