SUWANEE, Ga., Feb. 11 /PRNewswire-FirstCall/ -- ARRIS Group, Inc.
(NASDAQ: ARRS), a global technology leader in the development of
advanced cable telephony, next generation high-speed data, demand
driven video solutions, operations software and broadband access
equipment, today announced preliminary and unaudited financial
results for the fourth quarter and full year 2008. Fourth quarter
2008 revenues of $292.4 million grew by $42.8 million, or 17%, as
compared to the fourth quarter 2007 revenues of $249.6 million.
Full year 2008 revenues were $1,144.6 million, up $152.4 million,
or 15%, as compared to full year 2007 revenues of $992.2 million.
The revenue growth in 2008 was a result of strong market acceptance
of both ARRIS products and of new product offerings that resulted
from the late 2007 acquisition of C-COR, Inc. ARRIS products
benefit from continuing growth of video and data traffic over the
internet. Non-GAAP net income in the fourth quarter 2008 was $0.25
per diluted share, as compared to the fourth quarter 2007 of $0.16
per diluted share, and as compared to the third quarter 2008 of
$0.24 per diluted share. Net income per diluted share on a non-GAAP
basis for the full year 2008 was $0.77 as compared to $0.79 in
2007. Preliminary GAAP net loss in the fourth quarter 2008 was
$(1.09) per diluted share, as compared to the fourth quarter 2007
net income of $0.08 per diluted share, and as compared to the third
quarter 2008 net income of $0.19 per diluted share. The fourth
quarter loss is the result of a goodwill impairment (net of a
related estimated tax benefit) of approximately $(157) million, or
$(1.27) per diluted share resulting from the Company's annual
analysis of goodwill impairment in the context of the current and
continuing decline in the market value of communications equipment
suppliers in general and the impact of deteriorating macro economic
conditions. This analysis is not complete and the impairment
related estimates may change when the analysis is completed. The
goodwill impairment, like intangible amortization, is non- cash in
nature and does not affect liquidity or cash flows from operations.
Preliminary GAAP net loss for the full year 2008 was $(0.76) per
diluted share, as compared to GAAP net income of $0.87 per diluted
share in 2007. Significant non-GAAP items include: preliminary
estimate of goodwill impairment, tax impacts associated with the
impairment of goodwill, in-process research and development
expense, equity compensation expense, amortization of intangibles,
restructuring/product line exit accruals and adjustments, certain
acquisition-related gains and expenses, and certain tax benefits
and costs. 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/). The Company ended 2008 with
$427.3 million of cash and short-term investments, which compares
to $391.8 million at the end of 2007. The Company generated
approximately $102.5 million of cash from operating activities in
the fourth quarter 2008 and $189.0 million for the full year 2008.
This compares to cash generated from operating activities of $52.8
million and $63.4 million during the fourth quarter and full year
2007, respectively. Order backlog at the end of 2008 was $114.8
million and the Company's book to bill ratio in the fourth quarter
was approximately 0.90. This compares to order backlog of $144.1
million and book to bill ratio of 0.79 for the third quarter of
2008. "Despite the challenging market conditions, ARRIS delivered a
solid year of both financial and market performance in 2008," said
Bob Stanzione, ARRIS Chairman & CEO. "We are very proud of the
fact that we reached and exceeded the financial goals that we
established for the Company in early 2008 and at the same time
gained market share in many product areas. The successful
integration of the C-COR acquisition into ARRIS enhanced our
stature in the industry, added scope and scale to our business and
improved our financial model. Our strong balance sheet and the
ongoing introduction of new products and technologies should enable
ARRIS to help our customers' respond to their customers needs for
faster speeds, more video and higher quality service. I am
confident that we are well positioned to meet those needs in 2009."
"As we enter 2009, macro economic factors may have an effect on our
results," said David Potts, ARRIS EVP & CFO. "As a result, we
now project that revenues for the Company in the first quarter 2009
will be in the range of $245 to $265 million with non-GAAP net
income per diluted share in the range of $0.14 to $0.19 and GAAP
net income per diluted share, in the range of $0.06 to $0.11.
Looking forward, we will continue our focus on operational
efficiencies and cash generation," concluded Potts. ARRIS
management will conduct a conference call at 5:00pm EST, today,
Wednesday, February 11, 2009, to discuss these results in detail.
You may participate in this conference call by dialing 888-680-0890
or 617-213-4857 for international calls prior to the start of the
call and providing the ARRIS Group, Inc. name, conference passcode
64968525 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 EST conference call. A replay of
the conference call can be accessed approximately two hours after
the call through Monday, February 16, 2009 by dialing 888-286-8010
or 617-801- 6888 for international calls and using the passcode
53814736. 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, Oregon; State College,
Pennsylvania; Wallingford, Connecticut; 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: -- first quarter
and 2009 revenues and net income; -- expected sales levels and
acceptance of certain ARRIS products; -- estimated goodwill
impairment charges; -- the general market outlook; and -- the
outlook for industry trends are forward-looking statements. These
statements involve risks and uncertainties that may cause actual
results to differ materially from those set forth in these
statements. Among other things, -- projected results for the first
quarter as well as the general outlook for 2009 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; -- Our customers operate in a capital
intensive industry, and the current disruptions in the capital
markets may adversely impact their ability to finance, and
therefore purchase, the products that we offer; -- Impairment
analysis is complex, and the proper techniques for that analysis in
a market characterized by broad share price declines and high
volatility are unclear and, as a result, our impairment analysis is
preliminary and subject to future refinement; 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-Q for the quarter ended September 30, 2008.
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. PRELIMINARY CONSOLIDATED BALANCE
SHEETS (in thousands) Dec. 31, Sep. 30, June 30, 2008 2008 (1) 2008
(1) (unaudited) (unaudited) (unaudited) ASSETS Current assets: Cash
and cash equivalents $409,894 $305,987 $290,266 Short-term
investments, at fair value 17,371 23,571 7,503 Total cash, cash
equivalents and short-term investments 427,265 329,558 297,769
Restricted cash 5,673 5,768 7,051 Accounts receivable, net 159,443
180,367 178,178 Other receivables 4,749 5,180 9,067 Inventories,
net 129,752 139,598 144,507 Prepaids 8,004 5,156 5,305 Current
deferred income tax assets 43,402 42,714 47,412 Other current
assets 19,782 22,132 18,916 Total current assets 798,070 730,473
708,205 Property, plant and equipment, net 59,204 60,268 60,823
Goodwill 268,398 449,418 452,398 Intangible assets, net 227,348
236,689 244,575 Investments 14,681 12,784 9,937 Noncurrent deferred
income tax assets 7,463 3,312 3,547 Other assets 8,294 11,282
11,383 $1,383,458 $1,504,226 $1,490,868 LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $75,863
$54,304 $68,476 Accrued compensation, benefits and related taxes
27,024 21,831 18,072 Accrued warranty 6,752 7,554 7,566 Deferred
revenue 44,461 35,986 37,614 Current portion of long-term debt 146
234 314 Other accrued liabilities 28,691 30,205 26,884 Total
current liabilities 182,937 150,114 158,926 Long-term debt, net of
current portion 276,137 276,371 276,606 Accrued pension 18,820
10,622 11,362 Noncurrent income tax payable 12,645 10,128 6,250
Noncurrent deferred income tax liability 16,302 42,337 48,725 Other
long-term liabilities 14,243 16,888 18,694 Total liabilities
521,084 506,460 520,563 Stockholders' equity: Preferred stock - - -
Common stock 1,362 1,360 1,358 Capital in excess of par value
1,105,998 1,102,112 1,098,581 Treasury stock at cost (75,960)
(75,960) (76,007) Unrealized gain (loss) on marketable securities
(274) (128) 66 Unfunded pension liability (8,070) (3,358) (3,358)
Accumulated deficit (160,498) (26,076) (50,151) Cumulative
translation adjustments (184) (184) (184) Total stockholders'
equity 862,374 997,766 970,305 $1,383,458 $1,504,226 $1,490,868
March 31, Dec. 31, 2008 (1) 2007 (unaudited) (audited) ASSETS
Current assets: Cash and cash equivalents $243,515 $323,797
Short-term investments, at fair value 49,513 68,011 Total cash,
cash equivalents and short-term investments 293,028 391,808
Restricted cash 7,186 6,977 Accounts receivable, net 172,719
166,953 Other receivables 6,074 4,330 Inventories, net 122,361
131,792 Prepaids 5,680 5,856 Current deferred income tax assets
51,993 44,939 Other current assets 10,952 4,841 Total current
assets 669,993 757,496 Property, plant and equipment, net 60,747
59,156 Goodwill 453,454 455,352 Intangible assets, net 257,029
269,893 Investments 10,200 6,412 Noncurrent deferred income tax
assets 3,688 3,459 Other assets 12,624 10,181 $1,467,735 $1,561,949
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts
payable $60,490 $58,852 Accrued compensation, benefits and related
taxes 14,397 26,177 Accrued warranty 7,919 8,298 Deferred revenue
32,738 8,474 Current portion of long-term debt 310 35,305 Other
accrued liabilities 32,922 42,121 Total current liabilities 148,776
179,227 Long-term debt, net of current portion 276,686 276,765
Accrued pension 10,905 10,455 Noncurrent income tax payable 6,487
6,322 Noncurrent deferred income tax liability 47,090 45,255 Other
long-term liabilities 19,704 18,158 Total liabilities 509,648
536,182 Stockholders' equity: Preferred stock - - Common stock
1,357 1,356 Capital in excess of par value 1,095,716 1,093,498
Treasury stock at cost (76,007) (572) Unrealized gain (loss) on
marketable securities 151 20 Unfunded pension liability (3,358)
(3,358) Accumulated deficit (59,588) (64,993) Cumulative
translation adjustments (184) (184) Total stockholders' equity
958,087 1,025,767 $1,467,735 $1,561,949 (1) Certain amounts have
been reclassified to conform to the current period's financial
statement presentation. ARRIS GROUP, INC. PRELIMINARY CONSOLIDATED
STATEMENTS OF OPERATIONS (in thousands, except per share data) For
the Three Months For the Twelve Months Ended December 31, Ended
December 31, 2008 2007 2008 2007 (unaudited)(unaudited) (unaudited)
(audited) Net sales $292,398 $249,561 $1,144,565 $992,194 Cost of
sales 183,535 185,636 751,436 718,312 Gross margin 108,863 63,925
393,129 273,882 Gross margin % 37.2% 25.6% 34.3% 27.6% Operating
expenses: Selling, general, and administrative expenses 36,957
25,471 143,997 99,879 Research and development expenses 29,285
17,549 112,542 71,233 Restructuring charges 429 39 1,211 460
Preliminary estimate of goodwill impairment 175,000 - 175,000 -
In-process research and development - 6,120 - 6,120 Amortization of
intangible assets 9,341 2,105 44,195 2,278 Total operating expenses
251,012 51,284 476,945 179,970 Operating income (loss) (142,149)
12,641 (83,816) 93,912 Other expense (income): Interest expense
1,776 1,611 6,740 6,614 Loss (gain) on investments 507 282 717
(4,596) Loss (gain) on foreign currency (164) (16) (422) 48
Interest income (1,333) (5,527) (7,224) (24,776) Gain related to
terminated acquisition, net of expenses - - - (22,835) Other
(income) expense, net (1,000) 39 (1,043) 370 Income (loss) from
continuing operations before income taxes (141,935) 16,252 (82,584)
139,087 Income tax expense (benefit) (7,943) 6,556 12,491 40,951
Net income (loss) from continuing operations (133,992) 9,696
(95,075) 98,136 Income (loss) from discontinued operations - (126)
- 204 Net income (loss) (133,992) 9,570 (95,075) 98,340 Net income
(loss) per common share - basic: Income (loss) from continuing
operations $(1.09) $0.08 $(0.76) $0.89 Income (loss) from
discontinued operations - - - - Net income (loss) $(1.09) $0.08
$(0.76) $0.89 Net income (loss) per common share - diluted: Income
(loss) from continuing operations $(1.09) $0.08 $(0.76) $0.87
Income (loss) from discontinued operations - - - - Net income
(loss) $(1.09) $0.08 $(0.76) $0.87 Weighted average common shares:
Basic 123,128 115,261 124,878 110,843 Diluted 123,128 117,060
124,878 113,027 ARRIS GROUP, INC. PRELIMINARY CONSOLIDATED
STATEMENTS OF CASH FLOWS (in thousands) For the Three Months For
the Twelve Months Ended December 31, Ended December 31, 2008 2007
2008 2007 (unaudited) (unaudited) (unaudited) (audited) Operating
Activities: Net income (loss) $(133,992) $9,570 $(95,075) $98,340
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: Depreciation 5,394 2,849 20,915 10,852
Preliminary estimate of goodwill impairment 175,000 - 175,000 -
Amortization of intangible assets 9,341 2,105 44,195 2,278 Stock
compensation expense 2,991 2,193 11,277 10,903 Deferred income tax
provision (benefit) 910 (9,914) 6,656 4,405 Deferred tax on
preliminary estimate of goodwill impairment (18,000) - (18,000) -
Amortization of deferred finance fees 278 280 1,113 1,116 Provision
for doubtful accounts 454 (205) 819 279 Gain related to previously
written off receivables - - - (377) Gain on discontinued product
line - 126 - (204) Loss on disposal of fixed assets 29 15 14 182
Loss (gain) on investments 507 274 717 (4,604) Gain related to
terminated acquisition, net of expenses - - - (22,835) Write-off of
acquired in-process R&D - 6,120 - 6,120 Excess tax benefits
from stock-based compensation plans (32) (888) (56) (9,157) Changes
in operating assets & liabilities, net of effects of
acquisitions and disposals: Accounts receivable 20,682 (2,102)
8,579 (17,498) Other receivables 3,530 670 (471) (1,774) Inventory
10,051 14,499 4,023 (9,502) Income taxes payable 3,699 10,785 3,042
3,090 Accounts payable and accrued liabilities 30,727 14,479 40,470
(9,906) Other, net (9,028) 1,978 (14,192) 1,716 Net cash provided
by operating activities 102,541 52,834 189,026 63,424 Investing
Activities: Purchases of property, plant, and equipment (4,908)
(3,934) (21,352) (15,072) Cash proceeds related to terminated
acquisition, net of expenses paid - - - 10,554 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 (434) (285,284) (10,500)
(285,284) Cash proceeds from sale of property, plant &
equipment - - 250 3 Cash proceeds from sale of short-term
investments - - 16 - Purchases of short-term- investments (26,349)
(60,740) (109,347) (356,366) Disposals of short-term- investments
32,628 249,315 155,098 412,217 Purchases of investment securities
(387) - (4,387) - Net cash provided by (used in) investing
activities 550 (100,643) 9,778 (221,667) Financing Activities:
Payment of debt and capital lease obligations (346) (19) (35,864)
(19) Repurchase of common stock - - (75,913) - Excess tax benefits
from stock-based compensation plans 32 888 56 9,157 Employer
repurchase of shares to satisfy minimum tax withholdings - (1)
(1,035) (3,093) Fees and proceeds from issuance of common stock,
net 1,130 30 49 14,377 Net cash provided by (used in) financing
activities 816 898 (112,707) 20,422 Net increase (decrease) in cash
and cash equivalents 103,907 (46,911) 86,097 (137,821) Cash and
cash equivalents at beginning of period 305,987 370,708 323,797
461,618 Cash and cash equivalents at end of period $409,894
$323,797 $409,894 $323,797 ARRIS GROUP, INC. PRELIMINARY
SUPPLEMENTAL NET INCOME (LOSS) RECONCILIATION (in thousands, except
per share data) (unaudited) Q4 2008 YTD 2008 Per Per Diluted
Diluted Amount Share (1) Amount Share (1) Net income (loss)
$(133,992) $(1.08) $(95,075) $(0.75) Highlighted items: Impacting
gross margin: Stock compensation expense 269 - 979 0.01 Impacting
operating expenses: Integration costs - - 427 - Restructuring
charges - adjustments to existing accruals 429 - 1,211 0.01
Amortization of intangible assets 9,341 0.08 44,195 0.35 Stock
compensation expense 2,722 0.02 10,298 0.08 Preliminary estimate of
goodwill impairment 175,000 1.41 175,000 1.39 Impacting income tax
expense: Adjustments of tax related to goodwill impairment and
certain provision to return adjustments (18,000) (0.14) (19,530)
(0.15) Tax related to highlighted items above (4,105) (0.03)
(20,281) (0.16) Total highlighted items 165,656 1.33 192,299 1.52
Net income excluding highlighted items $31,664 $0.25 $97,224 $0.77
Weighted average common shares - diluted (1) 124,355 126,277 Q4
2007 YTD 2007 Per Per Diluted Diluted Amount Share Amount Share Net
income $9,570 $0.08 $98,340 0.87 Highlighted items: Stock
compensation expense 195 0.00 785 0.01 Write-off discontinued
inventory 1,046 0.01 1,046 0.01 Impacting operating expenses: Gains
related to previously written off receivables - - (377) - Write-off
of in-process research and development 6,120 0.05 6,120 0.05
Acquisition Costs 1,415 0.01 1,415 0.01 Restructuring charges -
adjustments to existing accruals - - 421 - Amortization of
intangible assets 2,105 0.02 2,278 0.02 Stock compensation expense
1,998 0.02 10,118 0.09 Impacting net income (loss) from continuing
operations: Gains related to terminated acquisition, net of
expenses - - (22,835) (0.20) Gain on investments - - (4,864) (0.04)
Impacting discontinued operations: Gains related to previously
written off receivables - - (330) - Impacting income tax expense:
Adjustments of income tax valuation allowances and research &
development credits and other (1,247) (0.01) (7,959) (0.07) Tax
related to highlighted items above (2,373) (0.02) 5,134 0.05 Total
highlighted items 9,259 0.08 (9,048) (0.08) Net income excluding
highlighted items $18,829 $0.16 $89,292 $0.79 Weighted average
common shares - diluted 117,060 113,027 (1) Although net income for
these periods is a loss and inclusion of options would be
antidilutive, weighted average diluted shares are used in this
calculation as the earnings excluding highlighted items is net
income. 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. ARRIS recognized a gain in both Q1 and Q3 of 2007
associated with 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. In 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 third quarter of
2007, ARRIS bought and sold investments and realized a gain of $3.5
million. In the third quarter of 2007, a tax benefit of
approximately $3.5 million was recorded for a reversal of valuation
allowances and research and development tax credits related to a
tax credit study that was undertaken for prior years (2001 - 2006).
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. The $0.9 and $0.1 million
in the fourth quarter of 2007 relate to inventory of a product line
that management decided to discontinue. During the fourth quarter
of 2007 ARRIS completed the C-COR acquisition and recorded
incremental costs of $0.9 million as a result of the acquisition.
Due to the acquisition, we acquired in process research and
development of $6.2 million which was written off during the fourth
quarter 2007. ARRIS also recorded severance costs of approximately
$0.5 million related to a reduction in the legacy ARRIS workforce.
The workforce reduction was due to an overlap of personnel
following the C-COR acquisition. During the first quarter of 2008,
ARRIS recorded incremental costs of $0.4 million as a result of the
C-COR integration. In the third quarter of 2008, ARRIS recorded a
net tax benefit of $1.6 million related to provision to return
differences resulting from the filing of the 2007 tax return.
Lastly, during the fourth quarter 2008, ARRIS recorded a
preliminary estimate of an impairment on goodwill of $140 million
and the related deferred tax adjustment of $12.6 million. 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 GROUP, INC. Net Income Reconciliation
(unaudited) Q1 EPS 2009 Guidance Estimated GAAP EPS - diluted $0.06
- $0.11 Reconciling Items Amortization of intangibles, after tax
0.05 Stock compensation expense, after tax 0.02 Non-cash interest
expense, after tax 0.01 Subtotal 0.08 Estimated adjusted (non-GAAP)
EPS - diluted $0.14 - $0.19 See the Supplemental Net Income
Reconciliation for a discussion regarding management's reasoning
for providing this non-GAAP financial measure DATASOURCE: ARRIS
Group, Inc. CONTACT: Jim Bauer, Investor Relations, ARRIS Group,
Inc., +1-678-473-2647, Web site: http://www.arrisi.com/
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