ARRIS Announces Preliminary and Unaudited Fourth Quarter and Full Year 2008 Results
ARRS), a global technology leader in the development of advanced cable
telephony, next generation high-speed data, demand driven video solutions,
operations software and broadband access equipment, today announced
preliminary and unaudited financial results for the fourth quarter and full
year 2008.
Fourth quarter 2008 revenues of
17%, as compared to the fourth quarter 2007 revenues of
year 2008 revenues were
compared to full year 2007 revenues of
2008 was a result of strong market acceptance of both ARRIS products and of
new product offerings that resulted from the late 2007 acquisition of C-COR,
Inc. ARRIS products benefit from continuing growth of video and data traffic
over the internet.
Non-GAAP net income in the fourth quarter 2008 was
share, as compared to the fourth quarter 2007 of
as compared to the third quarter 2008 of
per diluted share on a non-GAAP basis for the full year 2008 was
compared to
Preliminary GAAP net loss in the fourth quarter 2008 was
diluted share, as compared to the fourth quarter 2007 net income of
diluted share, and as compared to the third quarter 2008 net income of
per diluted share. The fourth quarter loss is the result of a goodwill
impairment (net of a related estimated tax benefit) of approximately
million
analysis of goodwill impairment in the context of the current and continuing
decline in the market value of communications equipment suppliers in general
and the impact of deteriorating macro economic conditions. This analysis is
not complete and the impairment related estimates may change when the analysis
is completed. The goodwill impairment, like intangible amortization, is non-
cash in nature and does not affect liquidity or cash flows from operations.
Preliminary GAAP net loss for the full year 2008 was
share, as compared to GAAP net income of
Significant non-GAAP items include: preliminary estimate of goodwill
impairment, tax impacts associated with the impairment of goodwill, in-process
research and development expense, equity compensation expense, amortization of
intangibles, restructuring/product line exit accruals and adjustments, certain
acquisition-related gains and expenses, and certain tax benefits and costs. A
reconciliation of GAAP to non-GAAP earnings per share is attached to this
release and also can be found on the Company’s website (www.arrisi.com).
The Company ended 2008 with
investments, which compares to
generated approximately
the fourth quarter 2008 and
compares to cash generated from operating activities of
Order backlog at the end of 2008 was
to bill ratio in the fourth quarter was approximately 0.90. This compares to
order backlog of
quarter of 2008.
“Despite the challenging market conditions, ARRIS delivered a solid year
of both financial and market performance in 2008,” said
Chairman & CEO. “We are very proud of the fact that we reached and exceeded
the financial goals that we established for the Company in early 2008 and at
the same time gained market share in many product areas. The successful
integration of the C-COR acquisition into ARRIS enhanced our stature in the
industry, added scope and scale to our business and improved our financial
model. Our strong balance sheet and the ongoing introduction of new products
and technologies should enable ARRIS to help our customers’ respond to their
customers needs for faster speeds, more video and higher quality service. I
am confident that we are well positioned to meet those needs in 2009.”
“As we enter 2009, macro economic factors may have an effect on our
results,” said
that revenues for the Company in the first quarter 2009 will be in the range
of
range of
efficiencies and cash generation,” concluded Potts.
ARRIS management will conduct a conference call at
participate in this conference call by dialing 888-680-0890 or 617-213-4857
for international calls prior to the start of the call and providing the ARRIS
Group, Inc. name, conference passcode 64968525 and
Please note that ARRIS will not accept any calls related to this earnings
release until after the conclusion of the
replay of the conference call can be accessed approximately two hours after
the call through
6888 for international calls and using the passcode 53814736. A replay also
will be made available for a period of 12 months following the conference call
on ARRIS’ website at www.arrisi.com.
ARRIS 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 reliable telephony, demand driven video, next-generation
advertising and high-speed data services. ARRIS products expand and help grow
network capacity with access and outside plant construction equipment,
reliably deliver voice, video and data services and assure optimal service
delivery for end customers. Headquartered in
R&D centers in
Pennsylvania
support and sales offices throughout the world. Information about ARRIS
products and services can be found at http://www.arrisi.com.
Forward-looking statements:
Statements made in this press release, including those related to:
-- first quarter and 2009 revenues and net income;
-- expected sales levels and acceptance of certain ARRIS products;
-- estimated goodwill impairment charges;
-- the general market outlook; and
-- the outlook for 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 as well as the general outlook
for 2009 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;
— Our customers operate in a capital intensive industry, and the current
disruptions in the capital markets may adversely impact their ability to
finance, and therefore purchase, the products that we offer;
— Impairment analysis is complex, and the proper techniques for that
analysis in a market characterized by broad share price declines and high
volatility are unclear and, as a result, our impairment analysis is
preliminary and subject to future refinement; 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
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)
Dec. 31, Sep. 30, June 30,
2008 2008 (1) 2008 (1)
(unaudited) (unaudited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $409,894 $305,987 $290,266
Short-term investments, at fair
value 17,371 23,571 7,503
Total cash, cash equivalents
and short-term investments 427,265 329,558 297,769
Restricted cash 5,673 5,768 7,051
Accounts receivable, net 159,443 180,367 178,178
Other receivables 4,749 5,180 9,067
Inventories, net 129,752 139,598 144,507
Prepaids 8,004 5,156 5,305
Current deferred income tax assets 43,402 42,714 47,412
Other current assets 19,782 22,132 18,916
Total current assets 798,070 730,473 708,205
Property, plant and equipment, net 59,204 60,268 60,823
Goodwill 268,398 449,418 452,398
Intangible assets, net 227,348 236,689 244,575
Investments 14,681 12,784 9,937
Noncurrent deferred income tax assets 7,463 3,312 3,547
Other assets 8,294 11,282 11,383
$1,383,458 $1,504,226 $1,490,868
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $75,863 $54,304 $68,476
Accrued compensation, benefits
and related taxes 27,024 21,831 18,072
Accrued warranty 6,752 7,554 7,566
Deferred revenue 44,461 35,986 37,614
Current portion of long-term debt 146 234 314
Other accrued liabilities 28,691 30,205 26,884
Total current liabilities 182,937 150,114 158,926
Long-term debt, net of current portion 276,137 276,371 276,606
Accrued pension 18,820 10,622 11,362
Noncurrent income tax payable 12,645 10,128 6,250
Noncurrent deferred income tax
liability 16,302 42,337 48,725
Other long-term liabilities 14,243 16,888 18,694
Total liabilities 521,084 506,460 520,563
Stockholders' equity:
Preferred stock - - -
Common stock 1,362 1,360 1,358
Capital in excess of par value 1,105,998 1,102,112 1,098,581
Treasury stock at cost (75,960) (75,960) (76,007)
Unrealized gain (loss) on marketable
securities (274) (128) 66
Unfunded pension liability (8,070) (3,358) (3,358)
Accumulated deficit (160,498) (26,076) (50,151)
Cumulative translation adjustments (184) (184) (184)
Total stockholders' equity 862,374 997,766 970,305
$1,383,458 $1,504,226 $1,490,868
March 31, Dec. 31,
2008 (1) 2007
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $243,515 $323,797
Short-term investments, at fair value 49,513 68,011
Total cash, cash equivalents and
short-term investments 293,028 391,808
Restricted cash 7,186 6,977
Accounts receivable, net 172,719 166,953
Other receivables 6,074 4,330
Inventories, net 122,361 131,792
Prepaids 5,680 5,856
Current deferred income tax assets 51,993 44,939
Other current assets 10,952 4,841
Total current assets 669,993 757,496
Property, plant and equipment, net 60,747 59,156
Goodwill 453,454 455,352
Intangible assets, net 257,029 269,893
Investments 10,200 6,412
Noncurrent deferred income tax assets 3,688 3,459
Other assets 12,624 10,181
$1,467,735 $1,561,949
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $60,490 $58,852
Accrued compensation, benefits and
related taxes 14,397 26,177
Accrued warranty 7,919 8,298
Deferred revenue 32,738 8,474
Current portion of long-term debt 310 35,305
Other accrued liabilities 32,922 42,121
Total current liabilities 148,776 179,227
Long-term debt, net of current
portion 276,686 276,765
Accrued pension 10,905 10,455
Noncurrent income tax payable 6,487 6,322
Noncurrent deferred income tax
liability 47,090 45,255
Other long-term liabilities 19,704 18,158
Total liabilities 509,648 536,182
Stockholders' equity:
Preferred stock - -
Common stock 1,357 1,356
Capital in excess of par value 1,095,716 1,093,498
Treasury stock at cost (76,007) (572)
Unrealized gain (loss) on marketable
securities 151 20
Unfunded pension liability (3,358) (3,358)
Accumulated deficit (59,588) (64,993)
Cumulative translation adjustments (184) (184)
Total stockholders' equity 958,087 1,025,767
$1,467,735 $1,561,949
(1) Certain amounts have been reclassified to conform to the current
period’s financial statement presentation.
ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Three Months For the Twelve Months
Ended December 31, Ended December 31,
2008 2007 2008 2007
(unaudited)(unaudited) (unaudited) (audited)
Net sales $292,398 $249,561 $1,144,565 $992,194
Cost of sales 183,535 185,636 751,436 718,312
Gross margin 108,863 63,925 393,129 273,882
Gross margin % 37.2% 25.6% 34.3% 27.6%
Operating expenses:
Selling, general, and
administrative expenses 36,957 25,471 143,997 99,879
Research and development
expenses 29,285 17,549 112,542 71,233
Restructuring charges 429 39 1,211 460
Preliminary estimate of
goodwill impairment 175,000 - 175,000 -
In-process research and
development - 6,120 - 6,120
Amortization of intangible
assets 9,341 2,105 44,195 2,278
Total operating expenses 251,012 51,284 476,945 179,970
Operating income (loss) (142,149) 12,641 (83,816) 93,912
Other expense (income):
Interest expense 1,776 1,611 6,740 6,614
Loss (gain) on investments 507 282 717 (4,596)
Loss (gain) on foreign
currency (164) (16) (422) 48
Interest income (1,333) (5,527) (7,224) (24,776)
Gain related to terminated
acquisition, net of expenses - - - (22,835)
Other (income) expense, net (1,000) 39 (1,043) 370
Income (loss) from continuing
operations before income
taxes (141,935) 16,252 (82,584) 139,087
Income tax expense (benefit) (7,943) 6,556 12,491 40,951
Net income (loss) from
continuing operations (133,992) 9,696 (95,075) 98,136
Income (loss) from
discontinued operations - (126) - 204
Net income (loss) (133,992) 9,570 (95,075) 98,340
Net income (loss) per common
share - basic:
Income (loss) from continuing
operations $(1.09) $0.08 $(0.76) $0.89
Income (loss) from discontinued
operations - - - -
Net income (loss) $(1.09) $0.08 $(0.76) $0.89
Net income (loss) per common
share - diluted:
Income (loss) from continuing
operations $(1.09) $0.08 $(0.76) $0.87
Income (loss) from
discontinued operations - - - -
Net income (loss) $(1.09) $0.08 $(0.76) $0.87
Weighted average common shares:
Basic 123,128 115,261 124,878 110,843
Diluted 123,128 117,060 124,878 113,027
ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Three Months For the Twelve Months
Ended December 31, Ended December 31,
2008 2007 2008 2007
(unaudited) (unaudited) (unaudited) (audited)
Operating Activities:
Net income (loss) $(133,992) $9,570 $(95,075) $98,340
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:
Depreciation 5,394 2,849 20,915 10,852
Preliminary estimate
of goodwill impairment 175,000 - 175,000 -
Amortization of
intangible assets 9,341 2,105 44,195 2,278
Stock compensation expense 2,991 2,193 11,277 10,903
Deferred income tax
provision (benefit) 910 (9,914) 6,656 4,405
Deferred tax on
preliminary estimate
of goodwill impairment (18,000) - (18,000) -
Amortization of deferred
finance fees 278 280 1,113 1,116
Provision for doubtful
accounts 454 (205) 819 279
Gain related to previously
written off receivables - - - (377)
Gain on discontinued
product line - 126 - (204)
Loss on disposal of
fixed assets 29 15 14 182
Loss (gain) on
investments 507 274 717 (4,604)
Gain related to terminated
acquisition, net of
expenses - - - (22,835)
Write-off of acquired
in-process R&D - 6,120 - 6,120
Excess tax benefits from
stock-based compensation
plans (32) (888) (56) (9,157)
Changes in operating assets
& liabilities, net of
effects of acquisitions and
disposals:
Accounts receivable 20,682 (2,102) 8,579 (17,498)
Other receivables 3,530 670 (471) (1,774)
Inventory 10,051 14,499 4,023 (9,502)
Income taxes payable 3,699 10,785 3,042 3,090
Accounts payable and
accrued liabilities 30,727 14,479 40,470 (9,906)
Other, net (9,028) 1,978 (14,192) 1,716
Net cash provided by
operating activities 102,541 52,834 189,026 63,424
Investing Activities:
Purchases of property,
plant, and equipment (4,908) (3,934) (21,352) (15,072)
Cash proceeds related to
terminated acquisition,
net of expenses paid - - - 10,554
Cash paid for hedge related
to terminated acquisition - - - (26,469)
Cash proceeds from hedge
related to terminated
acquisition - - - 38,750
Cash paid for acquisition,
net of cash acquired (434) (285,284) (10,500) (285,284)
Cash proceeds from sale of
property, plant & equipment - - 250 3
Cash proceeds from sale
of short-term investments - - 16 -
Purchases of short-term-
investments (26,349) (60,740) (109,347) (356,366)
Disposals of short-term-
investments 32,628 249,315 155,098 412,217
Purchases of investment
securities (387) - (4,387) -
Net cash provided by (used
in) investing activities 550 (100,643) 9,778 (221,667)
Financing Activities:
Payment of debt and capital
lease obligations (346) (19) (35,864) (19)
Repurchase of common stock - - (75,913) -
Excess tax benefits from
stock-based compensation
plans 32 888 56 9,157
Employer repurchase of
shares to satisfy
minimum tax withholdings - (1) (1,035) (3,093)
Fees and proceeds from
issuance of common
stock, net 1,130 30 49 14,377
Net cash provided by
(used in) financing
activities 816 898 (112,707) 20,422
Net increase (decrease)
in cash and cash
equivalents 103,907 (46,911) 86,097 (137,821)
Cash and cash equivalents at
beginning of period 305,987 370,708 323,797 461,618
Cash and cash equivalents at
end of period $409,894 $323,797 $409,894 $323,797
ARRIS GROUP, INC.
PRELIMINARY SUPPLEMENTAL NET INCOME (LOSS) RECONCILIATION
(in thousands, except per share data)
(unaudited)
Q4 2008 YTD 2008
Per Per
Diluted Diluted
Amount Share (1) Amount Share (1)
Net income (loss) $(133,992) $(1.08) $(95,075) $(0.75)
Highlighted items:
Impacting gross margin:
Stock compensation expense 269 - 979 0.01
Impacting operating expenses:
Integration costs - - 427 -
Restructuring charges
- adjustments to existing
accruals 429 - 1,211 0.01
Amortization of intangible
assets 9,341 0.08 44,195 0.35
Stock compensation expense 2,722 0.02 10,298 0.08
Preliminary estimate of
goodwill impairment 175,000 1.41 175,000 1.39
Impacting income tax expense:
Adjustments of tax related
to goodwill impairment and
certain provision to return
adjustments (18,000) (0.14) (19,530) (0.15)
Tax related to highlighted
items above (4,105) (0.03) (20,281) (0.16)
Total highlighted items 165,656 1.33 192,299 1.52
Net income excluding highlighted
items $31,664 $0.25 $97,224 $0.77
Weighted average common shares -
diluted (1) 124,355 126,277
Q4 2007 YTD 2007
Per Per
Diluted Diluted
Amount Share Amount Share
Net income $9,570 $0.08 $98,340 0.87
Highlighted items:
Stock compensation expense 195 0.00 785 0.01
Write-off discontinued inventory 1,046 0.01 1,046 0.01
Impacting operating expenses:
Gains related to previously written
off receivables - - (377) -
Write-off of in-process research
and development 6,120 0.05 6,120 0.05
Acquisition Costs 1,415 0.01 1,415 0.01
Restructuring charges - adjustments
to existing accruals - - 421 -
Amortization of intangible assets 2,105 0.02 2,278 0.02
Stock compensation expense 1,998 0.02 10,118 0.09
Impacting net income (loss) from
continuing operations:
Gains related to terminated
acquisition, net of expenses - - (22,835) (0.20)
Gain on investments - - (4,864) (0.04)
Impacting discontinued operations:
Gains related to previously written
off receivables - - (330) -
Impacting income tax expense:
Adjustments of income tax
valuation allowances and
research & development credits
and other (1,247) (0.01) (7,959) (0.07)
Tax related to highlighted items
above (2,373) (0.02) 5,134 0.05
Total highlighted items 9,259 0.08 (9,048) (0.08)
Net income excluding highlighted
items $18,829 $0.16 $89,292 $0.79
Weighted average common shares -
diluted 117,060 113,027
(1) Although net income for these periods is a loss and inclusion of
options would be antidilutive, weighted average diluted shares are used in
this calculation as the earnings excluding highlighted items is net income.
With 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. ARRIS recognized a gain in both
Q1 and Q3 of 2007 associated with previously written off receivables. With
respect to amortization of intangibles, the intangibles being amortized relate
to our recent acquisition of C-COR. The restructuring charge adjustments
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. In the second quarter
of 2007, ARRIS realized a gain before tax of
compensation asset that had been previously recorded as an unrealized gain on
the balance sheet. During the third quarter of 2007, ARRIS bought and sold
investments and realized a gain of
a tax benefit of approximately
valuation allowances and research and development tax credits related to a tax
credit study that was undertaken for prior years (2001 – 2006). During the
first quarter of 2007, ARRIS announced that it entered into a transaction
agreement with TANDBERG Television ASA, in which ARRIS was to buy all the
outstanding shares of TANDBERG. ARRIS was subsequently outbid by another buyer
and the transaction agreement was terminated during the first quarter 2007.
ARRIS recorded gains, net before tax, of
termination of the transaction (termination fee, foreign exchange gains, and
expenses). The net termination fee resulted in a capital gain which provided
greater access to prior tax capital losses that had previously been viewed as
more likely than not unrealizable. As a result, net income tax valuation
allowances totaling
product line that management decided to discontinue. During the fourth quarter
of 2007 ARRIS completed the C-COR acquisition and recorded incremental costs
of
acquired in process research and development of
off during the fourth quarter 2007. ARRIS also recorded severance costs of
approximately
workforce. The workforce reduction was due to an overlap of personnel
following the C-COR acquisition. During the first quarter of 2008, ARRIS
recorded incremental costs of
integration. In the third quarter of 2008, ARRIS recorded a net tax benefit of
filing of the 2007 tax return. Lastly, during the fourth quarter 2008, ARRIS
recorded a preliminary estimate of an impairment on goodwill of
and the related deferred tax adjustment of
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.
Net Income Reconciliation (unaudited)
Q1 EPS 2009 Guidance
Estimated GAAP EPS - diluted $0.06 - $0.11
Reconciling Items
Amortization of intangibles, after tax 0.05
Stock compensation expense, after tax 0.02
Non-cash interest expense, after tax 0.01
Subtotal 0.08
Estimated adjusted (non-GAAP) EPS - diluted $0.14 - $0.19
See the Supplemental Net Income Reconciliation for a discussion regarding
management’s reasoning for providing this non-GAAP financial measure
SOURCE ARRIS Group, Inc.