EXHIBIT 99.1
FOR IMMEDIATE RELEASE CONTACT: Jim Bauer
Investor Relations
(678) 473-2647
jim.bauer@arrisi.com
ARRIS ANNOUNCES FIRST QUARTER 2003 FINANCIAL
RESULTS AND BALANCE SHEET IMPROVEMENTS
DULUTH, GA. (APRIL 23, 2003) ARRIS (NASDAQ:ARRS), a global telecommunications
technology leader, today announced financial results for the first quarter 2003
that were in line with the Company's previously provided guidance range for the
quarter.
FINANCIAL HIGHLIGHTS:
- Revenue in the first quarter was $91.3 million.
- Net income per share for the first quarter was $0.04 which
includes: amortization of intangibles, a gain from the
repurchase of Nortel Networks' membership interest at a
discount, and the write off of customer relations software.
Net income (loss) per share excluding these three items was
$(0.17) in the first quarter.
- Cash on hand at the end of the quarter was $76.5 million with
zero drawn on the revolving credit facility.
- Successfully completed $125 million, 4.5% convertible
subordinated note offering.
- $12.4 million of convertible notes were redeemed in the first
quarter, leaving a balance of $11.5 million, due May 2003.
- Backlog was $54.6 million at the end of the first quarter with
a book-to-bill ratio of 1.12 in the quarter.
FINANCIAL DETAILS:
First quarter revenues were $91.3 million, down from fourth quarter 2002
revenues of $122.4 million, reflecting the previously announced delay of
substantial amounts of product from the first quarter into the second quarter.
The delay was caused by previously disclosed manufacturing and component
availability issues, coupled with weather related events during the quarter.
On a GAAP basis, net income (loss) for the first quarter was $3.4 million or
$0.04 per share, as compared to $(1.14) per share in fourth quarter 2002 and
$(0.75) per share in first quarter 2002. The first quarter earnings include the
impact of two previously disclosed items: 1) a $28.5 million, or $0.34 per
share, gain realized from the repurchase of Nortel Networks' membership interest
in Arris
Interactive at a discount, 2) a $(2.2) million, or $(0.03) per share, write off
of customer relations software. Also included in the results is an $(8.7)
million, or $(0.10) per share, expense for the ongoing amortization of
intangibles. Excluding these items, net income (loss) was $(14.1) million or
$(0.17) per share in the first quarter of 2003.
Broadband product revenues were $61.6 million in the first quarter as compared
to the fourth quarter 2002 level of $79.1 million, reflecting the previously
disclosed delay of shipments of Broadband products at the end of the quarter.
Supplies & Services product revenues were $29.7 million, as compared to $43.3
million in fourth quarter 2002 due principally to weather related impacts
nationwide during the quarter. International sales were $18.7 million in the
quarter and compare to $26.3 million in fourth quarter 2002. Sales to
Comcast/AT&T Broadband were $23.8 million in the quarter and compare to $35.0
million in fourth quarter 2002. Backlog at the end of the first quarter was
$54.6 million compared to $43.8 million at the end of fourth quarter 2002.
Bookings in the first quarter were $102.2 million as compared to $110.3 million
in the fourth quarter 2002. The book-to-bill ratio was 1.12 in the first quarter
2003, compared to 0.90 in fourth quarter 2002.
Operating expenses (excluding amortization of intangibles and impairment of
goodwill) continue to be aggressively managed at $37.6 million for the quarter
which includes the $2.2 million write off of customer relations software. This
compares to $46.1 million in the fourth quarter of 2002, which included $7.1
million of restructuring and impairment charges. Excluding the aforementioned
items, operating expenses decreased by $4.0 million quarter over quarter from
$39.0 million in fourth quarter 2002 to $35.0 million in first quarter 2003.
The Company also highlighted the improvements that were made to its balance
sheet. During the quarter the Company issued $125.0 million of 4.5% convertible
notes due 2008. The proceeds were used to redeem, at a discount, the outstanding
$116.9 million balance of membership interest in Arris Interactive LLC that was
owned by Nortel Networks for $88.4 million, resulting in a $28.5 million gain.
In addition, the Company used a portion of the proceeds to repurchase 8 million
shares of ARRIS common stock, which were owned by Nortel Networks, for $3.50 per
share, or $28.0 million. The Company has an option through June 30, 2003 to buy
up to an additional 8 million ARRIS shares from Nortel Networks at a 10%
discount, subject to certain conditions. Also during the quarter, the Company
repurchased $12.4 million of its convertible notes due May 2003, leaving only
$11.5 million of the original $115.0 million outstanding.
The Company ended the first quarter with $76.5 million of cash on hand, down
$21.9 million from the fourth quarter 2002, and continues to have zero drawn on
its revolving credit facility. Major uses of cash in the quarter included the
$12.4 million redemption of notes and the payment to Nortel for agency fees,
accrued
during 2002, of $10.8 million. The Company used $12.4 million of cash for
operations in the quarter, including the payment of the agency fees.
The Company ended the first quarter with approximately $104.3 million of net
inventory, which was essentially flat to the fourth quarter 2002. Inventory
turns were 2.6 at the end of the first quarter as compared to 2.9 at the end of
the fourth quarter 2002. Trade accounts receivable were approximately $69.6
million at the end of the first quarter and compares to approximately $81.0
million at the end of the fourth quarter 2002. Included within the accounts
receivable balance is $19.5 million due from Cabovisao, a Portugal-based MSO. As
previously disclosed, Cabovisao and its parent company CSii are in the process
of restructuring their financing. The Company continues to monitor the progress
of the financing efforts by Cabovisao. DSO's were 75 days at the end of the
first quarter as compared to 72 days at the end of the fourth quarter 2002.
"Although we are disappointed by the confluence of events that delayed product
shipments at the end of the first quarter and the continuing tight capital
spending environment that our customers are enduring, we were pleased with the
growing acceptance of our next generation high speed data products," said Bob
Stanzione, ARRIS President & CEO. "The improvements in our balance sheet, the
outlook for resolution of internal problems that plagued some of our customers
in 2002 and our demonstrated market leadership in new technologies make me
cautiously optimistic about the second half of this year. We will continue to
aggressively invest in our future. For example, our recent acquisition of Atoga
Systems represents a step of a growth strategy that will position ARRIS to take
advantage of new markets and new customers." Stanzione continued, "We are also
quite pleased that our technology leadership has again been recognized. Earlier
this month ARRIS products did very well in Wave 25 of CableLabs(R) certification
cycle. Our Touchstone(TM) Cable Modem 450 was certified for both DOCSIS 2.0 and
1.1 and our C4 CMTS received PacketCable qualification. In addition, our
Touchstone Telephony Modem 202p was PacketCable 1.0 certified."
During the quarter, the Company announced that Insight Communications, the
nation's ninth largest cable operator, had placed an order for its
Touchstone(TM) CM 300 cable modems and that the Touchstone(TM) Telephony Modem
202P had been awarded "Product of the Year" by Internet Telephony magazine.
"Our balance sheet and operating expense control progress during the quarter has
been quite strong," said Larry Margolis, ARRIS EVP & CFO. "The success of our
$125.0 million convertible note offering during the quarter allowed us to redeem
at a significant discount 10% debt replacing it with 4.5% debt, to reduce our
outstanding share count, and gave us the financial flexibility to pursue future
growth strategies as appropriate. However, the market itself still has many
uncertainties that again make it imprudent to forecast financial results beyond
the current quarter. Therefore, we now believe that second quarter 2003 revenues
should be in the range of $130 million to $140 million. Net income (loss) per
share, based upon a share base of approximately 75 million shares, should be in
the range of $(0.11) to $(0.06) inclusive of amortization of intangibles, or
$0.00 to $0.05 excluding the amortization of intangibles."
ARRIS management will conduct a conference call at 8:30am EST on Thursday April
24, 2003 to discuss these results in detail. You may participate in this
conference call by dialing 877-691-0879 prior to the start of the call and
providing the ARRIS Group Inc. name and Jim Bauer as the moderator. Please note
that ARRIS will not accept any calls related to this earnings release during the
period between the 4:30pm EST release on April 23rd and the completion of the
scheduled conference call at 8:30am EST on April 24, 2003. A replay of the
conference call can be accessed by dialing 877-519-4471 and using the
PIN#3868423. A replay also will be made available for a period of 12 months
following the conference call on ARRIS website at www.arrisi.com.
ARRIS provides broadband local access networks with innovative next generation
high-speed data and telephony systems for the delivery of voice, video and data
to the home and business. ARRIS complete solutions enhance the reliability and
value of converged services from the network to the subscriber. Headquartered in
Duluth, Georgia, USA, ARRIS has design, engineering, distribution, service and
sales office locations throughout the world. Information about ARRIS' products
and services is found at www.arrisi.com.
Forward-looking statements:
Certain information and statements contained in this press release constitute
forward-looking statements with respect to the financial condition, results of
operations, and business of ARRIS. Statements that are based on current
expectations, estimates, forecasts, and projections about the markets in which
the Company operates and management's beliefs and assumptions regarding these
markets are forward-looking statements. The Company cautions that any
forward-looking statements made are not guarantees of future performance.
Statements made in this press release, including those related to:
- second quarter 2003 revenues and earnings;
- the general market outlook; and
- the timing of improvements in industry conditions
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 second quarter 2003 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; and
- several of the substantial participants in our industry,
including some of our customers are in a weakened financial
condition which could directly or indirectly cause a reduced
demand for our products or other unexpected consequences,
additionally, we cannot be certain if or when the general
uncertainty in our industry will stabilize or improve.
In addition to the factors set forth elsewhere in this release, other factors
that could cause results to differ from current expectations include: 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. 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.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
2003 2002 2002 2002 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
--------- --------- --------- --------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 76,543 $ 98,409 $ 94,037 $ 53,212 $ 27,357
Accounts receivable, net 69,264 78,743 132,418 143,073 125,081
Accounts receivable from Nortel 289 2,212 2,930 3,177 8,299
Other receivables 1,919 3,154 3,766 6,292 12,525
Inventories 104,331 104,203 113,874 122,550 122,626
Income taxes recoverable -- -- -- 12,629 12,853
Investment held for resale 160 137 83 225 581
Current assets - discontinued operations -- -- 22,830 26,190 51,665
Other current assets 14,647 14,834 18,905 21,057 23,857
--------- --------- --------- --------- ---------
Total current assets 267,153 301,692 388,843 388,405 384,844
Property, plant and equipment, net 30,210 34,540 40,528 42,510 44,399
Goodwill 151,253 151,265 222,507 223,561 223,301
Intangibles 56,794 64,843 74,318 83,026 97,734
Investments 4,885 4,594 12,387 12,593 14,079
Deferred income taxes, net -- -- -- -- --
Other assets 11,701 6,478 10,721 10,078 11,154
--------- --------- --------- --------- ---------
$ 521,996 $ 563,412 $ 749,304 $ 760,173 $ 775,511
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 29,343 $ 24,253 $ 43,383 $ 53,073 $ 41,806
Accrued compensation, benefits and related taxes 16,914 23,423 27,238 25,181 28,272
Accounts payable and accrued expenses - Nortel 540 11,303 13,095 19,643 13,042
Current portion of long-term debt 11,755 23,887 99,598 99,598 --
Current portion of capital lease obligations 1,415 1,120 1,142 1,163 1,122
Other accrued liabilities 39,513 44,360 41,037 44,619 45,219
--------- --------- --------- --------- ---------
Total current liabilities 99,480 128,346 225,493 243,277 129,461
Capital lease obligations, net of current portion 337 158 389 615 899
Long-term debt 125,028 -- -- -- 115,000
--------- --------- --------- --------- ---------
Total liabilities 224,845 128,504 225,882 243,892 245,360
Membership interest - Nortel -- 114,518 111,768 109,110 106,610
--------- --------- --------- --------- ---------
Total liabilities & membership interest 224,845 243,022 337,650 353,002 351,970
Stockholders' equity:
Preferred stock -- -- -- -- --
Common stock 758 831 830 828 807
Capital in excess of par value 578,397 603,563 603,639 603,109 578,829
Unearned compensation (3,328) (1,649) (2,010) (2,175) (2,618)
Unrealized holding gain (loss) on
marketable securities 445 227 (3,469) (3,656) (3,170)
Unfunded pension losses (1,219) (1,219) -- -- --
Retained earnings (277,883) (281,329) (187,283) (190,769) (150,056)
Cumulative translation adjustments (19) (34) (53) (166) (251)
--------- --------- --------- --------- ---------
Total stockholders' equity 297,151 320,390 411,654 407,171 423,541
--------- --------- --------- --------- ---------
$ 521,996 $ 563,412 $ 749,304 $ 760,173 $ 775,511
========= ========= ========= ========= =========
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
-------------------------------------
2003 2002
---------------- ---------------
Net sales $ 91,343 $ 172,397
Cost of sales 66,599 114,166
---------------- ---------------
Gross profit 24,744 58,231
Operating expenses:
Selling, general, administrative and development 37,240 47,183
Restructuring and impairment charges 336 --
Amortization of intangibles 8,708 8,370
---------------- ---------------
46,284 55,553
---------------- ---------------
Operating profit (loss) (21,540) 2,678
Interest expense 1,664 2,298
Membership interest 2,418 2,500
Loss (gain) on debt retirement (28,506) --
Loss (gain) on investments (23) 214
Other (income) expense, net (539) 1,023
---------------- ---------------
Income (loss) from continuing operations before income taxes 3,446 (3,357)
Income tax expense (benefit) -- (6,800)
---------------- ---------------
Net income (loss) from continuing operations 3,446 3,443
Discontinued Operations:
Income (loss) from discontinued operations -- (5,377)
Income tax expense (benefit) -- --
---------------- ---------------
Gain (loss) from discontinued operations -- (5,377)
---------------- ---------------
Net income (loss) before cumulative effect of an accounting change 3,446 (1,934)
Cumulative effect of an accounting change - goodwill -- 57,960
---------------- ---------------
Net income (loss) $ 3,446 $ (59,894)
================ ===============
Net income (loss) per common share
Basic: Income (loss) from continuing operations $ 0.04 $ 0.04
Income (loss) from discontinued operations -- (0.07)
Cumulative effect of an accounting change -- (0.72)
---------------- ---------------
Basic: Net income (loss) $ 0.04 $ (0.75)
================ ===============
Diluted: Income (loss) from continuing operations $ 0.04 $ 0.04
Income (loss) from discontinued operations -- (0.07)
Cumulative effect of an accounting change -- (0.72)
---------------- ---------------
Diluted: Net income (loss) $ 0.04 $ (0.75)
================ ===============
Weighted average common shares
Basic 82,068 80,258
================ ===============
Diluted 83,602 80,258
================ ===============
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
2003 2002
--------- --------
Operating Activities:
Net income (loss) $ 3,446 $ (1,934)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 6,165 5,564
Amortization of intangibles 8,708 8,370
Amortization of deferred finance fees 943 635
Amortization of unearned compensation 476 491
Provision for doubtful accounts 843 2,115
Loss (gain) on investments (23) 214
Gain on retirement of membership interest (28,506) --
Changes in operating assets & liabilities, net of effects of
acquisitions and disposals:
Accounts receivable 10,559 1,774
Other receivables 1,235 (2,476)
Inventory 203 21,797
A/P & accrued liabilities (17,153) 2,375
Income taxes recoverable -- (7,787)
Accrued membership interest 2,418 2,500
Other, net (1,728) (9,676)
--------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (12,414) 23,962
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (1,099) (1,105)
Cash paid for acquisition (24) (676)
--------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,123) (1,781)
FINANCING ACTIVITIES:
Proceeds from issuance of bonds 125,000 --
Redemption of preferred membership interest (88,430) --
Repurchase and retirement of common stock (28,000) --
Payments on capital lease obligations (392) (238)
Payments on debt obligations (12,370) --
Deferred finance costs paid (4,744) --
Proceeds from issuance of stock 607 77
--------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (8,329) (161)
NET INCREASE IN CASH AND CASH EQUIVALENTS (21,866) 22,020
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 98,409 5,337
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 76,543 $ 27,357
========= ========
ARRIS GROUP, INC.
SUPPLEMENTAL EARNINGS RECONCILIATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
----------------------------
THREE MONTHS ENDED MARCH 31,
----------------------------
PER DILUTED
AMOUNT SHARE
-------- --------
Net income $ 3,446 $ 0.04
Highlighted items:
Amortization of intangibles 8,708 0.10
Gain on retirement of membership interest (28,506) (0.34)
Write-off of customer relationship software 2,243 0.03
-------- --------
Total highlighted items (17,555) (0.21)
-------- --------
Net income excluding highlighted items $(14,109) $ (0.17)
======== ========
Weighted average common shares - diluted 83,602
========