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Press release from PR Newswire

ARRIS Announces Preliminary and Unaudited Third Quarter 2010 Results

Wednesday, October 27, 2010

ARRIS Announces Preliminary and Unaudited Third Quarter 2010 Results16:00 EDT Wednesday, October 27, 2010SUWANEE, Ga., Oct. 27 /PRNewswire-FirstCall/ -- ARRIS Group, Inc. (Nasdaq: ARRS), today announced preliminary and unaudited financial results for the third quarter 2010.Revenues in the third quarter 2010 were $274.3 million, as compared to third quarter 2009 revenues of $275.8 million and compared to second quarter 2010 revenues of $280.4 million.  Through the first three quarters of 2010 and 2009, revenues were $821.3 million and $807.8 million, respectively.Adjusted net income (a non-GAAP measure) in the third quarter 2010 was $0.19 per diluted share, compared to $0.25 per diluted share for the third quarter 2009 and $0.24 per diluted share for the second quarter of 2010.  Year to date, adjusted net income was $0.67 per diluted share for 2010 as compared to $0.69 per diluted share in 2009.GAAP net income in the third quarter 2010 was $0.11 per diluted share, as compared to third quarter 2009 GAAP net income of $0.17 per diluted share and second quarter 2010 GAAP net income of $0.15 per diluted share. Year to date, GAAP net income was $0.41 per diluted share in 2010 as compared to GAAP net income of $0.45 per diluted share in 2009.  Significant GAAP items that have been excluded in computing adjusted net income and adjusted net income per diluted share include amortization of intangible assets, equity compensation, non-cash interest expense, 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 also can be found on the Company's website (www.arrisi.com). Gross margin for the third quarter 2010 was 37.2%, which compares to the third quarter 2009 gross margin of 41.9% and the second quarter 2010 gross margin of 40.4%.  As expected, margins declined as a result of a shift in product mix.The Company ended the third quarter 2010 with $640.4 million of cash, cash equivalents and short-term investments, up in the aggregate by approximately $78.6 million from the end of the third quarter 2009 and down $23.0 million from the end of the second quarter 2010. The Company generated $12.5 million of cash from operating activities during the third quarter 2010 and $95.9 million through the first nine months of 2010, which compares to $63.1 million and $171.2 million during the same periods in 2009, respectively.  Order backlog at the end of the third quarter 2010 was $119.6 million as compared to $169.5 million and $174.1 million at the end of the third quarter 2009 and the second quarter 2010, respectively.  The Company's book-to-bill ratio in the third quarter 2010 was 0.80 as compared to the third quarter 2009 of 1.01 and the second quarter 2010 of 0.92."Third quarter financial results came in as we had forecast with CPE sales during the quarter at the highest level since 2007," said Bob Stanzione, ARRIS Chairman & CEO. "As a result of our efforts to expand our portfolio with new IP video based products, as well as the increased demand that we anticipate for our core products, we continue to see our total addressable market growing significantly in the coming years."During the quarter the Company demonstrated its video, data and voice products at the IBC Show in Amsterdam. These product solutions provide European operators with a competitive technical and business case advantage based on the Company's decades of expertise in developing IP technologies. The Company also demonstrated its video, data, fixed and wireless voice solutions to Brazilian cable operators at the ABTA Cable Exhibition in Sao Paulo, Brazil.  In addition, the Company added two new customers in Korea for its CMTS platform and a major MSO customer in Germany for its universal edge QAM product.  "Of note, in the third quarter, we repurchased approximately 1.7 million shares of ARRIS common stock for $15.6 million and repurchased $14.0 million (face value) of Convertible Notes for $13.5 million.  Year to date, we have repurchased 3.8 million shares and $19.0 million (face value) of Convertible Notes for an aggregate purchase price of $57.6 million.  With respect to the fourth quarter 2010, we now project that revenues for the Company will be in the range of $250 to $275 million, with adjusted net income per diluted share in the range of $0.14  to $0.18 and GAAP net income per diluted share, in the range of $0.05 to $0.09," said David Potts, ARRIS EVP & CFO.  ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, October 27, 2010, to discuss these results in detail.  You may participate in this conference call by dialing 888-679-8038 or 617-213-4850 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 59527542 and Jim Bauer as the moderator.  Please note that ARRIS will not accept any calls related to this earnings release until after the conclusion of the 5:00pm EDT conference call.  A replay of the conference call can be accessed approximately two hours after the call through Tuesday, November 2, 2010 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 69800362.  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 ARRISARRIS 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, Georgia, USA, ARRIS has R&D centers in Suwanee, GA; Beaverton, OR; Chicago, IL; Kirkland, WA; State College, PA; 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;revenues and net income for the fourth quarter 2010, full year 2010, and beyond;expected sales levels and acceptance of new ARRIS products; andthe general market outlook and industry trendsare 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 fourth quarter 2010 as well as the general outlook for 2011 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 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; andbecause 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 June 30, 2010.  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)September 30,June 30,March 31,December 31,September 30,20102010201020092009ASSETSCurrent assets:Cash and cash equivalents$          351,894$    370,932$    500,044$        500,565$          461,795Short-term investments, at fair value288,463292,421161,012125,03199,917Total cash, cash equivalents and short term investments640,357663,353661,056625,596561,712Restricted cash4,4804,4784,4764,4754,473Accounts receivable, net133,915139,673139,207143,708119,125Other receivables 2,6546,3683,0576,1132,235Inventories, net89,20378,83079,90795,851100,024Prepaids8,93410,19610,54611,67510,764Current deferred income tax assets28,58530,46937,32435,99432,883Income taxes recoverable17,0945,943-3,1062,026Other current assets11,25315,38614,32815,79015,167Total current assets936,475954,696949,901942,308848,409Property, plant and equipment, net 56,81656,12856,22357,19558,339Goodwill235,109235,122235,256235,388234,416Intangible assets, net177,560186,529195,551204,572201,351Investments29,59129,48525,43520,61830,574Noncurrent deferred income tax assets6,5606,1276,2986,7593,593Other assets6,1296,7558,0508,7767,648$       1,448,240$ 1,474,842$ 1,476,714$     1,475,616$       1,384,330LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable$            52,011$      72,652$      44,523$          53,979$            42,659Accrued compensation, benefits and related taxes25,91320,69623,63936,93627,054Accrued warranty3,5043,5393,6324,2655,292Deferred revenue36,02944,91353,02447,04435,423Current portion of long-term debt125087124148Current deferred income tax liability----250Other accrued liabilities25,89124,47642,97846,20334,979Total current liabilities143,360166,326167,883188,551145,805Long-term debt, net of current portion204,053212,914214,131211,248208,433Accrued pension17,38317,05816,73316,40818,914Noncurrent income taxes payable16,50916,52316,24814,81510,632Noncurrent deferred income tax liabilities32,19328,70533,57737,20435,188Other noncurrent liabilities14,92615,70416,87116,02115,301Total liabilities428,424457,230465,443484,247434,273Stockholders' equity:Preferred stock-----Common stock1,4061,4051,4021,3881,385Capital in excess of par value1,199,1841,194,8291,187,8541,183,8721,177,958Treasury stock at cost(115,248)(99,645)(79,019)(75,960)(75,960)Unrealized gain (loss) on marketable securities(374)217228(60)Unfunded pension liability(6,041)(6,041)(6,041)(6,041)(8,070)Accumulated deficit(58,927)(72,969)(92,743)(111,734)(145,012)Cumulative translation adjustments(184)(184)(184)(184)(184)Total stockholders' equity1,019,8161,017,6121,011,271991,369950,057$       1,448,240$ 1,474,842$ 1,476,714$     1,475,616$       1,384,330ARRIS GROUP, INC. PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)For the Three MonthsFor the Nine MonthsEnded September 30,Ended September 30,2010 2009 2010 2009 (unaudited)(unaudited)(unaudited)(unaudited)Net sales$    274,286$    275,772$    821,338$    807,811Cost of sales172,299160,299493,562479,548Gross margin101,987115,473327,776328,263Operating expenses:Selling, general, and administrative expenses33,91336,311103,489110,782Research and development expenses35,13830,909105,04189,447Restructuring charges-7373785Amortization of intangible assets8,9709,28127,01327,80778,02176,574235,616228,821Operating income 23,96638,89992,16099,442Other expense (income):Interest expense4,5334,35613,72813,121Gain on investments(369)(238)(400)(453)Loss on foreign currency941,1142833,642Interest income(399)(424)(1,469)(1,172)Gain on debt retirement(263)-(378)(4,152)Other (income) expense, net280(263)107(887)Income from continuing operations before income taxes20,09034,35480,28989,343Income tax expense6,04812,65527,48231,853Net income $      14,042$      21,699$      52,807$      57,490Net income per common shareBasic$          0.11$          0.17$          0.42$          0.46Diluted$          0.11$          0.17$          0.41$          0.45Weighted average common shares:Basic125,237125,326125,927124,381Diluted127,638129,695129,103127,916ARRIS GROUP, INC.PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)For the Three MonthsFor the Nine MonthsEnded September 30,Ended September 30,2010 2009 2010 2009 (unaudited)(unaudited)(unaudited)(unaudited)Operating Activities:Net income$      14,042$      21,699$      52,807$      57,490Depreciation5,8375,40816,89315,370Amortization of intangible assets8,9699,28127,01227,807Stock compensation expense5,7854,26016,05811,714Deferred income tax provision (benefit)4,9399,7512,59813,678Amortization of deferred finance fees170180527548Provision for doubtful accounts(209)11831Gain on investments(370)(238)(401)(453)Loss (gain) on disposal of fixed assets337(76)369(46)Non-cash interest expense2,7812,7728,5488,308Gain on debt retirement(263)-(378)(4,152)Excess income tax benefits from stock-based compensation plans(36)(1,471)(2,683)(2,027)Changes in operating assets & liabilities, net of effects of acquisitions and disposals:Accounts receivable5,9679,8309,71040,801Other receivables3,9302,3592,760539Inventory(10,373)16,6416,64830,449Income taxes payable/recoverable(11,165)(4,800)(14,173)(2,868)Accounts payable and accrued liabilities(22,603)(9,757)(42,226)(32,620)Other, net4,796(2,800)11,7896,665Net cash provided by operating activities12,53463,05095,941171,204Investing Activities:Purchases of property, plant, and equipment(6,862)(3,459)(17,127)(14,327)Cash paid for acquisition, net of cash acquired-(7,930)-(8,130)Cash proceeds from sale of property, plant & equipment-207243208Purchases of investments(100,461)(93,079)(331,547)(151,845)Disposals of investments104,76020,479159,91454,416Net cash used in investing activities(2,563)(83,782)(188,517)(119,678)Financing Activities:Payment of debt obligations(38)(49)(112)(121)Early redemption of long-term debt(13,531)-(18,331)(10,556)Repurchase of common stock(15,603)-(39,288)-Excess income tax benefits from stock-based compensation plans361,4712,6832,027Repurchase of shares to satisfy employee tax withholdings3-(6,422)(2,180)Proceeds from issuance of common stock1244,2595,37511,205Net cash provided by (used in) financing activities(29,009)5,681(56,095)375Net increase (decrease) in cash and cash equivalents(19,038)(15,051)(148,671)51,901Cash and cash equivalents at beginning of period370,932476,846500,565409,894Cash and cash equivalents at end of period$    351,894$    461,795$    351,894$    461,795ARRIS GROUP, INC.PRELIMINARY SUPPLEMENTAL NET INCOME RECONCILIATION(in thousands, except per share data)(unaudited)Q1 2010Q2 2010Q3 2010September YTD 2010Per DilutedPer DilutedPer DilutedPer DilutedAmountShareAmountShareAmountShareAmountShareNet income$        18,991$                0.15$        19,774$                0.15$    14,042$                0.11$    52,807$                0.41Highlighted items:Impacting gross margin:Stock compensation expense433-481-491-1,4050.01Impacting operating expenses:Acquisition costs, restructuring and other52-21---73-Amortization of intangible assets9,0220.079,0220.078,9690.0727,0130.21Stock compensation expense4,0880.035,2720.045,2940.0414,6540.11Impacting other (income) / expense:Non-cash interest expense2,8830.022,8840.022,7810.028,5480.07Gain on retirement of debt--(115)-(263)-(378)-Impacting income tax expense:Adjustments of income tax valuation allowances and research & development credits and other1,2220.01(351)-(1,040)(0.01)(169)-Tax related to highlighted items above(5,505)(0.04)(6,170)(0.05)(6,133)(0.05)(17,808)(0.14)Total highlighted items12,1950.0911,0440.0810,0990.0833,3380.26Net income excluding highlighted items$        31,186$                0.24$        30,818$                0.24$    24,141$                0.19$    86,145$                0.67Weighted average common shares - diluted129,975130,690127,638129,103Q1 2009Q2 2009Q3 2009September YTD 2009Per DilutedPer DilutedPer DilutedPer DilutedAmountShareAmountShareAmountShareAmountShareNet income $        12,882$                0.10$        22,909$                0.18$    21,699$                0.17$    57,490$                0.45Highlighted items:Impacting gross margin:Stock compensation expense303-366-394-1,0630.01Impacting operating expenses:Acquisition costs, restructuring and other120-592-348-1,0600.01Amortization of intangible assets9,2630.079,2630.079,2810.0727,8070.22Stock compensation expense3,0980.023,6870.033,8660.0310,6510.08Impacting other (income) / expense:Non-cash interest expense2,8180.022,7180.022,7720.028,3080.06Gain on retirement of debt(4,152)(0.03)----(4,152)(0.03)Impacting income tax expense:Adjustments of income tax valuation allowances and research & development credits and other1,4550.01--(166)-1,2890.01Tax related to highlighted items above(3,646)(0.03)(5,322)(0.04)(6,218)(0.05)(15,186)(0.12)Total highlighted items9,2590.0711,3040.0910,2770.0830,8400.24Net income excluding highlighted items$        22,141$                0.18$        34,213$                0.27$    31,976$                0.25$    88,330$                0.69Weighted average common shares - diluted124,920128,054129,695127,916With respect to stock compensation expense,  ARRIS records non-cash compensation expense related to grants of options and restricted stock.  Depending upon the size, timing and the terms of the grants, this non-cash compensation expense may vary significantly.  With respect to amortization of intangibles, the intangibles being amortized relate to our acquisitions.  The acquisition costs, restructuring, and other reflect items that, although they or similar items might recur, are of a nature and magnitude that identifying them separately provides investors with a greater ability to project ARRIS?  future performance.    With respect to the convertible debt non-cash interest, ARRIS records non-cash interest expense related to the 2013 convertible debt as a result of the adoption of FSP ABP 14-1 on January 1, 2009.   Disclosing the non-cash piece provides investors with the information regarding interest that will not be paid out in cash.     In both 2010 and 2009, income tax expense adjustments were recorded for state valuation allowances and research and development tax credits.  During the first quarter of 2009, and the second & third quarters of 2010,  ARRIS repurchased a portion of their convertible debt and recognized a gain of approximately $4.2 million, $0.1 million and $0.3 million, respectively.  In assessing operating performance and preparing budgets and forecasts, ARRIS? management considers performance after making these adjustments and believes that providing investors with the same information provides greater transparency and insight into management?s analysis.ARRIS GROUP, INC.PRELIMINARY SUPPLEMENTAL OPERATING INCOME RECONCILIATIONS(unaudited)(in thousands)Q1 2010Q2 2010Q3 2010Sept 2010 YTDOperating Income as reported$ 33,955$ 34,239$ 23,966$           92,160Operating Income as a % of sales13%12%9%11%Highlighted Items:Stock compensation expense4,5215,7535,78516,059Acquisition costs, restructuring and other5221-73Amortization of intangible assets9,0229,0228,96927,013Operating Income excluding highlighted items47,55049,03538,720135,305Operating Income excluding highlighted items as a % of sales18%17%14%16%Q1 2009Q2 2009Q3 2009Sept 2009 YTDOperating Income as reported$ 22,389$ 38,154$ 38,899$           99,442Operating Income as a % of sales9%14%14%12%Highlighted Items:Stock compensation expense3,4014,0534,26011,714Acquisition costs, restructuring and other1205923481,060Amortization of intangible assets9,2639,2639,28127,807Operating Income excluding highlighted items35,17352,06252,788140,023Operating Income excluding highlighted items as a % of sales14%19%19%17%ARRIS GROUP, INC.Net Income Reconciliation (unaudited)Q4 2010 EPS GuidanceEstimated GAAP EPS$0.05 - $0.09Reconciling Items    Amortization of Intangibles (after tax)$0.05    Stock Compensation Expense (after tax)$0.03    Non-Cash Interest - Convertible Debt (after tax)$0.01    Subtotal$0.09 Estimated Adjusted (Non-GAAP) EPS$0.14 - $ 0.18See the Preliminary Supplemental Net Income Reconciliation for a discussion regarding these adjustments and management's reasoning for providing this adjusted financial measure.SOURCE ARRIS Group, Inc.For further information: Jim Bauer, Investor Relations, +1-678-473-2647, jim.bauer@arrisi.com