ARRIS GROUP INC - FORM 8-K - EX-99.1 - PRESS RELEASE

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8-K - FORM 8-K - ARRIS GROUP INC	d248102d8k.htm

Exhibit 99.1


FOR IMMEDIATE RELEASE	Contact:	Jim Bauer
		Investor Relations
		(678) 473-2647
		jim.bauer@arrisi.com

ARRIS ANNOUNCES PRELIMINARY AND UNAUDITED

THIRD QUARTER 2011 RESULTS

Suwanee, Ga. (October 26, 2011) ARRIS Group, Inc. (NASDAQ:ARRS), today announced preliminary and unaudited financial results for the third quarter 2011.

Revenues in the third quarter 2011 were $274.4 million as compared to third quarter 2010 revenues of $274.3 million and as compared to second quarter 2011 revenues of $265.8 million. Through the first three quarters of 2011 and 2010, revenues were $807.6 million and $821.3 million, respectively.

Adjusted net income (a non-GAAP measure) in the third quarter 2011 was $0.21 per diluted share, compared to $0.19 per diluted share for the third quarter 2010 and $0.24 per diluted share for the second quarter 2011. Year to date, adjusted net income was $0.60 per diluted share for 2011 as compared to $0.67 per diluted share in 2010.

GAAP net income in the third quarter 2011 was $0.11 per diluted share, as compared to third quarter 2010 GAAP net income of $0.11 per diluted share and second quarter 2011 GAAP net income of $0.13 per diluted share. Year to date, GAAP net income was $0.34 per diluted share in 2011 as compared to GAAP net income of $0.41 per diluted share in 2010. Significant GAAP items that have been excluded in computing adjusted net income and adjusted net income per diluted share include amortization of intangible assets, equity compensation, non-cash interest expense, restructuring charges and acquisition costs, and certain discrete tax items. A reconciliation of adjusted net income to GAAP net income per share is attached to this release and also can be found on the Company’s website (www.arrisi.com).

Gross margin for the third quarter 2011 was 36.5%, which compares to the third quarter 2010 gross margin of 37.2% and the second quarter 2011 gross margin of 40.2%.

The Company ended the third quarter 2011 with $590.6 million of cash resources, which includes $575.0 million of cash, cash equivalents and short-term investments, and $15.6 million of long-term marketable security investments, as compared to $591.5 million, in the aggregate, at the end of the second quarter 2011. During the third quarter 2011, the Company repurchased approximately 1.6 million shares of ARRIS common stock for $17.1 million and

also repurchased $5.0 million face amount of Convertible Debt. Year to date, the Company has repurchased 6.7 million shares for $74.7 million, and $5.0 million face amount of Convertible Debt. The Company generated $24.5 million of cash from operating activities during the third quarter 2011 and $52.3 million through the first nine months of 2011, which compares to $12.5 million and $95.9 million generated during the same periods in 2010, respectively.

Order backlog at the end of the third quarter 2011 was $155.3 million as compared to $119.6 million and $154.2 million at the end of the third quarter 2010 and the second quarter 2011, respectively. The Company’s book-to-bill ratio in the third quarter 2011 was 1.00 as compared to the third quarter 2010 of 0.80 and the second quarter 2011 of 0.91.

“Our third quarter results were within previous guidance and reflect continuing demand for our market leading products,” said Bob Stanzione, ARRIS Chairman & CEO. “We now look forward to completing the acquisition of BigBand Networks and growing our current business to include a strong video product suite. The BigBand portfolio joins a host of new ARRIS products gaining traction in the industry and we believe that we are positioned well for the future.”

On October 11, 2011, the Company announced its intention to purchase BigBand Networks and launched a Tender Offer on October 21. The Company anticipates closing the transaction in late November 2011.

The Company will present its Whole Home Solution Media Gateway and Media Player, its Multi-screen On Demand and Advertising solutions and industry-leading family of DOCSIS^® 3.0 high density products at the SCTE show in Atlanta in November. These new products enable MSO customers to access their information and entertainment anywhere, anytime and across multiple screens. Also, during the quarter the Company announced that their ServAssure™ Advanced Performance Management Software platform now handles IPv4, IPv6 and dual-stack devices for data collection as well as real-time requests. ARRIS ServAssure currently manages over 80 million customer premises devices worldwide, or more than 30% of all existing in-home broadband devices.

“With respect to the fourth quarter 2011, we now project that revenues for the Company will be in the range of $270 to $290 million, with adjusted net income per diluted share in the range of $0.18 to $0.22 and GAAP net income per diluted share in the range of $0.08 to $0.12,” said David Potts, ARRIS EVP & CFO. “The guidance excludes the impact of the BigBand acquisition, which is expected to have approximately a $(0.01) to $(0.03) effect in the fourth quarter on a non GAAP basis.”

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, October 26, 2011, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4216 or 617-213-4868 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 77404552 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 conference call. A replay of the conference call can be accessed approximately two hours after the call through October 31, 2011 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 24855789. 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; 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 fourth quarter 2011, full year 2011 and beyond;

•

the impact of the BigBand Networks acquisition

•

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 fourth quarter 2011 as well as the general outlook for 2011 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;

•

the acquisition of BigBand is subject to a number of factors including a minimum tender requirement, shareholder approval, the fulfillment of closing conditions and the absence of litigation preventing the closing; in addition, all acquisitions involve integration and similar risks relating to their ultimate performance; 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 June 30, 2011 Form 10-Q. 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)

(unaudited)


	September 30, 2011			June 30, 2011			March 31, 2011			December 31, 2010			September 30, 2010
ASSETS

Current assets:
Cash and cash equivalents	$	354,659		$	360,281		$	358,747		$	353,121		$	351,894
Short-term investments, at fair value		220,318			231,254			260,862			266,981			288,463

Total cash, cash equivalents and short term investments		574,977			591,535			619,609			620,102			640,357

Restricted cash		3,647			3,646			4,176			4,937			4,480
Accounts receivable, net		165,821			152,436			149,976			125,933			133,915
Other receivables		5,296			406			5,275			6,528			2,654
Inventories, net		116,769			113,020			105,787			101,763			89,203
Prepaids		10,692			10,272			12,115			9,237			8,934
Current deferred income tax assets		24,239			22,681			20,450			19,819			28,585
Other current assets		21,695			25,216			33,535			33,054			28,347

Total current assets		923,136			919,212			950,923			921,373			936,475

Property, plant and equipment, net		57,619			57,100			56,617			56,306			56,816
Goodwill		233,430			233,440			233,471			234,964			235,109
Intangible assets, net		141,784			150,728			159,672			168,616			177,560
Investments		47,221			34,237			32,787			31,015			29,591
Noncurrent deferred income tax assets		9,637			9,839			10,183			6,293			6,560
Other assets		5,400			5,878			5,798			5,520			6,129

	$	1,418,227		$	1,410,434		$	1,449,451		$	1,424,087		$	1,448,240

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	38,918		$	27,825		$	35,796		$	50,736		$	52,011
Accrued compensation, benefits and related taxes		25,320			20,832			26,278			28,778			25,913
Accrued warranty		2,933			3,300			2,931			2,945			3,504
Deferred revenue		39,094			47,166			43,019			31,625			36,029
Current portion of long-term debt		—			—			—			—			12
Other accrued liabilities		19,653			17,805			17,594			18,847			25,891

Total current liabilities		125,918			116,928			125,618			132,931			143,360
Long-term debt, net of current portion		206,825			208,336			205,447			202,615			204,053
Accrued pension		17,989			17,730			17,472			17,213			17,383
Noncurrent income taxes payable		22,471			21,844			21,844			17,702			16,509
Noncurrent deferred income tax liabilities		21,117			24,808			25,827			29,151			32,193
Other noncurrent liabilities		16,253			17,367			18,271			15,406			14,926

Total liabilities		410,573			407,013			414,479			415,018			428,424

Stockholders’ equity:
Preferred stock		—			—			—			—			—
Common stock		1,446			1,443			1,438			1,409			1,406
Capital in excess of par value		1,237,852			1,228,729			1,219,615			1,206,157			1,199,184
Treasury stock at cost		(220,034	)		(202,933	)		(145,286	)		(145,286	)		(115,248	)
Unrealized gain (loss) on marketable securities		26			1,530			1,244			392			(374	)
Unfunded pension liability		(5,813	)		(5,813	)		(5,813	)		(5,813	)		(6,041	)
Accumulated deficit		(5,639	)		(19,351	)		(36,042	)		(47,606	)		(58,927	)
Cumulative translation adjustments		(184	)		(184	)		(184	)		(184	)		(184	)

Total stockholders’ equity		1,007,654			1,003,421			1,034,972			1,009,069			1,019,816

	$	1,418,227		$	1,410,434		$	1,449,451		$	1,424,087		$	1,448,240

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2011			2010			2011			2010
Net sales	$	274,374		$	274,286		$	807,609		$	821,338
Cost of sales		174,250			172,299			503,641			493,562

Gross margin		100,124			101,987			303,968			327,776
Operating expenses:
Selling, general, and administrative expenses		35,695			33,913			108,401			103,489
Research and development expenses		36,065			35,138			108,734			105,041
Restructuring charges		969			—			969			73
Amortization of intangible assets		8,944			8,970			26,832			27,013

		81,673			78,021			244,936			235,616

Operating income		18,451			23,966			59,032			92,160
Other expense (income):
Interest expense		4,277			4,533			12,682			13,728
Loss (gain) on investments		253			(369	)		(504	)		(401	)
Loss (gain) on foreign currency		(841	)		94			126			283
Interest income		(775	)		(399	)		(2,439	)		(1,468	)
Loss (gain) on debt redemption		19			(263	)		19			(378	)
Other (income) expense, net		(150	)		280			(682	)		107

Income from continuing operations before income taxes		15,668			20,090			49,830			80,289
Income tax expense		1,955			6,048			7,863			27,482

Net income	$	13,713		$	14,042		$	41,967		$	52,807

Net income per common share:
Basic	$	0.11		$	0.11		$	0.35		$	0.42

Diluted	$	0.11		$	0.11		$	0.34		$	0.41

Weighted average common shares:
Basic		119,283			125,237			121,115			125,927

Diluted		121,237			127,638			123,549			129,103

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2011			2010			2011			2010
Operating Activities:
Net income	$	13,713		$	14,042		$	41,967		$	52,807
Depreciation		5,882			5,837			17,550			16,893
Amortization of intangible assets		8,944			8,969			26,832			27,013
Amortization of deferred finance fees		161			170			487			527
Non-cash interest expense		2,883			2,781			8,604			8,548
Deferred income tax provision (benefit)		(4,084	)		4,939			(15,487	)		2,598
Stock compensation expense		5,738			5,785			16,947			16,058
Provision for doubtful accounts		(1	)		(209	)		(1	)		83
Loss (gain) on debt retirement		19			(263	)		19			(378	)
Loss (gain) on disposal of fixed assets		(27	)		337			6			369
Loss (gain) on investments		253			(370	)		(504	)		(401	)
Excess tax benefits from stock-based compensation plans		258			(36	)		(2,989	)		(2,683	)
Changes in operating assets & liabilities, net of effects of acquisitions and disposals:
Accounts receivable		(13,384	)		5,967			(39,887	)		9,710
Other receivables		(6,134	)		3,930			(17	)		2,760
Inventory		(3,749	)		(10,373	)		(15,006	)		6,648
Income taxes payable/recoverable		5,362			(11,165	)		17,953			(14,173	)
Accounts payable and accrued liabilities		9,148			(22,603	)		(6,332	)		(42,226	)
Other, net		(520	)		4,796			2,129			11,788

Net cash provided by operating activities		24,462			12,534			52,271			95,941

Investing Activities:
Purchases of investments		(85,263	)		(100,461	)		(228,104	)		(331,547	)
Disposals of investments		80,796			104,760			260,227			159,914
Purchases of property & equipment, net		(6,401	)		(6,862	)		(18,948	)		(17,127	)
Cash proceeds from sale of property & equipment		27			—			70			243

Net cash provided by (used in) investing activities		(10,841	)		(2,563	)		13,245			(188,517	)

Financing Activities:
Payment of debt obligations		—			(38	)		—			(112	)
Early redemption of long-term debt		(4,984	)		(13,531	)		(4,984	)		(18,331	)
Repurchase of common stock		(17,101	)		(15,603	)		(74,748	)		(39,288	)
Excess income tax benefits from stock-based compensation plans		(258	)		36			2,989			2,683
Repurchase of shares to satisfy employee tax withholdings		(15	)		3			(8,260	)		(6,422	)
Fees and proceeds from issuance of common stock, net		3,115			124			21,025			5,375

Net cash used in financing activities		(19,243	)		(29,009	)		(63,978	)		(56,095	)
Net increase (decrease) in cash and cash equivalents		(5,622	)		(19,038	)		1,538			(148,671	)
Cash and cash equivalents at beginning of period		360,281			370,932			353,121			500,565

Cash and cash equivalents at end of period	$	354,659		$	351,894		$	354,659		$	351,894

ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL NET INCOME RECONCILIATION

(in thousands, except per share data) (unaudited)


	Q1 2011						Q2 2011						Q3 2011						YTD 2011
(in thousands, except per share data)	Amount			Per Diluted Share			Amount			Per Diluted Share			Amount			Per Diluted Share			Amount			Per Diluted Share
Net income	$	11,564		$	0.09		$	16,690		$	0.13		$	13,713		$	0.11		$	41,967		$	0.34
Highlighted items:

Impacting gross margin:
Stock compensation expense		437			—			557			—			525			—			1,519			0.01

Impacting operating expenses:
Acquisition costs, restructuring and other		—			—						—			1,444			0.01			1,444			0.01
Amortization of intangible assets		8,944			0.07			8,944			0.07			8,944			0.07			26,832			0.22
Stock compensation expense		4,847			0.04			5,368			0.04			5,213			0.04			15,428			0.12

Impacting other (income) / expense:
Non-cash interest expense		2,832			0.02			2,889			0.02			2,883			0.02			8,604			0.07
Loss (gain) on retirement of debt		—			—						—			19			—			19			—

Impacting income tax expense:
Adjustments of income tax valuation allowances, research & development credits and other		(3,583	)		(0.03	)		—			—			(2,335	)		(0.02	)		(5,918	)		(0.05	)

Tax related to highlighted items above		(5,024	)		(0.04	)		(4,915	)		(0.04	)		(5,265	)		(0.04	)		(15,204	)		(0.12	)

Total highlighted items		8,453			0.07			12,843			0.10			11,428			0.09			32,724			0.26

Net income excluding highlighted items	$	20,017		$	0.16		$	29,533		$	0.24		$	25,141		$	0.21		$	74,691		$	0.60

Weighted average common shares - diluted					125,732						123,711						121,237						123,549


	Q1 2010						Q2 2010						Q3 2010						YTD 2010
	Amount			Per Diluted Share			Amount			Per Diluted Share			Amount			Per Diluted Share			Amount			Per Diluted Share
Net income	$	18,991		$	0.15		$	19,774		$	0.15		$	14,042		$	0.11		$	52,807		$	0.41
Highlighted items:
Impacting gross margin:
Stock compensation expense		433			—			481			—			491			—			1,405			0.01

Impacting operating expenses:
Acquisition costs, restructuring and other		52			—			21			—			—			—			73			—
Amortization of intangible assets		9,022			0.07			9,021			0.07			8,970			0.07			27,013			0.21
Stock compensation expense		4,088			0.03			5,271			0.04			5,294			0.04			14,653			0.11

Impacting other (income) / expense:
Non-cash interest expense		2,883			0.02			2,884			0.02			2,781			0.02			8,548			0.07
Loss (gain) on retirement of debt		—			—			(115	)		—			(263	)		—			(378	)		—

Impacting income tax expense:
Adjustments of income tax valuation allowances, research & development credits and other		1,222			0.01			(351	)		—			(1,040	)		(0.01	)		(169	)		—

Tax related to highlighted items above		(5,505	)		(0.04	)		(6,170	)		(0.05	)		(6,133	)		(0.05	)		(17,808	)		(0.14	)

Total highlighted items		12,195			0.09			11,044			0.09			10,100			0.08			33,337			0.26

Net income excluding highlighted items	$	31,186		$	0.24		$	30,818		$	0.24		$	24,142		$	0.19		$	86,144		$	0.67

Weighted average common shares - diluted					129,975						129,717						127,638						129,103

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. With respect to amortization of intangibles, the intangibles being amortized relate to our acquisitions. The acquisition costs, restructuring, and other 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. With respect to the convertible debt non-cash interest, ARRIS records non-cash interest expense related to the 2013 convertible debt. Disclosing the non-cash piece provides investors with the information regarding interest that will not be paid out in cash. In 2011 and 2010, income tax expense adjustments were recorded for state valuation allowances and research and development tax credits.

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.

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