ARRS Arris International Plc - Ordinary Shares

SUWANEE, Ga., Feb. 15 /PRNewswire-FirstCall/ -- ARRIS Group, Inc. (NASDAQ:ARRS), a global communications technology leader in the development of advanced cable telephony and next generation high-speed data solutions across the broadband local access network, today announced preliminary and unaudited financial results for the fourth quarter and full year 2006. Financial Highlights: - Revenues were $234.6 million for the fourth quarter 2006, up 29.4% as compared to $181.3 million in the fourth quarter 2005 and up 2.6% as compared to $228.6 million in the third quarter 2006. - Full year 2006 revenues were $891.6 million, up $211.2 million or 31.0% over 2005 revenues of $680.4 million. - Net income in the fourth quarter 2006 was $70.3 million or $0.64 per diluted share and compares to net income of $22.0 million or $0.20 per diluted share in the fourth quarter 2005 and to net income of $26.6 million or $0.24 per diluted share in the third quarter 2006. Net income for the full year 2006 was $142.3 million or $1.30 per diluted share, as compared to $51.5 million or $0.52 per diluted share in 2005. The fourth quarter and full year net income reflects certain income tax benefits, in particular a reduction in valuation allowances related to deferred tax assets, as discussed below. Excluding the items detailed below, net income per diluted share was $0.32 and $1.04 for the fourth quarter and full year respectively (a non-GAAP measure). - Gross margins were 29.3% in the fourth quarter 2006 as compared to 31.9% in the fourth quarter 2005 and 27.6% in the third quarter 2006 and reflects the expected sequential improvement in gross margin percentages for the Supplies & CPE product line. Gross margins for the full year 2006 were 28.3% as compared to 28.0% in 2005. - Cash, cash equivalents, and short-term investments at the end of the fourth quarter 2006 were $549.2 million, up significantly from $129.5 million at the end of the fourth quarter 2005 and $210.0 million at the end of the third quarter 2006, and includes approximately $276.0 million raised in a 2% Convertible Notes offering completed in November 2006. Cash generated from operating activities was $65.0 million in the fourth quarter 2006 and was $144.2 million for the full year 2006. - Book-to-bill ratio was 0.87 in the fourth quarter as compared to 0.88 in the third quarter 2006 and 0.97 in the fourth quarter 2005. Financial details: Revenues for the fourth quarter 2006 were $234.6 million. Revenues grew by $53.3 million or 29.4%, and by $6.0 million or 2.6%, as compared to the fourth quarter 2005 and the third quarter 2006, respectively. For the full year 2006, revenues were $891.6 million, up $211.2 million or approximately 31.0% as compared to full year 2005 revenues. The revenue growth was a result of continuing demand for the Company's Voice over IP (VoIP) and high speed data products as cable operators aggressively sign up customers for the "triple-play" offerings of voice, data and video services. Net income in the fourth quarter 2006 was $70.3 million, or $0.64 per diluted share, as compared to the fourth quarter 2005 net income of $22.0 million, or $0.20 per diluted share, and as compared to the third quarter 2006 net income of $26.6 million, or $0.24 per diluted share. Net income for the full year 2006 was $142.3 million, or $1.30 per diluted share, and compares to $51.5 million or $0.52 per diluted share in 2005. Excluding amortization of intangibles, equity compensation expense, restructuring accrual adjustments, and certain tax benefits, net income was $0.32 and $1.04 per diluted share in the fourth quarter and full year 2006, respectively. The tax benefits realized were associated with: 1) adjustments to deferred tax asset valuation allowances based upon the current judgment that the tax benefits will be realized by the Company, and 2) recognition of research and development tax credits. 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 (http://www.arrisi.com/). Broadband product revenues were $92.4 million in the fourth quarter 2006, down compared to $92.9 million in the fourth quarter of 2005, reflecting the expected phase-out of CBR telephony product sales as customers migrate to VoIP, but up approximately 5.5% from the third quarter 2006 level of $87.6 million. Full year Broadband sales of $364.3 million are up 15.6% as compared to $315.1 million in 2005 reflecting strong CMTS revenue trends. CMTS revenues in 2006 continued to reach record sales levels each quarter and have more than offset declining CBR telephony sales over the same period. Demand for CMTS products continues to be driven by the Multi System Operators' (MSOs) aggressive deployment programs to meet their subscribers' demands for increasingly higher data rates to support new data and video transport applications. Supplies & CPE product revenues were $142.2 million in the fourth quarter, up 60.9% as compared to $88.4 million in the fourth quarter 2005 and up 0.9% as compared to $141.0 million in the third quarter of 2006. Full year 2006 Supplies & CPE sales of $527.3 million are up 44.4% as compared to $365.3 million for full year 2005. International sales were $59.9 million in the fourth quarter and compare to $52.3 million in the fourth quarter 2005 and $54.4 million in the third quarter 2006. Backlog at the end of the fourth quarter was $92.7 million compared to $122.0 million at the end of the third quarter 2006. Bookings in the fourth quarter 2006 were $205.2 million as compared to $201.4 million in the third quarter 2006. The book-to-bill ratio in the fourth quarter was approximately 0.87 as compared to 0.97 in the fourth quarter 2005 and 0.88 in the third quarter 2006. Gross margins were 29.3% in the fourth quarter, up 170 basis points as compared to third quarter 2006 margins of 27.6%. The increase was primarily due to the migration of EMTA sales to the new reduced-cost 500-series. Gross margins of Broadband products were 46.2% in both the third and fourth quarters of 2006. Gross margins of the Supplies & CPE products were up 220 basis points to 18.3% in the fourth quarter 2006 as compared to 16.1% in the third quarter 2006 reflecting an increased percentage of higher margin 500-series EMTAs and ongoing cost reductions. Operating expenses were $40.2 million in the fourth quarter 2006, which included equity compensation expense of approximately $2.2 million and $1.9 million of adjustments to increase restructuring reserves related to real estate leases. Operating expenses in the third quarter 2006 were $37.7 million, which included equity compensation expense of $2.3 million. Operating expenses were $156.1 million for the full year 2006 as compared to $137.0 million for 2005. Research and development costs included in operating expenses were $15.6 million in the fourth quarter 2006 and compare to $16.1 million in the third quarter of 2006. Research and development costs for the full year 2006 were $66.0 million as compared to $60.1 million in 2005. The Company ended the fourth quarter with $549.2 million of cash, cash equivalents, and short-term investments, up from the third quarter level of $210.0 million and up from the fourth quarter 2005 level of $129.5 million. Approximately $65.0 million and $144.2 million of cash were generated from operating activities in the fourth quarter and full year 2006, respectively. Additionally, as described earlier, the Company raised approximately $276.0 million in a 2% Convertible Notes offering completed in November 2006. Inventory and turns for the fourth quarter were $94.2 million and 6.8 on an annualized basis, respectively, as compared to $101.1 million and 6.9 on an annualized basis, respectively for the third quarter 2006. Accounts receivable ended the fourth quarter at $115.3 million with DSOs of 46 as compared to $120.7 million and DSOs of 45 at the end of the third quarter 2006. "The year 2006 was truly an outstanding year for ARRIS," said Bob Stanzione, ARRIS Chairman & CEO. "We executed well on all fronts. We maintained our technology leadership in voice over IP and high speed data, we expanded our market penetration, we strengthened our cash position to enable strategic acquisitions and we delivered on our promises to our customers by bringing new innovative, revenue-generating products to the market with a pipeline of new products to meet their future needs. Our results clearly indicate that our strategy for growth is working and I am confident that our technical and operational excellence positions us well for a very bright future." Stanzione continued, "On January 15, 2007, we announced our intent to acquire TANDBERG Television for approximately $1.2 billion via a tender offer thereby fulfilling our long term strategic goal of expanding our product offerings and the addressable markets we serve. The tender offer was launched this morning and the transaction is expected to close during the second quarter of 2007. We could not be more pleased with the people, products, expertise and market positions this combination brings. This is truly a case of one plus one equals three for our customers, our employees and our stockholders, both old and new." "Our strong results for the fourth quarter 2006 reflect the continuing momentum of both our business and the overall industry," said David Potts, ARRIS EVP & CFO. "ARRIS products are exceptionally well positioned to meet the needs for the delivery of voice, data and video. The success of our strategy and products is borne out by our outstanding results for the year. Looking forward, we now project that our revenues for the first quarter 2007 will be in the range of $230 to $240 million with net income per diluted share, on a U.S. GAAP basis, in the range of $0.15 to $0.18 including amortization of intangibles and equity compensation expense of $0.01. Our first quarter guidance excludes the impacts of certain items that we may incur related to the TANDBERG Television tender offer which we announced last month. It is also important to note that our guidance assumes a tax rate of approximately 37.5%." ARRIS management will conduct a conference call at 5:00 pm EST, today, Thursday, February 15, 2007, to discuss these results in detail. You may participate in this conference call by dialing 866-700-6979 or 617-213-8836 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference passcode 11947847 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 Thursday, February 22, 2007 by dialing 888-286-8010 or 617- 801-6888 for international calls and using the passcode 63741735. 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/. ARRIS provides broadband local access networks with innovative next generation high-speed data and telephony systems for the delivery of voice, video and data to the home and business. ARRIS' complete solutions enhance the reliability and value of converged services from the network to the subscriber. Headquartered in Suwanee, Georgia, USA, ARRIS has design, engineering, distribution, service and sales office locations 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 2007 revenues and net income; - income tax expense impacts; - impacts related to the TANDBERG Television acquisition; - expected sales levels and acceptance of certain ARRIS products; - 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 of 2007 as well as the general outlook for 2007 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; - 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; and - the TANDBERG Television tender offer may not be successful or its impact may be less favorable than management has estimated. In addition to the factors set forth elsewhere in this release, other factors that could cause results to differ from current expectations include: 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, 2006. 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. CONSOLIDATED BALANCE SHEETS (in thousands) Dec. 31, Sept. 30, June 30, March 31, Dec. 31, 2006 2006 2006 2006 2005 (unaudited)(unaudited)(unaudited) (unaudited) ASSETS Current assets: Cash and cash equivalents $ 461,618 $ 179,971 $ 167,174 $ 129,559 $ 75,286 Short-term 87,575 30,000 30,000 36,250 54,250 investments Total cash, cash equivalents and short-term investments 549,193 209,971 197,174 165,809 129,536 Restricted cash 3,124 6,126 6,112 6,092 6,073 Accounts receivable, net 115,304 120,740 104,143 91,360 83,540 Other receivables 2,556 5,621 4,621 4,138 286 Inventories, net 94,226 101,062 91,764 99,673 113,909 Prepaids 3,547 3,751 2,959 4,094 10,945 Current deferred income tax assets 29,285 -- -- -- -- Other current assets 3,717 2,435 4,119 3,251 4,331 Total current 800,952 449,706 410,892 374,417 348,620 assets Property, plant and equipment, net 28,287 25,338 24,423 24,327 25,557 Goodwill 150,569 150,569 150,569 150,569 150,569 Intangibles, net 288 345 483 702 920 Investments 3,520 3,438 3,410 3,358 3,321 Noncurrent deferred income tax assets 20,874 -- -- -- -- Other assets 9,067 641 408 388 416 $1,013,557 $ 630,037 $ 590,185 $ 553,761 $529,403 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 60,853 $ 44,440 $ 40,241 $ 41,478 $ 35,920 Accrued compensation, benefits and related taxes 23,269 19,630 14,648 9,503 20,424 Accrued warranty 8,234 8,582 8,296 8,020 8,479 Other accrued liabilities 32,098 28,371 27,012 22,151 20,633 Total current liabilities 124,454 101,023 90,197 81,152 85,456 Long-term debt 276,000 -- -- -- -- Accrued pension 12,061 11,947 13,266 12,943 12,636 Other long-term liabilities 5,621 5,589 5,644 5,618 5,594 418,136 118,559 109,107 99,713 103,686 Stockholders' equity: Preferred stock -- -- -- -- -- Common stock 1,089 1,086 1,083 1,081 1,069 Capital in excess of par value 761,500 747,721 744,556 740,954 732,405 Unrealized gain on marketable securities 1,297 1,219 1,165 1,114 1,077 Unfunded pension losses (4,462) (4,618) (4,618) (4,618) (4,618) Accumulated deficit (163,268) (233,519) (260,081) (284,831)(305,555) Unrealized gain on derivatives (551) (227) (843) 532 1,523 Cumulative translation adjustments (184) (184) (184) (184) (184) Total stockholders' equity 595,421 511,478 481,078 454,048 425,717 $1,013,557 $ 630,037 $ 590,185 $ 553,761 $529,403 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data) (unaudited) For the Three Months For the Twelve Months Ended December 31, Ended December 31, 2006 2005 2006 2005 Net sales $ 234,571 $ 181,335 $ 891,551 $ 680,417 Cost of sales 165,919 123,473 639,473 489,703 Gross profit 68,652 57,862 252,078 190,714 Gross profit % 29.3% 31.9% 28.3% 28.0% Operating expenses: Selling, general, and administrative expenses 22,680 20,505 87,203 74,308 Research and development expenses 15,580 15,044 66,040 60,135 Restructuring and impairment charges 1,863 901 2,210 1,331 Amortization of intangibles 57 219 632 1,212 40,180 36,669 156,085 136,986 Operating income 28,472 21,193 95,993 53,728 Other expense (income): Interest expense 926 68 976 2,101 Loss on debt retirement -- -- -- 2,372 Loss on investments and notes receivable -- 131 29 146 Gain on foreign currency (417) (210) (1,360) (65) Interest income (4,817) (1,001) (11,174) (3,100) Other (income) expense, net (1) 120 268 486 Income from continuing operations before income taxes 32,781 22,085 107,254 51,788 Income tax expense (benefit) (37,374) 271 (34,812) 513 Net income from continuing operations 70,155 21,814 142,066 51,275 Income from discontinued operations 97 152 221 208 Net income $ 70,252 $ 21,966 $ 142,287 $ 51,483 Net income per common share - basic: Income from continuing operations $ 0.65 $ 0.21 $ 1.32 $ 0.53 Income from discontinued operations $ 0.00 $ 0.00 $ 0.00 $ 0.00 Net income $ 0.65 $ 0.21 $ 1.33 $ 0.53 Net income per common share - diluted: Income from continuing operations $ 0.64 $ 0.20 $ 1.30 $ 0.52 Income from discontinued operations $ 0.00 $ 0.00 $ 0.00 $ 0.00 Net income $ 0.64 $ 0.20 $ 1.30 $ 0.52 Weighted average common shares: Basic 108,045 105,511 107,268 96,581 Diluted 109,739 107,223 109,490 98,264 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) For the Three For the Twelve Months Months Ended December 31, Ended December 31, 2006 2005 2006 2005 Operating Activities: Net income $ 70,252 $21,966 $142,287 $51,483 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 2,552 2,588 9,787 10,529 Amortization of intangibles 57 219 632 1,212 Equity compensation expense 2,355 2,574 9,423 6,915 Deferred income tax provision (50,159) -- (50,159) -- Excess tax benefits from stock- based compensation plans (8,907) -- (9,445) -- Amortization of deferred finance fees 139 -- 139 305 Provision for doubtful accounts 74 (83) (174) (438) Gain related to previously written off receivables -- -- (1,573) -- Loss (gain) on disposal of fixed assets (59) 71 (61) 202 Loss on investments and notes receivable -- 131 32 206 Loss on debt retirement -- -- -- 2,372 Impairment of long-lived assets -- -- -- 291 Income from discontinued operations (97) (152) (221) (208) Changes in operating assets & liabilities, net of effects of acquisitions and disposals: Accounts receivable 5,362 12,334 (32,153) (27,191) Other receivables 3,065 601 (2,270) 134 Inventory 6,836 (23,787) 19,683 (20,963) Accounts payable and accrued liabilities 32,591 13,148 50,200 7,107 Prepaids and other, net 952 4,952 8,114 (5,290) Net cash provided by operating activities 65,013 34,562 144,241 26,666 Investing Activities: Purchases of property, plant, and equipment (5,648) (2,062) (12,728) (9,617) Cash proceeds from sale of property, plant, and equipment 190 2 212 42 Cash paid for acquisition, net of cash acquired -- -- -- (89) Purchases of short term investments (77,575) (8,000) (129,475) (59,250) Disposals of short term investments 20,000 -- 96,150 83,032 Other -- -- -- (259) Net cash provided by (used in) investing activities (63,033) (10,060) (45,841) 13,859 Financing Activities: Proceeds from issuance of debt 276,000 -- 276,000 -- Deferred financing costs paid (7,760) -- (7,760) -- Excess tax benefits from stock- based compensation plans 8,907 -- 9,445 -- Repurchase of shares to satisfy employee tax withholdings -- -- (2,019) (1,208) Proceeds from issuance of common stock and other 2,520 2,590 12,266 10,897 Net cash provided by financing activities 279,667 2,590 287,932 9,689 Net increase in cash and cash equivalents 281,647 27,092 386,332 50,214 Cash and cash equivalents at beginning of period 179,971 48,194 75,286 25,072 Cash and cash equivalents at end of period $461,618 $75,286 $461,618 $75,286 ARRIS GROUP, INC. SUPPLEMENTAL EARNINGS RECONCILIATION (in thousands, except per share data) (unaudited) Q1 2006 Q2 2006 Per Diluted Per Diluted Amount Share Amount Share Net income $20,723 $0.19 $24,750 $0.23 Highlighted items: Impacting gross margin: Equity compensation 108 -- 112 -- Impacting operating expenses: Gain related to previously written off receivables (475) -- (1,098) (0.01) Restructuring charges - adjustments to existing accruals 328 -- 15 -- Amortization of intangibles 218 -- 219 -- Equity compensation 2,140 0.02 2,281 0.02 Impacting discontinued operations: Restructuring charges - adjustments to existing accruals (21) -- (88) -- Impacting net income (loss) from continuing operations Adjustments of income tax valuation allowances and research and development credits -- -- -- -- Total highlighted items 2,298 0.02 1,441 0.01 Net income excluding highlighted items $23,021 $0.21 $26,191 $0.24 Weighted average common shares - diluted 109,345 109,670 Q3 2006 Q4 2006 Per Diluted Per Diluted Amount Share Amount Share Net income $26,562 $0.24 $70,252 $0.64 Highlighted items: Impacting gross margin: Equity compensation 144 -- 142 -- Impacting operating expenses: Gain related to previously written off receivables -- -- -- -- Restructuring charges - adjustments to existing accruals 4 -- 1,863 0.02 Amortization of intangibles 138 -- 57 -- Equity compensation 2,283 0.02 2,213 0.02 Impacting discontinued operations: Restructuring charges - adjustments to existing accruals (15) -- (97) -- Impacting net income (loss) from continuing operations Adjustments of income tax valuation allowances and research and development credits -- -- (38,791) (0.35) Total highlighted items 2,554 0.02 (34,613) (0.32) Net income excluding highlighted items $29,116 $0.27 $35,639 $0.32 Weighted average common shares - diluted 109,090 109,739 YTD 2006 Per Diluted Amount Share Net income $142,287 $1.30 Highlighted items: Impacting gross margin: Equity compensation 506 -- Impacting operating expenses: Gain related to previously written off receivables (1,573) (0.01) Restructuring charges - adjustments to existing accruals 2,210 0.02 Amortization of intangibles 632 0.01 Equity compensation 8,917 0.08 Impacting discontinued operations: Restructuring charges - adjustments to existing accruals (221) -- Impacting net income (loss) from continuing operations Adjustments of income tax valuation allowances and research and development credits (38,791) (0.35) Total highlighted items (28,320) (0.26) Net income excluding highlighted items $113,967 $1.04 Weighted average common shares - diluted 109,490 ARRIS believes that presenting net income (loss) and related per share amounts adjusted for the items detailed above provides meaningful information that will allow investors to more easily understand ARRIS' financial performance and compare its period-to-period results. With respect to stock compensation expense, ARRIS adopted SFAS 123R effective July 1, 2005, as a result of which ARRIS will record 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. In prior periods, ARRIS highlighted significant losses related to bad debt expense associated with Adelphia and Cabovisao. ARRIS recognized gains in the first half of 2006 associated with these previously written off receivables. With respect to amortization of intangibles, the intangibles being amortized relate to our most recent acquisitions and will not recur. Similarly, 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. Lastly, during the fourth quarter of 2006, ARRIS reduced a large portion of the valuation allowances related to deferred income tax assets, based on the current judgment that the benefits will be realized, and recorded a tax benefit related to research and development credits for the period from 2001-2006. 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 expects to continue providing similar information in the future with schedules reconciling the differences between GAAP and non-GAAP financial measures. DATASOURCE: ARRIS Group, Inc. CONTACT: Jim Bauer, Investor Relations of ARRIS Group, Inc., +1-678-473-2647, or Web site: http://www.arrisi.com/

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