EXHIBIT 99
FOR IMMEDIATE RELEASE CONTACT: Jim Bauer
Investor Relations
(678) 473-2647
jim.bauer@arrisi.com
ARRIS ANNOUNCES FOURTH QUARTER
AND FULL YEAR 2003 RESULTS AND
PLANS FOR PARTIAL NOTE REDEMPTION
DULUTH, GA. (FEBRUARY 3, 2004) ARRIS (NASDAQ:ARRS), a global telecommunications
technology leader, today announced financial results for the fourth quarter and
full year 2003.
FINANCIAL HIGHLIGHTS:
- Revenues for the fourth quarter of 2003 were up 13%
sequentially to $127.8 million.
- Net income (loss) per share for the fourth quarter was
$(0.11). Excluding the items detailed below (a non-GAAP
measure), net income (loss) per share for the fourth quarter
was $0.07.
- Gross margin improved by approximately 500 basis points from
the third quarter to 33.2%.
- Cash on hand at the end of the quarter was $84.9 million.
Approximately $26.8 million of cash was generated from
operating activities in the fourth quarter.
- During the quarter the Company terminated its line of bank
credit and ended 2003 with no short-term bank debt.
FINANCIAL DETAILS:
Revenues for the fourth quarter were $127.8 million, up $14.7 million from the
third quarter, representing the third quarter of sequential revenue growth for
the Company. Revenues for the full year 2003 were $434.0 million down $217.9
million from the 2002 level of $651.9 million. Broadband product revenues were
$87.3 million in the fourth quarter up 16.4% from the third quarter 2003 level
of $75.0 million. Supplies product revenues were $40.5 million in the fourth
quarter, up 6.3% compared to $38.1 million in the third quarter of 2003.
International sales were $28.1 million in the fourth quarter, as compared to
$17.5 million in the third quarter 2003. Sales to Comcast were $41.0 million in
the fourth quarter, as compared to $35.8 million in the third quarter 2003.
Backlog at the end of the fourth quarter was $53.0 million compared to $59.6
million at the end of the third quarter 2003. Bookings in the fourth quarter
were $121.2 million as compared to $128.0 million in the third quarter 2003. The
book-to-bill ratio in the fourth quarter was approximately 0.95, compared to
1.13 in the third quarter 2003.
On a U.S. GAAP basis, net income (loss) was $(8.4) million or $(0.11) per share
in the fourth quarter and was improved from the third quarter level of $(14.6)
million, or $(0.19) per share. Included in the fourth quarter net income (loss)
per share are: 1) amortization of intangibles of $(0.12), 2) the write-off of
unamortized fees related to its loan facility that was cancelled in the fourth
quarter of $(0.03), 3) estimated litigation damages with respect to patent
infringement judgments of $(0.04), 4) the write-down to market of certain
investments, an early termination fee related to a building lease, and severance
costs totaling $(0.01), and 5) a gain related to the partial realization of its
outstanding receivables from Cabovisao of $0.02. Excluding these items the net
income (loss) in the fourth quarter was $0.07 per share. On a U.S. GAAP basis,
net income (loss) for the full year 2003 was $(47.3) million, or $(0.62) per
share and compares to $(191.2) million or $(2.33) per share in 2002.
Gross margin of 33.2% was up approximately 500 basis points over third quarter
2003 gross margin of 28.2% as the result of higher volume, favorable product
mix, and the implementation of product cost reductions.
Operating expenses (excluding amortization of intangibles) were $36.6 million
for the quarter, and included $3.0 million of litigation damages, $1.0 million
of restructuring, severance, lease termination costs, and a $1.5 million gain
related to the sale of its Cabovisao accounts receivable. Excluding these items,
operating expenses were $34.1 million in the fourth quarter. Operating expenses
(excluding amortization of intangibles) in the third quarter were $35.1
million, which included $2.8 million of charges related to severance and the
divestiture of the ESP product line. Excluding these items operating expenses
were $32.3 million in the third quarter. The Company continues to take various
actions to reduce its breakeven point.
The Company ended 2003 with approximately $84.9 million of cash on hand, up from
the third quarter level of $60.0 million. Approximately $26.8 million of cash
was generated from operating activities in the fourth quarter, including $10.1
million received from the settlement of its accounts receivable with Cabovisao.
Inventory levels and turns for the fourth quarter were $78.6 million and 3.9,
respectively, which improved from the third quarter of $95.0 million and 3.2.
Accounts receivable ended the fourth quarter at $56.3 million with DSO of 42,
and compares to $61.6 million and DSO of 47 at the end of the third quarter. The
Company ended the year with no short-term bank debt and terminated its revolving
credit facility in the fourth quarter.
"Our strong performance during the fourth quarter of 2003 appears to be a
precursor to increasing demand from our customers in response to the growing
competition in their markets and their need for next generation high speed data
and cable telephony products from ARRIS," said Bob Stanzione, ARRIS Chairman &
CEO. He continued, "During the quarter we saw improved results
across all areas of our business for our CBR telephony, VoIP telephony, and
Supplies products. This demand was reflected both domestically and
internationally with specific strength among some of our customers in Asia. We
believe that the growing market demand for high speed data and voice over IP as
well as a new trend towards video over IP will continue to fuel future demand
for innovative ARRIS products."
The Company announced on December 17, 2003 that its new Cadant C3 CMTS was
awarded Euro-DOCSIS 1.1 Qualification in the ECW13 round of Euro-DOCSIS
Certification and joins their Cadant C4 and Cornerstone CMTS 1500 products which
had been previously qualified in earlier certification waves. The C3 not only
supports Euro-DOCSIS 1.1, but ATDMA and VPN as well and is well suited for
offering tiered data services in smaller hubs and private networking
applications. Of note is that in mid-December, Time Warner Communications
purchased 42 of the C3 CMTS units along with supporting software and support
packages for the products which will be deployed in Time Warner's Oceanic
operations in Hawaii.
ARRIS expects to mail on or after February 4, 2004 a notice to call for
redemption in March 2004, $50 million in principal amount of its 4-1/2%
Convertible Subordinated Notes due 2008 ("Called Notes"). The Called Notes were
originally issued on March 18, 2003 in the aggregate principal amount of $125
million. The Called Notes will be selected in accordance with the applicable
procedures of Depository Trust Company for partial redemptions. Prior to the
redemption date, holders may convert the Called Notes into shares of ARRIS
common stock at a price of $5.00 per share (200 shares per $1,000 principal
amount of Notes) rather than accept redemption. Upon redemption, ARRIS will pay
holders of the Called Notes that have not been converted into common stock
$1,000 per $1,000 principal amount of Notes plus accrued and unpaid interest. In
addition to this redemption price and in accordance with the terms of the
indenture governing the Notes, ARRIS will pay in shares of its common stock an
interest "make-whole" payment to all holders of the Called Notes on the date of
the redemption notice, including holders of the Called Notes who convert such
Notes prior to the redemption date.
This press release is not ARRIS' notice of redemption under the indenture
governing the Notes. ARRIS is not obligated to redeem the Notes or make the
interest make-whole payment to any holder until the notice of redemption is
mailed to holders of the Notes in accordance with the indenture.
Larry Margolis, ARRIS EVP & CFO, commented, "We are very encouraged by our
fourth quarter results. We now project that our revenues for the first quarter
of 2004 will be in the range of $110 to $120 million with net income (loss) per
share, on a U.S. GAAP basis, in the range of $(0.25) to $(0.20) inclusive of
amortization of intangibles of $(0.12), lease termination and other costs of
approximately $(0.08) associated with the consolidation of
Atlanta facilities planned for the first quarter, and $(0.05) for the make-whole
payment associated with the Note redemption. Our first quarter weighted average
share base is expected to be approximately 78.4 million shares, which assumes
the $50 million of Notes are converted into shares. Our guidance for the first
quarter of 2004 is down somewhat sequentially as compared to the fourth quarter
of 2003 results, reflecting the usual seasonality of the first quarter plus the
fact that approximately $6 million of shipments that we had anticipated in the
first quarter were shipped in the fourth quarter. We still see 2004 as the year
when we return to profitability, excluding amortization of intangibles."
ARRIS management will conduct a conference call at 8:30am EST on Wednesday,
February 4, 2004 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 6:30pm EST release on February 3, 2004 and the completion of
the scheduled conference call on February 4, 2004. A replay of the conference
call can be accessed through Monday, February 9, 2004 by dialing (877) 519-4471
and using the PIN#4410561. 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:
Statements made in this press release, including those related to:
- first quarter 2004 revenues and earnings;
- full year 2004 earnings and return to profitability;
- the general market outlook and acceptance of ARRIS products;
- the timing of improvements in industry conditions, including
future demand; and
- the intention to partially redeem the Notes
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 first quarter of 2004 as well as the
general outlook for 2004 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;
- 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; and
- ARRIS' common stock price could decrease substantially,
affecting ARRIS' decision to call the Notes for redemption.
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)
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31
2003 2003 2003 2003 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ------------ ----------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 84,882 $ 59,981 $ 67,217 $ 76,543 $ 98,409
Accounts receivable, net 56,344 61,345 54,942 69,264 78,743
Accounts receivable from Nortel -- 282 215 289 2,212
Other receivables 1,280 1,410 1,289 1,919 3,154
Inventories 78,562 95,009 105,980 104,331 104,203
Investment held for resale -- -- 103 160 137
Other current assets 14,035 10,584 9,643 12,198 13,132
--------- --------- --------- --------- ---------
Total current assets 235,103 228,611 239,389 264,704 299,990
Property, plant and equipment, net 25,376 27,177 28,093 30,210 34,540
Goodwill 150,569 150,569 150,569 151,253 151,265
Intangibles 30,362 41,144 48,054 56,794 64,843
Investments 5,504 5,296 5,989 7,333 6,296
Other assets 4,945 8,895 9,723 11,702 6,478
--------- --------- --------- --------- ---------
$ 451,859 $ 461,692 $ 481,817 $ 521,996 $ 563,412
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,293 $ 25,752 $ 28,807 $ 29,343 $ 24,253
Accrued compensation, benefits and related taxes 4,267 4,310 4,657 5,098 12,081
Accounts payable and accrued expenses - Nortel 96 140 427 540 11,303
Current portion of long-term debt 1,073 1,060 184 11,755 23,887
Current portion of capital lease obligations 14 22 1,171 1,415 1,120
Other accrued liabilities 34,683 36,335 39,828 39,513 44,360
--------- --------- --------- --------- ---------
Total current liabilities 64,426 67,619 75,074 87,664 117,004
Capital lease obligations, net of current portion -- -- 139 337 158
Long-term debt 125,092 125,365 125,000 125,028 --
Other long-term liabilities 12,960 12,637 12,530 11,816 11,342
--------- --------- --------- --------- ---------
Total liabilities 202,478 205,621 212,743 224,845 128,504
Membership interest - Nortel -- -- -- -- 114,518
--------- --------- --------- --------- ---------
Total liabilities & membership interest 202,478 205,621 212,743 224,845 243,022
Stockholders' equity:
Preferred stock -- -- -- -- --
Common stock 773 774 757 758 831
Capital in excess of par value 586,008 586,107 577,592 578,397 603,563
Unearned compensation (8,104) (9,362) (2,397) (3,328) (1,649)
Unrealized holding gain (loss) on marketable securities 771 132 90 445 227
Unfunded pension losses (1,293) (1,219) (1,219) (1,219) (1,219)
Retained earnings (328,642) (320,245) (305,652) (277,883) (281,329)
Cumulative translation adjustments (132) (116) (97) (19) (34)
--------- --------- --------- --------- ---------
Total stockholders' equity 249,381 256,071 269,074 297,151 320,390
--------- --------- --------- --------- ---------
$ 451,859 $ 461,692 $ 481,817 $ 521,996 $ 563,412
========= ========= ========= ========= =========
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
-------------------------- -------------------------
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- -------------------------
2003 2002 2003 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED)
--------- --------- --------- ---------
Net sales $ 127,822 $ 122,407 $ 433,986 $ 651,883
Cost of sales 85,333 79,682 307,726 425,231
--------- --------- --------- ---------
Gross profit 42,489 42,725 126,260 226,652
Operating expenses:
Selling, general, administrative and development 36,001 39,023 151,980 200,574
Restructuring and impairment charges 555 7,113 891 7,113
Impairment of goodwill -- 70,209 -- 70,209
Amortization of intangibles 8,965 8,708 35,249 34,494
--------- --------- --------- ---------
45,521 125,053 188,120 312,390
--------- --------- --------- ---------
Operating profit (loss) (3,032) (82,328) (61,860) (85,738)
Interest expense 2,908 1,859 10,443 8,383
Membership interest -- 2,750 2,418 10,409
Loss (gain) on debt retirement 2,342 (1,974) (26,164) 7,302
Loss (gain) on investments 441 12,423 1,436 14,894
Other (income) expense, net 25 (1,669) (2,329) (5,513)
--------- --------- --------- ---------
Income (loss) from continuing operations before income taxes (8,748) (95,717) (47,664) (121,213)
Income tax expense (benefit) -- -- -- (6,800)
--------- --------- --------- ---------
Net income (loss) from continuing operations (8,748) (95,717) (47,664) (114,413)
Discontinued Operations:
Income (loss) from discontinued operations 351 1,671 351 (18,794)
Income tax expense (benefit) -- -- -- --
--------- --------- --------- ---------
Gain (loss) from discontinued operations 351 1,671 351 (18,794)
--------- --------- --------- ---------
Net income (loss) before cumulative effect of an accounting change (8,397) (94,046) (47,313) (133,207)
Cumulative effect of an accounting change - goodwill -- -- -- 57,960
--------- --------- --------- ---------
Net income (loss) $ (8,397) $ (94,046) $ (47,313) $(191,167)
========= ========= ========= =========
Net income (loss) per common share
Basic: Income (loss) from continuing operations $ (0.12) $ (1.16) $ (0.62) $ (1.40)
Income (loss) from discontinued operations -- 0.02 -- (0.23)
Cumulative effect of an accounting change -- -- -- (0.71)
--------- --------- --------- ---------
Basic: Net income (loss) $ (0.11) $ (1.14) $ (0.62) $ (2.33)
========= ========= ========= =========
Diluted: Income (loss) from continuing operations $ (0.12) $ (1.16) $ (0.62) $ (1.40)
Income (loss) from discontinued operations -- 0.02 -- (0.23)
Cumulative effect of an accounting change -- -- -- (0.71)
--------- --------- --------- ---------
Diluted: Net income (loss) $ (0.11) $ (1.14) $ (0.62) $ (2.33)
========= ========= ========= =========
Weighted average common shares
Basic 75,363 82,666 76,839 81,934
========= ========= ========= =========
Diluted 75,363 82,666 76,839 81,934
========= ========= ========= =========
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE THREE MONTHS FOR THE TWELVE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
2003 2002 2003 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------
OPERATING ACTIVITIES:
Net income (loss) $ (8,397) $ (94,046) $ (47,313) $(191,167)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 2,928 4,741 16,145 20,400
Amortization of intangibles 8,965 8,708 35,249 34,494
Amortization of unearned compensation 1,116 546 3,370 1,850
Amortization of deferred finance fees 1,250 893 4,621 2,859
Write-off of deferred finance fees 2,342 -- 2,342 --
Provision for doubtful accounts 46 2,678 7,906 29,744
Gain on sale of Cabovisao receivables (1,477) -- (1,477) --
Loss on disposal of fixed assets 241 5 252 322
Loss (gain) on investments 441 12,423 1,436 14,894
Cash proceeds from sale of trading securities -- -- 226 60
Loss (gain) on debt retirement -- (1,974) (28,506) 7,302
Loss (gain) on sale of ESP product line (8) -- 1,365 --
Loss (gain) on sale of discontinued product lines -- (4,577) (2,000) 3,959
Impairment of goodwill -- 70,209 -- 70,209
Cumulative effect of an accounting change - goodwill -- -- -- 57,960
Changes in operating assets & liabilities, net of effects of
acquisitions and disposals:
Sales of Cabovisao accounts receivable 8,321 -- 8,321 --
Accounts receivable (1,607) 51,715 8,671 26,422
Other receivables 130 612 1,874 6,895
Inventory 16,447 12,331 26,210 53,431
A/P & accrued liabilities (820) (24,446) (22,670) (39,745)
Income taxes recoverable -- -- -- 5,066
Accrued membership interest -- 2,750 2,418 10,409
Other, net (3,119) 8,725 (3,708) 2,028
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 26,799 51,293 14,732 117,392
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (1,703) (1,391) (5,916) (7,923)
Cash proceeds from sale of Keptel product line -- -- -- 30,000
Cash proceeds from sale of Actives product line -- 30,000 1,800 30,000
Cash paid for acquisition -- -- (2,842) (874)
Cash paid for disposal of ESP product line -- -- (231) --
Other -- (50) 26 (50)
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,703) 28,559 (7,163) 51,153
FINANCING ACTIVITIES:
Proceeds from issuance of debt -- -- 126,597 --
Redemption of preferred membership interest -- -- (88,430) --
Repurchase and retirement of common stock -- (115) (28,000) (115)
Payments on capital lease obligations (8) (253) (2,130) (903)
Payments on debt obligations (260) (73,737) (24,585) (73,737)
Deferred finance costs paid -- (1,375) (5,797) (1,725)
Proceeds from issuance of stock 73 -- 1,249 1,007
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (195) (75,480) (21,096) (75,473)
NET INCREASE IN CASH AND CASH EQUIVALENTS 24,901 4,372 (13,527) 93,072
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 59,981 94,037 98,409 5,337
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 84,882 $ 98,409 $ 84,882 $ 98,409
========= ========= ========= =========
ARRIS GROUP, INC.
SUPPLEMENTAL EARNINGS RECONCILIATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
------------------------------------ -------------------------------------
THREE MONTHS ENDED DECEMBER 31, 2003 TWELVE MONTHS ENDED DECEMBER 31, 2003
------------------------------------ -------------------------------------
PER DILUTED PER DILUTED
AMOUNT SHARE AMOUNT SHARE
------------- ------------ ------------- -----------
Net income (loss) $ (8,397) $ (0.11) $ (47,313) $ (0.62)
Highlighted items:
Amortization of intangibles 8,965 0.12 35,249 0.46
Loss (gain) on debt retirement 2,342 0.03 (26,164) (0.34)
Patent litigation damages 3,030 0.04 3,030 0.04
Severance related to workforce reduction 407 0.01 3,321 0.04
Early termination fee associated with lease 184 -- 184 --
Loss (gain) on sale of ESP product line (8) -- 1,365 0.02
Allowance for Cabovisao receivable -- -- 6,400 0.08
Gain related to sale of Cabovisao receivable (1,477) (0.02) (1,477) (0.02)
Write-off of customer relationship software -- -- 2,243 0.03
Loss on investments 441 0.01 1,436 0.02
Total highlighted items 13,884 0.18 25,587 0.33
-------- ---------- ---------- ----------
Net income (loss) excluding highlighted items $ 5,487 $ 0.07 $ (21,726) $ (0.28)
======== ========== ========== ==========
Weighted average common shares - diluted 75,363 76,839
========== ==========
ARRIS believes that presenting net income (loss) and earnings per share amounts
adjusted for the events described above provides meaningful information which
will allow investors to more easily compare ARRIS' financial performance period
to period. Therefore, ARRIS will continue to provide similar information in the
future with full schedules reconciling the differences between GAAP and non-GAAP
financial measures. As used herein, "GAAP" refers to accounting principles
generally accepted in the United States.