ARRS Arris International Plc - Ordinary Shares

SUWANEE, Ga., April 29 /PRNewswire-FirstCall/ -- ARRIS Group, Inc. (NASDAQ:ARRS), a global technology leader in advanced cable telephony & broadband access equipment, and next generation high-speed data, video, and operations software solutions, today announced preliminary and unaudited financial results for the first quarter 2008. First quarter 2008 revenues of $273.5 million represented an increase of $38.2 million or 16%, as compared to the first quarter 2007 revenues of $235.3 million, primarily reflecting the acquisition of C-COR. First quarter 2008 gross margin was $85.2 million, or 31.2% as compared to $68.7 million or 29.2% in the first quarter 2007. Order backlog increased to $147.0 million in the quarter as compared to $136.7 million at year end 2007. Book-to-bill ratio in the first quarter was 1.04. GAAP net income in the first quarter 2008 was $0.04 per diluted share, as compared to $0.34 per diluted share for the first quarter 2007. Non-GAAP net income in the first quarter 2008 was $0.12 per diluted share, as compared to $0.20 per diluted share for the first quarter 2007. Items excluded from non-GAAP income include: amortization of intangibles, certain acquisition gains and expenses, certain tax benefits and costs, equity compensation expense, and adjustments to restructuring accruals. 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/). In conjunction with the acquisition of C-COR, the Company implemented a new organizational structure in December 2007. As a result, effective with fourth quarter 2007 results, ARRIS began reporting financial results in three reporting segments: Broadband Communications Systems; Access, Transport & Supplies; and Media & Communications Systems. A summary of the first quarter revenue and gross margin for each of the segments is attached to this release and can be found on the Company's website. The Company ended the first quarter 2008 with $293.0 million of cash and short-term investments, which compares to $391.8 million at the end of the fourth quarter 2007. The change in cash balance reflects the repurchase during the quarter of approximately 13 million shares in the open market for an aggregate consideration of approximately $76 million. During the quarter, the Company also redeemed $35 million of convertible debt originally issued by C-COR and paid approximately $12 million to retire various acquisition liabilities. The Company generated $30.5 million of cash from operating activities in the first quarter 2008. "ARRIS begins 2008 with a sense of strong optimism," said Bob Stanzione, ARRIS Chairman & CEO. "While the current economic climate is somewhat challenging, we see significant opportunities for further growth as the year unfolds. We are investing in our future, and have a strong portfolio of exciting products which solidify our industry leading position as a provider of end-to-end data, voice and video solutions for our domestic and international customers. As evidenced by our recent DOCSIS 3.0 CMTS win in Japan, our products continue to be selected by leading service providers worldwide, thereby helping diversify our customer base. We are well positioned to take advantage of customer and end user demands for high speed data services, VoIP, on-demand video, ad insertion, OSS solutions and network upgrades to accommodate increased high definition channel offerings. We will aggressively pursue these opportunities on a global basis." "The first quarter was in line with the guidance we provided in February with EPS coming in at the high end of the range. Notably, our gross margin for the quarter was 31%," said David Potts, ARRIS EVP & CFO. "We anticipate continued improvement throughout the year. As a result, we now project that revenues for the Company in the second quarter 2008 will be in the range of $288 to $303 million with GAAP net income per diluted share in the range of $0.04 to $0.08 and non-GAAP net income per diluted share, in the range of $0.13 to $0.17. I remain confident that we are well-positioned to meet the insatiable demand for more bandwidth and speed, driven by accelerating entertainment and information applications." ARRIS management will conduct a conference call at 5:00pm EDT, today, Tuesday, April 29, 2008, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4218 or 617-213-4870 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference passcode 43173899 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 5:00pm EDT conference call. A replay of the conference call can be accessed approximately two hours after the call through May 2, 2008 by dialing 888-286-8010 or 617-801-6888 for international calls and using the passcode 89070320. 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 is a global communications technology company specializing in the design, engineering and supply of technology supporting triple and quad-play broadband services for residential and business customers around the world. The company supplies broadband operators with the tools and platforms they need to deliver reliable telephony, demand driven video, next-generation advertising and high-speed data services. ARRIS products expand and help grow network capacity with access and outside plant construction equipment, reliably deliver voice, video and data services and assure optimal service delivery for end customers. Headquartered in Suwanee, Georgia, USA, ARRIS has R&D centers in Atlanta, Chicago, Beaverton, State College, Wallingford, Ireland and China, 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: -- second quarter and 2008 revenues and net income; and -- the general market outlook; 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 as well as the general outlook for 2008 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 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-K for the year ended December 31, 2007. 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, 2008 (unaudited) ASSETS Current assets: Cash and cash equivalents $243,515 Short-term investments, at fair value 49,513 Total cash, cash equivalents and short-term investments 293,028 Restricted cash 7,186 Accounts receivable, net 159,881 Other receivables 6,074 Inventories, net 125,105 Prepaids 5,680 Current deferred income tax assets 47,051 Other current assets 8,209 Total current assets 652,214 Property, plant and equipment, net 60,747 Goodwill 453,454 Intangible assets, net 257,029 Investments 10,200 Noncurrent deferred income tax assets - Other assets 12,624 $1,446,268 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $60,490 Accrued compensation, benefits and related taxes 14,397 Accrued warranty 13,365 Deferred revenue 19,901 Current portion of long-term debt 310 Other accrued liabilities 27,980 Total current liabilities 136,443 Long-term debt, net of current portion 276,686 Accrued pension 10,905 Noncurrent income tax payable 6,487 Noncurrent deferred income tax liability 43,402 Other long-term liabilities 14,258 Total liabilities 488,181 Stockholders' equity: Preferred stock - Common stock 1,357 Capital in excess of par value 1,095,716 Treasury stock at cost (76,007) Unrealized gain (loss) on marketable securities 151 Unfunded pension liability (3,358) Accumulated deficit (59,588) Cumulative translation adjustments (184) Total stockholders' equity 958,087 $1,446,268 ARRIS GROUP, INC. CONSOLIDATED BALANCE SHEETS (in thousands) December 31, September 30, June 30, March 31, 2007 2007 2007 2007 (unaudited) (unaudited) (unaudited) ASSETS Current assets: Cash and cash equivalents $323,797 $370,708 $444,020 $441,317 Short-term investments, at fair value 68,011 217,845 160,315 134,610 Total cash, cash equivalents and short- term investments 391,808 588,553 604,335 575,927 Restricted cash 6,977 3,142 3,136 3,128 Accounts receivable, net 166,953 130,216 120,680 125,756 Other receivables 4,330 5,000 6,845 9,888 Inventories, net 131,792 118,227 90,542 78,186 Prepaids 5,856 3,626 3,250 3,500 Current deferred income tax assets 44,939 19,602 23,239 26,818 Other current assets 4,841 13,703 10,773 4,001 Total current assets 757,496 882,069 862,800 827,204 Property, plant and equipment, net 59,156 31,251 30,196 28,076 Goodwill 455,352 150,569 150,569 150,569 Intangible assets, net 269,893 115 172 230 Investments 6,412 8,916 3,151 3,569 Noncurrent deferred income tax assets - 16,238 17,294 18,639 Other assets 10,181 9,084 7,517 7,790 $1,558,490 $1,098,242 $1,071,699 $1,036,077 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $58,852 $35,540 $46,015 $41,337 Accrued compensation, benefits and related taxes 26,177 18,857 14,631 9,991 Accrued warranty 14,370 7,346 7,829 7,968 Deferred revenue 8,474 6,273 7,195 5,488 Current portion of long- term debt 35,305 - - - Other accrued liabilities 42,121 20,854 20,806 26,923 Total current liabilities 185,299 88,870 96,476 91,707 Long-term debt, net of current portion 276,765 276,000 276,000 276,000 Accrued pension 10,455 11,810 12,778 12,420 Noncurrent income tax payable 6,322 5,262 4,334 4,334 Noncurrent deferred income tax liability 41,796 - - - Other long-term liabilities 12,086 5,143 5,288 5,606 Total liabilities 532,723 387,085 394,876 390,067 Stockholders' equity: Preferred stock - - - - Common stock 1,356 1,104 1,102 1,096 Capital in excess of par value 1,093,498 789,348 782,717 773,839 Treasury stock at cost (572) - - - Unrealized gain (loss) on marketable securities 20 (151) - 1,345 Unfunded pension liability (3,358) (4,462) (4,462) (4,462) Accumulated deficit (64,993) (74,498) (102,350) (125,624) Cumulative translation adjustments (184) (184) (184) (184) Total stockholders' equity 1,025,767 711,157 676,823 646,010 $1,558,490 $1,098,242 $1,071,699 $1,036,077 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) For the Three Months Ended March 31, 2008 2007 (unaudited) (unaudited) Net sales $273,506 $235,253 Cost of sales 188,258 166,506 Gross margin 85,248 68,747 Gross margin % 31.2% 29.2% Operating expenses: Selling, general, and administrative expenses 36,982 24,175 Research and development expenses 28,122 18,096 Restructuring and impairment charges 405 421 Amortization of intangible assets 13,254 58 78,763 42,750 Operating income 6,485 25,997 Other expense (income): Interest expense 1,504 1,668 Loss on investments and notes receivable 2 19 (Gain) loss on foreign currency (990) 322 Interest income (2,685) (6,483) Gain related to terminated acquisition, net of expenses - (22,835) Other (income) expense, net (36) 65 Income from continuing operations before income taxes 8,690 53,241 Income tax expense 3,285 15,597 Net income $5,405 $37,644 Net income per common share: Basic $0.04 $0.35 Diluted $0.04 $0.34 Weighted average common shares: Basic 130,763 108,467 Diluted 131,981 110,988 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Three Months Ended March 31, 2008 2007 (unaudited) (unaudited) Operating Activities: Net income $5,405 $37,644 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 4,963 2,497 Amortization of intangible assets 13,254 58 Stock compensation expense 2,551 2,656 Deferred income tax provision (benefit) (506) 4,702 Amortization of deferred finance fees 279 279 Provision for doubtful accounts 205 371 Gain related to previously written off receivables - (377) Loss on investments 2 19 Gain related to terminated acquisition, net of expenses - (22,835) Excess tax benefits from stock- based compensation plans - (4,855) Changes in operating assets & liabilities, net of effects of acquisitions and disposals: Accounts receivable 7,502 (10,823) Other receivables (1,744) (7,332) Inventory 7,501 16,040 Income taxes payable 81 1,293 Accounts payable and accrued liabilities (10,294) (24,842) Other, net 1,316 1,470 Net cash provided by (used in) operating activities 30,515 (4,035) Investing Activities: Purchases of property, plant, and equipment (6,429) (2,287) Cash proceeds related to terminated acquisition, net of expenses - 10,881 Cash paid for hedge related to terminated acquisition - (26,469) Cash proceeds from hedge related to terminated acquisition - 38,750 Cash paid for acquisition, net of cash acquired (4,192) - Cash proceeds from sale of property, plant & equipment 224 - Purchases of short-term investments (16,887) (128,135) Disposals of short-term investments 30,500 81,100 Net cash provided by (used in) investing activities 3,216 (26,160) Financing Activities: Payment of debt and capital lease obligations (35,097) - Treasury stock repurchase (75,960) - Excess tax benefits from stock- based compensation plans - 4,855 Repurchase of shares to satisfy minimum tax withholdings (239) - Fees and proceeds from issuance of common stock, net (2,717) 5,039 Net cash (used in) provided by financing activities (114,013) 9,894 Net decrease in cash and cash equivalents (80,282) (20,301) Cash and cash equivalents at beginning of period 323,797 461,618 Cash and cash equivalents at end of period $243,515 $441,317 ARRIS GROUP, INC. SUPPLEMENTAL NET INCOME RECONCILIATION (in thousands, except per share data) (unaudited) Q1 2008 Q1 2007 Per Per Diluted Diluted Amount Share Amount Share Net income $5,405 $0.04 $37,644 $0.34 Highlighted items: Impacting gross margin: Stock compensation expense 201 - 165 - Impacting operating expenses: Gains related to previously written off receivables - - (377) - Integration costs 427 - - - Restructuring charges - adjustments to existing accruals 405 - 421 - Amortization of intangible assets 13,254 0.10 58 - Stock compensation expense 2,350 0.02 2,491 0.02 Impacting net income from continuing operations: Gains related to terminated acquisition, net of expenses - - (22,835) (0.21) Impacting income tax expense: Adjustments of income tax valuation allowances and research & development credits and other - - (3,246) (0.03) Tax related to highlighted items above (6,294) (0.05) 7,754 0.07 Total highlighted items 10,343 0.08 (15,569) (0.14) Net income excluding highlighted items $15,748 $0.12 $22,075 $0.20 Weighted average common shares - diluted 131,981 110,988 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 certain customers. ARRIS recognized a gain in Q1 of 2007 associated with these previously written off receivables. With respect to amortization of intangibles, the intangibles being amortized relate to our recent acquisition of C-COR. The restructuring charge adjustments reflect items that, although they or similar items might recur, are of a nature and magnitude that identifying them separately provides investors with a greater ability to project ARRIS' future performance. 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. During the first quarter of 2008, ARRIS recorded incremental costs of $0.4 million as a result of the C-COR integration. 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. ARRIS GROUP, INC SUPPLEMENTAL SALES AND GROSS MARGIN INFORMATION (in thousands, except gross margin percentages) (unaudited) Q1 2007 incl Q1 2008 Q1 2007 C-COR (1,2) Broadband Communications Systems Sales 189,637 199,000 199,000 Gross Margin 57,991 62,451 62,451 Gross Margin % 30.6% 31.4% 31.4% Access, Transport & Supplies Sales 72,894 36,006 93,490 Gross Margin 21,876 6,426 30,215 Gross Margin % 30.0% 17.8% 32.3% Media & Communications Systems Sales 10,975 247 15,783 Gross Margin 5,381 (130) 8,826 Gross Margin % 49.0% -52.6% 55.9% Total Sales 273,506 235,253 308,273 Gross Margin 85,248 68,747 101,492 Gross Margin % 31.2% 29.2% 32.9% (1) Sum of Arris and C-Cor reported sales and gross margins, unaudited (2) C-COR gross margin has been adjusted to conform to ARRIS accounting policies with respect to freight billed to customers. ARRIS GROUP, INC. Supplemental Second Quarter Net Income Reconciliation (unaudited) Q2 EPS 2008 Guidance Estimated GAAP EPS - diluted $0.04 - $0.08 Reconciling Items Amortization of Intangibles, after tax 0.07 Stock Compensation Expense, after tax 0.02 Subtotal 0.09 Estimated Non GAAP EPS - diluted $0.13 - $0.17 See the GAAP to Non-GAAP EPS reconciliation for a discussion regarding management's reasoning for providing this non-GAAP financial measure 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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