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Press release from PR Newswire

ARRIS Announces Preliminary and Unaudited Fourth Quarter and Full Year 2010 Results

Wednesday, February 09, 2011

ARRIS Announces Preliminary and Unaudited Fourth Quarter and Full Year 2010 Results16:00 EST Wednesday, February 09, 2011SUWANEE, Ga., Feb. 9, 2011 /PRNewswire/ -- ARRIS Group, Inc. (Nasdaq: ARRS), today announced preliminary and unaudited financial results for the fourth quarter and full year 2010.Revenues in the fourth quarter 2010 were $266.2 million as compared to fourth quarter 2009 revenues of $300.0 million, and as compared to third quarter 2010 revenues of $274.3 million.  Full year 2010 and 2009 revenues were $1,087.5 million and $1,107.8 million, respectively.Adjusted net income (a non-GAAP measure) in the fourth quarter 2010 was $0.19 per diluted share, compared to $0.32 per diluted share for the fourth quarter 2009 and $0.19 per diluted share for the third quarter of 2010.  In the fourth quarter 2010, the Company recognized approximately $0.03 per diluted share of full year benefit associated with Congress passing the R&D tax credit legislation in late December.  Adjusted net income was $0.85 per diluted share for the full year 2010 and compares to $1.01 per diluted share for the full year 2009.GAAP net income in the fourth quarter 2010 was $0.09 per diluted share, as compared to fourth quarter 2009 GAAP net income of $0.26 per diluted share and third quarter 2010 GAAP net income of $0.11 per diluted share. Full year 2010 GAAP net income was $0.50 per diluted share as compared to $0.71 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 fourth quarter 2010 was 36.2%, which compares to the fourth quarter 2009 gross margin of 44.8% and the third quarter 2010 gross margin of 37.2%.  Year over year margin decline was the result of a shift in product mix.The Company ended the fourth quarter 2010 with $620.1 million of cash, cash equivalents and short-term investments, as compared to $625.6 million at the end of the fourth quarter 2009 and $640.4 million at the end of the third quarter 2010. However, during the fourth quarter the Company used $30 million to repurchase 2.9 million shares of its common stock and $5 million to repurchase convertible notes.  During 2010, the Company used a total of $92.6 million to repurchase 6.8 million shares of its common stock and $24 million in face value of convertible notes.  The Company generated $22.6 million of cash from operating activities during the fourth quarter 2010 and $118.5 million during the full year 2010, which compares to $69.8 million and $241.0 million during the same periods in 2009.Order backlog at the end of the fourth quarter 2010 was $140.4 million as compared to $144.4 million and $119.6 million at the end of the fourth quarter 2009 and the third quarter 2010, respectively.  The Company's book-to-bill ratio in the fourth quarter 2010 was 1.08 as compared to the fourth quarter 2009 of 0.92 and the third quarter 2010 of 0.80."Fourth quarter financial results closed in line with our expectations and we continued to strengthen our balance sheet during the quarter," said Bob Stanzione, ARRIS Chairman & CEO. "ARRIS continues to invest aggressively in new IP based video products as the industry moves towards a convergence of conventional TV and IP based TV.  In the meantime, internet traffic continues to grow, which will create ongoing demand for both our existing and new products as well."During the quarter the Company announced its highly-anticipated downstream module upgrade, significantly increasing the downstream density of the DOCSIS(R) 3.0 C4 CMTS.  DOCSIS 3.0 was introduced initially in 2008 on the C4 CMTS with a 16 downstream channel single slot Cable Access Module (CAM). With this second generation DOCSIS 3.0 capability, the capacity of the 16D CAMs can be increased to 32 Annex B or 24 Annex A downstream channels. "We are off to a good start in 2011.  With respect to the first quarter 2011, we now project that revenues for the Company will be in the range of $260 to $280 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 EST, today, Wednesday, February 9, 2011, to discuss these results in detail.  You may participate in this conference call by dialing 888-713-4216 or 617-213-4868 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 34755339 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 5:00 pm EST conference call.  A replay of the conference call can be accessed approximately two hours after the call through Monday, February 14, 2011 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 35140408.  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 first quarter 2011, full year 2011, 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 first quarter 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 materially 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 September 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)December 31,September 30,June 30,March 31,December 31,20102010201020102009ASSETSCurrent assets:Cash and cash equivalents$             353,121$             351,894$             370,932$             500,044$             500,565Short-term investments, at fair value266,981288,463292,421161,012125,031Total cash, cash equivalents and short term investments620,102640,357663,353661,056625,596Restricted cash4,9374,4804,4784,4764,475Accounts receivable, net125,933133,915139,673139,207143,708Other receivables 6,5282,6546,3683,0576,113Inventories, net101,76389,20378,83079,90795,851Prepaids9,2378,93410,19610,54611,675Current deferred income tax assets19,81928,58530,46937,32435,994Income taxes recoverable21,90717,0945,943-3,106Other current assets11,14711,25315,38614,32815,790Total current assets921,373936,475954,696949,901942,308Property, plant and equipment, net 56,30656,81656,12856,22357,195Goodwill234,963235,109235,122235,256235,388Intangible assets, net168,616177,560186,529195,551204,572Investments31,01529,59129,48525,43520,618Noncurrent deferred income tax assets6,2946,5606,1276,2986,759Other assets5,5206,1296,7558,0508,776$          1,424,087$          1,448,240$          1,474,842$          1,476,714$          1,475,616LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable$               50,736$               52,011$               72,652$               44,523$               53,979Accrued compensation, benefits and related taxes28,77825,91320,69623,63936,936Accrued warranty2,9453,5043,5393,6324,265Deferred revenue31,62536,02944,91353,02447,044Current portion of long-term debt-125087124Current deferred income tax liability-----Other accrued liabilities18,84725,89124,47642,97846,203Total current liabilities132,931143,360166,326167,883188,551Long-term debt, net of current portion202,615204,053212,914214,131211,248Accrued pension17,21317,38317,05816,73316,408Noncurrent income taxes payable17,70216,50916,52316,24814,815Noncurrent deferred income tax liabilities29,15132,19328,70533,57737,204Other noncurrent liabilities15,40614,92615,70416,87116,021Total liabilities415,018428,424457,230465,443484,247Stockholders' equity:Preferred stock-----Common stock1,4091,4061,4051,4021,388Capital in excess of par value1,206,1571,199,1841,194,8291,187,8541,183,872Treasury stock at cost(145,286)(115,248)(99,645)(79,019)(75,960)Unrealized gain (loss) on marketable securities392(374)217228Unfunded pension liability(5,813)(6,041)(6,041)(6,041)(6,041)Accumulated deficit(47,606)(58,927)(72,969)(92,743)(111,734)Cumulative translation adjustments(184)(184)(184)(184)(184)Total stockholders' equity1,009,0691,019,8161,017,6121,011,271991,369$          1,424,087$          1,448,240$          1,474,842$          1,476,714$          1,475,616ARRIS GROUP, INC. PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)For the Three MonthsEnded December 31,For the Twelve MonthsEnded December 31,2010 2009 2010 2009 (unaudited)(unaudited)(unaudited)(unaudited)Net sales$    266,168$        299,995$    1,087,506$    1,107,806Cost of sales169,855165,495663,417645,043Gross margin96,313134,500424,089462,763Operating expenses:Selling, general, and administrative expenses34,20537,622137,694148,403Research and development expenses35,42735,102140,468124,550Restructuring charges(8)2,917653,702Amortization of intangible assets8,9449,55435,95737,36178,56885,195314,184314,016Operating income 17,74549,305109,905148,747Other expense (income):Interest expense4,2374,54917,96517,670Gain on investments(13)(258)(414)(711)Loss (gain) on foreign currency(327)(198)(44)3,445Interest income(528)(237)(1,997)(1,409)Loss (gain) on debt retirement5-(373)(4,152)Other (income) expense, net31174138(714)Income from continuing operations before income taxes14,34045,27594,630134,618Income tax expense3,01911,99630,50243,849Net income $         11,321$          33,279$         64,128$         90,769Net income per common shareBasic$             0.09$              0.26$             0.51$             0.73Diluted$             0.09$              0.26$             0.50$             0.71Weighted average common shares:Basic122,866125,698125,157124,716Diluted125,758129,524128,271128,085ARRIS GROUP, INC.PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)For the Three Months Ended December 31,For the Twelve Months Ended December 31,2010 2009 2010 2009 (unaudited)(unaudited)(unaudited)(unaudited)Operating Activities:Net income$             11,321$               33,279$             64,128$               90,769Depreciation5,9725,49222,86520,862Amortization of intangible assets8,9449,55435,95737,361Stock compensation expense5,7694,20721,82715,921Deferred income tax provision (benefit)5,483(626)8,08113,052Amortization of deferred finance fees164180691728Provision for doubtful accounts(366)(1,281)(283)(1,280)Gain on investments(13)(258)(414)(711)Loss on disposal of fixed assets37474406428Non-cash interest expense2,7772,82811,32511,136Loss (gain) on debt retirement5-(373)(4,152)Excess income tax benefits from stock-based compensation plans(69)(980)(2,752)(3,007)Changes in operating assets & liabilities, net of effects of acquisitions and disposals:Accounts receivable8,348(19,097)18,05821,704Other receivables(2,819)(2,922)(59)(2,383)Inventory(12,560)8,457(5,912)38,906Income taxes payable/recoverable(3,614)7,834(17,787)4,966Accounts payable and accrued liabilities(6,082)37,031(48,308)4,707Other, net(729)(14,399)11,059(8,030)Net cash provided by operating activities22,56869,773118,509240,977Investing Activities:Purchases of property, plant, and equipment(5,518)(4,336)(22,645)(18,663)Cash paid for acquisition, net of cash acquired(4,000)(14,604)(4,000)(22,734)Cash proceeds from sale of property, plant & equipment22245210Purchases of investments(182,829)(64,859)(514,376)(216,704)Disposals of investments204,16350,072364,077104,488Net cash provided by (used in) investing activities11,818(33,725)(176,699)(153,403)Financing Activities:Payment of debt obligations(12)(37)(124)(158)Early redemption of long-term debt(4,956)-(23,287)(10,556)Repurchase of common stock(30,038)-(69,326)-Excess income tax benefits from stock-based compensation plans699802,7523,007Repurchase of shares to satisfy employee tax withholdings(25)-(6,447)(2,180)Proceeds from issuance of common stock1,8031,7797,17812,984Net cash provided by (used in) financing activities(33,159)2,722(89,254)3,097Net increase (decrease) in cash and cash equivalents1,22738,770(147,444)90,671Cash and cash equivalents at beginning of period351,894461,795500,565409,894Cash and cash equivalents at end of period$           353,121$             500,565$           353,121$             500,565ARRIS GROUP, INC.PRELIMINARY SUPPLEMENTAL NET INCOME RECONCILIATION(in thousands, except per share data)(unaudited)Q4 2010Q4 2009Year 2010Year 2009Per DilutedPer DilutedPer DilutedPer DilutedAmountShareAmountShareAmountShareAmountShareNet income$    11,321$                0.09$    33,279$        0.26$    64,128$                0.50$    90,769$        0.71Highlighted items:Impacting gross margin:Stock compensation expense492-3830.001,8970.011,4460.01Impacting operating expenses:Acquisition costs, restructuring and other(8)-2,9170.0265-3,9770.03Amortization of intangible assets8,9440.079,5540.0735,9570.2837,3610.29Stock compensation expense5,2770.053,8240.0319,9300.1514,4750.11Impacting other (income) / expense:Non-cash interest expense2,7770.022,8270.0211,3250.0911,1350.09Loss (gain) on retirement of debt5---(373)-(4,152)(0.03)Impacting income tax expense:Adjustments of income tax valuation allowances, research & development credits and other1,0580.01(4,422)(0.03)8890.01(3,133)(0.02)Tax related to highlighted items above(6,503)(0.05)(7,375)(0.06)(24,311)(0.19)(22,561)(0.18)Total highlighted items12,0420.107,7080.0645,3790.3538,5480.30Net income excluding highlighted items$    23,363$                0.19$    40,987$        0.32$  109,507$                0.85$  129,317$        1.01Weighted average common shares - diluted125,758129,524128,271128,085With 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 the first and second quarters of 2010 and in the first and third quarter of 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 & fourth 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 and loss of $5 thousand, respectively.  In assessing operating performance and preparing budgets and forecasts, ARRIS? management considers performance after making these adjustments and believes that providing investors with the same information provides greater transparency and insight into management?s analysis.ARRIS GROUP, INC.PRELIMINARY SUPPLEMENTAL OPERATING INCOME RECONCILIATIONS(in thousands)(Unaudited)Q4 2010Q4 2009Year 2010Year 2009Operating income as reported$          17,745$          49,305$        109,905$        148,747Operating income as a % of sales7%16%10%13%Highlighted Items:Stock compensation expense5,7694,20721,82715,921Acquisition costs, restructuring and other(8)2,917653,977Amortization of intangible assets8,9449,55435,95737,361Operating income excluding highlighted items32,45065,983167,754206,006Operating income excluding highlighted items as a % of sales12%22%15%19%See the GAAP to Non-GAAP EPS reconciliation for a discussion regarding these adjustments and management's reasoning for providing this Non-GAAP financial measure.ARRIS GROUP, INC.Net Income Reconciliation (unaudited)Q1 2011 EPS GuidanceEstimated GAAP EPS - diluted$0.05 - $0.09Reconciling Items:    Amortization of intangibles, after tax0.05    Stock compensation expense, after tax0.03Non-cash interest expense, after tax0.01    Subtotal0.09Estimated adjusted (non-GAAP) EPS - diluted$0.14 - $0.18See the Supplemental Net Income Reconciliation for a discussion regarding these adjustments and management's reasoning for providing this adjusted financial measureSOURCE ARRIS Group, Inc.For further information: Jim Bauer, Investor Relations, +1-678-473-2647, jim.bauer@arrisi.com