EXHIBIT 99.4
INDEX TO INTERIM FINANCIAL STATEMENTS
Interim Financial Statements
Balance Sheets as of June 30, 2001 (unaudited) and December 31, 2000......1
Statements of Operations for the six month periods ended
June 30, 2001 and 2000 (unaudited). .............................2
Statements of Cash Flows for the six month periods ended
June 30, 2001 and 2000 (unaudited)...............................3
Notes to Interim Financial Statements.....................................4
ARRIS INTERACTIVE L.L.C.
BALANCE SHEETS
(IN THOUSANDS)
ASSETS June 30, 2001 DECEMBER 31, 2000
------------- -----------------
(UNAUDITED)
Current Assets:
Cash and cash equivalents ............................... $ 6,193 $ 15,783
Trade accounts receivable:
ANTEC ................................................ 112,543 84,465
Nortel Networks ...................................... 18,552 65,415
Other, net of allowance for doubtful accounts
of $1,580 and $1,958, respectively ................ 4,166 13,820
Inventories ............................................. 78,247 62,251
Prepaid expenses ........................................ 659 484
Note receivable - Nortel Networks ....................... 700 700
--------- ---------
221,060 242,918
Property, Plant and Equipment - net ......................... 24,924 26,445
Note Receivable - Nortel Networks, net of current portion ... 631 579
--------- ---------
$ 246,615 $ 269,942
========= =========
LIABILITIES AND MEMBERS' CAPITAL DEFICIENCY
Current Liabilities:
Trade accounts payable:
Nortel Networks ...................................... $ 113,836 $ 75,359
ANTEC ................................................ 550 1,015
Other ................................................ 19,308 61,845
Employee compensation ................................... 9,282 15,758
Other accrued liabilities ............................... 10,227 9,723
--------- ---------
153,203 163,700
Long Term Liabilities:
Notes payable
Nortel Networks ...................................... 152,365 124,637
ANTEC ................................................ 1,799 1,799
Employee compensation - net of current portion .......... 5,103 8,663
--------- ---------
159,267 135,099
Members' Capital Deficiency:
Paid-in Capital ......................................... 103,332 103,332
Accumulated deficit ..................................... (169,187) (132,189)
--------- ---------
(65,855) (28,857)
--------- ---------
$ 246,615 $ 269,942
========= =========
See notes to financial statements.
1
ARRIS INTERACTIVE L.L.C.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
June 30,
-----------------------------
2001 2000
--------- ---------
Revenue
ANTEC ................................ $ 107,282 $ 123,199
Nortel Networks ...................... 34,034 130,327
Trade ................................ 299 277
--------- ---------
Total Revenue ............................. 141,615 253,803
Cost of revenues
ANTEC ................................ 100,441 84,487
Nortel Networks ...................... 27,656 95,586
Trade ................................ 226 190
--------- ---------
Total cost of revenue ..................... 128,323 180,263
--------- ---------
Gross profit ......................... 13,292 73,540
Operating expenses:
Selling and marketing expense ........ 4,977 5,995
General and administrative expense ... 7,454 5,359
Research and development expense ..... 32,885 35,691
--------- ---------
Total operating expenses .................. 45,316 47,045
--------- ---------
Operating (loss) income ................... (32,024) 26,495
Interest income ........................... 681 1,175
Interest expense .......................... (5,655) (4,840)
--------- ---------
Net (loss) income ......................... $ (36,998) $ 22,830
========= =========
See notes to financial statements.
2
ARRIS INTERACTIVE L.L.C.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
----------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income ..................................................... $(36,998) $ 22,830
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Depreciation and amortization ..................................... 5,240 3,354
Long-term employee compensation ................................... (3,560) 715
Noncash interest expense .......................................... 5,655 4,839
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable ........................ 28,439 (40,446)
Increase in inventories ........................................... (15,996) (15,575)
Decrease (increase) in prepaids and other assets .................. (175) (645)
Increase in notes receivable ...................................... (52) (75)
Increase (decrease) in accounts payable and accrued liabilities ... 3,576 36,405
-------- --------
Net cash (used in) provided by operating activities ............... (13,871) 11,402
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment ........................... (3,719) (8,656)
-------- --------
Net cash used in investing activities ............................. (3,719) (8,656)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal borrowings on notes payable ................................ 8,000 --
-------- --------
Net cash provided by financing activities ......................... 8,000 --
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ..................... (9,590) 2,746
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......................... 15,783 23,896
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................... $ 6,193 $ 26,642
======== ========
The Company did not make any payments during 2001 and 2000 for interest and
income taxes.
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the six months ended June 30, 2001, the Company converted $14,073 of
royalties payable to Nortel Networks to an interest-bearing note payable to
Nortel Networks.
See notes to financial statements.
3
ARRIS INTERACTIVE L.L.C.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS FOR THE PERIODS ENDED
JUNE 30, 2001 AND 2000 (UNAUDITED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
ORGANIZATION - Arris Interactive L.L.C. (the "Company") was established on
November 9, 1995 under a Limited Liability Company Agreement("LLCA") by and
between Nortel Networks LLC (which along with Nortel Networks Corporation and
Nortel Networks Inc. are referred to herein as "Nortel Networks") and ANTEC
Corporation ("ANTEC") (collectively, the ("Members"). The Company's legal
formation as a limited liability company precludes the issuance of stock and its
capital structure more closely resembles that of a partnership. As such, all of
the Company's earnings and losses flow to the Members. Upon the Company's
formation, its Members contributed cash of $100,000; $75,000 from Nortel
Networks and $25,000 from ANTEC, which resulted in an initial ownership interest
in the Company of 75% by Nortel Networks and 25% by ANTEC.
The allocation of profit and loss and cash flows of the Company is defined in
its limited liability agreement. This agreement generally results in a sharing
of ongoing working capital requirements and profit and loss based on initial
membership interests up until March 31, 1999 and adjusted thereafter to reflect
Nortel Networks' contribution of LANcity to Arris for an increase from 75% to
81.25% of members capital deficiency.
DESCRIPTION OF BUSINESS - The Company was founded as a joint venture to develop
products for delivering voice, video and data services over hybrid fiber coax
("HFC") networks. The Company's principal products are marketed and sold under
the brand name Cornerstone and are sold through the Members. ANTEC is the
exclusive channel for Cornerstone to top multiple system operators ("MSO") in
the United States. Nortel Networks is the exclusive channel for Cornerstone to
telephone companies and other operators in North America and to the
international market.
From November 1995 through July 1997, the Company had two separate product lines
operating in one business segment, Digital Video and Cornerstone, both of which
did business domestically and internationally. On August 1, 1997, substantially
all of the assets used to produce the Digital Video product were sold to an
unrelated third party.
BASIS OF PRESENTATION - The unaudited financial statements as of and for the six
months ended June 30, 2001 and 2000 have been prepared by the Company pursuant
to the rules and regulations of the Securities and Exchange Commission and on
the same basis as the audited financial statements of the Company. In the
opinion of management, these financial statements include all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of its financial position, operating results and cash flows for the interim
periods presented. The results of operations for the six months ended June 30,
2001 are not necessarily indicative of results to be expected for the full
calendar year 2001 or any future period.
2. INVENTORIES
Inventories consist of the following (in thousands):
June 30,
2001 December 31,
(Unaudited) 2000
----------- -----------
Raw materials $23,880 $30,157
Finished goods 54,367 32,094
------- -------
$78,247 $62,251
======= =======
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3. RELATED PARTY TRANSACTIONS
In November 1995, the Company was formed as a joint venture between Nortel
Networks and ANTEC and much of the Company's operations are subject to the
various agreements related to or contained in the LLCA. The Company's
Cornerstone product line is sold exclusively through the Members. At June 30,
2001 (unaudited) and December 31, 2000, all of the receivables due from the
Members were related to Cornerstone product sales. The Company's cash
requirements are exclusively provided by the Members.
As a result of the relationship with the Members, the Company has been able to
obtain favorable terms with respect to a number of its business transactions
including, but not limited to, employee benefit plans, capital and operating
leases, and vendor pricing. The Company was not able to obtain such favorable
terms without the Members. Some of these business transactions were in the form
of allocated charges from the Members as described below. Management believes
that the allocations were made on a reasonable basis; however, the allocations
are not necessarily indicative of the level of expense that would have been
incurred had the Company contracted with outside parties. In many cases,
management did not make a study or any attempt to obtain quotations from third
parties to determine what costs of obtaining such services from third parties
would have been. All costs and expenses incurred by the Members on behalf of the
Company have been reflected in the financial statements.
COST OF REVENUES - The Company purchases certain components from the Members
which are used in the manufacture of the Cornerstone products. In addition, the
Company has contracted with Nortel Networks to manufacture some of its finished
goods. The following table represents the Company's purchases included in cost
of revenues by vendor (in thousands):
Six Months Ended
June 30,
--------------------------
2001 2000
-------- --------
(Unaudited)
Nortel Networks $ 1,089 $ 64,537
ANTEC 35 3,328
Other 127,199 112,398
-------- --------
Total $128,323 $180,263
======== ========
ROYALTIES AND LICENSES - As part of the LLCA, the Company entered into
nontransferable, nonexclusive licensing agreements with each of its Members for
a period of 10 years.
The license agreement with Nortel Networks provides for royalty payments to
Nortel Networks of 5% of the defined royalty base for sales of Cornerstone
products, as defined. The royalty base is defined as the sales price received by
the Company less amounts paid to Nortel Networks for the manufacturing of the
Cornerstone products. The royalty applies to the full sales price for
Cornerstone products manufactured at non-Nortel Networks facilities. For the six
months ended June 30, 2001 and 2000 (unaudited), the Company incurred royalty
expense of $6,904 and $11,180, respectively.
5
3. RELATED PARTY TRANSACTIONS (CONTINUED)
SELLING, GENERAL AND ADMINISTRATIVE - The Company contracts with its Members
whereby the Members provide certain general and administrative services. These
charges are allocated to the Company using procedures deemed appropriate for the
nature of the expenses involved. The procedures utilized various allocation
bases such as facility square footage, number of employees, net sales and direct
effort expended and/or actual costs incurred. The following table represents the
Company's general and administrative expenses by provider (in thousands):
Six Months Ended
June 30,
------------------------
2001 2000
------- -------
(Unaudited)
Nortel Networks $ 5,210 $ 4,056
ANTEC -- --
Other 7,221 7,298
------- -------
Total $12,431 $11,354
======= =======
RESEARCH AND DEVELOPMENT - The Company contracts with its Members whereby the
Members provide certain research and development services. The charges are
determined using a rate per head per hour. That rate includes salaries, benefits
and overhead. The following table represents the Company's research and
development expenses by provider (in thousands):
Six Months Ended
June 30,
-------------------------
2001 2000
------ -------
(Unaudited)
Nortel Networks $ 3,779 $ 4,976
ANTEC 201 1,345
Other 28,905 29,370
------- -------
Total $32,885 $35,691
======= =======
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4. SALES AND BUSINESS SEGMENT INFORMATION
Sales of Cornerstone products are covered under separate distribution agreements
entered into between the Company and each of its Members, which expire upon the
earlier of December 31, 2005 or termination of the LLCA in accordance with LLCA
provisions. The agreements provide a nontransferable, exclusive right to the
Members to sell and distribute the Cornerstone suite of products. The agreements
also set forth, among other things, sales levels, products, pricing, and
customers.
The Company operates in one reportable business segment to develop products for
delivering voice, video and data services over the HFC networks. The Company's
headquarters and its operations are principally located in the United States.
The Company's research and development activities are conducted in the United
States. The Company conducts its sales, marketing and customer services
activities throughout the world. Geographic long-lived asset information is
based on the physical location of the assets at the end of each period.
Geographic revenue information is based on the location of the end customer.
The following table sets forth the Company's identifiable, long-lived assets
(principally property, plant and equipment) by geographic area (in thousands):
June 30, 2001 DECEMBER 31, 2000
-------------- -----------------
(UNAUDITED)
United States $ 21,655 $ 22,632
Canada 22 28
Japan 91 108
Malaysia 24 34
Mexico 563 648
Philippines 2,569 2,995
-------- -------
Total $ 24,924 $26,445
======== =======
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4. SALES AND BUSINESS SEGMENT INFORMATION (CONTINUED)
The following table sets forth the Company's sales by geographic area (in
thousands):
SIX MONTHS ENDED JUNE 30,
2001 2000
--------------------------------- ---------------------------------
UNITED UNITED
INT'L STATES TOTAL INT'L STATES TOTAL
------- -------- -------- ------- -------- --------
Cornerstone ANTEC $ -- $107,282 $107,282 $ -- $123,199 $123,199
Cornerstone Nortel 30,443 3,591 34,034 99,663 30,664 130,327
Other -- 299 299 -- 277 277
------- -------- -------- ------- -------- --------
Total $30,443 $111,172 $141,615 $99,663 $154,140 $253,803
======= ======== ======== ======= ======== ========
(1) The breakdown between international and U.S. Cornerstone sales
to Nortel Networks represents the Company's best estimates
based on the latest available information on the end
customers. Based on that information the Company believes the
international sales were primarily to VTR in Chile, Titus
Jupiter in Japan and UPC in Western Europe(Unaudited).
5. SUBSEQUENT EVENT
On August 3, 2001, ANTEC completed the acquisition of Nortel Networks L.L.C.'s
interest in exchange for 37 million shares of ANTEC's common stock.
8