ARRIS Announces Preliminary And Unaudited Fourth Quarter And Full Year 2012 Results PR Newswire SUWANEE, Ga., Feb. 6, 2013 SUWANEE, Ga., Feb. 6, 2013 /PRNewswire/ --ARRIS Group, Inc. (NASDAQ: ARRS), today announced preliminary and unaudited financial results for the fourth quarter and full year 2012. Revenues in the fourth quarter 2012 were $344.0 million as compared to fourth quarter 2011 revenues of $281.1 million and as compared to third quarter 2012 revenues of $357.5 million. Full year 2012 and 2011 revenues were $1,353.7 million and $1,088.7 million, respectively. Adjusted net income (a non-GAAP measure) in the fourth quarter 2012 was $0.28 per diluted share, compared to $0.21 per diluted share for the fourth quarter 2011 and $0.22 per diluted share for the third quarter 2012. Adjusted net income was $0.93 per diluted share for the full year 2012 and compares to $0.81 per diluted share for the full year 2011. GAAP net income in the fourth quarter 2012 was $0.13 per diluted share, as compared to fourth quarter 2011 GAAP net loss of $(0.51) per diluted share and third quarter 2012 GAAP net income of $0.15 per diluted share. Full year 2012 GAAP net income was $0.46 per diluted share as compared to GAAP net loss of $(0.15) per diluted share in full year 2011. Significant GAAP items that have been adjusted in computing adjusted net income and adjusted net income per diluted share include: acquisition accounting impacts related to acquired deferred revenue; amortization of intangible assets; long-term investment impairment; loss on the sale of a product line; early pension settlement costs; 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 per diluted share is attached to this release and can also be found on the Company's website (www.arrisi.com). Gross margin for the fourth quarter 2012 was 35.8%, which compares to the fourth quarter 2011 gross margin of 37.9% and the third quarter 2012 gross margin of 31.3%. The Company ended the fourth quarter of 2012 with $584.0 million of cash resources, which includes $530.1 million of cash, cash equivalents and short-term investments, and $53.9 million of long-term marketable security investments, as compared to $571.2 million, in the aggregate, at the end of the third quarter of 2012. During 2012 the Company repurchased approximately 4.5 million of its shares for $51.9 million. The Company generated $11.8 million of cash from operating activities during the fourth quarter 2012 and $84.4 million during the full year 2012, which compares to $60.9 million and $113.2 million, respectively, during the same periods in 2011. Order backlog at the end of the fourth quarter 2012 was $222.6 million as compared to $148.5 million and $185.8 million at the end of the fourth quarter 2011 and the third quarter 2012, respectively. The Company's book-to-bill ratio in the fourth quarter 2012 was 1.11 as compared to the fourth quarter 2011 of 0.98 and the third quarter 2012 of 0.82. "I am delighted with our overall 2012 results. The past year has delivered a 24% year over year improvement in revenue and a 15% increase in our non-GAAP EPS. Our R&D investments have allowed us to bring a number of new, well received, products to market," said Bob Stanzione, ARRIS Chairman and CEO. "Work on the previously announced acquisition of the Motorola Home business is progressing and I am very excited about our prospects resulting from the combination." "2012 was a strong year for ARRIS. We continued to execute on our strategy, which has resulted in improved performance," said David Potts, ARRIS EVP & CFO. "With respect to the first quarter 2013, we now project that adjusted non-GAAP revenues for the Company will be in the range of $350 to $370 million, which excludes a $13 million non-cash accounting impact associated with the planned investment in ARRIS by Comcast as part of the pending Motorola Home acquisition. As a result, GAAP revenues are expected to be in the range of $337 to $357 million. We project that adjusted (non-GAAP) net income per diluted share will be in the range of $0.22 to $0.26 and GAAP net income per diluted share in the range of $0.02 to $0.06, reflecting a higher mix of our CPE product line, as compared to the fourth quarter 2012. The EPS guidance excludes any mark-to-market fair value adjustments related to the Comcast investment." ARRIS management will conduct a conference call at 5:00 pm EST, today, Wednesday, February 6, 2013, to discuss these results in detail. You may participate in this conference call by dialing (888) 713-4215 or (617) 213-4867 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 61284341, 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 February 13, 2013 by dialing (888) 286-8010 or (617) 801-6888 and using the pass code 43355976. Live internet access to the call will be available through the Investor Relations section of the Company's website at www.arrisi.com. A replay will also 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: ogrowth expectations and business prospects; ocompletion of the Motorola Home business acquisition; orevenues and net income for the first quarter 2013 and beyond; oexpected sales levels and acceptance of new ARRIS products; and othe 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, oprojected results for the first quarter 2013 as well as the general outlook for 2013 are based on preliminary estimates, assumptions and projections that management believes to be reasonable at this time, but are beyond management's control; oARRIS' customers operate in a capital intensive consumer based industry, and the current economic uncertainty or changes in customer spending may adversely impact their ability or willingness to purchase the products that the Company offers; oARRIS' completion of the Motorola Home acquisition is subject to satisfaction of a number of conditions outside of its control, including receipt of necessary regulatory approvals; and obecause 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 current volatility in the capital markets; the potential impact on the business of the Motorola Home acquisition, the retention of employees and the ability of ARRIS to successfully integrate Motorola Home's business opportunities, technology, personnel and operations; 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, 2012. 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) December September June 30, March 31, December 31, 30, 31, 2012 2012 2012 2012 2011 ASSETS Current assets: Cash and cash $ $ $ $ $ equivalents 131,703 188,653 199,395 215,808 235,875 Short-term investments, 398,414 359,753 340,166 298,539 282,904 at fair value Total cash, cash equivalents and short 530,117 548,406 539,561 514,347 518,779 term investments Restricted cash 4,722 4,665 3,942 3,943 4,101 Accounts receivable, 188,581 171,143 179,371 183,427 152,437 net Other receivables 350 578 1,414 5,071 8,789 Inventories, net 133,848 137,496 102,361 105,114 115,912 Prepaids 11,682 12,408 12,124 12,436 10,408 Current deferred income 24,944 20,787 21,972 22,068 22,048 tax assets Other current assets 25,648 18,907 16,766 16,792 27,071 Total current assets 919,892 914,390 877,511 863,198 859,545 Property, plant and 54,378 54,593 56,175 57,810 61,375 equipment, net Goodwill 194,115 194,469 194,626 195,268 194,542 Intangible assets, net 94,529 102,258 110,000 117,444 124,823 Investments 86,164 57,483 70,967 82,968 71,095 Noncurrent deferred 47,431 49,589 47,228 42,106 38,433 income tax assets Other assets 9,385 9,913 10,575 11,699 10,997 $ $ $ $ $ 1,405,894 1,382,695 1,367,082 1,370,493 1,360,810 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ $ $ $ $ 45,719 49,061 44,800 54,576 40,671 Accrued compensation, benefits and related 29,773 35,066 28,165 31,081 36,764 taxes Accrued warranty 2,882 3,036 2,995 3,094 3,350 Deferred revenue 44,428 50,859 63,023 60,129 43,746 Current portion of LT 222,124 - - - - debt Other accrued 25,795 21,768 23,980 31,054 33,325 liabilities Total current 370,721 159,790 162,963 179,934 157,856 liabilities Long-term debt, net of - 218,943 215,823 212,765 209,766 current portion Accrued pension 26,883 26,172 25,696 25,739 25,260 Accrued severance liability, net of 4,119 3,895 3,758 3,884 4,191 current portion Noncurrent income taxes 24,389 24,434 26,676 26,676 24,450 payable Noncurrent deferred 351 334 340 352 337 income tax liabilities Other noncurrent 19,043 20,362 21,039 22,372 22,745 liabilities Total liabilities 445,506 453,930 456,295 471,722 444,605 Stockholders' equity: Preferred stock - - - - - Common stock 1,488 1,479 1,473 1,467 1,449 Capital in excess of 1,285,575 1,270,561 1,259,946 1,247,763 1,245,115 par value Treasury stock at cost (306,330) (306,330) (295,960) (280,724) (254,409) Unrealized gain (loss) on marketable 206 74 211 149 (267) securities Unfunded pension (8,558) (10,231) (10,231) (10,231) (10,231) liability Accumulated deficit (11,809) (26,604) (44,468) (59,469) (65,268) Cumulative translation (184) (184) (184) (184) (184) adjustments Total stockholders' 960,388 928,765 910,787 898,771 916,205 equity $ $ $ $ $ 1,405,894 1,382,695 1,367,082 1,370,493 1,360,810 ARRIS GROUP, INC. PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) For the Three Months For the Twelve Months Ended December 31, Ended December 31, 2012 2011 2012 2011 Net sales $ 344,003 $ 281,076 $1,353,663 $1,088,685 Cost of sales 220,812 174,531 891,086 678,172 Gross margin 123,191 106,545 462,577 410,513 Operating expenses: Selling, general, and administrative 43,794 40,829 161,338 148,755 expenses Research and 40,700 37,785 170,706 146,519 development expenses Acquisition costs 5,131 2,730 5,870 3,205 Loss on sale of - - 337 - product line Restructuring charges 306 3,391 6,761 4,360 Impairment of goodwill - 88,633 - 88,633 & intangibles Amortization of 7,729 6,817 30,294 33,649 intangible assets 97,660 180,185 375,306 425,121 Operating income 25,531 (73,640) 87,271 (14,608) Other expense (income): Interest expense 4,546 4,258 17,797 16,939 Loss (gain) on 78 2,074 (1,405) 1,570 investments Loss (gain) on foreign (131) (705) 786 (580) currency Interest income (993) (715) (3,241) (3,154) Loss on debt - - - 19 redemption Other (income) (171) (211) (962) (891) expense, net Income (loss) from continuing operations 22,202 (78,341) 74,296 (28,511) before income taxes Income tax expense 7,407 (18,712) 20,837 (10,849) (benefit) Net income $ $ $ 53,459 $ (17,662) 14,795 (59,629) Net income (loss) per common share: Basic $ $ $ 0.47 $ 0.13 (0.51) (0.15) Diluted $ $ $ 0.46 $ 0.13 (0.51) (0.15) Weighted average common shares: Basic 114,028 117,316 114,161 120,157 Diluted 117,013 117,316 116,514 120,157 ARRIS GROUP, INC. PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) For the Three Months For the Twelve Months Ended December 31, Ended December 31, 2012 2011 2012 2011 Operating Activities: Net income (loss) $ $ $ $ 14,795 (59,629) 53,459 (17,662) Depreciation 6,988 6,589 27,953 24,139 Amortization of intangible 7,729 6,817 30,294 33,649 assets Amortization of deferred 160 160 639 647 finance fees Impairment of goodwill & - 88,633 - 88,633 intangibles Non-cash interest expense 3,181 2,941 12,358 11,545 Deferred income tax provision (3,085) 3,343 (13,989) (12,144) (benefit) Deferred income tax related to goodwill & intangible - (25,584) - (25,584) impairment Stock compensation expense 6,712 5,108 27,906 22,055 Provision for doubtful 186 201 240 200 accounts Loss on debt retirement - - - 19 Loss on sale of product line - - 337 - Loss on disposal of fixed 42 10 82 16 assets Loss (gain) on investments 78 2,074 (1,404) 1,570 Excess tax benefits from (935) (679) (3,549) (3,668) stock-based compensation plans Changes in operating assets & liabilities, net of effects of acquisitions and disposals: Accounts receivable (17,624) 17,794 (37,139) (22,093) Other receivables 211 (1,618) 8,398 (1,635) Inventory 3,648 7,862 (21,491) (7,144) Accounts payable and accrued (8,289) 6,765 (5,675) 433 liabilities Other, net (2,004) 95 5,982 20,177 Net cash provided by 11,793 60,882 84,401 113,153 operating activities Investing Activities: Purchases of investments (180,582) (49,833) (415,930) (277,937) Sales of investments 110,928 36,547 282,987 296,774 Purchases of property & (6,987) (4,359) (21,507) (23,307) equipment Sale of property & equipment 126 14 139 84 Acquisition, net of cash - (130,227) - (130,227) acquired ^(1) Sale of product line - - 3,249 - Net cash used in (76,515) (147,858) (151,062) (134,613) investing activities Financing Activities: Early redemption of convertible - - - (4,984) notes Repurchase of common stock - (34,375) (51,921) (109,123) Excess income tax benefits from 935 679 3,549 3,668 stock-based compensation plans Repurchase of shares to satisfy (1,259) (72) (9,443) (8,332) employee tax withholdings Fees and proceeds from issuance 8,096 1,960 20,304 22,985 of common stock, net Net cash provided by (used in) financing 7,772 (31,808) (37,511) (95,786) activities Net increase (decrease) in cash and (56,950) (118,784) (104,172) (117,246) cash equivalents Cash and cash equivalents at 188,653 354,659 235,875 353,121 beginning of period Cash and cash equivalents at end $ $ $ $ of period 131,703 235,875 131,703 235,875 Excludes $77,074 thousand of short and ^(1) long-term investments acquired from BigBand in 2011 ARRIS GROUP, INC. PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION (in thousands, except per share data) (unaudited) (in thousands, Q4 2012 YTD 2012 Q4 2011 YTD 2011 except per share data) Amount Amount Amount Amount Sales $ $ $ $ 344,003 1,353,663 281,076 1,088,685 Highlighted items: Purchase accounting impacts of 432 3,412 4,332 4,332 deferred revenue Sales excluding $ $ $ $ highlighted 344,435 1,357,075 285,408 1,093,017 items Q4 2012 YTD 2012 Q4 2011 YTD 2011 Per Per Per Per Diluted Diluted Diluted Diluted Amount Share Amount Share Amount Share Amount Share Net income $ $ $ $ $ $ $ (loss) 14,795 0.13 53,459 (59,629) (17,662) 0.46 (0.51) (0.15) Highlighted items: Impacting gross margin: Purchase accounting impacts of 432 - 2,899 0.02 3,126 0.03 3,126 0.03 deferred revenue Stock compensation 802 0.01 3,169 0.03 521 - 2,040 0.02 expense Impacting operating expenses: Acquisition 5,131 0.04 5,870 0.05 2,730 0.02 3,205 0.03 costs Restructuring 306 - 6,761 0.06 3,391 0.03 4,360 0.04 Amortization of intangible 7,729 0.07 30,294 0.26 6,817 0.06 33,649 0.27 assets Goodwill and intangibles - - - - 88,633 0.74 88,633 0.72 impairment Loss of sale of product - - 337 - - - - - line Settlement charge - 3,064 0.03 3,064 0.03 - - - - pension Stock compensation 5,910 0.05 24,737 0.21 4,586 0.04 20,014 0.16 expense Impacting other (income) / expense: Non-cash interest 3,181 0.03 12,358 0.11 2,941 0.02 11,545 0.09 expense Impairment of 67 - 533 - 3,000 0.03 3,000 0.02 investment Loss on retirement of - - - - - - 19 - debt Impacting income tax expense: Adjustments of income tax valuation (475) - (4,658) (0.04) 3,032 0.03 (2,885) (0.02) allowances and other Tax impact related to goodwill and - - - - (25,584) (0.21) (25,584) (0.21) intangibles impairment Tax related to (8,724) (0.07) (29,957) (0.26) (8,553) (0.07) (23,757) (0.19) highlighted items above Total highlighted 17,423 0.15 55,407 0.48 84,640 0.71 117,365 0.96 items Net income $ $ $ $ excluding $ $ $ $ highlighted 32,218 0.28 108,866 0.93 25,011 0.21 99,703 0.81 items^(1) Weighted average 114,028 114,161 117,316 120,157 common shares - basic Weighted average 117,013 116,514 119,609 122,555 common shares - diluted See Notes to GAAP and Adjust Non-GAAP Financial Measures ^(1) Although net income for 2011 is a loss, dilutive shares are used for purposes of this calculation per share as earnings excluding highlighted items is net income. 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. Implied Fair Value of Benefit Received by Comcast of Planned Investment in ARRIS: In connection with our pending acquisition of Motorola Home, Comcast was given an opportunity to invest in ARRIS. The accounting guidance requires that we record the implied fair value of benefit received by Comcast as a reduction in revenue. Until the closing of the deal, changes in the value of the planned investment will be marked to market and flow through other expense (income). We have excluded the effect of the implied fair value in calculating our non-GAAP financial measures. We believe it is useful to understand the effects of these items on our total revenues and other expense (income). 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. 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. Settlement Charge - Pension: In an effort to reduce volatility and administrative expense in connection with the Company's pension plan, we have offered certain participants an opportunity to voluntarily elect an early payout of their pension benefits. We exclude this charge in Non-GAAP measures, as this is a one-time charge that is not considered by management in their review of financial results. 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. 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). 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). Income Tax Expense (Benefit): 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. Website: http://www.arrisi.com Contact: Bob Puccini, Investor Relations, +1-720-895-7787, firstname.lastname@example.org
ARRIS Announces Preliminary And Unaudited Fourth Quarter And Full Year 2012 Results
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