ARRS Arris International Plc - Ordinary Shares

SUWANEE, Ga., July 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 second quarter 2007. Financial Highlights: -- Revenues were $252.7 million for the second quarter 2007, up 14.9% as compared to $220.0 million in the second quarter 2006 and up 7.4% as compared to $235.3 million in the first quarter 2007. -- Net income in the second quarter 2007 was $23.3 million, or $0.21 per diluted share, and compares to net income of $24.8 million, or $0.23 per diluted share, in the second quarter 2006. Excluding certain items as detailed in the attached supplemental earnings reconciliation, net income per diluted share for the second quarter 2007 was $0.22 (a non- GAAP measure). -- Gross margins were 28.6% in the second quarter 2007 as compared to 29.0% in the second quarter 2006 and 29.2% in the first quarter 2007. -- Cash, cash equivalents, and short-term investments at the end of the second quarter 2007 were $604.3 million, up from $575.9 million at the end of the first quarter 2007. Cash generated from operating activities was $27.9 million in the second quarter 2007. -- Backlog at the end of the second quarter 2007 was $136.2 million, down from the first quarter 2007 level of $169.7 million. Book-to-bill ratio was 0.87 in the second quarter as compared to 0.91 in the second quarter 2006 and 1.33 in the first quarter 2007. Financial details: Revenues for the second quarter 2007 were $252.7 million. Revenues grew by $32.7 million, or 14.9%, and by $17.4 million, or 7.4% as compared to the second quarter 2006 and the first quarter 2007, respectively. Revenue growth during the quarter reflects increased demand for our market leading products as our customers compete with the telco and satellite industries to offer triple-play services as well as increasing customer demand for higher bandwidth services. Market rollouts of triple-play service bundles and preliminary introductions of new service offerings for the small and medium- sized business markets by many MSOs is expected to continue in 2007 and for many years into the future. Net income in the second quarter 2007 was $23.3 million, or $0.21 per diluted share, as compared to the second quarter 2006 net income of $24.8 million, or $0.23 per diluted share, and as compared to the first quarter 2007 net income of $37.6 million, or $0.34 per diluted share. Excluding equity compensation expense and certain other items, net income in the second quarter was $0.22 per diluted share. Net income in the first quarter 2007 included a net gain of $22.8 million related to a terminated acquisition. As previously disclosed, 2007 net income, in contrast to 2006, reflects income tax expense at full rates. A reconciliation of GAAP to non-GAAP net income 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 $77.4 million in the second quarter 2007 as compared to $98.8 million in the second quarter of 2006 and as compared to the first quarter 2007 level of $80.2 million. These results reflect the previously anticipated and disclosed decline of CBR telephony product sales. Supplies & CPE product revenues were $175.3 million in the second quarter 2007 as compared to $121.2 million in the second quarter 2006 and compared to $155.1 million in the first quarter of 2007. International sales were $67.8 million in the second quarter 2007 and compare to $58.2 million in the second quarter 2006 and $60.5 million in the first quarter 2007. Backlog at the end of the second quarter was $136.2 million as compared to $169.7 million at the end of the first quarter 2007. Bookings in the second quarter 2007 were $219.3 million as compared to $312.2 million in the first quarter 2007. The book-to-bill ratio in the second quarter 2007 was approximately 0.87 as compared 1.33 in the first quarter 2007. Gross margins for the second quarter 2007 were 28.6%, and as expected, were down slightly from the first quarter 2007 gross margin results of 29.2%. Gross margins of Broadband products were 44.6% in the second quarter 2007 and compare to 48.3% in the first quarter 2007 reflecting strategic pricing actions. Gross margins of Supplies & CPE products were 21.6% in the second quarter 2007 as compared to 19.4% in the first quarter 2007 reflecting continued cost reductions and new product introductions. Operating expenses in the second quarter 2007 were $44.3 million, which included equity compensation expense of approximately $3.1 million. Operating expenses in the second quarter 2006 were $41.3 million, which included equity compensation expense of approximately $2.3 million, technology licensing fees of approximately $2.4 million, and bad debt income of approximately $1.1 million related to previously written off receivables. Research and development costs included in operating expenses were $17.8 million in the second quarter 2007 as compared to $19.3 million in the second quarter 2006. The Company ended the second quarter with $604.3 million of cash, cash equivalents, and short-term investments, up from the first quarter 2007 level of $575.9 million and up from the second quarter 2006 level of $197.2 million. Approximately $27.9 million was generated from operating activities in the second quarter 2007. Inventory and turns for the second quarter were $90.5 million and 8.6 on an annualized basis, as compared to $78.2 million and 7.7 on an annualized basis, respectively, for the first quarter 2007. Accounts receivable ended the second quarter at $120.7 million with DSOs of 44.5 on an annualized basis, as compared to $125.8 million and DSOs of 46.8 on an annualized basis at the end of the first quarter 2007. "As we enter the second half of 2007, our overall business looks very promising as our customers introduce new bundled service offerings to their customers and prepare to enter the small and medium-sized business markets with ARRIS products," said Bob Stanzione, ARRIS Chairman & CEO. "Increasing competitive pressure on our customers, demands for more speed driven by new applications and services and demand for higher reliability and service standards for superior user experience are expected to sustain capital spending in the industry." "Our results for the second quarter 2007 reflect strong execution by the ARRIS team with improvements in many areas, notably the Supplies & CPE gross margin percentage that exceeded 20%," said David Potts, ARRIS EVP & CFO. "Looking forward, we now project that our revenues for the third quarter 2007 will be in the range of $253 to $263 million with net income per diluted share, on a U.S. GAAP basis, in the range of $0.19 to $0.22 including amortization of intangibles and equity compensation expense of $0.02 per diluted share." ARRIS management will conduct a webcast at 5:00 pm EDT, today, Wednesday, July 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 866-831-6267, or 617-213-8857 for international calls, conference passcode 49872538. 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, July 31, 2007 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 35030731. 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: -- third quarter 2007 revenues and net income; -- income tax expense impacts; -- 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 third 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; -- ARRIS is dependent upon customer decisions to purchase the Company's products; these decisions can be deferred and customers also may select competitor's products; 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 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 and its Form 10-Q for the quarter ended March 31, 2007. 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) June 30, March 31, December 31, 2007 2007 2006 (unaudited) (unaudited) ASSETS Current assets: Cash and cash equivalents $444,020 $441,317 $461,618 Short-term investments, at fair value 160,315 134,610 87,575 Total cash, cash equivalents and short-term investments 604,335 575,927 549,193 Restricted cash 3,136 3,128 3,124 Accounts receivable, net 120,680 125,756 115,304 Other receivables 6,845 9,888 2,556 Inventories 90,542 78,186 94,226 Prepaids 3,250 3,500 3,547 Current deferred income tax assets 23,239 26,818 29,285 Other current assets 10,773 4,001 3,717 Total current assets 862,800 827,204 800,952 Property, plant and equipment, net 30,196 28,076 28,287 Goodwill 150,569 150,569 150,569 Intangibles, net 172 230 288 Investments 3,151 3,569 3,520 Noncurrent deferred income tax assets 17,294 18,639 20,874 Other assets 7,517 7,790 9,067 $1,071,699 $1,036,077 $1,013,557 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $46,015 $41,337 $60,853 Accrued compensation, benefits and related taxes 14,631 9,991 23,269 Accrued warranty 7,829 7,968 8,234 Other accrued liabilities 28,001 32,411 29,057 Total current liabilities 96,476 91,707 121,413 Long-term debt, net of current portion 276,000 276,000 276,000 Accrued pension 12,778 12,420 12,061 Noncurrent income tax payable 4,334 4,334 3,041 Other long-term liabilities 5,288 5,606 5,621 394,876 390,067 418,136 Stockholders' equity: Preferred stock - - - Common stock 1,102 1,096 1,089 Capital in excess of par value 782,717 773,839 761,500 Unrealized gain on marketable securities - 1,345 1,297 Unfunded pension losses (4,462) (4,462) (4,462) Accumulated deficit (102,350) (125,624) (163,268) Unrealized loss on derivatives - - (551) Cumulative translation adjustments (184) (184) (184) Total stockholders' equity 676,823 646,010 595,421 $1,071,699 $1,036,077 $1,013,557 ARRIS GROUP, INC. CONSOLIDATED BALANCE SHEETS (in thousands) September 30, June 30, 2006 2006 (unaudited) (unaudited) ASSETS Current assets: Cash and cash equivalents $179,971 $167,174 Short-term investments, at fair value 30,000 30,000 Total cash, cash equivalents and short-term investments 209,971 197,174 Restricted cash 6,126 6,112 Accounts receivable, net 120,740 104,143 Other receivables 5,621 4,621 Inventories 101,062 91,764 Prepaids 3,751 2,959 Current deferred income tax assets - - Other current assets 2,435 4,119 Total current assets 449,706 410,892 Property, plant and equipment, net 25,338 24,423 Goodwill 150,569 150,569 Intangibles, net 345 483 Investments 3,438 3,410 Noncurrent deferred income tax assets - - Other assets 641 408 $630,037 $590,185 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $44,440 $40,241 Accrued compensation, benefits and related taxes 19,630 14,648 Accrued warranty 8,582 8,296 Other accrued liabilities 28,371 27,012 Total current liabilities 101,023 90,197 Long-term debt, net of current portion - - Accrued pension 11,947 13,266 Noncurrent income tax payable - - Other long-term liabilities 5,589 5,644 118,559 109,107 Stockholders' equity: Preferred stock - - Common stock 1,086 1,083 Capital in excess of par value 747,721 744,556 Unrealized gain on marketable securities 1,219 1,165 Unfunded pension losses (4,618) (4,618) Accumulated deficit (233,519) (260,081) Unrealized loss on derivatives (227) (843) Cumulative translation adjustments (184) (184) Total stockholders' equity 511,478 481,078 $630,037 $590,185 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data) (unaudited) For the Three Months For the Six Months Ended June 30, Ended June 30, 2007 2006 2007 2006 Net sales $252,718 $219,990 $487,971 $428,334 Cost of sales 180,342 156,250 346,848 308,087 Gross margin 72,376 63,740 141,123 120,247 Gross margin % 28.6% 29.0% 28.9% 28.1% Operating expenses: Selling, general, and administrative expenses 26,455 21,721 50,630 42,999 Research and development expenses 17,791 19,320 35,887 34,394 Restructuring and impairment charges - 15 421 343 Amortization of intangibles 58 219 116 437 44,304 41,275 87,054 78,173 Operating income 28,072 22,465 54,069 42,074 Other expense (income): Interest expense 1,652 13 3,320 23 Gain on investments (1,444) (3) (1,425) (3) Loss (gain) on foreign currency (146) (827) 176 (1,144) Interest income (6,459) (2,081) (12,942) (3,601) Gain related to terminated acquisition, net of expenses - - (22,835) - Other expense (income), net 51 95 116 201 Income from continuing operations before income taxes 34,418 25,268 87,659 46,598 Income tax expense 11,144 606 26,741 1,234 Net income from continuing operations 23,274 24,662 60,918 45,364 Income from discontinued operations - 88 - 109 Net income $23,274 $24,750 $60,918 $45,473 Net income per common share - basic: Income from continuing operations $0.21 $0.23 $0.56 $0.43 Income from discontinued operations - - - - Net income $0.21 $0.23 $0.56 $0.43 Net income per common share - diluted: Income from continuing operations $0.21 $0.23 $0.55 $0.42 Income from discontinued operations - - - - Net income $0.21 $0.23 $0.55 $0.42 Weighted average common shares: Basic 109,398 107,099 108,935 106,665 Diluted 111,698 109,670 111,340 109,294 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) For the Three Months For the Six Months Ended June 30, Ended June 30, 2007 2006 2007 2006 Operating Activities: Net income $23,274 $24,750 $60,918 $45,473 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 2,648 2,440 5,145 5,058 Amortization of intangibles 58 219 116 437 Stock compensation expense 3,378 2,393 6,034 4,641 Deferred income tax provision 4,924 - 9,626 - Amortization of deferred finance fees 278 - 557 - Provision for doubtful accounts 225 51 596 (214) Gain related to previously written off receivables - (1,098) (377) (1,573) Gain on disposal of fixed assets - (6) - (4) Gain on investments (1,444) - (1,425) - Gain on discontinued operations - (88) - (109) Gain related to terminated acquisition, net of expenses - - (22,835) - Changes in operating assets & liabilities, net of effects of acquisitions and disposals: Accounts receivable 4,851 (13,397) (5,972) (20,952) Other receivables 3,043 (483) (4,289) (4,335) Inventory (12,356) 7,909 3,684 22,145 Accounts payable and accrued liabilities 7,033 10,181 (17,809) 6,542 Excess tax benefits from stock-based compensation plans (1,676) (185) (6,531) (354) Prepaids and other, net (6,336) 1 (3,573) 7,281 Net cash provided by operating activities 27,900 32,687 23,865 64,036 Investing Activities: Purchases of property, plant, and equipment (4,768) (2,553) (7,055) (3,942) Cash proceeds from sale of property & equipment - 20 - 20 Cash received related to terminated acquisition, net of expenses paid (327) - 10,554 - 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 (69,715) (51,900) (197,850) (51,900) Disposals of short term investments 44,010 58,150 125,110 76,150 Net cash provided by (used in) investing activities (30,800) 3,717 (56,960) 20,328 Financing Activities: Excess tax benefits from stock- based compensation plans 1,676 185 6,531 354 Employer repurchase of shares to satisfy minimum tax witholdings (1,690) (1,017) (1,690) (1,044) Proceeds from issuance of stock 5,617 2,043 10,656 8,214 Net cash provided by financing activities 5,603 1,211 15,497 7,524 Net increase (decrease) in cash and cash equivalents 2,703 37,615 (17,598) 91,888 Cash and cash equivalents at beginning of period 441,317 129,559 461,618 75,286 Cash and cash equivalents at end of period $444,020 $167,174 $444,020 $167,174 ARRIS GROUP, INC. SUPPLEMENTAL EARNINGS RECONCILIATION (in thousands, except per share data) (unaudited) Q1 2007 Q2 2007 Per Per Diluted Diluted Amount Share Amount Share Net income $37,644 $0.34 $23,274 $0.21 Highlighted items: Impacting gross margin: Stock compensation expense 165 - 229 - Impacting operating expenses: Gains related to previously written off receivables (377) - - - Restructuring charges - adjustments to existing accruals 421 - - - Amortization of intangibles 58 - 58 - Stock compensation expense 2,491 0.02 3,149 0.03 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) - - Gain on deferred compensation assets - - (1,345) (0.01) Tax related to all highlighted items above 7,754 0.07 (670) (0.01) Total highlighted items (15,569) (0.14) 1,421 0.01 Net income excluding highlighted items $22,075 $0.20 $24,695 $0.22 Weighted average common shares diluted 110,988 111,698 ARRIS GROUP, INC. SUPPLEMENTAL EARNINGS RECONCILIATION (in thousands, except per share data) (unaudited) YTD 2007 Per Diluted Amount Share Net income $60,918 $0.55 Highlighted items: Impacting gross margin: Stock compensation expense 394 - Impacting operating expenses: Gains related to previously written off receivables (377) - Restructuring charges - adjustments to existing accruals 421 - Amortization of intangibles 116 - Stock compensation expense 5,640 0.05 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) Gain on deferred compensation assets (1,345) (0.01) Tax related to all highlighted items above 7,084 0.06 Total highlighted items (14,148) (0.13) Net income excluding highlighted items $46,770 $0.42 Weighted average common shares - diluted 111,340 Q1 2006 Q2 2006 Per Per Diluted Diluted Amount Share Amount Share Net income $20,723 $0.19 $24,750 $0.23 Highlighted items: Impacting gross margin: Stock compensation expense 108 - 112 - Impacting operating expenses: Gains related to previously written off receivables (475) - (1,098) (0.01) Restructuring charges - adjustments to existing accruals 328 - 15 - Amortization of intangibles 218 - 219 - Stock compensation expense 2,140 0.02 2,281 0.02 Impacting discontinued operations: Restructuring charges - adjustments to existing accruals (21) - (88) - 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 YTD 2006 Per Diluted Amount Share Net income $45,473 $0.42 Highlighted items: Impacting gross margin: Stock compensation expense 220 - Impacting operating expenses: Gains related to previously written off receivables (1,573) (0.01) Restructuring charges - adjustments to existing accruals 343 - Amortization of intangibles 437 - Stock compensation expense 4,421 0.04 Impacting discontinued operations: Restructuring charges - adjustments to existing accruals (109) - Total highlighted items 3,739 0.03 Net income excluding highlighted items $49,212 $0.45 Weighted average common shares - diluted 109,294 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 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. 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 second quarter of 2007, ARRIS realized a gain before tax of $1.3 million on its deferred compensation asset that had been previously recorded as an unrealized gain on the balance sheet. 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. 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, Web site: http://www.arrisi.com/

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