SUWANEE, Ga., April 25 /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 first quarter 2007. Financial Highlights: --
Revenues were $235.3 million for the first quarter 2007, up 13.0%
as compared to $208.3 million in the first quarter 2006 and up
slightly as compared to $234.6 million in the fourth quarter 2006.
-- Operating income in the first quarter 2007 was $26.0 million and
compares to $19.6 million in the first quarter 2006 and $28.5
million in the fourth quarter 2006. -- Net income in the first
quarter 2007 was $37.6 million or $0.34 per diluted share and
compares to net income of $20.7 million or $0.19 per diluted share
in the first quarter 2006 and to net income of $70.3 million or
$0.64 per diluted share in the fourth quarter 2006. The first
quarter 2007 reflected certain after tax benefits associated with
the termination of the proposed TANDBERG Television transaction as
discussed below. Excluding these items, net income per diluted
share in the first quarter 2007 was $0.20 (a non-GAAP measure). --
Gross margins were 29.2% in the first quarter 2007 as compared to
27.1% in the first quarter 2006 and 29.3% in the fourth quarter
2006. -- Cash, cash equivalents, and short-term investments at the
end of the first quarter 2007 were $575.9 million, up significantly
from $165.8 million at the end of the first quarter 2006 and $549.2
million at the end of the fourth quarter 2006, and include
approximately $276.0 million raised in the 2% Convertible Senior
Notes offering completed in November 2006. Cash used by operating
activities was $4.0 million in the first quarter 2007. --
Book-to-bill ratio improved sharply to 1.33 in the first quarter as
compared to 1.01 in the first quarter 2006 and 0.87 in the fourth
quarter 2006. Financial details: Revenues were $235.3 million for
the first quarter 2007, up 13.0% as compared to $208.3 million in
the first quarter 2006 and up slightly as compared to $234.6
million in the fourth quarter 2006. Demand for the Company's Voice
over IP (VoIP) and high speed data products remains robust as cable
operators' have announced increases in capital spending plans and
market acceptance of aggressive Multi System Operators (MSOs)
marketing plans for voice, data and video services in 2007. Net
income in the first quarter 2007 was $37.6 million, or $0.34 per
diluted share, as compared to the first quarter 2006 net income of
$20.7 million, or $0.19 per diluted share, and the fourth quarter
2006 net income of $70.3 million, or $0.64 per diluted share. The
first quarter 2007 results include after tax benefits, net of
expenses, of $17.4 million, or $0.16 per diluted share, related to
a termination fee and foreign exchange gains associated with the
proposed TANDBERG Television transaction which was terminated in
March 2007. Excluding the benefits associated with the termination
of the TANDBERG Television transaction and certain other items, net
income in the first quarter was $0.20 per diluted share. Fourth
quarter 2006 net income, as previously disclosed, includes $38.8
million, or $0.35 per diluted share, of certain tax benefits, in
particular, a reduction in valuation allowances related to deferred
tax assets. 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/). As previously disclosed, the
Company began recording income tax expense at full rates in the
first quarter 2007. Broadband product revenues were $80.2 million
in the first quarter 2007 as compared to $85.4 million in the first
quarter of 2006 and $92.4 million in the fourth quarter 2006
reflecting the phase-out of CBR telephony product sales. Supplies
& CPE product revenues were $155.1 million in the first
quarter, up 26.1% as compared to $122.9 million in the first
quarter 2006 and up 9.1% as compared to $142.2 million in the
fourth quarter of 2006. International sales were $60.5 million in
the first quarter and compare to $51.0 million in the first quarter
2006 and $59.9 million in the fourth quarter 2006. Backlog at the
end of the first quarter was $169.7 million compared to $168.9
million and $92.7 million at the end of the first quarter 2006 and
the fourth quarter 2006, respectively. Bookings in the first
quarter 2007 were $312.2 million as compared to $210.8 million in
the first quarter 2006 and $205.2 million in the fourth quarter
2006. The book-to-bill ratio in the first quarter was approximately
1.33 as compared to 1.01 in the first quarter 2006 and 0.87 in the
fourth quarter 2006. Gross margins were 29.2% in the first quarter
2007, up from 27.1% in the first quarter 2006 and essentially even
with fourth quarter 2006 gross margin. Sequential improvements in
gross margin were achieved in both product categories. Gross
margins of Broadband products were 48.3% in the first quarter 2007
and compare to 46.2% in the fourth quarter of 2006. Gross margins
of the Supplies & CPE products were up 110 basis points to
19.4% in the first quarter 2007 as compared to 18.3% in the fourth
quarter 2006. Operating expenses were $42.8 million in the first
quarter 2007 which included equity compensation expense of
approximately $2.5 million, $0.4 million of adjustments to increase
restructuring reserves related to real estate leases, income of
approximately $(0.4) million related to a gain on previously
written off receivables, and $1.5 million of licensing fees related
to Fixed Mobile Convergence development. Operating expenses were
$36.9 million in the first quarter 2006 which included equity
compensation expense of approximately $2.1 million, $0.3 million of
adjustments to increase restructuring reserves related to real
estate leases, and income of $(0.5) million related to a gain on
previously written off receivables. Operating expenses in the
fourth quarter 2006 were $40.2 million, 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. Research and development costs included in operating
expenses were $18.1 million in the first quarter 2007 and compare
to $15.6 million in the fourth quarter of 2006, the increase
primarily related to licensing fees for Fixed Mobile Convergence
development. The Company ended the first quarter 2007 with $575.9
million of cash, cash equivalents, and short-term investments, up
from the fourth quarter 2006 level of $549.2 million and up from
the first quarter 2006 level of $165.8 million. Approximately $4.0
million was used by operating activities in the first quarter 2007,
reflecting timing related changes in working capital. Approximately
$23.0 million, net of expenses, was generated from the termination
of the TANDBERG Television transaction. Additionally, as described
earlier, the Company raised approximately $276.0 million in a 2%
Convertible Senior Notes offering completed in November 2006.
Inventory and turns for the first quarter 2007 were $78.2 million
and 7.7 on an annualized basis, as compared to $94.2 million and
6.8 on an annualized basis for the fourth quarter 2006. Accounts
receivable ended the first quarter at $125.9 million with DSOs of
46.8 as compared to $115.3 million and DSOs of 45.9 at the end of
the fourth quarter 2006. "The business momentum that we experienced
in 2006 continues robustly into 2007," said Bob Stanzione, ARRIS
Chairman & CEO. "We see the spending trends of our customers
now driven by external competitive and market forces that we
believe should extend well into the future. Our technology
leadership is well recognized in many product categories and new
products now being introduced for the small and medium-size
business markets will help maintain our momentum in voice over IP
and high speed data rollouts." "I am very pleased with our first
quarter results and my enthusiasm continues to grow as I observe
the success our customers are enjoying as a result of rolling out
ARRIS' products," said David Potts, ARRIS EVP & CFO. "Looking
forward, we now project that our revenues for the second quarter
2007 will be in the range of $240 to $250 million with net income
per diluted share, on a U.S. GAAP basis, in the range of $0.18 to
$0.20 including amortization of intangibles and equity compensation
expense of $0.02 after tax. Our guidance assumes a tax rate of
approximately 34% for the second quarter." ARRIS management will
conduct a webcast with slides and a conference call at 5:00 pm EDT,
today, Wednesday, April 25, 2007, to discuss these results in
detail. To access the webcast go to http://www.arrisi.com/ and
click on Investor Relations. You may also participate in the
conference call by dialing 866-314-4483, or 617-213-8049 for
international calls, conference passcode 57025964. Please note that
ARRIS will not accept any calls related to this earnings release
until after the conclusion of the 5:00 pm EDT conference call. A
replay of the conference call can be accessed approximately two
hours after the call through Tuesday, May 1, 2007 by dialing
888-286-8010 or 617-801-6888 for international calls and using the
pass code 41928616. A replay of the webcast, including the slides,
will also 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: -- second
quarter 2007 revenues and net income; -- gross margins; --
operating expenses; -- income tax expense impacts; -- cash
generation; -- 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 second
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. 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-K for the year ended December 31,
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) March 31, Dec. 31, Sept. 30, June 30, March 31, 2007
2006 2006 2006 2006 (unaudited) (unaudited)(unaudited)(unaudited)
ASSETS Current assets: Cash and cash equivalents $441,317 $461,618
$179,971 $167,174 $129,559 Short-term investments 134,610 87,575
30,000 30,000 36,250 Total cash, cash equivalents and short-term
investments 575,927 549,193 209,971 197,174 165,809 Restricted cash
3,128 3,124 6,126 6,112 6,092 Accounts receivable, net 125,866
115,304 120,740 104,143 91,360 Other receivables 9,778 2,556 5,621
4,621 4,138 Inventories, net 78,186 94,226 101,062 91,764 99,673
Prepaids 3,500 3,547 3,751 2,959 4,094 Current deferred income tax
assets 26,818 29,285 - - - Other current assets 4,001 3,717 2,435
4,119 3,251 Total current assets 827,204 800,952 449,706 410,892
374,417 Property, plant and equipment, net 28,076 28,287 25,338
24,423 24,327 Goodwill 150,569 150,569 150,569 150,569 150,569
Intangibles, net 230 288 345 483 702 Investments 3,569 3,520 3,438
3,410 3,358 Noncurrent deferred income tax assets 18,639 20,874 - -
- Other assets 7,790 9,067 641 408 388 $1,036,077 $1,013,557
$630,037 $590,185 $553,761 LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: Accounts payable $41,337 $60,853 $44,440
$40,241 $41,478 Accrued compensation, benefits and related taxes
9,991 23,269 19,630 14,648 9,503 Accrued warranty 7,968 8,234 8,582
8,296 8,020 Other accrued liabilities 32,411 29,057 28,371 27,012
22,151 Total current liabilities 91,707 121,413 101,023 90,197
81,152 Long-term debt 276,000 276,000 - - - Accrued pension 12,420
12,061 11,947 13,266 12,943 Noncurrent income tax payable 4,334
3,041 - - - Other long-term liabilities 5,606 5,621 5,589 5,644
5,618 390,067 418,136 118,559 109,107 99,713 Stockholders' equity:
Preferred stock - - - - - Common stock 1,096 1,089 1,086 1,083
1,081 Capital in excess of par value 773,839 761,500 747,721
744,556 740,954 Unrealized gain on marketable securities 1,345
1,297 1,219 1,165 1,114 Unfunded pension losses (4,462) (4,462)
(4,618) (4,618) (4,618) Accumulated deficit (125,624) (163,268)
(233,519) (260,081) (284,831) Unrealized gain on derivatives -
(551) (227) (843) 532 Cumulative translation adjustments (184)
(184) (184) (184) (184) Total stockholders' equity 646,010 595,421
511,478 481,078 454,048 $1,036,077 $1,013,557 $630,037 $590,185
$553,761 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data) (unaudited) For the Three Months
Ended March 31, 2007 2006 Net sales $235,253 $208,344 Cost of sales
166,506 151,837 Gross profit 68,747 56,507 Gross profit % 29.2%
27.1% Operating expenses: Selling, general, and administrative
expenses 24,175 21,278 Research and development expenses 18,096
15,074 Restructuring and impairment charges 421 328 Amortization of
intangibles 58 218 42,750 36,898 Operating income 25,997 19,609
Other expense (income): Interest expense 1,668 10 Loss on
investments and notes receivable 19 - Gain on foreign currency 167
(317) Interest income (6,483) (1,520) Gains related to terminated
acquisition, net of expenses (22,835) - Other (income) expense, net
220 106 Income from continuing operations before income taxes
53,241 21,330 Income tax expense (benefit) 15,597 628 Net income
from continuing operations 37,644 20,702 Income from discontinued
operations - 21 Net income $37,644 $20,723 Net income per common
share - basic: Income from continuing operations $0.35 $0.19 Income
from discontinued operations - - Net income $0.35 $0.20 Net income
per common share - diluted: Income from continuing operations $0.34
$0.19 Income from discontinued operations - - Net income $0.34
$0.19 Weighted average common shares: Basic 108,467 106,227 Diluted
110,988 109,345 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH
FLOWS (in thousands) (unaudited) For the Three Months Ended March
31, 2007 2006 Operating Activities: Net income $37,644 $20,723
Adjustments to reconcile net income to net cash provided by (used
in) operating activities: Depreciation 2,497 2,618 Amortization of
intangibles 58 218 Equity compensation expense 2,656 2,248 Excess
tax benefits from stock- based compensation plans (4,855) (169)
Deferred income tax provision 4,702 - Amortization of deferred
finance fees 279 - Provision for doubtful accounts 371 (265) Gain
related to previously written off receivables (377) (475) Loss on
disposal of fixed assets - 2 Loss on investments and notes
receivable 19 - Income from discontinued operations - (21) Gains
related to terminated acquisition, net of expenses (22,835) -
Changes in operating assets & liabilities, net of effects of
acquisitions and disposals: Accounts receivable (10,933) (7,555)
Other receivables (7,222) (3,852) Inventory 16,040 14,236 Accounts
payable and accrued liabilities (24,842) (3,639) Prepaids and
other, net 2,763 7,280 Net cash provided by (used in) operating
activities (4,035) 31,349 Investing Activities: Purchases of
property, plant, and equipment (2,287) (1,389) Cash proceeds from
terminated acquisition, net of expenses paid 10,881 - Cash paid for
hedge related to terminated acquisition (26,469) - Cash proceeds
from hedge related to terminated acquisition 38,750 - Purchases of
short term investments (128,135) - Disposals of short term
investments 81,100 18,000 Net cash provided by (used in) investing
activities (26,160) 16,611 Financing Activities: Excess tax
benefits from stock- based compensation plans 4,855 169 Repurchase
of shares to satisfy employee tax withholdings - (27) Proceeds from
issuance of common stock 5,039 6,171 Net cash provided by financing
activities 9,894 6,313 Net increase (decrease) in cash and cash
equivalents (20,301) 54,273 Cash and cash equivalents at beginning
of period 461,618 75,286 Cash and cash equivalents at end of period
$441,317 $129,559 ARRIS GROUP, INC. SUPPLEMENTAL EARNINGS
RECONCILIATION (in thousands, except per share data) (unaudited) Q1
2007 Per Diluted Amount Share Net income $37,644 $0.34 Highlighted
items: Impacting gross margin: Equity compensation 165 - Impacting
operating expenses: Gains related to previously written off
receivables (377) - Restructuring charges - adjustments to existing
accruals 421 - Amortization of intangibles 58 - Equity compensation
2,491 0.02 Impacting discontinued operations: Restructuring charges
- adjustments to existing accruals - - Impacting net income (loss)
from continuing operations Gains related to terminated acquisition,
net of expenses (22,835) (0.21) Adjustments of income tax valuation
allowances (3,246) (0.03) Tax related to all highlighted items
above 7,754 0.07 Total highlighted items (15,569) (0.14) Net income
excluding highlighted items $22,075 $0.20 Weighted average common
shares - diluted 110,988 Q1 2006 Per Diluted Amount Share Net
income $20,723 $0.19 Highlighted items: Impacting gross margin:
Equity compensation 108 - Impacting operating expenses: Gains
related to previously written off receivables (475) - Restructuring
charges - adjustments to existing accruals 328 - Amortization of
intangibles 218 - Equity compensation 2,140 0.02 Impacting
discontinued operations: Restructuring charges - adjustments to
existing accruals (21) - Impacting net income (loss) from
continuing operations Gains related to terminated acquisition, net
of expenses - - Adjustments of income tax valuation allowances - -
Tax related to all highlighted items above - - Total highlighted
items 2,298 0.02 Net income excluding highlighted items $23,021
$0.21 Weighted average common shares - diluted 109,345 Q4 2006 Per
Diluted Amount Share Net income $70,252 $0.64 Highlighted items:
Impacting gross margin: Equity compensation 142 - Impacting
operating expenses: Gains related to previously written off
receivables - - Restructuring charges - adjustments to existing
accruals 1,863 0.02 Amortization of intangibles 57 - Equity
compensation 2,213 0.02 Impacting discontinued operations:
Restructuring charges - adjustments to existing accruals (97) -
Impacting net income (loss) from continuing operations Gains
related to terminated acquisition, net of expenses - - Adjustments
of income tax valuation allowances (38,791) (0.35) Tax related to
all highlighted items above - - Total highlighted items (34,613)
(0.32) Net income excluding highlighted items $35,639 $0.32
Weighted average common shares - diluted 109,739 ARRIS believes
that presenting net income 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. ARRIS recognized gains in the
first quarters of 2006 and 2007 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. 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 $22.8 million related to the 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 $3.2 million
were reversed in the first quarter 2007. 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 CONTACT: Jim Bauer, Investor
Relations of , +1-678-473-2647, Web site: http://www.arrisi.com/
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