ARRIS International 10-Q 16 Nov 15 2015 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information	5 Months Ended
	Sep. 30, 2015shares
Document Information [Line Items]
Entity Registrant Name	ARRIS International Ltd
Entity Central Index Key	1,645,494
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding	100
Document Type	10-Q
Document Period End Date	Sep. 30, 2015
Amendment Flag	false
Document Fiscal Year Focus	2,015
Document Fiscal Period Focus	Q3

CONSOLIDATED BALANCE SHEET (Una

CONSOLIDATED BALANCE SHEET (Unaudited) $ in Thousands	Sep. 30, 2015USD ($)
Current assets:
Other current assets	$ 0
Total current assets	0
Deferred costs for future issuance of ordinary shares (see note 4)	2,340
Deferred debt issuance costs (see note 3)	10,871
Total assets	13,211
Current liabilities:
Total current liabilities	0
Total liabilities	$ 0
Shareholder's equity:
Ordinary shares (see note 4)
Redeemable shares (see note 4)	$ 77
Additional paid-in Capital	13,890
Accumulated deficit	(756)
Total shareholder's equity	13,211
Total liabilities and shareholder's equity	$ 13,211

CONSOLIDATED STATEMENTS OF OPER

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended	5 Months Ended
	Sep. 30, 2015	Sep. 30, 2015
Revenues:
Total Revenues	$ 0	$ 0
Expenses:
Total expenses	704	756
Loss before income taxes	(704)	(756)
Income tax expense	0	0
Net loss	$ (704)	$ (756)
Net loss per ordinary share:
Basic (in dollars per share)	$ (7)	$ (8)
Weighted average ordinary shares:
Basic and Diluted (in shares)	100	100

CONSOLIDATED STATEMENTS OF COMP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended	5 Months Ended
	Sep. 30, 2015	Sep. 30, 2015
Statement of Comprehensive Income [Abstract]
Net Loss	$ (704)	$ (756)
Other comprehensive loss, net of tax
Other comprehensive loss	0	0
Comprehensive loss	$ (704)	$ (756)

CONSOLIDATED STATEMENT OF CASH

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) $ in Thousands	5 Months Ended
	Sep. 30, 2015USD ($)
Operating activities:
Net loss	$ (756)
Net cash used in operating activities	$ (756)
Investing activities:
Net cash provided by investing activities
Financing activities:
Costs for future issuance of ordinary shares (see note 4)	$ (2,340)
Debt issuance costs (see note 3)	(10,871)
Proceeds from ordinary shares	0
Proceeds from redeemable shares	77
Proceeds from capital contributions	13,890
Net cash provided by financing activities	756
Net increase (decrease) in cash and cash equivalents	0
Cash and cash equivalents at beginning of period	0
Cash and cash equivalents at end of period	$ 0

Organization

Organization	5 Months Ended
	Sep. 30, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Organization	Note 1. Organization ARRIS International Limited (“ARRIS International” or the “Company”) is a private limited company incorporated under the laws of England and Wales and a wholly-owned subsidiary of ARRIS Group, Inc. (“ARRIS”). ARRIS International was incorporated on April 20, 2015, under the name “Archie ACQ Limited,” for the purpose of effecting the combination of Pace plc (“Pace”) with ARRIS (the “Combination”). On June 15, 2015, Archie ACQ Limited changed its name to “ARRIS International Limited.” The Company has not conducted any business operations other than those incidental to its formation and in connection with the transactions contemplated by the Merger Agreement and the Combination (including the financing arrangements entered into in connection with the Combination). Prior to completion of the Combination, ARRIS International will be converted into a public limited company named ARRIS International plc and following the Combination, it is expected that ARRIS International ordinary shares will be listed on NASDAQ under the symbol “ARRS.” The Combination is expected to be implemented in two main steps, which are the “Pace Acquisition” and the “Merger”: In the Pace Acquisition: • all Pace ordinary shares, other than Pace ordinary shares held by or on behalf of ARRIS International or ARRIS or by Pace in treasury, will be transferred to ARRIS International; and • holders of such Pace ordinary shares will receive 132.5 pence in cash and will be issued 0.1455 ARRIS International ordinary shares in consideration for each Pace ordinary share so transferred. In the Merger: • a subsidiary of ARRIS International (“Merger Sub”) will be merged with and into ARRIS with ARRIS continuing as the surviving corporation; and • each ARRIS share, other than ARRIS shares held by ARRIS as treasury stock or any shares owned of record by ARRIS or Merger Sub, will be converted into the right to receive one ARRIS International ordinary share. As a result of the Combination, ARRIS and Pace will each become wholly-owned subsidiaries of ARRIS International, and ARRIS stockholders and Pace shareholders will become ARRIS International shareholders. Upon the completion of the Combination, ARRIS stockholders will own approximately 76% of the ARRIS International ordinary shares, and Pace shareholders will receive approximately $665.5 million (or approximately £438.4 million) as of September 30, 2015 in cash in the aggregate and will own approximately 24% of the ARRIS International ordinary shares. The completion of the acquisition remains conditioned upon expiration or termination of the waiting period under the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the satisfaction of similar merger control requirements in Brazil and Colombia, together with satisfaction of other customary closing conditions. The Company anticipates the transaction to close in December 2015 or the first quarter of 2016. The principal executive offices of ARRIS International are located at 3871 Lakefield Drive, Suwanee, Georgia 30024 and its telephone number at that address is +1 (678) 473-2000. ARRIS International’s registered office address is 20-22 Bedford Row, London, WC1R4JS.

Basis of Presentation and Signi

Basis of Presentation and Significant Accounting Policies	5 Months Ended
	Sep. 30, 2015
Accounting Policies [Abstract]
Basis of Presentation and Significant Accounting Policies	Note 2. Basis of Presentation and Significant Accounting Policies The accompanying unaudited consolidated financial statements of ARRIS International have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) have been made that are necessary for a fair presentation of the consolidated financial statements for the interim periods. The financial statements include certain costs and expenses incurred by ARRIS that are associated with the Company’s activities since its incorporation based on allocation methods that management believes are reasonable and supportable. The accompanying financial statements exclude all acquisition related expenditures associated with the planned acquisition of Pace. Items included in these financial statements are measured using the currency of the primary economic environment in which ARRIS International operates (“the functional currency”). The financial statements are presented in United States dollars, which is ARRIS International’s functional currency. In April 2015, the Financial Accounting Standards Board issued new guidance, which requires the cost of issuing debt to no longer be recorded as a separate asset but rather to be presented on the balance sheet as a direct reduction to the carrying value of the related debt liability, similar to the presentation of debt discounts. This guidance will be effective for interim and annual periods beginning after December 15, 2015 including retrospective conforming presentation of prior periods presented. Early adoption of the standard is permitted. While the adoption of this standard may impact the presentation on the Company's balance sheet, it will not affect the Company's results of operations, financial position or cash flows. As of September 30, 2015, the Company had deferred financing costs of $10,871 thousand. The interim period results are not necessarily indicative of the results to be expected for the full year. Management has evaluated subsequent events through the date this Form 10-Q was filed with the SEC.

Indebtedness

Indebtedness	5 Months Ended
	Sep. 30, 2015
Debt Disclosure [Abstract]
Indebtedness	Note 3: Indebtedness Senior Secured Credit Facilities ARRIS International is a party to, and guarantor under, the Amended Credit Agreement entered into on June 18, 2015, which governs the senior secured credit facilities of ARRIS. The Amended Credit Agreement was entered into with Bank of America, N.A. and various other institutions, and is comprised of (i) a “Term Loan A Facility” of $990,000 thousand, (ii) a “Term Loan B Facility” of $543,813 thousand, (iii) a “Revolving Credit Facility” of $500,000 thousand and (iv) a “Term Loan A-1 Facility” of $800,000 thousand, which is expected to be funded upon the closing of the planned acquisition of Pace. As of September 30, 2015, ARRIS had $1,521,438 thousand principal amount outstanding under the Term Loan A and Term Loan B Facilities, no borrowings under the Revolving Credit Facility and letters of credit totaling $2,391 thousand issued under the Revolving Credit Facility. As described above, in connection with the planned acquisition of Pace, in order to fund transaction-related items, the cash portion of the consideration and other one-time costs, ARRIS International Limited is expected to incur upon the closing of the Pace Acquisition $800,000 thousand of debt under a Term Loan A-1 Facility, with a maturity of June 18, 2020 and an annual interest rate of LIBOR plus 175 basis points on the principal amount of the debt based upon the ARRIS’s current leverage ratio. No borrowings existed under the Term Loan A-1 Facility as of September 30, 2015. A debt financing commitment fee of 50 basis points for the Term Loan A-1 Facility began August 1, 2015 and will continue until the loan is funded or the commitment is cancelled by ARRIS. Quarterly mandatory principal repayments on Term Loan A-1 will begin in the quarter in which the facility is funded. In connection with the Amended Credit Facility, debt issuance costs of $10,871 thousand have been capitalized as part of long-term assets pending the incurrence of borrowings under the Term Loan A-1 Facility. The debt issuance costs were allocated to the Term Loan A-1 Facility using a reasonable and supportable approach and would not have been materially different had the facility been entered into on a stand-alone basis. Borrowings under the senior secured credit facilities are secured by first priority liens on substantially all of the assets of ARRIS and certain of its present and future subsidiaries who are or become parties to, or guarantors under, the Amended Credit Agreement governing the senior secured credit facilities. The Amended Credit Agreement provides terms for mandatory prepayments and optional prepayments and commitment reductions. The Amended Credit Agreement also includes events of default, which are customary for facilities of this type (with customary grace periods, as applicable), including provisions under which, upon the occurrence of an event of default, all amounts outstanding under the credit facilities may be accelerated. The Amended Credit Agreement contains usual and customary limitations on indebtedness, liens, restricted payments, acquisitions and asset sales in the form of affirmative, negative and financial covenants, which are customary for financings of this type, including the maintenance of a minimum interest coverage ratio of 3.50:1 and a maximum leverage ratio of 3.75:1 (with a scheduled decrease to 3.50:1). As of September 30, 2015, ARRIS was in compliance with all covenants under the Amended Credit Agreement.

Share Capital

Share Capital	5 Months Ended
	Sep. 30, 2015
Stockholders' Equity Note [Abstract]
Share Capital	Note 4. Share Capital ARRIS International's initial share capital consisted of one ordinary share held by ARRIS with a par value of £1 (USD1.49). On August 28, 2015, the ordinary share was subdivided into 100 ordinary shares with a par value of £0.01 (USD0.015) per share and 4,999,900 redeemable shares of £0.01 per share were issued to ARRIS. Our share capital is comprised of the following at September 30, 2015. Shares Denomination US$ Allotted and fully paid: Ordinary shares of £0.01($0.0154) each 100 £ 1 $ 2 Redeemable shares of £0.01($0.0154) each 4,999,900 49,999 76,998 Total share capital £ 50,000 $ 77,000 The redeemable shares are redeemable, subject to and in accordance with the Companies Act 2006 of the U.K., at their nominal value of £50,000, in cash or by full release of the undertaking to pay such nominal amount by ARRIS. Such shares shall be redeemable at the sole discretion of ARRIS International at any time by notice service on ARRIS. The redeemable shares have no right to attend, speak or vote at a meeting and are not entitled to participate in the profits. On a return of capital on a winding up, holders of redeemable shares will be entitled to £0.01 or (USD$0.0154) . ARRIS International incurred $2,340 thousand of costs related to the future issuance of ordinary shares that were paid by ARRIS. These costs were recorded as deferred costs in the Consolidated Balance Sheet and will be reclassified to Additional paid-in capital when ARRIS International issues ordinary shares associated with the Combination.

Related Party Transactions

Related Party Transactions	5 Months Ended
	Sep. 30, 2015
Related Party Transactions [Abstract]
Related Party Transactions	Note 5. Related Party Transactions ARRIS International has received $13,890 thousand in capital contributions from ARRIS. The capital contribution were used to fund administrative expenses, debt and equity issuance costs, debt financing commitment fees and the costs of incorporation. Allocations of fees were made using a reasonable and supportable approach and would not have been materially different had the expenses been entered into on a stand-alone basis.

Income Taxes

Income Taxes	5 Months Ended
	Sep. 30, 2015
Income Tax Disclosure [Abstract]
Income Taxes	Note 6. Income Taxes For U.K. tax purposes, the entity is treated as a private limited company. The statutory corporate income tax rate in the U.K. is 20%. The net loss reported by the Company on any U.K. income tax return for a period ending prior to the merger is not expected to be utilized. Therefore, ARRIS management has recorded a full valuation allowance against the deferred tax assets otherwise created by the U.K. net loss. For U.S. income tax purposes, the Company is a single member limited liability company wholly-owned by ARRIS. The Company is treated as a disregarded entity. As such, the Company’s net losses will be included in ARRIS’s U.S. consolidated corporate income tax return. On a separate return basis, any deferred tax assets recorded by the Company require a full valuation allowance because management does not believe that tax losses can be utilized on a more-likely-than-not basis.

Subsequent Events

Subsequent Events	5 Months Ended
	Sep. 30, 2015
Subsequent Events [Abstract]
Subsequent Events	Note 7. Subsequent Events As of October 22, 2015, both ARRIS and Pace shareholders approved the acquisition and merger which were conditions to the closing of the Pace Acquisition and the Merger. The completion of the acquisition remains conditioned upon expiration or termination of the waiting period under the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the satisfaction of similar merger control requirements in Brazil and Colombia, together with satisfaction of other customary closing conditions.

Share Capital (Tables)

Share Capital (Tables)	5 Months Ended
	Sep. 30, 2015
Stockholders' Equity Note [Abstract]
Schedule of share capital	Shares Denomination US$ Allotted and fully paid: Ordinary shares of £0.01($0.0154) each 100 £ 1 $ 2 Redeemable shares of £0.01($0.0154) each 4,999,900 49,999 76,998 Total share capital £ 50,000 $ 77,000

Organization (Details)

Organization (Details) £ / shares in Units, $ / shares in Units, £ in Millions, $ in Millions	1 Months Ended
	Jun. 15, 2015USD ($)	Jun. 15, 2015GBP (£)£ / shares	Apr. 20, 2015$ / shares	Apr. 20, 2015£ / shares
Pending Pace Acquisition
Business Acquisition [Line Items]
Shareholding ownership percentage post business combination	24.00%	24.00%
Shareholding ownership value	$ 665.5	£ 438.4
Pending Pace Acquisition | Ordinary Shares
Business Acquisition [Line Items]
Cash consideration for each Pace ordinary share		£ 1.325
Shares consideration for each ordinary share	0.1455	0.1455
ARRIS
Business Acquisition [Line Items]
Cash consideration for each Pace ordinary share | (per share)			$ 1.49	£ 1
Shareholding ownership percentage post business combination	76.00%	76.00%
ARRIS | Ordinary Shares
Business Acquisition [Line Items]
Shares consideration for each ordinary share	1	1

Basis of Presentation and Sig15

Basis of Presentation and Significant Accounting Policies (Detail Textuals) $ in Thousands	Sep. 30, 2015USD ($)
Accounting Policies [Abstract]
Deferred financing costs	$ 10,871

Indebtedness (Details)

Indebtedness (Details) $ in Thousands	1 Months Ended
	Jun. 18, 2015USD ($)	Sep. 30, 2015USD ($)
Line of Credit Facility [Line Items]
Capitalized debt issuance costs		$ 10,871
Amended credit agreement
Line of Credit Facility [Line Items]
Minimum interest coverage ratio	3.50
Maximum leverage ratio	3.75
Scheduled decrease in leverage ratio	3.50
Term Loan A Facility | Amended credit agreement
Line of Credit Facility [Line Items]
Loan facility amount	$ 990,000
Amount of principal outstanding		1,521,438
Term Loan B Facility | Amended credit agreement
Line of Credit Facility [Line Items]
Loan facility amount	543,813
Amount of principal outstanding		1,521,438
Revolving Credit Facility | Amended credit agreement
Line of Credit Facility [Line Items]
Loan facility amount	500,000
Term Loan A-1 Facility | Amended credit agreement
Line of Credit Facility [Line Items]
Loan facility amount	$ 800,000
Maturity date of loan facility	Jun. 18, 2020
Interest rate description	LIBOR plus 175 basis points
Debt financing commitment fee	50 basis points
Capitalized debt issuance costs	$ 10,871
Letters of credit | Amended credit agreement
Line of Credit Facility [Line Items]
Amount of principal outstanding		$ 2,391

Share Capital (Details)

Share Capital (Details)	1 Months Ended	5 Months Ended
	Aug. 28, 2015shares	Sep. 30, 2015USD ($)shares	Sep. 30, 2015GBP (£)shares	Sep. 30, 2015GBP (£)shares
Allotted and fully paid:
Total share capital | $		$ 13,211,000
ARRIS Beneficial Interest
Allotted and fully paid:
Ordinary shares	100	100		100
Redeemable shares	4,999,900	4,999,900	4,999,900
Ordinary shares, value		$ 2		£ 1
Redeemable shares, value		76,998	£ 49,999
Total share capital		$ 77,000		£ 50,000

Share Capital (Details) (Parent

Share Capital (Details) (Parentheticals) - ARRIS Beneficial Interest	1 Months Ended	5 Months Ended
	Aug. 28, 2015$ / shares£ / shares	Sep. 30, 2015$ / shares	Sep. 30, 2015$ / shares£ / shares	Sep. 30, 2015£ / shares	Aug. 28, 2015£ / shares
Schedule of Capitalization, Equity [Line Items]
Par value of subdivided ordinary shares | (per share)	$ 0.015	$ 0.0154	$ 0.0154	£ 0.01	£ 0.01
Par value of redeemable stock | (per share)	$ 0.01	$ 0.0154	$ 0.01

Share Capital (Detail Textuals)

Share Capital (Detail Textuals) - Beneficial Interest £ / shares in Units, $ / shares in Units, $ in Thousands	1 Months Ended		5 Months Ended
	Aug. 28, 2015$ / sharesshares	Aug. 28, 2015£ / sharesshares	Sep. 30, 2015USD ($)$ / sharesshares	Sep. 30, 2015GBP (£)£ / sharesshares	Apr. 20, 2015$ / sharesshares	Apr. 20, 2015£ / sharesshares
Schedule of Capitalization, Equity [Line Items]
Number of initial invested shares					1	1
Cost of initial invested shares | (per share)					$ 1.49	£ 1
Subdivided ordinary stock, shares issued	100	100		100
Par value of subdivided ordinary shares | (per share)	$ 0.015	£ 0.01	$ 0.0154	£ 0.01
Number of redeemable shares, shares issued	4,999,900	4,999,900	4,999,900
Par value of redeemable shares | (per share)		£ 0.01	$ 0.0154	£ 0.01
Nominal value of redeemable shares | £				£ 50,000
Costs related to future issuance of ordinary shares | $			$ 2,340

Related Party Transactions (Det

Related Party Transactions (Details) $ in Thousands	5 Months Ended
	Sep. 30, 2015USD ($)
Related Party Transaction [Line Items]
Capital contributions	$ 13,890
ARRIS
Related Party Transaction [Line Items]
Capital contributions	$ 13,890

Income Taxes (Details)

Income Taxes (Details)	5 Months Ended
	Sep. 30, 2015
Income Tax Disclosure [Abstract]
Statutory corporate income tax rate	20.00%