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Press release from PR Newswire

ARRIS Announces Preliminary and Unaudited Third Quarter 2011 Results

Wednesday, October 26, 2011

ARRIS Announces Preliminary and Unaudited Third Quarter 2011 Results16:00 EDT Wednesday, October 26, 2011SUWANEE, Ga., Oct. 26, 2011 /PRNewswire/ -- ARRIS Group, Inc. (NASDAQ: ARRS), today announced preliminary and unaudited financial results for the third quarter 2011.Revenues in the third quarter 2011 were $274.4 million as compared to third quarter 2010 revenues of $274.3 million and as compared to second quarter 2011 revenues of $265.8 million.  Through the first three quarters of 2011 and 2010, revenues were $807.6 million and $821.3 million, respectively.Adjusted net income (a non-GAAP measure) in the third quarter 2011 was $0.21 per diluted share, compared to $0.19 per diluted share for the third quarter 2010 and $0.24 per diluted share for the second quarter 2011. Year to date, adjusted net income was $0.60 per diluted share for 2011 as compared to $0.67 per diluted share in 2010.GAAP net income in the third quarter 2011 was $0.11 per diluted share, as compared to third quarter 2010 GAAP net income of $0.11 per diluted share and second quarter 2011 GAAP net income of $0.13 per diluted share. Year to date, GAAP net income was $0.34 per diluted share in 2011 as compared to GAAP net income of $0.41 per diluted share in 2010.  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 acquisition costs, and certain discrete tax items. A reconciliation of adjusted net income to GAAP net income per share is attached to this release and also can be found on the Company's website ( margin for the third quarter 2011 was 36.5%, which compares to the third quarter 2010 gross margin of 37.2% and the second quarter 2011 gross margin of 40.2%.The Company ended the third quarter 2011 with $590.6 million of cash resources, which includes $575.0 million of cash, cash equivalents and short-term investments, and $15.6 million of long-term marketable security investments, as compared to $591.5 million, in the aggregate, at the end of the second quarter 2011. During the third quarter 2011, the Company repurchased approximately 1.6 million shares of ARRIS common stock for $17.1 million and also repurchased $5.0 million face amount of Convertible Debt.   Year to date, the Company has repurchased 6.7 million shares for $74.7 million, and $5.0 million face amount of Convertible Debt.  The Company generated $24.5 million of cash from operating activities during the third quarter 2011 and $52.3 million through the first nine months of 2011, which compares to $12.5 million and $95.9 million generated during the same periods in 2010, respectively.Order backlog at the end of the third quarter 2011 was $155.3 million as compared to $119.6 million and $154.2 million at the end of the third quarter 2010 and the second quarter 2011, respectively. The Company's book-to-bill ratio in the third quarter 2011 was 1.00 as compared to the third quarter 2010 of 0.80 and the second quarter 2011 of 0.91."Our third quarter results were within previous guidance and reflect continuing demand for our market leading products," said Bob Stanzione, ARRIS Chairman & CEO. "We now look forward to completing the acquisition of BigBand Networks and growing our current business to include a strong video product suite. The BigBand portfolio joins a host of new ARRIS products gaining traction in the industry and we believe that we are positioned well for the future."On October 11, 2011, the Company announced its intention to purchase BigBand Networks and launched a Tender Offer on October 21. The Company anticipates closing the transaction in late November 2011.The Company will present its Whole Home Solution Media Gateway and Media Player, its Multi-screen On Demand and Advertising solutions and industry-leading family of DOCSIS® 3.0 high density products at the SCTE show in Atlanta in November. These new products enable MSO customers to access their information and entertainment anywhere, anytime and across multiple screens.  Also, during the quarter the Company announced that their ServAssure? Advanced Performance Management Software platform now handles IPv4, IPv6 and dual-stack devices for data collection as well as real-time requests. ARRIS ServAssure currently manages over 80 million customer premises devices worldwide, or more than 30% of all existing in-home broadband devices."With respect to the fourth quarter 2011, we now project that revenues for the Company will be in the range of $270 to $290 million, with adjusted net income per diluted share in the range of $0.18 to $0.22 and GAAP net income per diluted share in the range of $0.08 to $0.12," said David Potts, ARRIS EVP & CFO.  "The guidance excludes the impact of the BigBand acquisition, which is expected to have approximately a $(0.01) to $(0.03) effect in the fourth quarter on a non GAAP basis."ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, October 26, 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 77404552 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 conference call. A replay of the conference call can be accessed approximately two hours after the call through October 31, 2011 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 24855789. A replay also will be made available for a period of 12 months following the conference call on ARRIS' website at 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, GA, USA, ARRIS has R&D centers in Suwanee, GA; Beaverton, OR; Lisle, 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 statements: Statements made in this press release, including those related to:growth expectations and business prospects;revenues and net income for the fourth quarter 2011, full year 2011 and beyond;the impact of the BigBand Networks acquisitionexpected 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 2011 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;the acquisition of BigBand is subject to a number of factors including a minimum tender requirement, shareholder approval, the fulfillment of closing conditions and the absence of litigation preventing the closing; in addition, all acquisitions involve integration and similar risks relating to their ultimate performance; 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 June 30, 2011 Form 10-Q.  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 30,20112011201120102010ASSETSCurrent assets:Cash and cash equivalents$          354,659$    360,281$    358,747$        353,121$          351,894Short-term investments, at fair value220,318231,254260,862266,981288,463Total cash, cash equivalents and short term investments574,977591,535619,609620,102640,357Restricted cash3,6473,6464,1764,9374,480Accounts receivable, net165,821152,436149,976125,933133,915Other receivables 5,2964065,2756,5282,654Inventories, net116,769113,020105,787101,76389,203Prepaids10,69210,27212,1159,2378,934Current deferred income tax assets24,23922,68120,45019,81928,585Other current assets21,69525,21633,53533,05428,347Total current assets923,136919,212950,923921,373936,475Property, plant and equipment, net 57,61957,10056,61756,30656,816Goodwill233,430233,440233,471234,964235,109Intangible assets, net141,784150,728159,672168,616177,560Investments47,22134,23732,78731,01529,591Noncurrent deferred income tax assets9,6379,83910,1836,2936,560Other assets5,4005,8785,7985,5206,129$       1,418,227$ 1,410,434$ 1,449,451$     1,424,087$       1,448,240LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable$            38,918$      27,825$      35,796$          50,736$            52,011Accrued compensation, benefits and related taxes25,32020,83226,27828,77825,913Accrued warranty2,9333,3002,9312,9453,504Deferred revenue39,09447,16643,01931,62536,029Current portion of long-term debt----12Other accrued liabilities19,65317,80517,59418,84725,891Total current liabilities125,918116,928125,618132,931143,360Long-term debt, net of current portion206,825208,336205,447202,615204,053Accrued pension17,98917,73017,47217,21317,383Noncurrent income taxes payable22,47121,84421,84417,70216,509Noncurrent deferred income tax liabilities21,11724,80825,82729,15132,193Other noncurrent liabilities16,25317,36718,27115,40614,926Total liabilities410,573407,013414,479415,018428,424Stockholders' equity:Preferred stock-----Common stock1,4461,4431,4381,4091,406Capital in excess of par value1,237,8521,228,7291,219,6151,206,1571,199,184Treasury stock at cost(220,034)(202,933)(145,286)(145,286)(115,248)Unrealized gain (loss) on marketable securities261,5301,244392(374)Unfunded pension liability(5,813)(5,813)(5,813)(5,813)(6,041)Accumulated deficit(5,639)(19,351)(36,042)(47,606)(58,927)Cumulative translation adjustments(184)(184)(184)(184)(184)Total stockholders' equity1,007,6541,003,4211,034,9721,009,0691,019,816$       1,418,227$ 1,410,434$ 1,449,451$     1,424,087$       1,448,240ARRIS GROUP, INC. PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)(unaudited)For the Three MonthsFor the Nine MonthsEnded September 30,Ended September 30,2011201020112010Net sales$ 274,374$ 274,286$ 807,609$ 821,338Cost of sales174,250172,299503,641493,562Gross margin100,124101,987303,968327,776Operating expenses:Selling, general, and administrative expenses35,69533,913108,401103,489Research and development expenses36,06535,138108,734105,041Restructuring charges969-96973Amortization of intangible assets8,9448,97026,83227,01381,67378,021244,936235,616Operating income 18,45123,96659,03292,160Other expense (income):Interest expense4,2774,53312,68213,728Loss (gain) on investments253(369)(504)(401)Loss (gain) on foreign currency(841)94126283Interest income(775)(399)(2,439)(1,468)Loss (gain) on debt redemption19(263)19(378)Other (income) expense, net(150)280(682)107Income from continuing operations before income taxes15,66820,09049,83080,289Income tax expense 1,9556,0487,86327,482Net income $   13,713$   14,042$   41,967$   52,807Net income per common share:Basic$       0.11$       0.11$       0.35$       0.42Diluted$       0.11$       0.11$       0.34$       0.41Weighted average common shares:Basic119,283125,237121,115125,927Diluted121,237127,638123,549129,103ARRIS GROUP, INC.PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)(unaudited)For the Three MonthsFor the Nine MonthsEnded September 30,Ended September 30,2011201020112010Operating Activities:Net income$   13,713$   14,042$   41,967$   52,807Depreciation5,8825,83717,55016,893Amortization of intangible assets8,9448,96926,83227,013Amortization of deferred finance fees161170487527Non-cash interest expense2,8832,7818,6048,548Deferred income tax provision (benefit)(4,084)4,939(15,487)2,598Stock compensation expense5,7385,78516,94716,058Provision for doubtful accounts(1)(209)(1)83Loss (gain) on debt retirement19(263)19(378)Loss (gain) on disposal of fixed assets(27)3376369Loss (gain) on investments253(370)(504)(401)Excess tax benefits from stock-based compensation plans258(36)(2,989)(2,683)Changes in operating assets & liabilities, net of effects of acquisitions and disposals:Accounts receivable(13,384)5,967(39,887)9,710Other receivables(6,134)3,930(17)2,760Inventory(3,749)(10,373)(15,006)6,648Income taxes payable/recoverable5,362(11,165)17,953(14,173)Accounts payable and accrued liabilities9,148(22,603)(6,332)(42,226)Other, net(520)4,7962,12911,788Net cash provided by operating activities24,46212,53452,27195,941Investing Activities:Purchases of investments(85,263)(100,461)(228,104)(331,547)Disposals of investments80,796104,760260,227159,914Purchases of property & equipment, net(6,401)(6,862)(18,948)(17,127)Cash proceeds from sale of property & equipment27-70243Net cash provided by (used in) investing activities(10,841)(2,563)13,245(188,517)Financing Activities:Payment of debt obligations-(38)-(112)Early redemption of long-term debt(4,984)(13,531)(4,984)(18,331)Repurchase of common stock(17,101)(15,603)(74,748)(39,288)Excess income tax benefits from stock-based compensation plans(258)362,9892,683Repurchase of shares to satisfy employee tax withholdings(15)3(8,260)(6,422)Fees and proceeds from issuance of common stock, net3,11512421,0255,375Net cash used in financing activities(19,243)(29,009)(63,978)(56,095)Net increase (decrease) in cash and cash equivalents(5,622)(19,038)-1,538(148,671)Cash and cash equivalents at beginning of period360,281370,932353,121500,565Cash and cash equivalents at end of period$ 354,659$ 351,894$ 354,659$ 351,894 ARRIS GROUP, INC.PRELIMINARY SUPPLEMENTAL NET INCOME RECONCILIATION(in thousands, except per share data) (unaudited)(in thousands, except per share data)Q1 2011Q2 2011Q3 2011YTD 2011Per DilutedPer DilutedPer DilutedPer DilutedAmountShareAmountShareAmountShareAmountShareNet income$ 11,564$      0.09$ 16,690$      0.13$ 13,713$      0.11$ 41,967$      0.34Highlighted items:Impacting gross margin:Stock compensation expense437-557-525-1,5190.01Impacting operating expenses:Acquisition costs, restructuring and other---1,4440.011,4440.01Amortization of intangible assets8,9440.078,9440.078,9440.0726,8320.22Stock compensation expense4,8470.045,3680.045,2130.0415,4280.12Impacting other (income) / expense:Non-cash interest expense2,8320.022,8890.022,8830.028,6040.07Loss (gain) on retirement of debt---19-19-Impacting income tax expense:Adjustments of income tax valuation allowances, research & development credits and other(3,583)(0.03)--(2,335)(0.02)(5,918)(0.05)Tax related to highlighted items above(5,024)(0.04)(4,915)(0.04)(5,265)(0.04)(15,204)(0.12)Total highlighted items8,4530.0712,8430.1011,4280.0932,7240.26Net income excluding highlighted items$ 20,017$      0.16$ 29,533$      0.24$ 25,141$      0.21$ 74,691$      0.60Weighted average common shares - diluted125,732123,711121,237123,549Q1 2010Q2 2010Q3 2010YTD 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 assets9,0220.079,0210.078,9700.0727,0130.21Stock compensation expense4,0880.035,2710.045,2940.0414,6530.11Impacting other (income) / expense:Non-cash interest expense2,8830.022,8840.022,7810.028,5480.07Loss (gain) on retirement of debt--(115)-(263)-(378)-Impacting income tax expense:Adjustments of income tax valuation allowances, 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 items12,1950.0911,0440.0910,1000.0833,3370.26Net income excluding highlighted items$ 31,186$      0.24$ 30,818$      0.24$ 24,142$      0.19$ 86,144$      0.67Weighted average common shares - diluted129,975129,717127,638129,103With 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.  Disclosing the non-cash piece provides investors with the information regarding interest that will not be paid out in cash.     In 2011 and 2010, income tax expense adjustments were recorded for state valuation allowances and research and development tax credits.  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.SOURCE ARRIS Group, Inc.For further information: Jim Bauer, Investor Relations, +1-678-473-2647,