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ARRIS Announces Preliminary And Unaudited Second Quarter 2015 Results

SUWANEE, Ga., July 29, 2015 /PRNewswire/ -- ARRIS Group, Inc. (NASDAQ: ARRS) today announced preliminary and unaudited financial results for the second quarter 2015.

Second Quarter 2015 Financial Highlights

  • Revenues  were $1,260.1 million
  • GAAP net income was $0.11 per diluted share
  • Adjusted net income (a non-GAAP measure) was $0.53 per diluted share
  • End-of-quarter cash resources  were $622.8 million
  • Order backlog  was $651.3 million
  • Book-to-bill ratio  was 0.94

"Sales, margins, and Non-GAAP earnings were all up quarter over quarter, although not as much as we originally thought. These results, as expected, are down compared with the second quarter of last year when we were launching an unprecedented number of new products.  As we have highlighted, we are encountering headwinds which we expect to continue through 2015, in particular those related to industry consolidations and the strong US dollar.  With respect to the third quarter 2015, we expect revenues will be in the range of $1,210 million to $1,260 million, with adjusted net income per diluted share in the range of $0.52 to $0.58 and GAAP net income per diluted share in the range of $0.17 to $0.23," said Bob Stanzione, ARRIS Chairman and CEO.  "I remain confident about our future business prospects and the pending Pace acquisition. The combination is proceeding as expected and we continue to anticipate closing the transaction in the fourth quarter of 2015."

Revenues in the second quarter 2015 of $1,260.1 million were down $169.0 million, or 11.8% as compared to second quarter 2014 revenues of $1,429.1 million.  Second quarter revenues were up $44.9 million or 3.7%, as compared to first quarter 2015 revenues of $1,215.2 million.

Through the first two quarters of 2015, revenues of $2,475.2 million were down $178.9 million, or 6.7% as compared to the first two quarters of 2014 revenues of $2,654.1 million.

Adjusted net income (a non-GAAP measure) in the second quarter 2015 was $0.53 per diluted share, as compared to $0.70 per diluted share for the second quarter 2014, a decrease of $0.17 per diluted share, or 24.3%.   Adjusted net income increased $0.09 per diluted share, or 20.5% as compared to the first quarter 2015 adjusted net income of $0.44 per diluted share.

Year to date, adjusted net income of $0.97 per diluted share for 2015 is a decrease of $0.20, or 17.1%, as compared to the first six months of 2014 adjusted net income of $1.17 per diluted share.

A reconciliation of adjusted net income per diluted share to GAAP net income per diluted share is attached to this release and also can be found on the Company's website (www.arris.com).

GAAP net income in the second quarter 2015 was $0.11 per diluted share, as compared to the second quarter 2014 GAAP net income of $0.26 per diluted share, a decrease of $0.15 per diluted share, or 57.7%.  GAAP net income decreased $0.02 per diluted share, or 15.4%, as compared to the first quarter 2015 GAAP net income of $0.13 per diluted share.  Year to date, GAAP net income of $0.24 per diluted share for 2015 is a decrease of $0.30, or 55.6%, as compared to the first six months of 2014 GAAP net income of $0.54 per diluted share. A reconciliation of adjusted net income to GAAP income per diluted share is attached to this release and also can be found on the Company's website (www.arris.com).    

Cash & Cash Equivalents - The Company ended the second quarter 2015 with $622.8 million of cash resources, which includes $619.8 million of cash, cash equivalents and short-term investments, and $3.0 million of long-term marketable securities, as compared to $631.6 million at the end of the first quarter 2015, in the aggregate.  The Company generated $69.2 million of cash from operating activities during the second quarter 2015, as compared to $220.3 million generated during the second quarter 2014.  Through the first six months of 2015, the Company generated $5.9 million of cash from operating activities. This compares to $247.3 million generated during the same period in 2014. 

Order backlog at the end of the second quarter 2015 was $651.3 million as compared to $787.6 million and $725.7 million at the end of the second quarter 2014 and the first quarter 2015, respectively. The Company's book-to-bill ratio in the second quarter 2015 was 0.94 as compared to the second quarter 2014 of 0.85 and the first quarter 2015 of 1.08.

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, July 29, 2015, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4217 or 617-213-4869 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 16046861 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 August 6, 2015, by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 35458106. A replay also will be made available for a period of 12 months following the conference call on ARRIS' website at www.arris.com.

About ARRIS
ARRIS Group, Inc. (NASDAQ: ARRS) is a world leader in entertainment and communications technology. Our innovations combine hardware, software, and services across the cloud, network, and home to power TV and Internet for millions of people around the globe. The people of ARRIS collaborate with the world's top service providers, content providers, and retailers to advance the state of our industry and pioneer tomorrow's connected world. Together, we are inventing the future. For more information, visit http://www.arrisi.com.

No Offer or Solicitation

This release is provided for informational purposes only and does not constitute an offer to sell, or an invitation to subscribe for, purchase or exchange any securities or the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance, exchange or transfer of the securities referred to in this document in any jurisdiction in contravention of applicable law.

Forward-Looking Statements

Statements made in this press release, including those related to:

  • growth expectations and business prospects;
  • revenues and net income for the third quarter 2015, 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 third quarter 2015 as well as the general outlook for 2015 and beyond are based on preliminary estimates, assumptions and projections that management believes to be reasonable at this time, but are largely beyond management's control;
  • ARRIS may fail to realize the expected benefits of announced transactions, including the Active Video joint venture and the acquisition of Pace; there may be negative effects relating to the announcement of the transactions or any further announcements relating to the transactions; and ARRIS may incur significant transaction costs and/or unknown liabilities;
  • completion of the Pace acquisition is subject to satisfaction of a number of conditions outside of ARRIS' control, including receipt of necessary regulatory approvals, and the approval of the shareholders of ARRIS and Pace;
  • the strengthening U.S. Dollar may adversely impact ARRIS' international  customer's ability or willingness to purchase products and the pricing of ARRIS products;
  • ARRIS' customers operate in a capital intensive consumer based industry, and 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;
  • 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; and
  • termination of the previously proposed acquisition of Time Warner by Comcast and the announced transactions within our customer base, including the acquisition of DIRECTV by AT&T, the proposed acquisition by Frontier Communications of several properties owned by Verizon, the proposed acquisition of Suddenlink by Altice, and the announced acquisition of Time Warner by Charter may have an impact on the amount and/or timing of customer's spending.

In addition to the factors set forth elsewhere in this release, other factors that could cause results to differ from current expectations include:  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.  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 year ended March 31, 2015.  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, except as required by law.

Important Additional Information Regarding the Pace Transaction Filed With the SEC

In connection with the proposed acquisition of Pace, it is expected that the shares of New ARRIS to be issued by New ARRIS to Pace shareholders under the scheme will be issued in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Section 3(a)(10) thereof. In connection with the issuance of New ARRIS shares to ARRIS stockholders pursuant to the merger that forms a part of the transaction, New ARRIS has filed with the SEC a preliminary registration statement on Form S-4 that contains a prospectus of New ARRIS as well as a proxy statement of ARRIS relating to the merger that forms a part of the combination, which we refer to together as the Preliminary Form S-4/Proxy Statement.  The Preliminary Form S-4/Proxy Statement is not complete and will be further amended.

INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PRELIMINARY FORM S-4/PROXY STATEMENT AND OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE TRANSACTION CAREFULLY AND IN THEIR ENTIRETY, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE TRANSACTION, THE PARTIES TO THE TRANSACTION AND THE RISKS ASSOCIATED WITH THE TRANSACTION. Those documents, if and when filed, as well as ARRIS' and New ARRIS' other public filings with the SEC may be obtained without charge at the SEC's website at www.sec.gov and at ARRIS' website at http://ir.arris.com. Security holders and other interested parties will also be able to obtain, without charge, a copy of the Preliminary Form S-4/Proxy Statement and other relevant documents by directing a request by mail to ARRIS Investor Relations, 3871 Lakefield Drive, Suwanee, GA 30024 or at http://ir.arris.com. Security holders may also read and copy any reports, statements and other information filed with the SEC at the SEC public reference room at 100 F Street N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at (800) 732-0330 or visit the SEC's website for further information on its public reference room.

Participants in the Solicitation

ARRIS, its directors and certain of its executive officers may be considered participants in the solicitation of proxies in connection with the transactions contemplated by the Preliminary Form S-4/Proxy Statement. Information about the directors and executive officers of ARRIS is set forth in its Annual Report on Form 10-K for the year ended December 31, 2014, which was filed with the SEC on February 27, 2015, and its proxy statement for its 2015 annual meeting of shareholders, which was filed with the SEC on April 9, 2015. Other information regarding potential participants in the proxy solicitations and a description of their direct and indirect interests, by security holdings or otherwise, is contained in the Preliminary Form S-4/Proxy Statement.

Pace and New ARRIS are each organized under the laws of England and Wales. Some of the officers and directors of Pace and New ARRIS are residents of countries other than the United States. As a result, it may not be possible to sue Pace, New ARRIS or such persons in a non-US court for violations of US securities laws. It may be difficult to compel Pace, New ARRIS and their respective affiliates to subject themselves to the jurisdiction and judgment of a US court or for investors to enforce against them the judgments of US courts.

UK Takeover Code Directors' Confirmation

The statements above with respect to adjusted net income per diluted share and GAAP net income per diluted share for the third quarter 2015 constitute a profit forecast for the purposes of the UK City Code on Takeovers and Mergers (the "Profit Forecast").  The Profit Forecast has been prepared on a basis consistent with ARRIS' accounting policies, which are in accordance with U.S. GAAP.

The Profit Forecast is based on the following assumptions:

Factors outside the control of ARRIS:

  • there will be no material changes to the conditions of the markets in which ARRIS operates, including material changes in the capital spending of ARRIS' customers during the third quarter;
  • foreign currency exchange rates, interests rates and tax rates in the geographic markets in which ARRIS operates remain materially unchanged from the currently prevailing rates;
  • there will be no material interruptions in the delivery of components for the manufacture of  ARRIS' products or the delivery of finished products to customers; 
  • there will be no material adverse changes to existing global macroeconomic or political conditions;
  • there will be no material regulatory developments that affect ARRIS' operations or the operations of its customers; and
  • there will be no material adverse events that have a significant impact on  ARRIS' financial condition.

Factors within the control of ARRIS:

  • there will be no material acquisitions or dispositions completed by ARRIS prior to September 30, 2015;
  • there will be no material change in the supplier base of ARRIS;
  • ARRIS's operational costs will not change materially prior to September 30, 2015;
  • there will be no material change in the business or operational strategy of ARRIS; and
  • there will be no material changes to the management of ARRIS.

The Directors of ARRIS Group, Inc. confirm that the Profit Forecast has been properly compiled on the basis of the assumptions stated above and the basis of accounting used in preparing the Profit Forecast is consistent with the accounting policies of ARRIS Group, Inc.

 

 

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

























June 30,


March 31,


December 31,


September 30,


June 30,



2015


2015


2014


2014


2014












ASSETS






















Current assets:











Cash and cash equivalents


$490,939


$499,482


$565,790


$526,999


$483,277

Short-term investments, at fair value


128,852


129,073


126,748


66,817


68,586

Total cash, cash equivalents and short term investments


619,791


628,555


692,538


593,816


551,863












Restricted cash


50


-


-


1,022


1,096

Accounts receivable, net


802,329


819,918


598,603


684,722


723,527

Other receivables 


11,268


15,054


10,640


18,227


14,610

Inventories, net


389,556


372,379


401,165


368,628


297,848

Prepaid income taxes


26,413


13,380


11,023


4,431


32,802

Prepaids


39,001


31,814


27,497


34,311


33,715

Current deferred income tax assets


105,384


115,926


113,390


64,948


79,070

Other current assets


91,624


80,943


61,450


78,283


72,069

Total current assets


2,085,416


2,077,969


1,916,306


1,848,388


1,806,600












Property, plant and equipment, net 


324,154


325,727


366,431


371,496


376,509

Goodwill


1,017,430


938,645


936,067


938,265


944,115

Intangible assets, net


923,837


919,876


943,388


1,000,441


1,057,557

Investments


75,381


76,492


77,640


74,985


68,852

Noncurrent deferred income tax assets


87,291


88,366


71,686


12,567


20,468

Other assets


45,166


45,711


54,127


59,102


56,719



$4,558,675


$4,472,786


$4,365,645


$4,305,244


$4,330,820























LIABILITIES AND STOCKHOLDERS' EQUITY






















Current liabilities:











Accounts payable


$608,133


$594,690


$480,150


$577,318


$636,283

Accrued compensation, benefits and related taxes


78,333


75,849


145,278


130,116


101,644

Accrued warranty


29,176


36,824


42,763


51,277


54,546

Deferred revenue


107,632


107,230


92,772


102,717


114,489

Current portion of long-term debt & financing lease obligations


48,594


82,787


73,956


67,062


60,171

Current income taxes payable


9,587


13,092


10,610


15,344


19,672

Other accrued liabilities


155,482


167,430


164,341


178,100


192,345

Total current liabilities


1,036,937


1,077,902


1,009,870


1,121,934


1,179,150

Long-term debt & financing lease obligations, net of current portion


1,537,641


1,505,073


1,467,370


1,487,585


1,507,796

Accrued pension


68,865


68,060


64,917


59,667


59,552

Noncurrent income taxes payable


43,586


42,282


41,082


31,141


22,597

Noncurrent deferred income tax liabilities


332


412


274


42,926


74,297

Other noncurrent liabilities


92,544


90,428


91,371


71,882


68,512

Total liabilities


2,779,905


2,784,157


2,674,884


2,815,135


2,911,904












Stockholders' equity:











Preferred stock


-


-


-


-


-

Common stock


1,814


1,811


1,796


1,792


1,795

Capital in excess of par value


1,765,804


1,745,345


1,739,700


1,725,383


1,710,845

Treasury stock at cost


(331,329)


(331,329)


(306,330)


(306,330)


(306,330)

Accumulated other comprehensive income (loss)


(12,664)


(12,966)


(11,047)


(4,617)


(6,649)

Retained earnings 


302,525


285,768


266,642


73,881


19,255

Total ARRIS Group, Inc. stockholders' equity


1,726,150


1,688,629


1,690,761


1,490,109


1,418,916

Stockholders' equity attributable to noncontrolling interest


52,620


-


-


-


-

Total stockholders' equity


1,778,770


1,688,629


1,690,761


1,490,109


1,418,916



$4,558,675


$4,472,786


$4,365,645


$4,305,244


$4,330,820

 

 

 ARRIS GROUP, INC.

 PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)












For the Three Months


For the Six Months



Ended June 30,


Ended June 30,



2015


2014


2015


2014










Net sales


$1,260,077


$1,429,071


$2,475,234


$2,654,088

Cost of sales


895,716


1,009,659


1,774,318


1,887,901

Gross margin


364,361


419,412


700,917


766,187

Operating expenses:









Selling, general, and administrative expenses


107,209


112,362


207,534


211,494

Research and development expenses


136,260


144,121


268,729


278,274

Amortization of intangible assets


56,783


58,735


113,930


122,736

Integration, acquisition, restructuring and other costs


12,566


12,518


13,464


24,020



312,818


327,736


603,657


636,524

Operating income 


51,543


91,676


97,260


129,663

Other expense (income):









Interest expense


28,454


18,225


41,821


34,823

Loss on investments


1,410


3,236


3,119


4,911

(Gain) loss on foreign currency


(6,659)


1,332


(6,639)


653

Interest income


(558)


(701)


(1,280)


(1,284)

Other expense, net


934


4,422


7,997


6,594

Income before income taxes


27,962


65,162


52,242


83,966

Income tax expense 


12,819


26,138


17,973


4,142

Consolidated net income


15,143


39,024


34,269


79,824

Net loss attributable to noncontrolling interests


(1,615)


-


(1,615)


-

Net income attributable to ARRIS Group, Inc.


$16,758


$39,024


$35,884


$79,824










Net income per common share (1):









Basic


$

0.11



$

0.27


$

0.25


$

0.56

Diluted


$

0.11


$

0.26


$

0.24


$

0.54










Weighted average common shares:









Basic


146,293


144,415


145,823


143,637

Diluted


149,276


148,063


149,132


147,610










(1) Calculated based on net income attributable to shareowners of ARRIS Group, Inc.


 

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)











For the Three Months


For the Six Months










Ended June 30,


Ended June 30,










2015


2014


2015


2014

















Operating Activities:














Consolidated net income





$

15,143

$

39,024

$

34,269

$

79,824



Depreciation






17,053


19,681


36,937


39,675



Amortization of intangible assets






57,849


58,735


115,701


122,736



Amortization of deferred finance fees and debt discount






4,112


4,863


6,293


7,194



Deferred income tax provision (benefit)






11,399


(5,644)


(6,789)


(14,029)



Stock compensation expense






16,293


15,284


30,267


26,317



Provision for doubtful accounts






1,982


1,237


2,249


1,244



Loss on disposal of property, plant & equipment






145


2,774


6,022


3,186



Loss (gain) on investments






1,410


3,237


3,119


4,911



Excess tax benefits from stock-based compensation plans






3,595


(868)


(12,842)


(11,325)


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















Accounts receivable






16,762


(9,528)


(204,820)


(104,036)



Other receivables






4,308


(793)


(2,687)


(8,047)



Inventory






(17,177)


(11,790)


11,609


32,281



Income taxes payable/recoverable






(15,346)


25,834


(16,755)


(1,585)



Accounts payable and accrued liabilities






(27,771)


102,749


28,917


62,050



Prepaids and other, net






(20,597)


(24,487)


(25,593)


6,905




Net cash provided by operating activities






69,160


220,308


5,897


247,301

















Investing Activities:














Purchases of investments






(20,040)


(1,920)


(31,103)


(23,160)


Sales of investments






19,446


13,506


29,615


24,681


Purchases of property, plant & equipment, net






(13,402)


(13,368)


(24,321)


(26,292)


Proceeds from sale-leaseback transaction






-


-


24,960


-


Acquisition, net of cash acquired






(97,905)


84


(97,905)


84


Purchases of intangible assets






-


-


(34,340)


-


Other, net






-


2


2,904


19




Net cash used in investing activities






(111,901)


(1,696)


(130,190)


(24,668)

















Financing Activities:














Proceeds from sales-leaseback financing transaction






-


-


58,729


-


Payment of financing lease obligation






(105)


-


(105)


-


Payment of debt obligations






(15,000)


(168,403)


(28,750)


(182,153)


Payment for debt discount






(2,309)


-


(2,309)


-


Payment for deferred financing costs 






(3,234)


-


(3,234)


-


Repurchase of common stock






-


-


(24,999)


-


Excess income tax benefits from stock-based compensation plans






(3,595)


868


12,842


11,325


Repurchase of shares to satisfy employee tax withholdings






(3,792)


(16,173)


(24,986)


(22,412)


Proceeds from issuance of common stock, net






7,983


7,666


8,004


11,446


Contribution from noncontrolling interest






54,250


-


54,250


-




Net cash (used in) provided by financing activities






34,198


(176,042)


49,442


(181,794)




















Net (decrease) increase in cash and cash equivalents






(8,543)


42,570


(74,851)


40,839

Cash and cash equivalents at beginning of period






499,482


440,707


565,790


442,438

Cash and cash equivalents at end of period






$

490,939


$

483,277


$

490,939


$

483,277

 

 

 

ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION

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
























Q2 2014


Q1 2015


Q2 2015


YTD 2014


YTD 2015





Per Diluted




Per Diluted




Per Diluted











Amount


Share


Amount


Share


Amount


Share


Amount




Amount




Sales 

$ 1,429,071




$ 1,215,158




$ 1,260,077




$ 2,654,088




$  2,475,235

























Highlighted items:





















Acquisition accounting impacts of deferred revenue

3,489




-




-




$

3,695




$

-




Sales excluding highlighted items

$ 1,432,560




$ 1,215,158




$ 1,260,077




$ 2,657,783




$ 2,475,235















































Q2 2014


Q1 2015


Q2 2015


YTD 2014


YTD 2015





Per Diluted




Per Diluted




Per Diluted




Per Diluted




Per Diluted



Amount


Share


Amount


Share


Amount


Share


Amount


Share


Amount


Share


Net income attributable to ARRIS Group, Inc.

$

39,024


$

0.26


$

19,126


$

0.13


$

16,758


$

0.11


$

79,824


$

0.54


$

35,884


$

0.24























Highlighted items:





















Impacting gross margin:





















Stock compensation expense

1,835


0.01


1,791


0.01


2,214


0.01


3,110


0.02


4,005


0.03


Acquisition accounting impacts of deferred revenue

2,802


0.02


-


-


-


-


3,001


0.02


-


-























Impacting operating expenses:





















Integration, acquisition, restructuring and other costs

12,518


0.08


898


0.01


12,566


0.08


24,020


0.16


13,464


0.09


Amortization of intangible assets

58,735


0.40


57,147


0.38


56,783


0.38


122,736


0.83


113,930


0.76


Stock compensation expense

13,449


0.09


12,183


0.08


14,079


0.09


23,207


0.16


26,262


0.18


Noncontrolling interest share of non-GAAP adjustments

-


-


-


-


(799)


(0.01)




-


(799)


(0.01)























Impacting other (income) / expense:





















Impairment on investments 

3,000


0.02


-


-


150


-


3,000


0.02


150


-























Impacting other (income) / expense:





















Debt amendment fees

-


-


-


-


14,382


0.10


-


-


14,382


0.10


Asset held for sale impairment

2,125


0.01


-


-


-


-


2,125


0.01


-


-


FX contract gains related to cash consideration of Pace acquisition 

-


-


-


-


(6,845)


(0.05)


-


-


(6,845)


(0.05)


Loss on sale of building

-


-


5,142


0.03


-


-


-


-


5,142


0.03















-




-




Net tax items

(29,204)


(0.20)


(30,533)


(0.20)


(30,122)


(0.20)


(88,054)


(0.60)


(60,655)


(0.41)























Total highlighted items

65,260


0.44


46,628


0.31


62,408


0.42


93,145


0.63


109,036


0.73


Net income excluding highlighted items

$

104,284


$

0.70


$

65,754


$

0.44


$

79,166


$

0.53


$

172,969


$

1.17


$

144,920


$

0.97























Weighted average common shares - diluted



148,063




148,986




149,276




147,610




149,133






















 

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:


Acquisition Accounting Impacts Related to Deferred Revenue:  In connection with our acquisitions of Motorola Home, 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.

Integration, Acquisition, Restructuring and Other Costs:  We have excluded the effect of acquisition, integration, and other expenses and the effect of restructuring expenses in calculating our non-GAAP operating expenses and net income measures. We incurred expenses in connection with the Active Video Joint Venture, the Motorola Home acquisition, the anticipated Pace acquisition and, which we generally would not otherwise incur in the periods presented as part of our continuing operations. Acquisition and integration expenses consist of transaction costs, costs for transitional employees, other acquired employee related costs, and integration related outside services. 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.

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.

Noncontrolling Interest share of Non-GAAP Adjustments: In the second quarter of 2015, ARRIS and Charter formed a joint venture that acquired Active Video Networks, Inc.. ARRIS and Charter own 65% and 35%, respectively, of the joint venture.  The joint venture is accounted for by ARRIS under the consolidation method.  As a result, the consolidated statement of operations include the revenues, expenses, and gains and losses of the noncontolling interest.  The amount of net income (loss) related to the noncontrolling interest are reported and presented separately in the consolidated statement of operations.  We have excluded the noncontrolling share of any non GAAP adjusted measures recorded by the joint venture, as we believe it is useful to understand the effect of excluding this item when evaluating our ongoing performance.  

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). 

 Debt Amendment Fees: In the second quarter of 2015, the Company amended its credit agreement.  This debt modification allowed us to improve the terms and conditions of the credit agreement, extend the maturities of certain loan facilities, increase the amount of the revolving credit facility, and add a new term A-1 loan facility. It is our intent that the new term A-1 loan facility be funded upon the closing of the Pace Acquisition. If the Pace acquisition does not close, the entire facility is available to ARRIS so long as the first $400 million drawn is used to reduce other debt; the remaining $400 million can be used for general corporate purposes. Certain fees related to the debt modification have already been paid, and other fees related to the new term A-1 loan facility will be paid upon funding.  We believe it is useful to understand the effect of this on our other expense (income). 

Asset Held for Sale Impairment:  In the second quarter of 2014, we entered into a contract to facilitate the sale of a building at less than its carrying value. The asset has been reclassified as held for sale and was measured at the lower of its carrying amount or fair value less cost to sell.  We have recorded an initial impairment charge to reduce the assets carrying amount to its fair value less costs to sell in the period the held for sale criteria were met. We have excluded the effect of the asset held for sale impairment 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). 

Foreign Exchange Contract Gains Related to Cash Consideration of Pace Acquisition: In the second quarter of 2015, the Company announced its intent to acquire Pace plc in exchange for stock and cash.  We subsequently entered into foreign exchange forward contracts in order to hedge the foreign currency risk associated with the cash consideration of the Pace Acquisition.  These foreign exchange forward contracts were not designated as hedges, and accordingly, all changes in the fair value of these instruments are recognized as a loss (gain) on foreign currency in the Consolidated Statements of Operations.  We believe it is useful to understand the effect of this on our other expense (income). 

Loss on Sale of Building:  In the first quarter of 2015, the Company sold land and a building that qualified for sale-leaseback accounting and was classified as an operating lease.  A loss has been recorded on the sale.  We have excluded the effect of the loss on sale of property in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of excluding this item when evaluating our ongoing performance.

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 tax and legal restructuring, state valuation allowances, research and development tax credits and provision to return differences.

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/arris-announces-preliminary-and-unaudited-second-quarter-2015-results-300120772.html

SOURCE ARRIS Group, Inc.

Bob Puccini, Investor Relations, (720) 895-7787, bob.puccini@arris.com