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ARRIS Announces Preliminary and Unaudited Fourth Quarter and Full Year 2011 Results

SUWANEE, Ga., Feb. 8, 2012 /PRNewswire/ -- ARRIS Group, Inc. (NASDAQ: ARRS), today announced preliminary and unaudited financial results for the fourth quarter and full year 2011.

Revenues in the fourth quarter 2011 were $281.1 million, up from both the fourth quarter 2010 revenues of $266.2 million, and third quarter 2011 revenues of $274.4 million.  Full year 2011 and 2010 revenues were $1,088.7 million and $1,087.5 million, respectively.

Adjusted net income (a non-GAAP measure) in the fourth quarter 2011 was $0.21 per diluted share, compared to $0.19 per diluted share for the fourth quarter 2010 and $0.21 per diluted share for the third quarter of 2011.  Adjusted net income in the fourth quarter 2011 includes approximately $(0.01) net loss per diluted share related to BigBand's operations (excluding acquisition, severance, amortization expenses). Adjusted net income was $0.82 per diluted share for the full year 2011 and compares to $0.85 per diluted share for the full year 2010.

During the fourth quarter the company recorded an estimated non-cash goodwill and intangible assets impairment associated with the MCS segment (net of related estimated tax benefits) of approximately $(59) million, or $(0.50) per diluted share, resulting from the Company's lower year over year long-term projections for this segment.  This analysis is not complete and the impairment related estimates may change when the analysis is completed.  As a result, the GAAP net loss in the fourth quarter 2011 is estimated to be $(0.47) per diluted share, as compared to fourth quarter 2010 GAAP net income of $0.09 per diluted share and third quarter 2011 GAAP net income of $0.11 per diluted share.  Full year 2011 GAAP net loss is estimated to be $(0.11) per diluted share as compared to GAAP net income of $0.50 per diluted share in 2010. Significant GAAP items that have been adjusted in computing adjusted net income and adjusted net income per diluted share include: purchase accounting impacts related to acquired deferred revenue;  amortization of intangible assets;  goodwill,  intangible and long term investment impairments;  equity compensation;  non-cash interest expense;  acquisition and  restructuring charges; and  certain discrete tax items. A reconciliation of adjusted net income to GAAP net income (loss) per diluted share is attached to this release and also can be found on the Company's website (http://www.arrisi.com/).

Gross margin for the fourth quarter 2011 was 37.9%, which compares to the fourth quarter 2010 gross margin of 36.2% and the third quarter 2011 gross margin of 36.5%.

The Company ended the fourth quarter 2011 with $561.1 million of cash resources, which includes $518.8 million of cash, cash equivalents and short-term investments, and $42.3 million of long-term marketable security investments, as compared to $620.1 million at the end of the fourth quarter 2010 and $590.6 million at the end of the third quarter 2011. During the fourth quarter the Company used $34.4 million to repurchase 3.3 million shares of its common stock. During 2011, the Company used a total of $109.1 million to repurchase 10.0 million shares of its common stock and $5 million in face value of convertible notes.  Also, in the fourth quarter 2011 the Company used approximately $53 million of cash (net of cash and marketable securities acquired) to complete the acquisition of BigBand Networks.   The Company generated $60.9 million of cash from operating activities during the fourth quarter 2011 and $113.2 million during the full year 2011, which compares to $22.6 million and $118.5 million during the same periods in 2010, respectively.

Order backlog at the end of the fourth quarter 2011 was $148.5 million as compared to $140.4 million and $155.3 million at the end of the fourth quarter 2010 and the third quarter 2011, respectively.  The Company's book-to-bill ratio in the fourth quarter 2011 was 0.98 as compared to the fourth quarter 2010 of 1.08 and the third quarter 2011 of 1.00.

"Our business continues to be driven by the dramatic rise in the number and usage of connected devices in the home.  This in turn drove strong demand for our products during the December quarter.  Our customers continue to increase their broadband market share and expand their networks as they meet subscribers' demand for more bandwidth," said Bob Stanzione, ARRIS Chairman & CEO, "Looking forward, I believe we are well positioned for revenue growth as we continue to see gathering momentum across our entire product line."

During the fourth quarter, the Company closed its acquisition of BigBand Networks. This acquisition supports the Company's strategy of expanding its video product suite and the ongoing investment in the evolution towards network convergence onto an all IP platform.

"With respect to the first quarter, we now project that revenues for the Company will be in the range of $285 to $305 million, with adjusted net income per diluted share in the range of $0.13 to $0.17 and GAAP net income per diluted share in the range of $0.01 to $0.05," said David Potts, ARRIS EVP & CFO.  "Included in our first quarter guidance we estimate an approximate non-GAAP $(0.03) per diluted share loss related to the full quarter inclusion of BigBand in our results. Also, Congress has not renewed the R&D tax credit legislation resulting in an approximate $(0.01) per diluted share impact in the first quarter."

ARRIS management will conduct a conference call at 5:00 pm EST, today, Wednesday, February 8, 2012, to discuss these results in detail.  You may participate in this conference call by dialing 888-680-0879 or 617-213-4856 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 14376738 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 13, 2012 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 16001901.  A replay also will be made available for a period of 12 months following the conference call on ARRIS' website at http://www.arrisi.com/.

About ARRIS

ARRIS is a global communications technology company specializing in the design, engineering and supply of communications and IP technologies that support broadband services for residential and business customers around the world. The company supplies broadband operators with the tools and platforms they need to deliver and monitor advanced video, data and voice subscriber services, including whole home video across multiple screens, ultra high-speed data, personalized advertising and carrier-grade telephony.  Headquartered near Atlanta, in Suwanee, Georgia, USA, ARRIS has R&D centers in Beaverton, OR; Beijing, China, Chicago, IL; Cork, Ireland; Kirkland, WA; Redwood City, CA; Shenzhen, China; State College, PA; Tel Aviv, Israel; Wallingford, CT and Waltham, MA, and operates 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:

  • growth expectations and business prospects;
  • revenues and net income for the first quarter 2012, full year 2012, and beyond;
  • expected market and product expansion;
  • 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 first quarter as well as the general outlook for 2012 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; 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 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, 2011.  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,


2011


2011


2011


2011


2010











ASSETS




















Current assets:










Cash and cash equivalents

$             235,875


$             354,659


$             360,281


$             358,747


$             353,121

Short-term investments, at fair value

282,904


220,318


231,254


260,862


266,981

Total cash, cash equivalents and short term investments

518,779


574,977


591,535


619,609


620,102











Restricted cash

4,101


3,647


3,646


4,176


4,937

Accounts receivable, net

152,437


165,821


152,436


149,976


125,933

Other receivables

8,789


5,296


406


5,275


6,528

Inventories, net

115,912


116,769


113,020


105,787


101,763

Prepaids

10,408


10,692


10,272


12,115


9,237

Current deferred income tax assets

22,048


24,239


22,681


20,450


19,819

Other current assets

28,148


21,695


25,216


33,535


33,054

Total current assets

860,622


923,136


919,212


950,923


921,373











Property, plant and equipment, net

61,375


57,619


57,100


56,617


56,306

Goodwill

194,047


233,430


233,440


233,471


234,964

Intangible assets, net

131,192


141,784


150,728


159,672


168,616

Investments

71,095


47,221


34,237


32,787


31,015

Noncurrent deferred income tax assets

35,982


9,637


9,839


10,183


6,293

Other assets

10,997


5,400


5,878


5,798


5,520


$          1,365,310


$          1,418,227


$          1,410,434


$          1,449,451


$          1,424,087





















LIABILITIES AND STOCKHOLDERS' EQUITY




















Current liabilities:










Accounts payable

$               40,671


$               38,918


$               27,825


$               35,796


$               50,736

Accrued compensation, benefits and related taxes

36,764


25,320


20,832


26,278


28,778

Accrued warranty

3,350


2,933


3,300


2,931


2,945

Deferred revenue

43,746


39,094


47,166


43,019


31,625

Other accrued liabilities

32,907


19,653


17,805


17,594


18,847

Total current liabilities

157,438


125,918


116,928


125,618


132,931

Long-term debt, net of current portion

209,766


206,825


208,336


205,447


202,615

Accrued pension

25,260


17,989


17,730


17,472


17,213

Accrued severance liability

4,191


-


-


-


-

Noncurrent income taxes payable

24,450


22,471


21,844


21,844


17,702

Noncurrent deferred income tax liabilities

-


21,117


24,808


25,827


29,151

Other noncurrent liabilities

23,088


16,253


17,367


18,271


15,406

Total liabilities

444,193


410,573


407,013


414,479


415,018











Stockholders' equity:










Preferred stock

-


-


-


-


-

Common stock

1,449


1,446


1,443


1,438


1,409

Capital in excess of par value

1,245,115


1,237,852


1,228,729


1,219,615


1,206,157

Treasury stock at cost

(254,409)


(220,034)


(202,933)


(145,286)


(145,286)

Unrealized gain (loss) on marketable securities

(648)


26


1,530


1,244


392

Unfunded pension liability

(9,850)


(5,813)


(5,813)


(5,813)


(5,813)

Accumulated deficit

(60,356)


(5,639)


(19,351)


(36,042)


(47,606)

Cumulative translation adjustments

(184)


(184)


(184)


(184)


(184)

Total stockholders' equity

921,117


1,007,654


1,003,421


1,034,972


1,009,069


$          1,365,310


$          1,418,227


$          1,410,434


$          1,449,451


$          1,424,087



ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)










For the Three Months


For the Twelve Months


Ended December 31,


Ended December 31,


2011


2010


2011


2010









Net sales

$           281,076


$           266,168


$        1,088,685


$        1,087,506

Cost of sales

174,531


169,855


678,172


663,417

Gross margin

106,545


96,313


410,513


424,089

Operating expenses:








Selling, general, and administrative expenses

40,829


34,205


148,755


137,694

Research and development expenses

37,785


35,427


146,519


140,468

Acquisition costs

2,730


-


3,205


-

Restructuring charges

3,391


(8)


4,360


65

Goodwill and intangibles impairment

82,561


-


82,561


-

Amortization of intangible assets

6,520


8,944


33,352


35,957


173,816


78,568


418,752


314,184

Operating income (loss)

(67,271)


17,745


(8,239)


109,905

Other expense (income):








Interest expense

4,258


4,237


16,940


17,965

Impairment of investment

3,000


-


3,000


-

Gain on investments

(926)


(13)


(1,430)


(414)

Gain on foreign currency

(705)


(327)


(579)


(44)

Interest income

(715)


(528)


(3,154)


(1,997)

Loss (gain) on debt redemption

-


5


19


(373)

Other (income) expense, net

(211)


31


(893)


138

Income (loss) from continuing operations before income taxes

(71,972)


14,340


(22,142)


94,630

Income tax expense (benefit)

(17,255)


3,019


(9,392)


30,502

Net income (loss)

$           (54,717)


$             11,321


$           (12,750)


$             64,128









Net income (loss) per common share:








Basic

$               (0.47)


$                 0.09


$               (0.11)


$                 0.51

Diluted

$               (0.47)


$                 0.09


$               (0.11)


$                 0.50









Weighted average common shares:








Basic

117,316


122,866


120,157


125,157

Diluted

117,316


125,758


120,157


128,271



ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)






For the Three Months


For the Twelve Months





Ended December 31,


Ended December 31,





2011


2010


2011


2010












Operating Activities:









Net income (loss)

$             (54,717)


$               11,321


$           (12,750)


$               64,128



Depreciation

6,589


5,972


24,139


22,865



Amortization of intangible assets

6,520


8,944


33,352


35,956



Amortization of deferred finance fees

160


164


647


691



Impairment of goodwill & intangibles

82,561


-


82,561


-



Non-cash interest expense

2,941


2,777


11,545


11,325



Deferred income tax provision (benefit)

2,997


5,990


(12,490)


8,588



Deferred income tax related to goodwill & intangible impairment

(23,242)


-


(23,242)


-



Stock compensation expense

5,108


5,769


22,055


21,827



Provision for doubtful accounts

201


(366)


200


(283)



Loss (gain) on debt retirement

-


5


19


(373)



Loss on disposal of fixed assets

10


37


16


406



Gain on investments

(926)


(13)


(1,430)


(414)



Impairment of investment

3,000


-


3,000


-



Excess tax benefits from stock-based compensation plans

(679)


(69)


(3,668)


(2,752)


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










Accounts receivable

17,794


8,348


(22,093)


18,058



Other receivables

(1,618)


(2,819)


(1,635)


(59)



Inventory

7,862


(12,560)


(7,144)


(5,912)



Income taxes payable/recoverable

(2,158)


(3,614)


15,795


(17,787)



Accounts payable and accrued liabilities

7,003


(6,082)


671


(48,308)



Other, net

1,476


(1,236)


3,605


10,553




Net cash provided by operating activities

60,882


22,568


113,153


118,509












Investing Activities:









Purchases of investments

(49,833)


(182,829)


(277,937)


(514,376)


Disposals of investments

36,547


204,163


296,774


364,077


Purchases of property & equipment, net

(4,359)


(5,518)


(23,307)


(22,645)


Cash proceeds from sale of property & equipment

14


2


84


245


Cash paid for acquisition, net of cash acquired (1)

(130,227)


(4,000)


(130,227)


(4,000)




Net cash provided by (used in) investing activities

(147,858)


11,818


(134,613)


(176,699)












Financing Activities:









Payment of debt obligations

-


(12)


-


(124)


Early redemption of long-term debt

-


(4,956)


(4,984)


(23,287)


Repurchase of common stock

(34,375)


(30,038)


(109,123)


(69,326)


Excess income tax benefits from stock-based compensation plans

679


69


3,668


2,752


Repurchase of shares to satisfy employee tax withholdings

(72)


(25)


(8,332)


(6,447)


Fees and proceeds from issuance of common stock, net

1,960


1,803


22,985


7,178




Net cash used in financing activities

(31,808)


(33,159)


(95,786)


(89,254)















Net increase (decrease) in cash and cash equivalents

(118,784)


1,227

-

(117,246)


(147,444)

Cash and cash equivalents at beginning of period

354,659


351,894


353,121


500,565

Cash and cash equivalents at end of period

$             235,875


$             353,121


$           235,875


$             353,121
























(1) Excludes $77,074 thousand of short and long-term investments acquired from BigBand in 2011



ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION

(in thousands, except per share data) (unaudited)




















Q4 2011


YTD 2011
























Amount




Amount












Sales

$        281,076




$        1,088,685





























Highlighted items:

















Purchase accounting impacts of deferred revenue

4,332




4,332












Sales excluding highlighted items

$        285,408




$        1,093,017
































































Q4 2011


YTD 2011


Q4 2010


YTD 2010





Per Diluted




Per Diluted




Per Diluted




Per Diluted



Amount


Share


Amount


Share


Amount


Share


Amount


Share


Net income (loss)

$         (54,717)


$             (0.47)


$           (12,750)


$             (0.11)


$          11,321


$              0.09


$          64,128


$              0.50



















Highlighted items:

















Impacting gross margin:

















Purchase accounting impacts of deferred revenue

3,126


0.03


3,126


0.03


-


-


-


-


Stock compensation expense

521


-


2,040


0.02


492


-


1,897


0.01



















Impacting operating expenses:

















Acquisition costs

2,730


0.02


3,205


0.03


-


-


-


-


Restructuring

3,391


0.03


4,360


0.04


(8)


-


65


-


Amortization of intangible assets

6,520


0.05


33,352


0.27


8,944


0.07


35,957


0.28


Goodwill and intangibles impairment

82,561


0.69


82,561


0.67


-


-


-


-


Stock compensation expense

4,587


0.04


20,015


0.16


5,277


0.04


19,930


0.15



















Impacting other (income) / expense:

















Non-cash interest expense

2,941


0.02


11,545


0.09


2,777


0.02


11,325


0.09


Impairment of investment

3,000


0.03


3,000


0.02


-


-


-


-


Loss on retirement of debt

-


-


19


-


5


-


(373)


-



















Impacting income tax expense:

















Adjustments of income tax valuation allowances and other

2,344


0.02


(3,573)


(0.03)


1,058


0.01


889


0.01


Tax impact related to goodwill and intangibles impairment

(23,242)


(0.19)


(23,242)


(0.19)


-


-


-


-



















Tax related to highlighted items above, except goodwill and

intangibles impairment

(8,448)


(0.07)


(23,652)


(0.19)


(6,503)


(0.05)


(24,311)


(0.19)



















Total highlighted items

80,031


0.67


112,756


0.92


12,042


0.10


45,379


0.35


Net income excluding highlighted items

$          25,314


$              0.21


$           100,006


$              0.82


$          23,363


$              0.19


$        109,507


$              0.85



















Weighted average common shares - basic



117,316




120,157










Weighted average common shares - diluted (1)



119,609




122,555




125,758




128,271



































(1)

Basic shares used for 2001 as losses were reported for those periods and the inclusion of dilutive shares would be antidilutive



















See Notes to GAAP to Adjusted Non-GAAP Financial Measures



Notes to GAAP to Adjusted Non-GAAP Financial Measures



The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP” or referred to herein as “reported”). However, management believes that certain non-GAAP financial measures provide management and other users with additional meaningful financial information that should be considered when assessing our ongoing performance. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the factors management uses in planning for and forecasting future periods.  Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, the Company’s reported results prepared in accordance with GAAP.  Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:

Purchase Accounting Impacts Related to Deferred Revenue:  In connection with our acquisition of BigBand, business combination rules require us to account for the fair values of arrangements for which acceptance has not been obtained, and post contract support in our purchase accounting.  The non-GAAP adjustment to our sales and cost of sales is intended to include the full amounts of such revenues.  We believe the adjustment to these revenues is useful as a measure of the ongoing performance of our business.  We have historically experienced high renewal rates related to our support agreements and our objective is to increase the renewal rates on acquired post contract support agreements; however, we cannot be certain that our customers will renew our contracts.  

Stock-Based Compensation Expense: We have excluded the effect of stock-based compensation expenses in calculating our non-GAAP operating expenses and net income (loss) measures. Although stock-based compensation is a key incentive offered to our employees, we continue to evaluate our business performance excluding stock-based compensation expenses. We record non-cash compensation expense related to grants of options and restricted stock. Depending upon the size, timing and the terms of the grants, the non-cash compensation expense may vary significantly but will recur in future periods.

Acquisition Costs:  We have excluded the effect of acquisition related and other expenses and the effect of restructuring expenses in calculating our non-GAAP operating expenses and net income (loss) measures. We incurred significant expenses in connection with our recent acquisition of BigBand, which we generally would not have otherwise incurred in the periods presented as part of our continuing operations. Acquisition related expenses consist of transaction costs, costs for transitional employees, other acquired employee related costs, and integration related outside services. We believe it is useful to understand the effects of these items on our total operating expenses.

Restructuring Costs:  We have excluded the effect of restructuring charges in calculating our non-GAAP operating expenses and net income (loss) measures. Restructuring expenses consist of employee severance, abandoned facilities, and other exit costs. We believe it is useful to understand the effects of these items on our total operating expenses.

Amortization of Intangible Assets: We have excluded the effect of amortization of intangible assets in calculating our non-GAAP operating expenses and net income (loss) measures. Amortization of intangible assets is non-cash, and is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.

Impairment of Goodwill and Intangibles: We have excluded the effect of the estimated impairment of goodwill and intangible assets in calculating our non-GAAP operating expenses and net income (loss) measures. Although an impairment does not directly impact the Company’s current cash position, such expense represents the declining value of the technology and other intangibles assets that were acquired. We exclude these impairments when significant and they are  not reflective of ongoing business and operating results.

Non-Cash Interest on Convertible Debt: We have excluded the effect of non-cash interest in calculating our non-GAAP operating expenses and net income (loss) measures. We record the accretion of the debt discount related to the equity component non-cash interest expense. We believe it is useful to understand the component of interest expense that will not be paid out in cash.

Impairment of Investment: We have excluded the effect of an other-than-temporary impairment of a cost method investment in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of this non-cash item in our other expense (income).  

Loss (Gain) on Retirement of Debt:  We have excluded the effect of the loss (gain) on retirement of debt in calculating our non-GAAP financial measures.  We believe it is useful for investors to understand the effect of this non-cash item in our other expense (income).

Income Tax Expense (Benefit): We have excluded the tax effect of the non-GAAP items mentioned above.  Additionally, we have excluded the effects of certain tax adjustments related to state valuation allowances, research and development tax credits and provision to return differences.

SOURCE ARRIS Group, Inc.

Jim Bauer, Investor Relations, +1-678-473-2647, jim.bauer@arrisi.com