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8-K - 8-K - ARRIS GROUP INCd470229d8k.htm
EX-99.1 - EX-99.1 - ARRIS GROUP INCd470229dex991.htm

Exhibit 99.2

ARRIS GROUP, INC.

Preliminary EBITDA - GAAP to Adjusted Non-GAAP Reconciliation

(in thousands)

 

     Year 2010     Year 2011     LTM
9/30/2012
    YTD Q3
2011
    YTD Q3
2012
 
  

 

 

   

 

 

 

Earnings (loss) before tax

     94,630        (28,511     (26,247     49,830        52,094   

Depreciation

     22,865        24,139        27,554        17,550        20,965   

Amortization of intangibles

     35,957        33,649        29,382        26,832        22,565   

Goodwill & intangible impairment

     —          88,633        88,633        —          —     

Interest expense

     17,965        16,939        17,509        12,681        13,251   

Interest income

     (1,997     (3,154     (2,963     (2,438     (2,248
  

 

 

   

 

 

 

GAAP EBITDA

     169,420        131,695        133,868        104,455        106,627   

Highlighted items:

          

Purchase accounting impact of def revenue

     —          3,126        5,593        —          2,467   

Stock compensation expense

     21,827        22,055        26,302        16,947        21,194   

Acquisition costs

     —          3,205        3,469        475        739   

Restructuring

     65        4,360        9,846        969        6,455   

Impairment on investments

     —          3,000        3,000        —          —     

Loss of sale of product line

       —          337        —          337   

Loss (gain) on debt retirement

     (373     19        —          19        —     
  

 

 

 

Total highlighted items

     21,519        35,765        48,547        18,410        31,192   

Adjusted Non-GAAP EBITDA

     190,939        167,460        182,415        122,865        137,819   

Adjusted Non-GAAP EBITDA—% of Adjusted Non-GAAP Sales

     17.6     15.3     14.1     15.2     13.6

See Notes to GAAP to Adjusted Non-GAAP Financial Measures


Notes to GAAP to Adjusted Non-GAAP Financial Measures

ARRIS Group, Inc. (“we”, “our” “us” or 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.

Impairment of Investment: We have excluded the effect of an other-than-temporary impairment of a cost method investment in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of this non-cash item in our other expense (income).

Impairment of Goodwill and Intangibles: We have excluded the effect of the estimated impairment of goodwill and intangible assets in calculating our non-GAAP operating expenses and net income (loss) measures. Although an impairment does not directly impact the Company’s current cash position, such expense represents the declining value of the technology and other intangibles assets that were acquired. We exclude these impairments when significant and they are not reflective of ongoing business and operating results.

Loss (Gain) on Retirement of Debt: We have excluded the effect of the loss (gain) on retirement of debt in calculating our non-GAAP financial measures. We believe it is useful for investors to understand the effect of this non-cash item in our other expense (income).

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.