EXHIBIT 99.3
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet and statements of operations are presented to give effect to the purchase of substantially all of the assets, including the intellectual property portfolio, and the assumption of certain liabilities, (the “Transaction”) of Digeo, Inc. (“Digeo”) by ARRIS Group, Inc. (“ARRIS”). The pro forma information was prepared based on the historical financial statements and related notes of ARRIS and Digeo after giving effect to the Transaction using the purchase method of accounting. In addition, certain historical Digeo balances have been reclassified to conform to ARRIS’ presentation.
The unaudited pro forma combined balance sheet as of June 30, 2009 is presented as if the Transaction had occurred on June 30, 2009. The unaudited pro forma combined statements of operations combine the results of operations of ARRIS and Digeo for the calendar year ended December 31, 2008 and the six months ended June 30, 2009 and are presented as if the Transaction had occurred on January 1, 2008.
The preliminary allocation of the purchase price used in the unaudited pro forma condensed combined financial statements is based upon an estimated valuation of certain assets and liabilities acquired as if the Transaction had occurred on June 30, 2009. The estimates and assumptions are subject to change upon the finalization of the valuation of the Transaction as of the actual acquisition date of October 1, 2009. The primary areas of the purchase price allocation which are not yet finalized relate to identifiable intangible assets, as well as the amount of resulting goodwill.
The unaudited pro forma condensed combined financial statements have been prepared for illustrative purposes only and are not intended to represent or be indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been achieved had ARRIS and Digeo been a combined company during the respective periods presented. The unaudited pro forma condensed combined financial statements do not reflect any operating efficiencies and/or cost savings that ARRIS may achieve with respect to the combined companies. The unaudited pro forma financial statements also do not include the effects of restructuring activities and post merger synergy.
These unaudited pro forma condensed combined financial statements should be read in conjunction with ARRIS’ historical consolidated financial statements and related notes included in its Form 10-K for the fiscal year ended December 31, 2008, filed on February 27, 2009 and in its Form 10-Q for the six months ended June 30, 2009, filed on August 10, 2009, as well as Digeo’s historical consolidated financial statements and related notes for the year ended December 31, 2008 and for the six months ended June 30, 2009, which are included as Exhibits 99.1 and 99.2, respectively, to this Form 8-K/A.
Pro Forma Consolidated Balance Sheet
As of June 30, 2009
(in thousands)
As of June 30, 2009
(in thousands)
Historical | ||||||||||||||||
ARRIS | Digeo | Pro Forma | Combined | |||||||||||||
06/30/09 | 06/30/09 | Adjustments | Company | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | 476,846 | 969 | (16,123 | )(2) | 461,692 | |||||||||||
Short-term investments, at fair value | 47,195 | — | — | 47,195 | ||||||||||||
Total cash, cash equivalents and ST inv. | 524,041 | 969 | (16,123 | ) | 508,887 | |||||||||||
Restricted cash | 4,552 | — | — | 4,552 | ||||||||||||
Accounts receivable, net | 128,482 | 3,275 | (83 | )(1) | 131,674 | |||||||||||
Other receivables | 5,904 | — | — | 5,904 | ||||||||||||
Inventories | 115,944 | 1,641 | (64 | )(5) | 117,521 | |||||||||||
Prepaids | 7,700 | 1,944 | (451 | )(1) | 9,193 | |||||||||||
Current deferred income tax assets | 41,166 | — | — | 41,166 | ||||||||||||
Other current assets | 12,361 | 7,831 | 33 | (1) | ||||||||||||
(7,828 | )(6) | 12,396 | ||||||||||||||
Total current assets | 840,150 | 15,660 | (24,516 | ) | 831,294 | |||||||||||
Property, plant and equipment, net | 60,048 | 796 | (155 | )(7) | 60,689 | |||||||||||
Goodwill | 231,684 | — | 2,000 | (9) | 233,684 | |||||||||||
Intangibles, net | 208,822 | 288 | (288 | )(4) | ||||||||||||
14,039 | (9) | 222,861 | ||||||||||||||
Investments | 10,317 | — | — | 10,317 | ||||||||||||
Noncurrent deferred income tax assets | 3,870 | — | — | 3,870 | ||||||||||||
Other assets | 6,251 | 3,148 | (3,148 | )(1) | 6,251 | |||||||||||
1,361,142 | 19,893 | (12,068 | ) | 1,368,966 | ||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | 48,859 | 2,644 | (1,278 | )(1) | 50,225 | |||||||||||
Accrued compensation, benefits and related taxes | 20,753 | 1,606 | — | 22,359 | ||||||||||||
Deferred revenue | 43,727 | 14,475 | (14,475 | )(6) | 43,727 | |||||||||||
Current portion of long-term debt | 148 | 100,000 | (100,000 | )(1) | 148 | |||||||||||
Current deferred income tax liability | 248 | — | — | 248 | ||||||||||||
Accrued interest payable | 657 | 14,221 | (14,221 | )(1) | 657 | |||||||||||
Other accrued liabilities | 40,380 | 4,007 | (2,821 | )(1) | ||||||||||||
4,000 | (2) | |||||||||||||||
(333 | )(8) | 45,233 | ||||||||||||||
Total current liabilities | 154,772 | 136,952 | (129,128 | ) | 162,596 | |||||||||||
Long-term debt, net of current portion | 205,710 | 2,863 | (2,863 | )(1) | 205,710 | |||||||||||
Accrued pension | 19,665 | — | — | 19,665 | ||||||||||||
Noncurrent income tax payable | 12,386 | — | — | 12,386 | ||||||||||||
Noncurrent deferred income tax liabilities | 33,999 | — | — | 33,999 | ||||||||||||
Other noncurrent liabilities | 15,094 | 5,886 | (2,487 | )(1) | ||||||||||||
(3,399 | )(6) | 15,094 | ||||||||||||||
Total liabilities | 441,626 | 145,702 | (137,877 | ) | 449,451 | |||||||||||
Stockholders’ equity Preferred stock | — | 14 | (14 | )(3) | — | |||||||||||
Common stock | 1,379 | 1 | (1 | )(3) | 1,379 | |||||||||||
Capital in excess of par value | 1,169,223 | 428,273 | (428,273 | )(3) | 1,169,223 | |||||||||||
Treasury stock at cost | (75,960 | ) | (100 | ) | 100 | (3) | (75,960 | ) | ||||||||
Accumulated deficit | (166,711 | ) | (553,997 | ) | 553,997 | (3) | (166,711 | ) | ||||||||
Unrealized loss on marketable securities | (161 | ) | — | — | (161 | ) | ||||||||||
Unfunded pension losses | (8,070 | ) | — | — | (8,070 | ) | ||||||||||
Cumulative translation adjustments | (184 | ) | — | — | (184 | ) | ||||||||||
Total stockholders’ equity | 919,516 | (125,809 | ) | 125,809 | 919,516 | |||||||||||
1,361,142 | 19,893 | (12,068 | ) | 1,368,967 | ||||||||||||
Pro Forma Consolidated Statements of Operations
For the Twelve Months Ended December 31, 2008
(in thousands except per share data)
For the Twelve Months Ended December 31, 2008
(in thousands except per share data)
Historical | Pro Forma | Combined | ||||||||||||||
ARRIS | Digeo | Adjustments | Company | |||||||||||||
Net sales | 1,144,565 | 5,050 | — | 1,149,615 | ||||||||||||
Cost of sales | 751,436 | 465 | — | 751,901 | ||||||||||||
Gross profit | 393,129 | 4,585 | — | 397,714 | ||||||||||||
Gross profit % | 34.3 | % | 90.8 | % | 34.6 | % | ||||||||||
Operating expenses: | ||||||||||||||||
Selling, general, and administrative | 143,997 | 9,564 | (16 | )(10) | 153,545 | |||||||||||
Research and development expenses | 112,542 | 18,060 | (36 | )(10) | 130,566 | |||||||||||
Impairment of goodwill and intangible assets | 209,297 | 920 | — | 210,217 | ||||||||||||
Restructuring charges | 1,211 | 7,555 | — | 8,766 | ||||||||||||
Amortization of intangibles | 44,195 | 995 | (995 | )(11) | ||||||||||||
3,510 | (14) | 47,705 | ||||||||||||||
Total operating expenses | 511,242 | 37,094 | 2,463 | 550,799 | ||||||||||||
Operating profit (loss) | (118,113 | ) | (32,509 | ) | (2,463 | ) | (153,085 | ) | ||||||||
Interest expense | 17,123 | 5,299 | (5,299 | )(12) | 17,123 | |||||||||||
Loss (gain) on investments | 717 | — | — | 717 | ||||||||||||
Interest income | (7,224 | ) | (148 | ) | 148 | (13) | (7,224 | ) | ||||||||
Loss (gain) on foreign currency | (422 | ) | — | — | (422 | ) | ||||||||||
Other (income) expense, net | (1,043 | ) | — | — | (1,043 | ) | ||||||||||
Income (loss) from continuing operations before income taxes | (127,264 | ) | (37,660 | ) | 2,688 | (162,236 | ) | |||||||||
Income tax expense (benefit) | 2,375 | — | 1,035 | (15) | 3,410 | |||||||||||
Net income (loss) | (129,639 | ) | (37,660 | ) | 1,653 | (165,646 | ) | |||||||||
Net income (loss) per common share: | ||||||||||||||||
Basic | $ | (1.04 | ) | $ | (1.33 | ) | ||||||||||
Diluted | $ | (1.04 | ) | $ | (1.33 | ) | ||||||||||
Weighted average common shares — basic | 124,878 | 124,878 | ||||||||||||||
Weighted average common shares — diluted | 124,878 | 124,878 | ||||||||||||||
Pro Forma Consolidated Statements of Operations
For the Six Months Ended June 30, 2009
(in thousands except per share data)
For the Six Months Ended June 30, 2009
(in thousands except per share data)
Historical | Pro Forma | Combined | ||||||||||||||
ARRIS | Digeo | Adjustments | Company | |||||||||||||
Net sales | 532,039 | 3,228 | — | 535,267 | ||||||||||||
Cost of sales | 319,249 | 1,455 | — | 320,704 | ||||||||||||
Gross profit | 212,790 | 1,773 | — | 214,563 | ||||||||||||
Gross profit % | 40.0 | % | 54.9 | % | 40.1 | % | ||||||||||
Operating expenses: | ||||||||||||||||
Selling, general, and administrative | 74,471 | 4,992 | (8 | )(10) | 79,455 | |||||||||||
Research and development expenses | 58,538 | 7,983 | (18 | )(10) | 66,503 | |||||||||||
Impairment of goodwill | — | — | — | — | ||||||||||||
Restructuring charges | 712 | 716 | — | 1,428 | ||||||||||||
Amortization of intangibles | 18,526 | 62 | (62 | )(11) | ||||||||||||
1,755 | (14) | 20,281 | ||||||||||||||
Total operating expenses | 152,247 | 13,753 | 1,667 | 167,667 | ||||||||||||
Operating profit (loss) | 60,543 | (11,980 | ) | (1,667 | ) | 46,896 | ||||||||||
Interest expense | 8,765 | 2,815 | (2,815 | )(12) | 8,765 | |||||||||||
Loss (gain) on investments | (215 | ) | — | — | (215 | ) | ||||||||||
Interest income | (748 | ) | (6 | ) | 6 | (13) | (748 | ) | ||||||||
Loss (gain) on foreign currency | 2,528 | — | — | 2,528 | ||||||||||||
Gain on debt retirement | (4,152 | ) | — | — | (4,152 | ) | ||||||||||
Other (income) expense, net | (624 | ) | — | — | (624 | ) | ||||||||||
Income (loss) from continuing operations before income taxes | 54,989 | (14,789 | ) | 1,142 | 41,342 | |||||||||||
Income tax expense (benefit) | 19,198 | — | 440 | (15) | 19,638 | |||||||||||
Net income (loss) | 35,791 | (14,789 | ) | 702 | 21,704 | |||||||||||
Net income (loss) per common share: | ||||||||||||||||
Basic | $ | 0.29 | $ | 0.18 | ||||||||||||
Diluted | $ | 0.28 | $ | 0.17 | ||||||||||||
Weighted average common shares — basic | 123,849 | 123,849 | ||||||||||||||
Weighted average common shares — diluted | 126,482 | 126,482 | ||||||||||||||
Pro Forma Adjustments
(1) | To adjust for the assets and liabilities not transferred in the asset purchase agreement | ||
(2) | To record the purchase price of $20.1 million, of which $16.1 million was paid in cash and a holdback of $4.0 which will be paid in 2010 | ||
(3) | To eliminate Digeo’s historical stockholders’ equity | ||
(4) | To eliminate the net book value of $0.3 million related to Digeo’s historical intangible assets | ||
(5) | To record the difference of $(0.1) million between the fair value and historical carrying value of Digeo’s inventory | ||
(6) | To record the difference between the fair value and historical carrying value of Digeo’s deferred revenue of $(17.9) million and associated deferred costs of $(7.8) million. The preliminary fair value of the deferred revenue and costs is assumed to be $-0- as there is no cost related to the remaining legal obligations of ARRIS. | ||
(7) | To record the difference of $(0.2) million between the fair value and historical carrying value of Digeo’s fixed assets | ||
(8) | To record the difference of $(0.3) million between the fair value and historical carrying value of Digeo’s deferred rent | ||
(9) | To record the preliminary estimate of intangible assets acquired of $14.0 million and goodwill acquired of $2.0 million. This is based upon an estimated valuation of certain assets and liabilities acquired as if the transaction had occurred on June 30, 2009. The estimates and assumptions are subject to change upon the finalization of the valuation of the transaction as of the actual acquisition date of October 1, 2009. | ||
(10) | To record the difference in depreciation related to the fair value adjustment of fixed assets | ||
(11) | To eliminate the historical amortization expense of Digeo’s intangible assets | ||
(12) | To eliminate the historical interest expense related to Digeo’s notes payable as the debt was not assumed by ARRIS | ||
(13) | To eliminate the historical interest income related to Digeo’s restricted cash which was not transferred to ARRIS in the transaction | ||
(14) | To record the estimated intangible amortization associated with the acquired intangible assets over an estimated life of four years | ||
(15) | To record the tax effect related to the pro forma adjustments at the statutory tax rate of 38.5% |
Earnings Per Share
As ARRIS paid cash for the transaction and no ARRIS stock or stock-based awards were issued at the time of acquisition, the pro forma weighted average number of common shares and the diluted weighted average shares outstanding are the same as ARRIS’ historical amounts.