In the news release, ARRIS Announces Preliminary and Unaudited
First Quarter 2012 Results, issued 25-Apr-2012 by ARRIS Group, Inc. over PR
Newswire, we are advised by the company that the section "Notes to
GAAP to Adjusted Non-GAAP Financial Measures" was omitted from the
original transmission. The complete, corrected release follows:
ARRIS Announces Preliminary and Unaudited First Quarter 2012
Results
SUWANEE, Ga., April 25, 2012 /PRNewswire/ -- ARRIS Group,
Inc. (NASDAQ:ARRS), today announced preliminary and unaudited
financial results for the first quarter 2012.
Revenues in the first quarter 2012 were $302.9 million as compared to first quarter 2011
revenues of $267.4 million and as
compared to fourth quarter 2011 revenues of $281.1 million.
Adjusted net income (a non-GAAP measure) in the first quarter
2012 was $0.19 per diluted share,
compared to $0.16 per diluted share
for the first quarter 2011 and $0.21
per diluted share for the fourth quarter 2011.
GAAP net income in the first quarter 2012 was $0.05 per diluted share, as compared to first
quarter 2011 GAAP net income of $0.09
per diluted share and fourth quarter 2011 GAAP net loss of
$(0.51) per diluted share.
Significant GAAP items that have been adjusted in computing
adjusted net income and adjusted net income per diluted share
include: purchase accounting impacts related to acquired deferred
revenue; amortization of intangible assets;
goodwill, intangible and long term investment
impairments; loss on sale of product line; equity
compensation; non-cash interest expense; acquisition and
restructuring charges; and certain discrete tax items. A
reconciliation of adjusted net income to GAAP net income (loss) per
diluted share is attached to this release and also can be found on
the Company's website (www.arrisi.com).
Gross margin for the first quarter 2012 was 36.0%, which
compares to the first quarter 2011 gross margin of 36.3% and the
fourth quarter 2011 gross margin of 37.9%.
The Company ended the first quarter 2012 with $567.2 million of cash resources, which includes
$514.3 million of cash, cash
equivalents and short-term investments, and $52.9 million of long-term marketable security
investments, as compared to $561.1
million, in the aggregate, at the end of the fourth quarter
2011. During the first quarter 2012, the Company repurchased
approximately 2.3 million shares of ARRIS common stock for
$26.3 million. The Company
generated $35.9 million of cash from
operating activities during the first quarter 2012, which compares
to $(3.6) million during the same
period in 2011.
Order backlog at the end of the first quarter 2012 was
$277.7 million as compared to
$177.5 million and $148.5 million at the end of the first quarter
2011 and the fourth quarter 2011, respectively. The Company's
book-to-bill ratio in the first quarter 2012 was 1.43 as compared
to the first quarter 2011 of 1.14 and the fourth quarter 2011 of
0.98.
"I am very pleased with our first quarter results. Sales were up
13% and non-GAAP earnings per share up almost 19% from the first
quarter of 2011; and these results include the dilutive impact of
our BigBand acquisition and our higher tax rate," said Bob Stanzione, ARRIS Chairman and CEO.
"Even more encouraging is the strong outlook for Q2. The
investment strategy of the past few years is now paying off."
During the first quarter ARRIS announced that cable providers
WOW and Buckeye had launched the ARRIS Whole Home Solution.
Additionally, the Company successfully demonstrated
interoperability for IPv6 services with its C4 CMTS and Wideband
cable modems supporting EuroDOCSIS™ 3.0 features.
The Company will present its products at the upcoming NCTA
cable show in Boston this
May. ARRIS will be showing its latest version of the Moxi
Whole Home Solution, CCAP supporting product portfolio, on-demand
video and advertising solutions, HFC and RFoG network optimization
components, and network monitoring solutions.
"We are off to an excellent start to 2012," said David Potts, ARRIS EVP & CFO. "With
respect to the second quarter 2012, we now project that revenues
for the Company will be in the range of $330
to $350 million, with adjusted net income per diluted share
in the range of $0.20 to $0.24 and
GAAP net income per diluted share in the range of $0.10 to $0.14, reflecting strong demand for our
products."
ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, April 25, 2012, to discuss these
results in detail. You may participate in this conference call by
dialing 888-713-4214 or 617-213-4866 for international calls prior
to the start of the call and providing the ARRIS Group, Inc. name,
conference pass code 91925766 and Bob
Puccini as the moderator. Please note that ARRIS will not
accept any calls related to this earnings release until after the
conclusion of the conference call. A replay of the conference call
can be accessed approximately two hours after the call through
May 2, 2012 by dialing 888-286-8010
or 617-801-6888 for international calls and using the pass code
88094687. A replay also will be made available for a period of 12
months following the conference call on ARRIS' website at
www.arrisi.com.
About ARRIS
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
converged IP video solutions, carrier-grade telephony, demand
driven video, next-generation advertising, network and workforce
management solutions, access and transport architectures and ultra
high-speed data services. Headquartered in Suwanee, GA, USA, ARRIS has R&D centers in
Suwanee, GA; Beaverton, OR; Lisle, IL; Kirkland,
WA; State College, PA;
Tel Aviv, Israel; Wallingford, CT; Waltham, MA; Cork,
Ireland; and Shenzhen,
China, and operates support and sales offices throughout the
world. Information about ARRIS products and services can be found
at www.arrisi.com.
Forward-looking statements:
Statements made in this press release, including those related
to:
- growth expectations and business prospects;
- revenues and net income for the second quarter 2012, and
beyond;
- expected sales levels and acceptance of new ARRIS products;
and
- the general market outlook and industry trends
are forward-looking statements. These statements involve risks
and uncertainties that may cause actual results to differ
materially from those set forth in these statements. Among
other things,
- projected results for the second quarter 2012 as well as the
general outlook for 2012 and beyond are based on preliminary
estimates, assumptions and projections that management believes to
be reasonable at this time, but are beyond management's
control;
- ARRIS' customers operate in a capital intensive consumer based
industry, and the current volatility in the capital markets or
changes in customer spending may adversely impact their ability or
willingness to purchase the products that the Company offers;
and
- because the market in which ARRIS operates is volatile, actions
taken and contemplated may not achieve the desired impact relative
to changing market conditions and the success of these strategies
will be dependent on the effective implementation of those plans
while minimizing organizational disruption.
In addition to the factors set forth elsewhere in this release,
other factors that could cause results to differ 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, 2011.
In providing forward-looking statements, the Company expressly
disclaims any obligation to update publicly or otherwise these
statements, whether as a result of new information, future events
or otherwise.
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ARRIS
GROUP, INC.
|
|
PRELIMINARY CONSOLIDATED BALANCE
SHEETS
|
|
(in
thousands)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
December 31,
|
|
September 30,
|
|
June
30,
|
|
March
31,
|
|
|
|
2012
|
|
2011
|
|
2011
|
|
2011
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents
|
|
$
215,808
|
|
$
235,875
|
|
$
354,659
|
|
$
360,281
|
|
$
358,747
|
|
Short-term
investments, at fair value
|
|
298,539
|
|
282,904
|
|
220,318
|
|
231,254
|
|
260,862
|
|
Total
cash, cash equivalents and short term investments
|
|
514,347
|
|
518,779
|
|
574,977
|
|
591,535
|
|
619,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
3,943
|
|
4,101
|
|
3,647
|
|
3,646
|
|
4,176
|
|
Accounts
receivable, net
|
|
183,427
|
|
152,437
|
|
165,821
|
|
152,436
|
|
149,976
|
|
Other
receivables
|
|
5,071
|
|
8,789
|
|
5,296
|
|
406
|
|
5,275
|
|
Inventories, net
|
|
105,114
|
|
115,912
|
|
116,769
|
|
113,020
|
|
105,787
|
|
Prepaids
|
|
12,436
|
|
10,408
|
|
10,692
|
|
10,272
|
|
12,115
|
|
Current
deferred income tax assets
|
|
22,068
|
|
22,048
|
|
24,239
|
|
22,681
|
|
20,450
|
|
Other
current assets
|
|
16,792
|
|
27,071
|
|
21,695
|
|
25,216
|
|
33,535
|
|
Total
current assets
|
|
863,198
|
|
859,545
|
|
923,136
|
|
919,212
|
|
950,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
57,810
|
|
61,375
|
|
57,619
|
|
57,100
|
|
56,617
|
|
Goodwill
|
|
195,268
|
|
194,542
|
|
233,430
|
|
233,440
|
|
233,471
|
|
Intangible
assets, net
|
|
117,444
|
|
124,823
|
|
141,784
|
|
150,728
|
|
159,672
|
|
Investments
|
|
82,968
|
|
71,095
|
|
47,221
|
|
34,237
|
|
32,787
|
|
Noncurrent
deferred income tax assets
|
|
42,106
|
|
38,433
|
|
9,637
|
|
9,839
|
|
10,183
|
|
Other
assets
|
|
11,699
|
|
10,997
|
|
5,400
|
|
5,878
|
|
5,798
|
|
|
|
$1,370,493
|
|
$
1,360,810
|
|
$
1,418,227
|
|
$1,410,434
|
|
$1,449,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
54,576
|
|
$
40,671
|
|
$
38,918
|
|
$
27,825
|
|
$
35,796
|
|
Accrued
compensation, benefits and related taxes
|
|
31,081
|
|
36,764
|
|
25,320
|
|
20,832
|
|
26,278
|
|
Accrued
warranty
|
|
3,094
|
|
3,350
|
|
2,933
|
|
3,300
|
|
2,931
|
|
Deferred
revenue
|
|
60,129
|
|
43,746
|
|
39,094
|
|
47,166
|
|
43,019
|
|
Other
accrued liabilities
|
|
31,054
|
|
33,325
|
|
19,653
|
|
17,805
|
|
17,594
|
|
Total
current liabilities
|
|
179,934
|
|
157,856
|
|
125,918
|
|
116,928
|
|
125,618
|
|
Long-term
debt, net of current portion
|
|
212,765
|
|
209,766
|
|
206,825
|
|
208,336
|
|
205,447
|
|
Accrued
pension
|
|
25,739
|
|
25,260
|
|
17,989
|
|
17,730
|
|
17,472
|
|
Accrued
severance liability, net of current portion
|
|
3,884
|
|
4,191
|
|
-
|
|
-
|
|
-
|
|
Noncurrent
income taxes payable
|
|
26,676
|
|
24,450
|
|
22,471
|
|
21,844
|
|
21,844
|
|
Noncurrent
deferred income tax liabilities
|
|
352
|
|
337
|
|
21,117
|
|
24,808
|
|
25,827
|
|
Other
noncurrent liabilities
|
|
22,372
|
|
22,745
|
|
16,253
|
|
17,367
|
|
18,271
|
|
Total
liabilities
|
|
471,722
|
|
444,605
|
|
410,573
|
|
407,013
|
|
414,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Common
stock
|
|
1,467
|
|
1,449
|
|
1,446
|
|
1,443
|
|
1,438
|
|
Capital in
excess of par value
|
|
1,247,763
|
|
1,245,115
|
|
1,237,852
|
|
1,228,729
|
|
1,219,615
|
|
Treasury
stock at cost
|
|
(280,724)
|
|
(254,409)
|
|
(220,034)
|
|
(202,933)
|
|
(145,286)
|
|
Unrealized
gain (loss) on marketable securities
|
|
149
|
|
(267)
|
|
26
|
|
1,530
|
|
1,244
|
|
Unfunded
pension liability
|
|
(10,231)
|
|
(10,231)
|
|
(5,813)
|
|
(5,813)
|
|
(5,813)
|
|
Accumulated deficit
|
|
(59,469)
|
|
(65,268)
|
|
(5,639)
|
|
(19,351)
|
|
(36,042)
|
|
Cumulative
translation adjustments
|
|
(184)
|
|
(184)
|
|
(184)
|
|
(184)
|
|
(184)
|
|
Total
stockholders' equity
|
|
898,771
|
|
916,205
|
|
1,007,654
|
|
1,003,421
|
|
1,034,972
|
|
|
|
$1,370,493
|
|
$
1,360,810
|
|
$
1,418,227
|
|
$1,410,434
|
|
$1,449,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARRIS
GROUP, INC.
|
PRELIMINARY
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(in
thousands, except per share data)
|
(unaudited)
|
|
|
|
|
|
For the
Three Months
|
|
Ended
March 31,
|
|
2012
|
|
2011
|
|
|
|
|
Net
sales
|
$
302,901
|
|
$
267,436
|
Cost of
sales
|
193,993
|
|
170,490
|
Gross
margin
|
108,908
|
|
96,946
|
Operating
expenses:
|
|
|
|
Selling,
general, and administrative expenses
|
39,543
|
|
36,838
|
Research
and development expenses
|
44,147
|
|
36,040
|
Acquisition costs
|
607
|
|
-
|
Loss on
sale of product line
|
337
|
|
-
|
Restructuring charges
|
5,203
|
|
-
|
Amortization of intangible assets
|
7,379
|
|
8,944
|
|
97,216
|
|
81,822
|
Operating
income
|
11,692
|
|
15,124
|
Other
expense (income):
|
|
|
|
Interest
expense
|
4,350
|
|
4,225
|
Gain on
investments
|
(961)
|
|
(423)
|
Loss on
foreign currency
|
808
|
|
888
|
Interest
income
|
(755)
|
|
(778)
|
Other
(income) expense, net
|
(436)
|
|
(113)
|
Income
from continuing operations before income taxes
|
8,686
|
|
11,325
|
Income tax
expense (benefit)
|
2,887
|
|
(239)
|
Net
income
|
$
5,799
|
|
$
11,564
|
|
|
|
|
Net income
per common share:
|
|
|
|
Basic
|
$
0.05
|
|
$
0.09
|
Diluted
|
$
0.05
|
|
$
0.09
|
|
|
|
|
Weighted
average common shares:
|
|
|
|
Basic
|
115,075
|
|
122,297
|
Diluted
|
117,597
|
|
125,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARRIS
GROUP, INC.
|
PRELIMINARY CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
(in
thousands)
|
(unaudited)
|
|
|
|
|
|
For the
Three Months
|
|
|
|
|
|
Ended
March 31,
|
|
|
|
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
Operating Activities:
|
|
|
|
|
|
Net
income
|
|
$
5,799
|
|
$
11,564
|
|
|
Depreciation
|
|
7,195
|
|
5,855
|
|
|
Amortization of intangible assets
|
|
7,379
|
|
8,944
|
|
|
Amortization of deferred finance fees
|
|
160
|
|
163
|
|
|
Non-cash
interest expense
|
|
2,999
|
|
2,832
|
|
|
Deferred
income tax provision (benefit)
|
|
(4,635)
|
|
(7,844)
|
|
|
Stock
compensation expense
|
|
6,649
|
|
5,284
|
|
|
Provision
for doubtful accounts
|
|
54
|
|
-
|
|
|
Loss on
sale of product line
|
|
337
|
|
-
|
|
|
Loss on
disposal of fixed assets
|
|
3
|
|
34
|
|
|
Gain on
investments
|
|
(854)
|
|
(423)
|
|
|
Excess tax
benefits from stock-based compensation plans
|
|
(1,654)
|
|
(3,700)
|
|
Changes in
operating assets & liabilities, net of effects of acquisitions
and disposals:
|
|
|
|
|
|
|
Accounts
receivable
|
|
(31,799)
|
|
(24,043)
|
|
|
Other
receivables
|
|
3,693
|
|
534
|
|
|
Inventory
|
|
7,243
|
|
(4,024)
|
|
|
Income
taxes payable/recoverable
|
|
6,365
|
|
2,270
|
|
|
Accounts
payable and accrued liabilities
|
|
23,045
|
|
(7,048)
|
|
|
Other,
net
|
|
3,901
|
|
6,031
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
35,880
|
|
(3,571)
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
Purchases
of investments
|
|
(77,766)
|
|
(99,361)
|
|
Disposals
of investments
|
|
51,908
|
|
105,949
|
|
Purchases
of property & equipment, net
|
|
(3,762)
|
|
(6,251)
|
|
Cash
proceeds from sale of property & equipment
|
|
-
|
|
42
|
|
Cash paid
for acquisition, net of cash acquired
|
|
(607)
|
|
-
|
|
Cash
proceeds from sale of product line
|
|
3,249
|
|
-
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
(26,978)
|
|
379
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
Repurchase
of common stock
|
|
(26,315)
|
|
-
|
|
Excess
income tax benefits from stock-based compensation plans
|
|
1,654
|
|
3,700
|
|
Repurchase
of shares to satisfy employee tax withholdings
|
|
(8,033)
|
|
(8,245)
|
|
Fees and
proceeds from issuance of common stock, net
|
|
3,725
|
|
13,363
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
(28,969)
|
|
8,818
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
(20,067)
|
|
5,626
|
Cash
and cash equivalents at beginning of period
|
|
235,875
|
|
353,121
|
Cash
and cash equivalents at end of period
|
|
$
215,808
|
|
$
358,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARRIS
GROUP, INC.
|
|
|
|
|
PRELIMINARY SUPPLEMENTAL SALES & NET INCOME
RECONCILIATION
|
|
|
|
|
(in
thousands, except per share data) (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands, except per share data)
|
Q1
2012
|
|
Q1
2011
|
|
|
|
|
|
Per
Diluted
|
|
|
|
Per
Diluted
|
|
|
|
Amount
|
|
Share
|
|
Amount
|
|
Share
|
|
|
Sales
|
$
302,901
|
|
|
|
$
267,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Highlighted items:
|
|
|
|
|
|
|
|
|
|
Purchase
accounting impacts of deferred revenue
|
1,258
|
|
0.01
|
|
-
|
|
-
|
|
|
Sales
excluding highlighted items
|
$
304,159
|
|
|
|
$
267,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1
2012
|
|
Q1
2011
|
|
|
|
|
|
Per
Diluted
|
|
|
|
Per
Diluted
|
|
|
|
Amount
|
|
Share
|
|
Amount
|
|
Share
|
|
|
Net
income
|
$
5,799
|
|
$
0.05
|
|
$
11,564
|
|
$
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
Highlighted items:
|
|
|
|
|
|
|
|
|
|
Impacting gross margin:
|
|
|
|
|
|
|
|
|
|
Purchase
accounting impacts of deferred revenue
|
1,258
|
|
0.01
|
|
-
|
|
-
|
|
|
Stock
compensation expense
|
750
|
|
0.01
|
|
437
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Impacting operating expenses:
|
|
|
|
|
|
|
|
|
|
Acquisition costs
|
607
|
|
0.01
|
|
-
|
|
-
|
|
|
Restructuring
|
5,203
|
|
0.04
|
|
-
|
|
-
|
|
|
Amortization of intangible assets
|
7,379
|
|
0.06
|
|
8,944
|
|
0.07
|
|
|
Loss of
sale of product line
|
337
|
|
-
|
|
-
|
|
-
|
|
|
Stock
compensation expense
|
5,899
|
|
0.05
|
|
4,847
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
Impacting other (income) / expense:
|
|
|
|
|
|
|
|
|
|
Non-cash
interest expense
|
2,999
|
|
0.03
|
|
2,832
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
Impacting income tax expense:
|
|
|
|
|
|
|
|
|
|
Adjustments of income tax valuation allowances and
other
|
-
|
|
-
|
|
(3,583)
|
|
(0.03)
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
related to highlighted items above
|
(8,121)
|
|
(0.07)
|
|
(5,024)
|
|
(0.04)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
highlighted items
|
16,311
|
|
0.14
|
|
8,453
|
|
0.07
|
|
|
Net income
excluding highlighted items
|
$
22,110
|
|
$
0.19
|
|
$
20,017
|
|
$
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares - diluted
|
|
|
117,597
|
|
|
|
125,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes
to GAAP to Adjusted Non-GAAP Financial Measures
|
|
|
|
|
|
|
|
|
Notes to GAAP to Adjusted Non-GAAP
Financial Measures
The Company reports its financial results in accordance with
accounting principles generally accepted in the United States ("GAAP" or referred to
herein as "reported"). However, management believes that certain
non-GAAP financial measures provide management and other users with
additional meaningful financial information that should be
considered when assessing our ongoing performance. Our management
regularly uses our supplemental non-GAAP financial measures
internally to understand, manage and evaluate our business and make
operating decisions. These non-GAAP measures are among the factors
management uses in planning for and forecasting future
periods. Non-GAAP financial measures should be viewed in
addition to, and not as an alternative to, the Company's reported
results prepared in accordance with GAAP. Our non-GAAP
financial measures reflect adjustments based on the following
items, as well as the related income tax effects:
Purchase Accounting Impacts Related to Deferred Revenue:
In connection with our acquisition of BigBand, business combination
rules require us to account for the fair values of arrangements for
which acceptance has not been obtained, and post contract support
in our purchase accounting. The non-GAAP adjustment to our
sales and cost of sales is intended to include the full amounts of
such revenues. We believe the adjustment to these revenues is
useful as a measure of the ongoing performance of our
business. We have historically experienced high renewal rates
related to our support agreements and our objective is to increase
the renewal rates on acquired post contract support agreements;
however, we cannot be certain that our customers will renew our
contracts.
Stock-Based Compensation Expense: We have excluded the effect of
stock-based compensation expenses in calculating our non-GAAP
operating expenses and net income measures. Although stock-based
compensation is a key incentive offered to our employees, we
continue to evaluate our business performance excluding stock-based
compensation expenses. We record non-cash compensation expense
related to grants of options and restricted stock. Depending upon
the size, timing and the terms of the grants, the non-cash
compensation expense may vary significantly but will recur in
future periods.
Acquisition Costs: We have excluded the effect of
acquisition related and other expenses and the effect of
restructuring expenses in calculating our non-GAAP operating
expenses and net income measures. We incurred significant expenses
in connection with our recent acquisition of BigBand, which we
generally would not have otherwise incurred in the periods
presented as part of our continuing operations. Acquisition related
expenses consist of transaction costs, costs for transitional
employees, other acquired employee related costs, and integration
related outside services. We believe it is useful to understand the
effects of these items on our total operating expenses.
Restructuring Costs: We have excluded the effect of
restructuring charges in calculating our non-GAAP operating
expenses and net income measures. Restructuring expenses consist of
employee severance, abandoned facilities, and other exit costs. We
believe it is useful to understand the effects of these items on
our total operating expenses.
Loss on Sale of Product Line: We have excluded the effect
of a loss on the sale of a product line in calculating our non-GAAP
operating expenses and net income measures. We believe it is
useful to understand the effects of these items on our total
operating expenses.
Amortization of Intangible Assets: We have excluded the effect
of amortization of intangible assets in calculating our non-GAAP
operating expenses and net income measures. Amortization of
intangible assets is non-cash, and is inconsistent in amount and
frequency and is significantly affected by the timing and size of
our acquisitions. Investors should note that the use of intangible
assets contributed to our revenues earned during the periods
presented and will contribute to our future period revenues as
well. Amortization of intangible assets will recur in future
periods.
Non-Cash Interest on Convertible Debt: We have excluded the
effect of non-cash interest in calculating our non-GAAP operating
expenses and net income measures. We record the accretion of the
debt discount related to the equity component non-cash interest
expense. We believe it is useful to understand the component of
interest expense that will not be paid out in cash.
Income Tax Expense: We have excluded the tax effect of the
non-GAAP items mentioned above. Additionally, we have
excluded the effects of certain tax adjustments related to state
valuation allowances, research and development tax credits and
provision to return differences.
SOURCE ARRIS Group, Inc.