Arris Group Inc. (ARRS)

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ARRIS Announces Preliminary and Unaudited Second Quarter 2008 Results
Date : 07/30/2008 @ 4:13PM
Source : PR Newswire
Stock : Arris Grp. (MM) (ARRS)
Quote : 9.2 -0.2 (-2.13%) @ 12:53PM


ARRIS Announces Preliminary and Unaudited Second Quarter 2008 Results





SUWANEE, Ga., July 30 /PRNewswire-FirstCall/ -- ARRIS Group, Inc. (NASDAQ:ARRS), a global technology leader in advanced cable telephony and broadband access equipment, next generation high-speed data and video applications, and operations software solutions, today announced preliminary and unaudited financial results for the second quarter 2008.

Second quarter 2008 revenues of $281.1 million increased $7.6 million, or 2.8%, as compared to first quarter revenues of $273.5 million. Second quarter and first half 2008 revenues increased $28.4 million, or 11.2%, and $66.6 million, or 13.6%, respectively, as compared to the same periods in 2007, primarily due to the C-COR acquisition. Second quarter 2008 gross margin was $92.9 million, or 33.0%, as compared to $85.2, or 31.2%, in the first quarter 2008 and $72.4 million, or 28.6%, in the second quarter 2007. Order backlog increased to $206.0 million at the end of the second quarter as compared to $147.0 million at the end of the first quarter. Book-to-bill ratio in the second quarter was 1.21.

GAAP net income in the second quarter 2008 was $0.08 per diluted share, as compared to $0.21 per diluted share for the second quarter 2007. Adjusted (non-GAAP) net income in the second quarter 2008 was $0.15 per diluted share, as compared to $0.22 per diluted share for the second quarter 2007. Items excluded from the computed adjusted (non-GAAP) net income include: amortization of intangibles, certain acquisition gains and expenses, certain tax benefits and costs, equity compensation expense, and adjustments to restructuring accruals. A reconciliation of GAAP to adjusted (non-GAAP) earnings per share is attached to this release and also can be found on the Company's website (http://www.arrisi.com/).

The Company ended the second quarter 2008 with $297.8 million of cash and short-term investments, which compares to $293.0 million at the end of the first quarter 2008. The Company generated $10.4 million of cash from operating activities in the second quarter 2008.

"I am very pleased that despite the challenging economic climate, we can report that sales, earnings and margins are up quarter over quarter and we look for continuing strength in the second half of 2008 as we enter the third quarter with a healthy backlog," said Bob Stanzione, ARRIS Chairman & CEO. "The demand for ARRIS products remains strong as our customers see increasing competition and new service demands in their markets. International opportunities continue to unfold as evidenced by our recent CMTS agreement last month with the largest cable operator in Germany and new opportunities in Canada and Mexico. We are well positioned to take advantage of customer and end user demands for high speed data services, VoIP, on-demand video, ad insertion, OSS solutions and network upgrades to accommodate increased high definition channel offerings and streaming video."

"We enter the second half of 2008 with a strong order book and an improving margin profile," said David Potts, ARRIS EVP & CFO. "I am also very pleased with the solid progress that we have made with the integration of C- COR and the progress that we have made towards the overall financial goals that we outlined at our Investor Conference in March. At this point, we project that revenues for the Company in the third quarter 2008 will be in the range of $288 to $308 million with GAAP net income per diluted share in the range of $0.13 to $0.18 and adjusted (non-GAAP) net income per diluted share, in the range of $0.19 to $0.24.

ARRIS management will conduct a conference call at 5:00pm EDT, today, Wednesday, July 30, 2008, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4209 or 617-213-4863 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference passcode 38778423 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 August 4, 2008 by dialing 888-286-8010 or 617-801-6888 for international calls and using the passcode 25608915. A replay also will be made available for a period of 12 months following the conference call on ARRIS' website at http://www.arrisi.com/.

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 reliable telephony, demand driven video, next-generation advertising and high-speed data services. ARRIS products expand and help grow network capacity with access and outside plant construction equipment, reliably deliver voice, video and data services and assure optimal service delivery for end customers. Headquartered in Suwanee, Georgia, USA, ARRIS has R&D centers in Atlanta, Chicago, Beaverton, State College, Wallingford, Ireland and China, and operates support and sales offices throughout the world. Information about ARRIS products and services can be found at http://www.arrisi.com/.

Forward-looking statements: Statements made in this press release, including those related to:

-- third quarter and 2008 revenues, gross margins and net income; -- full year 2008 outlook, and -- the general market outlook;


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 as well as the general outlook for 2008 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;

-- 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 Form 10-K for the year ended December 31, 2007 and its Form 10-Q for the quarter ended March 31, 2008. 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.

CONSOLIDATED BALANCE SHEETS (in thousands)

June 30, March 31, Dec. 31, Sept. 30, June 30, 2008 2008 2007 2007 2007 (unaudited)(unaudited) (unaudited)(unaudited)

ASSETS

Current assets: Cash and cash equivalents $290,266 $243,515 $323,797 $370,708 $444,020 Short-term investments, at fair value 7,503 49,513 68,011 217,845 160,315 Total cash, cash equivalents and short-term investments 297,769 293,028 391,808 588,553 604,335

Restricted cash 7,051 7,186 6,977 3,142 3,136 Accounts receivable, net 168,664 159,881 166,953 130,216 120,680 Other receivables 9,067 6,074 4,330 5,000 6,845 Inventories, net 147,716 125,105 131,792 118,227 90,542 Prepaids 5,305 5,680 5,856 3,626 3,250 Current deferred income tax assets 43,749 47,051 44,939 19,602 23,239 Other current assets 15,707 8,209 4,841 13,703 10,773 Total current assets 695,028 652,214 757,496 882,069 862,800

Property, plant and equipment, net 60,823 60,747 59,156 31,251 30,196 Goodwill 452,398 453,454 455,352 150,569 150,569 Intangible assets, net 244,575 257,029 269,893 115 172 Investments 9,937 10,200 6,412 8,916 3,151 Noncurrent deferred income tax assets 3,547 3,688 3,459 16,238 17,294 Other assets 11,383 12,624 10,181 9,084 7,517 $1,477,691 $1,449,956 $1,561,949 $1,098,242 $1,071,699

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities: Accounts payable $68,476 $60,490 $58,852 $35,540 $46,015 Accrued compensation, benefits and related taxes 18,072 14,397 26,177 18,857 14,631 Accrued warranty 7,566 7,919 8,298 4,085 4,393 Deferred revenue 28,100 19,901 8,474 6,273 7,195 Current portion of long-term debt 314 310 35,305 - - Other accrued liabilities 23,221 27,980 42,121 20,854 20,806 Total current liabilities 145,749 130,997 179,227 85,609 93,040 Long-term debt, net of current portion 276,606 276,686 276,765 276,000 276,000 Accrued pension 11,362 10,905 10,455 11,810 12,778 Noncurrent income tax payable 6,250 6,487 6,322 5,262 4,334 Noncurrent deferred income tax liability 48,725 47,090 45,255 - - Other long-term liabilities 18,694 19,704 18,158 8,404 8,724 Total liabilities 507,386 491,869 536,182 387,085 394,876

Stockholders' equity: Preferred stock - - - - - Common stock 1,358 1,357 1,356 1,104 1,102 Capital in excess of par value 1,098,581 1,095,716 1,093,498 789,348 782,717 Treasury stock at cost (76,007) (76,007) (572) - - Unrealized gain (loss) on marketable securities 66 151 20 (151) - Unfunded pension liability (3,358) (3,358) (3,358) (4,462) (4,462) Accumulated deficit (50,151) (59,588) (64,993) (74,498) (102,350) Cumulative translation adjustments (184) (184) (184) (184) (184) Total stockholders' equity 970,305 958,087 1,025,767 711,157 676,823 $1,477,691 $1,449,956 $1,561,949 $1,098,242 $1,071,699


ARRIS GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)

For the Three Months For the Six Months Ended June 30, Ended June 30, 2008 2007 2008 2007 (unaudited) (unaudited) (unaudited) (unaudited)

Net sales $281,110 $252,718 $554,616 $487,971 Cost of sales 188,226 180,342 376,484 346,848 Gross margin 92,884 72,376 178,132 141,123 Gross margin % 33.0% 28.6% 32.1% 28.9%

Operating expenses: Selling, general, and administrative expenses 37,046 26,455 74,028 50,630 Research and development expenses 27,662 17,791 55,784 35,887 Restructuring and impairment charges 175 - 580 421 Amortization of intangible assets 12,454 58 25,708 116 77,337 44,304 156,100 87,054 Operating income 15,547 28,072 22,032 54,069 Other expense (income): Interest expense 1,722 1,652 3,226 3,320 Loss (gain) on investments 171 (1,444) 173 (1,425) Loss (gain) on foreign currency 350 (146) (640) 176 Interest income (1,702) (6,459) (4,387) (12,942) Gain related to terminated acquisition, net of expenses - - - (22,835) Other (income) expense, net 65 51 29 116 Income from continuing operations before income taxes 14,941 34,418 23,631 87,659 Income tax expense 5,504 11,144 8,789 26,741 Net income $9,437 $23,274 $14,842 $60,918

Net income per common share: Basic $0.08 $0.21 $0.12 $0.56

Diluted $0.08 $0.21 $0.12 $0.55

Weighted average common shares: Basic 122,741 109,398 126,752 108,935 Diluted 124,651 111,698 128,190 111,340


ARRIS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

For the Three Months For the Six Months Ended June 30, Ended June 30, 2008 2007 2008 2007 (unaudited) (unaudited) (unaudited) (unaudited)

Operating Activities: Net income $9,437 $23,274 $14,842 $60,918 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 5,132 2,648 10,095 5,145 Amortization of intangible assets 12,454 58 25,708 116 Stock compensation expense 2,840 3,378 5,391 6,034 Deferred income tax provision 5,078 4,924 4,572 9,626 Amortization of deferred finance fees 278 278 557 557 Provision for doubtful accounts 9 225 214 596 Gain related to previously written off receivables - - - (377) Gain on disposal of fixed assets (2) - (2) - Loss on investments 171 (1,444) 173 (1,425) Gain related to terminated acquisition, net of expenses - - - (22,835) Excess tax benefits from stock-based compensation plans - (1,676) - (6,531) Changes in operating assets & liabilities, net of effects of acquisitions and disposals: Accounts receivable (8,272) 4,851 (770) (5,972) Other receivables (2,993) 3,043 (4,737) (4,289) Inventory (21,920) (12,356) (14,419) 3,684 Income taxes payable (3,078) (7,024) (2,997) (5,731) Accounts payable and accrued liabilities 14,795 7,033 4,501 (17,809) Other, net (3,509) 688 (2,193) 2,158 Net cash provided by operating activities 10,420 27,900 40,935 23,865

Investing Activities: Purchases of property, plant, and equipment (5,363) (4,768) (11,792) (7,055) Cash proceeds related to terminated acquisition, net of expenses paid - (327) - 10,554 Cash paid for hedge related to terminated acquisition - - - (26,469) Cash proceeds from hedge related to terminated acquisition - - - 38,750 Cash paid for acquisition, net of cash acquired (227) - (4,419) - Cash proceeds from sale of property, plant & equipment 13 - 237 - Cash proceeds from sale of short-term investments 16 - 16 - Purchases of short-term- investments - (69,715) (16,887) (197,850) Disposals of short-term- investments 41,964 44,010 72,464 125,110 Net cash provided by (used in) investing activities 36,403 (30,800) 39,619 (56,960)

Financing Activities: Payment of debt and capital lease obligations (99) - (35,196) - Treasury stock repurchase - - (75,960) - Excess tax benefits from stock-based compensation plans - 1,676 - 6,531 Employer repurchase of shares to satisfy minimum tax withholdings (796) (1,690) (1,035) (1,690) Proceeds from issuance of stock and other 823 5,617 (1,894) 10,656 Net cash provided by (used in) financing activities (72) 5,603 (114,085) 15,497

Net increase (decrease) in cash and cash equivalents 46,751 2,703 (33,531) (17,598) Cash and cash equivalents at beginning of period 243,515 441,317 323,797 461,618 Cash and cash equivalents at end of period $290,266 $444,020 $290,266 $444,020


ARRIS GROUP, INC.

SUPPLEMENTAL NET INCOME RECONCILIATION (in thousands, except per share data) (unaudited)

Q1 2008 Q2 2008 YTD 2008 Per Per Per Diluted Diluted Diluted Amount Share Amount Share Amount Share

Net income $5,405 $0.04 $9,437 $0.08 $14,842 0.12

Highlighted items: Impacting gross margin: Stock compensation expense 201 - 245 - 446 -

Impacting operating expenses: Integration costs 427 - - - 427 - Restructuring charges - adjustments to existing accruals 405 - 175 - 580 - Amortization of intangible assets 13,254 0.10 12,454 0.10 25,708 0.20 Stock compensation expense 2,350 0.02 2,595 0.02 4,945 0.04

Tax related to highlighted items above (6,294) (0.05) (5,732) (0.05) (12,026) (0.09)

Total highlighted items 10,343 0.08 9,737 0.08 20,080 0.16 Net income excluding highlighted items $15,748 $0.12 $19,174 $0.15 $34,922 $0.27

131,981 124,651 128,190


Q1 2007 Q2 2007 YTD 2007 Per Per Per Diluted Diluted Diluted Amount Share Amount Share Amount Share

Net income $37,644 $0.34 $23,274 $0.21 $60,918 0.55

Highlighted items: Impacting gross margin: Stock compensation expense 165 - 229 - 394 -

Impacting operating expenses: Gains related to previously written off receivables (377) - - - (377) - Restructuring charges - adjustments to existing accruals 421 - - - 421 - Amortization of intangible assets 58 - 58 - 116 - Stock compensation expense 2,491 0.02 3,149 0.03 5,640 0.05

Impacting net income (loss) from continuing operations: Gains related to terminated acquisition, net of expenses (22,835) (0.21) - - (22,835) (0.21) Gain on deferred compensation assets - - (1,345) (0.01) (1,345) (0.01)

Impacting income tax expense: Adjustments of income tax valuation allowances and research & development credits and other (3,246) (0.03) - - (3,246) (0.03)

Tax related to highlighted items above 7,754 0.07 (670) (0.01) 7,084 0.06

Total highlighted items (15,569) (0.14) 1,421 0.01 (14,148) (0.13) Net income excluding highlighted items $22,075 $0.20 $24,695 $0.22 $46,770 $0.42

110,988 111,698 111,340


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. In prior periods, ARRIS recognized a gain in Q1 of 2007 associated with previously written off receivables. With respect to amortization of intangibles, the intangibles being amortized relate to our recent acquisition of C-COR. The restructuring charge adjustments 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. In the second quarter of 2007, ARRIS realized a gain before tax of $1.3 million on its deferred compensation asset that had been previously recorded as an unrealized gain on the balance sheet. During the first quarter of 2007, ARRIS announced that it entered into a transaction agreement with TANDBERG Television ASA, in which ARRIS was to buy all the outstanding shares of TANDBERG. ARRIS was subsequently outbid by another buyer and the transaction agreement was terminated during the first quarter 2007. ARRIS recorded gains, net before tax, of $22.8 million related to the termination of the transaction (termination fee, foreign exchange gains, and expenses). The net termination fee resulted in a capital gain which provided greater access to prior tax capital losses that had previously been viewed as more likely than not unrealizable. As a result, net income tax valuation allowances totaling $3.2 million were reversed in the first quarter 2007. During the first quarter of 2008, ARRIS recorded incremental costs of $0.4 million as a result of the C- COR integration.

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 expects to continue providing similar information in the future with schedules reconciling the differences between GAAP and non-GAAP financial measures.

ARRIS GROUP, INC.

Supplemental Third Quarter Net Income Reconciliation (unaudited) Q3 EPS 2008 Guidance

Estimated GAAP EPS - diluted $0.13 - $0.18 Reconciling Items Amortization of intangibles, after tax 0.05 Stock compensation expense, after tax 0.01 Subtotal 0.06 Estimated adjusted (non-GAAP) EPS - diluted $0.19 - $0.24


See the Supplemental Net Income Reconciliation for a discussion regarding management's reasoning for providing this non-GAAP financial measure

DATASOURCE: ARRIS Group, Inc.


CONTACT: Jim Bauer, Investor Relations, ARRIS Group, Inc.,

[phone],


Web site: http://www.arrisi.com/