ARRIS Announces Preliminary And Unaudited Third Quarter 2014 Results

October 29, 2014 America/New_York

SUWANEE, Ga., Oct. 29, 2014 /PRNewswire/ -- ARRIS Group, Inc. (NASDAQ: ARRS), today announced preliminary and unaudited financial results for the third quarter 2014.

Financial Highlights

  • Revenues in the third quarter 2014 were $1,405.4 million
  • Adjusted net income (a non-GAAP measure) in the third quarter 2014 was $0.81 per diluted share
  • GAAP net income in the third quarter 2014 was $0.37 per diluted share
  • The Company ended the third quarter 2014 with $599.1 million of cash resources
  • Order backlog at the end of the third quarter 2014 was $594.1 million
  • The Company's book-to-bill ratio in the third quarter 2014 was 0.86

"I am very pleased with our strong third quarter results.  We continue to capitalize on the ongoing investments Broadband Service Providers are making in their networks," said Bob Stanzione, ARRIS Chairman and CEO.  "Our performance  over the past year has been outstanding, taking the company to a new level of sales and profitability and laying the groundwork for a healthy future."

"We posted an outstanding third quarter," said David Potts, ARRIS EVP & CFO.  "With respect to the fourth quarter 2014, we now project that revenues for the Company will be in the range of $1,230 to $1,270 million, with adjusted net income per diluted share in the range of $0.58 to $0.63 and GAAP net income per diluted share in the range of $0.26 to $0.31."

Revenues in the third quarter 2014 were $1,405.4 million as compared to third quarter 2013 revenues of $1,067.8 million.  Second quarter 2014 revenues were $1,429.1 million

Through the first three quarters of 2014 and 2013, revenues were $4,059.5 million and $2,421.8 million, respectively.  The first three quarters of 2013 excludes the sales of Motorola Home prior to April 17, 2013. 

Adjusted net income (a non-GAAP measure) in the third quarter 2014 was $0.81 per diluted share, as compared to $0.39 per diluted share for the third quarter 2013.  Adjusted net income for the second quarter 2014 was $0.70 per diluted share.    

Year to date, adjusted net income was $1.98 per diluted share for 2014, as compared to $1.11 per diluted share in 2013.

GAAP net income in the third quarter 2014 was $0.37 per diluted share, as compared to third quarter 2013 GAAP net income of $0.12 per diluted share and second quarter 2014 GAAP net income of $0.26 per diluted share. Year to date, GAAP net income was $0.91 per diluted share in 2014 as compared to GAAP net loss of $(0.35) per diluted share in 2013.  A reconciliation of adjusted net income to GAAP net income per diluted share is attached to this release and also can be found on the Company's website (www.arrisi.com).

Cash & Cash Equivalents - The Company ended the third quarter 2014 with $599.1 million of cash resources, which includes $593.8 million of cash, cash equivalents and short-term investments, and $5.3 million of long-term marketable security investments, as compared to $551.9 million, in aggregate, at the end of the second quarter 2014.  The Company generated $81.9 million of cash from operating activities during the third quarter 2014 as compared to $36.2 million in the third quarter 2013.   Through the first nine months of 2014, the Company generated $337.1 million of cash from operating activities, which compares to $380.2 million generated during the same period in 2013. 

Order backlog at the end of the third quarter 2014 was $594.1 million as compared to $523.7 million and $787.6 million at the end of the third quarter 2013 and the second quarter 2014, respectively. The Company's book-to-bill ratio in the third quarter 2014 was 0.86 as compared to the third quarter 2013 of 0.99 and the second quarter 2014 of 0.85.

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, October 29, 2014, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4213 or 617-213-4865 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 99683282 and Bob Puccini as the moderator. Please note that ARRIS will not accept any calls related to this earnings release until after the conclusion of the conference call. A replay of the conference call can be accessed approximately two hours after the call through November 5, 2014 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 63602626. A replay also will be made available for a period of 12 months following the conference call on ARRIS' website at www.arrisi.com.

About ARRIS

ARRIS is a global innovator in IP, video and broadband technology. We have continually worked with our customers to transform the experience of entertainment and communications for millions of people around the world. The people of ARRIS are dedicated to the success of our customers, bringing a passion for invention that has fueled our history: We created digital TV, delivered the first wireless broadband gateway and are pioneering the standards and pathways for tomorrow's personalized, Ultra HD, multiscreen, and cloud services. We are dedicated to meeting today's challenges and preparing for the tasks the future holds. Collaborating with our customers, ARRIS will continue to solve the most pressing challenges of 21st century communications. Together, we are inventing the future. For more information: www.arrisi.com.

Forward-looking statements:

Statements made in this press release, including those related to:

  • growth expectations and business prospects;
  • revenues and net income for the fourth quarter 2014, and beyond;
  • expected sales levels and acceptance of new ARRIS products; and
  • the general market outlook and industry trends

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 fourth quarter 2014 as well as the general outlook for 2014 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;
  • ARRIS may encounter difficulties completing the integration of the Motorola Home operations with ours, including difficulties finalizing systems conversions:
  • ARRIS' customers operate in a capital intensive consumer based industry, and volatility in the capital markets or changes in customer spending may adversely impact their ability or willingness  to purchase the products that the Company offers;
  • 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
  • announced consolidations within our customer base, including the proposed acquisition of Time Warner by Comcast and the proposed acquisition of DIRECTV by AT&T, may have an impact on customer's spending.

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.  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, including its Form 10-Q for the quarter ended June 30, 2014.  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.

PRELIMINARY CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

























September 30,


June 30,


March 31,


December 31,


September 30,



2014


2014


2014


2013


2013












ASSETS






















Current assets:











Cash and cash equivalents


$       526,999


$       483,277


$       440,707


$       442,438


$       541,114

Short-term investments, at fair value


66,817


68,586


80,818


67,360


125,387

Total cash, cash equivalents and short term investments

593,816


551,863


521,525


509,798


666,501












Restricted cash


1,022


1,096


1,076


1,079


1,818

Accounts receivable, net


703,566


738,008


724,430


637,059


627,844

Other receivables 


18,227


14,610


11,694


8,366


4,076

Inventories, net


368,628


297,848


286,058


330,129


343,895

Prepaid income taxes


4,431


32,802


51,758


13,034


49,447

Prepaids


34,311


33,715


15,986


61,482


18,881

Current deferred income tax assets


64,948


79,070


80,427


77,167


75,875

Other current assets


59,439


57,588


58,628


39,930


60,111

Total current assets


1,848,388


1,806,600


1,751,582


1,678,044


1,848,448












Property, plant and equipment, net 


371,496


376,509


388,653


396,152


398,353

Goodwill


938,265


944,115


940,149


940,402


938,435

Intangible assets, net


1,000,441


1,057,557


1,114,231


1,176,192


1,241,258

Investments


74,985


68,852


72,372


71,176


96,712

Noncurrent deferred income tax assets


12,567


20,468


21,862


7,678


11,358

Other assets


59,102


56,719


56,180


52,363


52,300



$     4,305,244


$     4,330,820


$     4,345,029


$     4,322,007


$     4,586,864























LIABILITIES AND STOCKHOLDERS' EQUITY






















Current liabilities:











Accounts payable


$       622,867


$       701,293


$       596,191


$       662,919


$       573,673

Accrued compensation, benefits and related taxes


130,116


101,644


93,251


116,262


101,233

Accrued warranty


51,277


54,546


53,940


48,755


46,536

Deferred revenue


102,717


114,489


126,451


69,071


77,268

Current portion of long-term debt


67,062


60,171


53,268


53,254


293,399

Current income taxes liability


15,344


19,672


13,508


3,068


7,012

Other accrued liabilities


132,551


127,335


143,018


141,698


148,282

Total current liabilities


1,121,934


1,179,150


1,079,627


1,095,027


1,247,403

Long-term debt, net of current portion


1,487,585


1,507,796


1,677,712


1,691,034


1,822,941

Accrued pension


59,667


59,552


58,733


58,657


65,395

Accrued severance liability, net of current portion


4,004


4,213


3,833


3,814


3,870

Noncurrent income taxes payable


31,141


22,597


21,913


21,048


25,012

Noncurrent deferred income tax liabilities


42,926


74,297


83,903


74,791


74,242

Other noncurrent liabilities


67,878


64,299


58,842


58,649


53,465

Total liabilities


2,815,135


2,911,904


2,984,563


3,003,020


3,292,328












Stockholders' equity:











Preferred stock


-


-


-


-


-

Common stock


1,792


1,795


1,794


1,766


1,729

Capital in excess of par value


1,725,383


1,710,845


1,689,907


1,688,782


1,669,667

Treasury stock at cost


(306,330)


(306,330)


(306,330)


(306,330)


(306,330)

Unrealized gain (loss) on marketable securities


(77)


150


27


306


85

Unfunded pension liability


(2,416)


(2,416)


(2,416)


(2,416)


(8,558)

Unrealized loss on derivative instruments


(1,959)


(4,503)


(2,660)


(2,541)


(4,277)

Retained earnings (deficit)


73,881


19,255


(19,769)


(60,569)


(57,752)

Cumulative translation adjustments


(165)


120


(87)


(11)


(28)

Total stockholders' equity


1,490,109


1,418,916


1,360,466


1,318,987


1,294,536



$     4,305,244


$     4,330,820


$     4,345,029


$     4,322,007


$     4,586,864

 

 









 ARRIS GROUP, INC.

 PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

















For the Three Months


For the Nine Months


Ended September 30,


Ended September 30,


2014


2013


2014


2013









Net sales

$  1,405,445


$   1,067,824


$   4,059,534


$ 2,421,835

Cost of sales

969,711


750,929


2,857,613


1,765,458

Gross margin

435,734


316,895


1,201,921


656,377









Operating expenses:








Selling, general, and administrative expenses

103,497


99,666


314,991


227,691

Research and development expenses

142,802


128,716


421,077


296,354

Acquisition, integration and other costs

7,191


6,221


31,604


32,803

Restructuring charges

3,035


6,057


2,642


38,323

Amortization of intangible assets

57,100


65,053


179,835


128,571


313,625


305,713


950,149


723,742

Operating income (loss)

122,109


11,182


251,772


(67,365)

Other expense (income):








Interest expense

14,217


25,188


49,041


48,431

Loss (gain) on investments

6,368


(251)


11,278


(1,544)

Loss (gain) on foreign currency

3,107


(3,752)


3,760


(2,725)

Interest income

(653)


(832)


(1,937)


(2,310)

Other (income) expense, net

(63)


1,676


6,530


13,356

Income (loss) before income taxes

99,133


(10,847)


183,100


(122,573)

Income tax expense (benefit)

44,507


(28,016)


48,649


(76,630)

Net income (loss)

$       54,626


$       17,169


$     134,451


$     (45,943)









Net income (loss) per common share:








Basic

$          0.38


$           0.12


$           0.93


$        (0.35)

Diluted

$          0.37


$           0.12


$           0.91


$        (0.35)









Weighted average common shares:








Basic

144,967


138,478


144,085


129,502

Diluted

148,753


140,605


147,996


129,502

 

 













ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)














For the Three Months


For the Nine Months






Ended September 30,


Ended September 30,






2014


2013


2014


2013













Operating Activities:










Net income (loss)


$         54,626


$         17,169


$      134,451


$      (45,943)



Depreciation


20,538


20,048


60,213


42,567



Amortization of intangible assets


57,100


65,053


179,835


128,571



Amortization of deferred finance fees and debt discount


2,182


2,762


9,376


4,999



Non-cash interest expense


-


3,374


-


9,926



Deferred income tax provision (benefit)


(5,474)


(13,352)


(19,503)


(54,551)



Stock compensation expense


13,495


10,729


39,812


24,653



Reduction in revenue related to Comcast investment in ARRIS


-


-


-


13,182



Mark-to-market fair value adj. related to Comcast investment in ARRIS


-


-


-


13,189



Provision for doubtful accounts


4,041


5


5,285


5



Loss on disposal of fixed assets


(58)


412


3,128


375



Non-cash restructuring and related charges


-


6,761


-


6,761



Loss (gain) on investments


6,368


(250)


11,278


(1,544)



Excess tax benefits from stock-based compensation plans


(3,326)


(647)


(14,651)


(6,417)


Changes in operating assets & liabilities, net of effects of acquisitions and disposals:











Accounts receivable


30,401


34,307


(70,627)


17,793



Other receivables


(2,418)


8,222


(10,465)


1,095



Inventory


(70,780)


(32,287)


(38,499)


60,345



Income taxes payable/recoverable


32,587


(21,086)


31,002


(37,719)



Accounts payable and accrued liabilities


(59,702)


(96,035)


2,592


155,264



Prepaids and other, net


2,355


31,004


13,864


47,647




Net cash provided by operating activities


81,935


36,189


337,091


380,198













Investing Activities:










Purchases of investments


(9,886)


(46,525)


(40,901)


(104,546)


Disposals of investments


4,638


35,213


29,319


393,234


Purchases of property & equipment, net


(15,467)


(31,981)


(41,759)


(53,383)


Sale of property & equipment


-


-


19


90


Cash paid for acquisition, net of cash acquired


-


(48,352)


84


(2,208,114)




Net cash used in investing activities


(20,715)


(91,645)


(53,238)


(1,972,719)













Financing Activities:










Proceeds from issuance of debt


-


-


-


1,925,000


Cash paid for debt discount


-


-


-


(9,853)


Payment of debt obligations


(13,750)


(15,812)


(195,903)


(31,625)


Early redemption of long-term debt


-


-


-


(79)


Deferred financing costs paid


-


(149)


-


(42,356)


Excess income tax benefits from stock-based compensation plans


3,326


646


14,651


6,416


Repurchase of shares to satisfy employee tax withholdings


(7,193)


(115)


(29,605)


(12,522)


Fees and proceeds from issuance of common stock, net


119


1,498


11,565


166,951




Net cash provided by (used in) financing activities


(17,498)


(13,932)


(199,292)


2,001,932
















Net increase (decrease) in cash and cash equivalents


43,722


(69,388)


84,561


409,411

Cash and cash equivalents at beginning of period


483,277


610,502


442,438


131,703

Cash and cash equivalents at end of period


$       526,999


$       541,114


$      526,999


$      541,114

 

 






















ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION

(in thousands, except per share data) (unaudited)






















































































(in thousands, except per share data)

Q3 2013


Q2 2014


Q3 2014


September YTD 2013


September YTD 2014
























Amount




Amount




Amount




Amount




Amount




Sales 

$ 1,067,824




$ 1,429,071




$ 1,405,445




$ 2,421,835




$ 4,059,534

























Highlighted items:





















Reduction in revenue related to Comcast investment in ARRIS

-




-




-




13,182




-




Purchase accounting impacts of deferred revenue

1,556




3,489




780




3,973




4,475




Sales excluding highlighted items

$ 1,069,380




$ 1,432,560




$ 1,406,225




$ 2,438,990




$ 4,064,009















































Q3 2013(2)


Q2 2014


Q3 2014


September YTD 2013 (2)


September YTD 2014





Per Diluted




Per Diluted




Per Diluted




Per Diluted




Per Diluted



Amount


Share


Amount


Share


Amount


Share


Amount


Share


Amount


Share


Net income (loss)

$     17,169


$     0.12


$     39,024


$     0.26


$     54,626


$     0.37


$    (45,943)


(0.35)

(1)

$    134,451


$     0.91























Highlighted items:





















Impacting gross margin:





















Reduction in revenue related to Comcast investment in ARRIS

-


-


-


-


-


-


13,182


0.10


-


-


Acquisition accounting impacts related to inventory

-


-


-


-


-


-


57,600


0.44


-


-


Product rationalization

-


-


-


-


-


-


13,582


0.10


-


-


Stock compensation expense

1,248


0.01


1,835


0.01


1,824


0.01


2,945


0.02


4,934


0.03


Purchase accounting impacts of deferred revenue

1,006


0.01


2,802


0.02


47


-


2,478


0.02


3,048


0.02












































Impacting operating expenses:





















Acquisition and integration costs

6,221


0.04


12,532


0.08


7,191


0.05


32,803


0.25


31,604


0.21


Restructuring

6,057


0.04


(14)


-


3,035


0.02


38,323


0.29


2,642


0.02


Amortization of intangible assets

65,053


0.46


58,735


0.40


57,100


0.38


128,571


0.97


179,835


1.22


Stock compensation expense

9,481


0.07


13,449


0.09


11,671


0.08


21,708


0.16


34,878


0.24























Impacting other (income) / expense:





















Non-cash interest expense

3,374


0.02


-


-


-


-


9,926


0.08


-


-


Impairment on Investments 

-


-


3,000


0.02


4,000


0.03


-


-


7,000


0.05


Credit facility - ticking fees

-


-


-


-


-


-


865


0.01


-


-


Mark to market FV adj. related to Comcast investment in ARRIS

-


-


-


-


-


-


13,189


0.10


-


-


Asset held for sale impairment

-


-


2,125


0.01


-


-


-


-


2,125


0.01























Net tax items

(54,998)


(0.39)


(29,204)


(0.20)


(19,375)


(0.13)


(143,033)


(1.08)


(107,428)


(0.73)























Total highlighted items

37,442


0.27


65,260


0.44


65,493


0.44


192,139


1.45


158,638


1.07


Net income excluding highlighted items

$     54,611


$     0.39


$    104,284


$     0.70


$    120,119


$     0.81


$    146,196


$     1.11


$    293,089


$     1.98























Weighted average common shares - basic



138,478




144,415




144,967




129,502




144,085


Weighted average common shares - diluted



140,605




148,063




148,753




132,169




147,996

































































(1) Basic shares used as losses were reported for the period and the inclusion of dilutive shares would be anti-dilutive








(2) In connection with the acquisition of Motorola Home, the consolidated financial statements for prior periods have been recast to include restrospective acquisition accounting adjustments























See Notes to GAAP and Adjusted Non-GAAP Financial Measures










Notes to GAAP to Adjusted Non-GAAP Financial Measures

The Company reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP" or referred to herein as "reported"). However, management believes that certain non-GAAP financial measures provide management and other users with additional meaningful financial information that should be considered when assessing our ongoing performance. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the factors management uses in planning for and forecasting future periods.  Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, the Company's reported results prepared in accordance with GAAP.  Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:

Acquisition Accounting Impacts Related to Deferred Revenue:  In connection with our acquisitions of Motorola Home, business combination rules require us to account for the fair values of arrangements for which acceptance has not been obtained, and post contract support in our purchase accounting.  The non-GAAP adjustment to our sales and cost of sales is intended to include the full amounts of such revenues.  We believe the adjustment to these revenues is useful as a measure of the ongoing performance of our business.  We have historically experienced high renewal rates related to our support agreements and our objective is to increase the renewal rates on acquired post contract support agreements; however, we cannot be certain that our customers will renew our contracts. 

Reduction in Revenue Related to Comcast Investment in ARRIS:  In connection with our acquisition of Motorola Home, Comcast was given an opportunity to invest in ARRIS.  The accounting guidance requires that we record the implied fair value of benefit received by Comcast as a reduction in revenue. Until the closing of the deal, changes in the value of the investment were marked to market and flowed through other expense (income).  We have excluded the effect of the implied fair value in calculating our non-GAAP financial measures. We believe it is useful to understand the effects of these items on our total revenues and other expense (income).

Inventory Valuation:  In connection with our acquisition of Motorola Home, business combinations rules require the inventory be recorded at fair value on the opening balance sheet.  This is different from historical cost.  Essentially we were required to write the inventory up to end customer price less a reasonable margin as a distributor.  In addition, we have conformed other cost basis inventory valuation policies during the period.  We have excluded the resulting adjustments in inventory and cost of goods sold.

Product Rationalization:  In conjunction with the integration of Motorola Home, we have identified certain product lines which overlap.  In the second and fourth quarters of 2013, we made the decision to eliminate certain products.  As a result, we recorded expenses related to the elimination of inventory and certain vendor liabilities.  We believe it is useful to understand the effects of this item on our total cost of goods sold.    

Stock-Based Compensation Expense: We have excluded the effect of stock-based compensation expenses in calculating our non-GAAP operating expenses and net income measures. Although stock-based compensation is a key incentive offered to our employees, we continue to evaluate our business performance excluding stock-based compensation expenses. We record non-cash compensation expense related to grants of options and restricted stock. Depending upon the size, timing and the terms of the grants, the non-cash compensation expense may vary significantly but will recur in future periods.

Integration, Acquisition, Restructuring and Other Costs:  We have excluded the effect of acquisition, integration, and other expenses and the effect of restructuring expenses in calculating our non-GAAP operating expenses and net income measures. We will incur significant expenses in connection with our recent acquisition of Motorola Home, which we generally would not otherwise incur in the periods presented as part of our continuing operations. Acquisition and integration expenses consist of transaction costs, costs for transitional employees, other acquired employee related costs, and integration related outside services. Restructuring expenses consist of employee severance, abandoned facilities, and other exit costs. Additionally, we have excluded the effect of a loss on the sale of a product line in calculating our non-GAAP operating expenses and net income measures. We believe it is useful to understand the effects of these items on our total operating expenses.

Amortization of Intangible Assets: We have excluded the effect of amortization of intangible assets in calculating our non-GAAP operating expenses and net income measures. Amortization of intangible assets is non-cash, and is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.

Non-Cash Interest on Convertible Debt: We have excluded the effect of non-cash interest in calculating our non-GAAP operating expenses and net income measures. We record the accretion of the debt discount related to the equity component non-cash interest expense. We believe it is useful to understand the component of interest expense that will not be paid out in cash.

Credit Facility - Ticking Fees:  In connection with our acquisition of Motorola Home, the cash portion of the consideration was funded through debt financing commitments.  A ticking fee is a fee paid to our banks to compensate for the time lag between the commitment allocation on a loan and the actual funding. We have excluded the effect of the ticking fee in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of this non-cash item in our other expense (income). 

Mark To Market Fair Value Adjustment Related To Comcast Investment in ARRIS:  In connection with our acquisition of Motorola Home, Comcast was given an opportunity to invest in ARRIS.  The accounting guidance requires we mark to market the changes in the value of the investment and flow through other expense (income).  We have excluded the effect of the implied fair value in calculating our non-GAAP financial measures. We believe it is useful to understand the effects of these items on our total other expense (income).

Impairment of Investment: We have excluded the effect of an other-than-temporary impairment of a cost method investment in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of this non-cash item in our other expense (income). 

Asset Held for Sale Impairment:  In the second quarter of 2014, we entered into a contract to facilitate the sale of a building at less than its carrying value. The asset has been reclassified as held for sale and was measured at the lower of its carrying amount or fair value less cost to sell.  We have recorded an initial impairment charge to reduce the assets carrying amount to its fair  value less costs to sell in the period the held for sale criteria were met. We have excluded the effect of the asset held for sale impairment in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of this non-cash item in our other expense (income). 

Income Tax Expense (Benefit): We have excluded the tax effect of the non-GAAP items mentioned above.  Additionally, we have excluded the effects of certain tax adjustments related to tax and legal restructuring, state valuation allowances, research and development tax credits and provision to return differences.

SOURCE ARRIS Group, Inc.

Bob Puccini, Investor Relations, (720) 895-7787, bob.puccini@arrisi.com