Press Release

Printer Friendly Version  View printer-friendly version
<< Back
ARRIS Announces Preliminary and Unaudited Fourth Quarter and Full Year 2010 Results

SUWANEE, Ga., Feb. 9, 2011 /PRNewswire via COMTEX/ --

ARRIS Group, Inc. (Nasdaq: ARRS),today announced preliminary and unaudited financial results for the fourth quarter and full year 2010.

Revenues in the fourth quarter 2010 were $266.2 million as compared to fourth quarter 2009 revenues of $300.0 million, and as compared to third quarter 2010 revenues of $274.3 million. Full year 2010 and 2009 revenues were $1,087.5 million and $1,107.8 million, respectively.

Adjusted net income (a non-GAAP measure) in the fourth quarter 2010 was $0.19 per diluted share, compared to $0.32 per diluted share for the fourth quarter 2009 and $0.19 per diluted share for the third quarter of 2010. In the fourth quarter 2010, the Company recognized approximately $0.03 per diluted share of full year benefit associated with Congress passing the R&D tax credit legislation in late December. Adjusted net income was $0.85 per diluted share for the full year 2010 and compares to $1.01 per diluted share for the full year 2009.

GAAP net income in the fourth quarter 2010 was $0.09 per diluted share, as compared to fourth quarter 2009 GAAP net income of $0.26 per diluted share and third quarter 2010 GAAP net income of $0.11 per diluted share. Full year 2010 GAAP net income was $0.50 per diluted share as compared to $0.71 per diluted share in 2009. 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 certain discrete tax items. A reconciliation of adjusted net income to GAAP net income 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 fourth quarter 2010 was 36.2%, which compares to the fourth quarter 2009 gross margin of 44.8% and the third quarter 2010 gross margin of 37.2%. Year over year margin decline was the result of a shift in product mix.

The Company ended the fourth quarter 2010 with $620.1 million of cash, cash equivalents and short-term investments, as compared to $625.6 million at the end of the fourth quarter 2009 and $640.4 million at the end of the third quarter 2010. However, during the fourth quarter the Company used $30 million to repurchase 2.9 million shares of its common stock and $5 million to repurchase convertible notes. During 2010, the Company used a total of $92.6 million to repurchase 6.8 million shares of its common stock and $24 million in face value of convertible notes. The Company generated $22.6 million of cash from operating activities during the fourth quarter 2010 and $118.5 million during the full year 2010, which compares to $69.8 million and $241.0 million during the same periods in 2009.

Order backlog at the end of the fourth quarter 2010 was $140.4 million as compared to $144.4 million and $119.6 million at the end of the fourth quarter 2009 and the third quarter 2010, respectively. The Company's book-to-bill ratio in the fourth quarter 2010 was 1.08 as compared to the fourth quarter 2009 of 0.92 and the third quarter 2010 of 0.80.

"Fourth quarter financial results closed in line with our expectations and we continued to strengthen our balance sheet during the quarter," said Bob Stanzione, ARRIS Chairman & CEO. "ARRIS continues to invest aggressively in new IP based video products as the industry moves towards a convergence of conventional TV and IP based TV. In the meantime, internet traffic continues to grow, which will create ongoing demand for both our existing and new products as well."

During the quarter the Company announced its highly-anticipated downstream module upgrade, significantly increasing the downstream density of the DOCSIS(R) 3.0 C4 CMTS. DOCSIS 3.0 was introduced initially in 2008 on the C4 CMTS with a 16 downstream channel single slot Cable Access Module (CAM). With this second generation DOCSIS 3.0 capability, the capacity of the 16D CAMs can be increased to 32 Annex B or 24 Annex A downstream channels.

"We are off to a good start in 2011. With respect to the first quarter 2011, we now project that revenues for the Company will be in the range of $260 to $280 million, with adjusted net income per diluted share in the range of $0.14 to $0.18 and GAAP net income per diluted share in the range of $0.05 to $0.09," said David Potts, ARRIS EVP & CFO.

ARRIS management will conduct a conference call at 5:00 pm EST, today, Wednesday, February 9, 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 34755339 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 5:00 pm EST conference call. A replay of the conference call can be accessed approximately two hours after the call through Monday, February 14, 2011 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 35140408. 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, Georgia, USA, ARRIS has R&D centers in Suwanee, GA; Beaverton, OR; Chicago, 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 first quarter 2011, full year 2011, 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 first quarter 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; 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 materially 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, 2010. 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 31,


September 30,


June 30,


March 31,


December 31,



2010


2010


2010


2010


2009












ASSETS






















Current assets:











Cash and cash equivalents


$ 353,121


$ 351,894


$ 370,932


$ 500,044


$ 500,565

Short-term investments, at fair value


266,981


288,463


292,421


161,012


125,031

Total cash, cash equivalents and short term investments


620,102


640,357


663,353


661,056


625,596












Restricted cash


4,937


4,480


4,478


4,476


4,475

Accounts receivable, net


125,933


133,915


139,673


139,207


143,708

Other receivables


6,528


2,654


6,368


3,057


6,113

Inventories, net


101,763


89,203


78,830


79,907


95,851

Prepaids


9,237


8,934


10,196


10,546


11,675

Current deferred income tax assets


19,819


28,585


30,469


37,324


35,994

Income taxes recoverable


21,907


17,094


5,943


-


3,106

Other current assets


11,147


11,253


15,386


14,328


15,790

Total current assets


921,373


936,475


954,696


949,901


942,308












Property, plant and equipment, net


56,306


56,816


56,128


56,223


57,195

Goodwill


234,963


235,109


235,122


235,256


235,388

Intangible assets, net


168,616


177,560


186,529


195,551


204,572

Investments


31,015


29,591


29,485


25,435


20,618

Noncurrent deferred income tax assets


6,294


6,560


6,127


6,298


6,759

Other assets


5,520


6,129


6,755


8,050


8,776



$ 1,424,087


$ 1,448,240


$ 1,474,842


$ 1,476,714


$ 1,475,616























LIABILITIES AND STOCKHOLDERS' EQUITY






















Current liabilities:











Accounts payable


$ 50,736


$ 52,011


$ 72,652


$ 44,523


$ 53,979

Accrued compensation, benefits and related taxes


28,778


25,913


20,696


23,639


36,936

Accrued warranty


2,945


3,504


3,539


3,632


4,265

Deferred revenue


31,625


36,029


44,913


53,024


47,044

Current portion of long-term debt


-


12


50


87


124

Current deferred income tax liability


-


-


-


-


-

Other accrued liabilities


18,847


25,891


24,476


42,978


46,203

Total current liabilities


132,931


143,360


166,326


167,883


188,551

Long-term debt, net of current portion


202,615


204,053


212,914


214,131


211,248

Accrued pension


17,213


17,383


17,058


16,733


16,408

Noncurrent income taxes payable


17,702


16,509


16,523


16,248


14,815

Noncurrent deferred income tax liabilities


29,151


32,193


28,705


33,577


37,204

Other noncurrent liabilities


15,406


14,926


15,704


16,871


16,021

Total liabilities


415,018


428,424


457,230


465,443


484,247












Stockholders' equity:











Preferred stock


-


-


-


-


-

Common stock


1,409


1,406


1,405


1,402


1,388

Capital in excess of par value


1,206,157


1,199,184


1,194,829


1,187,854


1,183,872

Treasury stock at cost


(145,286)


(115,248)


(99,645)


(79,019)


(75,960)

Unrealized gain (loss) on marketable securities


392


(374)


217


2


28

Unfunded pension liability


(5,813)


(6,041)


(6,041)


(6,041)


(6,041)

Accumulated deficit


(47,606)


(58,927)


(72,969)


(92,743)


(111,734)

Cumulative translation adjustments


(184)


(184)


(184)


(184)


(184)

Total stockholders' equity


1,009,069


1,019,816


1,017,612


1,011,271


991,369



$ 1,424,087


$ 1,448,240


$ 1,474,842


$ 1,476,714


$ 1,475,616

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)


















For the Three Months
Ended December 31,


For the Twelve Months
Ended December 31,


2010


2009


2010


2009


(unaudited)


(unaudited)


(unaudited)


(unaudited)









Net sales

$ 266,168


$ 299,995


$ 1,087,506


$ 1,107,806

Cost of sales

169,855


165,495


663,417


645,043

Gross margin

96,313


134,500


424,089


462,763

Operating expenses:








Selling, general, and administrative expenses

34,205


37,622


137,694


148,403

Research and development expenses

35,427


35,102


140,468


124,550

Restructuring charges

(8)


2,917


65


3,702

Amortization of intangible assets

8,944


9,554


35,957


37,361


78,568


85,195


314,184


314,016

Operating income

17,745


49,305


109,905


148,747

Other expense (income):








Interest expense

4,237


4,549


17,965


17,670

Gain on investments

(13)


(258)


(414)


(711)

Loss (gain) on foreign currency

(327)


(198)


(44)


3,445

Interest income

(528)


(237)


(1,997)


(1,409)

Loss (gain) on debt retirement

5


-


(373)


(4,152)

Other (income) expense, net

31


174


138


(714)

Income from continuing operations before income taxes

14,340


45,275


94,630


134,618

Income tax expense

3,019


11,996


30,502


43,849

Net income

$ 11,321


$ 33,279


$ 64,128


$ 90,769









Net income per common share








Basic

$ 0.09


$ 0.26


$ 0.51


$ 0.73

Diluted

$ 0.09


$ 0.26


$ 0.50


$ 0.71









Weighted average common shares:








Basic

122,866


125,698


125,157


124,716

Diluted

125,758


129,524


128,271


128,085

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)






For the Three Months
Ended December 31,


For the Twelve Months
Ended December 31,



2010


2009


2010


2009



(unaudited)


(unaudited)


(unaudited)


(unaudited)










Operating Activities:










Net income


$ 11,321


$ 33,279


$ 64,128


$ 90,769



Depreciation


5,972


5,492


22,865


20,862



Amortization of intangible assets


8,944


9,554


35,957


37,361



Stock compensation expense


5,769


4,207


21,827


15,921



Deferred income tax provision (benefit)


5,483


(626)


8,081


13,052



Amortization of deferred finance fees


164


180


691


728



Provision for doubtful accounts


(366)


(1,281)


(283)


(1,280)



Gain on investments


(13)


(258)


(414)


(711)



Loss on disposal of fixed assets


37


474


406


428



Non-cash interest expense


2,777


2,828


11,325


11,136



Loss (gain) on debt retirement


5


-


(373)


(4,152)



Excess income tax benefits from stock-based compensation plans


(69)


(980)


(2,752)


(3,007)


Changes in operating assets & liabilities, net of effects of acquisitions and disposals:











Accounts receivable


8,348


(19,097)


18,058


21,704



Other receivables


(2,819)


(2,922)


(59)


(2,383)



Inventory


(12,560)


8,457


(5,912)


38,906



Income taxes payable/recoverable


(3,614)


7,834


(17,787)


4,966



Accounts payable and accrued liabilities


(6,082)


37,031


(48,308)


4,707



Other, net


(729)


(14,399)


11,059


(8,030)




Net cash provided by operating activities


22,568


69,773


118,509


240,977













Investing Activities:










Purchases of property, plant, and equipment


(5,518)


(4,336)


(22,645)


(18,663)


Cash paid for acquisition, net of cash acquired


(4,000)


(14,604)


(4,000)


(22,734)


Cash proceeds from sale of property, plant & equipment


2


2


245


210


Purchases of investments


(182,829)


(64,859)


(514,376)


(216,704)


Disposals of investments


204,163


50,072


364,077


104,488




Net cash provided by (used in) investing activities


11,818


(33,725)


(176,699)


(153,403)













Financing Activities:










Payment of debt obligations


(12)


(37)


(124)


(158)


Early redemption of long-term debt


(4,956)


-


(23,287)


(10,556)


Repurchase of common stock


(30,038)


-


(69,326)


-


Excess income tax benefits from stock-based compensation plans


69


980


2,752


3,007


Repurchase of shares to satisfy employee tax withholdings


(25)


-


(6,447)


(2,180)


Proceeds from issuance of common stock


1,803


1,779


7,178


12,984




Net cash provided by (used in) financing activities


(33,159)


2,722


(89,254)


3,097
















Net increase (decrease) in cash and cash equivalents


1,227


38,770


(147,444)


90,671

Cash and cash equivalents at beginning of period


351,894


461,795


500,565


409,894

Cash and cash equivalents at end of period


$ 353,121


$ 500,565


$ 353,121


$ 500,565

ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL NET INCOME RECONCILIATION

(in thousands, except per share data)

(unaudited)





































Q4 2010


Q4 2009


Year 2010


Year 2009





Per
Diluted




Per
Diluted




Per
Diluted




Per
Diluted



Amount


Share


Amount


Share


Amount


Share


Amount


Share


Net income

$ 11,321


$ 0.09


$ 33,279


$ 0.26


$ 64,128


$ 0.50


$ 90,769


$ 0.71



















Highlighted items:

















Impacting gross margin:

















Stock compensation expense

492


-


383


0.00


1,897


0.01


1,446


0.01



















Impacting operating expenses:

















Acquisition costs, restructuring and other

(8)


-


2,917


0.02


65


-


3,977


0.03


Amortization of intangible assets

8,944


0.07


9,554


0.07


35,957


0.28


37,361


0.29


Stock compensation expense

5,277


0.05


3,824


0.03


19,930


0.15


14,475


0.11



















Impacting other (income) / expense:

















Non-cash interest expense

2,777


0.02


2,827


0.02


11,325


0.09


11,135


0.09


Loss (gain) on retirement of debt

5


-


-


-


(373)


-


(4,152)


(0.03)



















Impacting income tax expense:


































Adjustments of income tax valuation allowances, research & development credits and other

1,058


0.01


(4,422)


(0.03)


889


0.01


(3,133)


(0.02)


Tax related to highlighted items above

(6,503)


(0.05)


(7,375)


(0.06)


(24,311)


(0.19)


(22,561)


(0.18)



















Total highlighted items

12,042


0.10


7,708


0.06


45,379


0.35


38,548


0.30


Net income excluding highlighted items

$ 23,363


$ 0.19


$ 40,987


$ 0.32


$ 109,507


$ 0.85


$ 129,317


$ 1.01



















Weighted average common shares - diluted



125,758




129,524




128,271




128,085



































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 as a result of the adoption of FSP ABP 14-1 on January 1, 2009. Disclosing the non-cash piece provides investors with the information regarding interest that will not be paid out in cash. In the first and second quarters of 2010 and in the first and third quarter of 2009, income tax expense adjustments were recorded for state valuation allowances and research and development tax credits. During the first quarter of 2009, and the second, third & fourth quarters of 2010, ARRIS repurchased a portion of their convertible debt and recognized a gain of approximately $4.2 million, $0.1 million and $0.3 million and loss of $5 thousand, respectively.


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.

PRELIMINARY SUPPLEMENTAL OPERATING INCOME RECONCILIATIONS

(in thousands)

(Unaudited)





















Q4 2010


Q4 2009


Year 2010


Year 2009










Operating income as reported


$ 17,745


$ 49,305


$ 109,905


$ 148,747

Operating income as a % of sales


7%


16%


10%


13%

Highlighted Items:









Stock compensation expense


5,769


4,207


21,827


15,921

Acquisition costs, restructuring and other


(8)


2,917


65


3,977

Amortization of intangible assets


8,944


9,554


35,957


37,361

Operating income excluding highlighted items


32,450


65,983


167,754


206,006

Operating income excluding highlighted items as a % of sales


12%


22%


15%


19%










See the GAAP to Non-GAAP EPS reconciliation for a discussion regarding these adjustments and management's reasoning for providing this Non-GAAP financial measure.

ARRIS GROUP, INC.

Net Income Reconciliation (unaudited)

Q1 2011 EPS Guidance





Estimated GAAP EPS - diluted

$0.05 - $0.09

Reconciling Items:


Amortization of intangibles, after tax

0.05

Stock compensation expense, after tax

0.03

Non-cash interest expense, after tax

0.01

Subtotal

0.09

Estimated adjusted (non-GAAP) EPS - diluted

$0.14 - $0.18



See the Supplemental Net Income Reconciliation for a discussion regarding these
adjustments and management's reasoning for providing this adjusted financial
measure

SOURCE ARRIS Group, Inc.