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ARRIS Announces Preliminary and Unaudited Third Quarter 2011 Results

SUWANEE, Ga., Oct. 26, 2011 /PRNewswire via COMTEX/ --

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(TM) 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,


June 30,


March 31,


December 31,


September 30,


2011


2011


2011


2010


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


For the Nine Months


Ended September 30,


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


For the Nine Months





Ended September 30,


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)

















(in thousands, except per share data)

Q1 2011


Q2 2011


Q3 2011


YTD 2011




Per Diluted




Per Diluted




Per Diluted




Per Diluted


Amount


Share


Amount


Share


Amount


Share


Amount


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




Per Diluted




Per Diluted




Per Diluted




Per Diluted


Amount


Share


Amount


Share


Amount


Share


Amount


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.

SOURCE ARRIS Group, Inc.