ARRIS Announces Preliminary And Unaudited Second Quarter 2014 Results - WTRF 7 News Sports Weather - Wheeling Steubenville

ARRIS Announces Preliminary And Unaudited Second Quarter 2014 Results

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SOURCE ARRIS Group, Inc.

SUWANEE, Ga., July 31, 2014 /PRNewswire/ -- ARRIS Group, Inc. (NASDAQ: ARRS), today announced preliminary and unaudited financial results for the second quarter 2014.

On April 17, 2013, the Company closed the acquisition of Motorola Home.  As a result, comparisons to prior periods may not be meaningful.

Financial Highlights

  • Revenues in the second quarter 2014 were $1,429.1 million
  • Adjusted net income (a non-GAAP measure) in the second quarter 2014 was $0.70 per diluted share
  • GAAP net income in the second quarter 2014 was $0.26 per diluted share
  • The Company ended the second quarter 2014 with $551.9 million of cash resources
  • Order backlog at the end of the second quarter 2014 was $787.6 million
  • The Company's book-to-bill ratio in the second quarter 2014 was 0.85

"I am very pleased with our second quarter results, in particular, the acceptance of our new products by our customers," said Bob Stanzione, ARRIS Chairman and CEO.  "Looking forward we see continuing opportunity in the business as service providers and programmers invest aggressively to expand their broadband platforms and provide richer video experiences to their customers."

"We posted a great second quarter with both strong sales and earnings," said David Potts, ARRIS EVP & CFO.  "With respect to the third quarter 2014, we now project that revenues for the Company will be in the range of $1,370 to $1,410 million, with adjusted net income per diluted share in the range of $0.69 to $0.74 and GAAP net income per diluted share in the range of $0.35 to $0.40."

Revenues in the second quarter 2014 were $1,429.1 million as compared to second quarter 2013 revenues of $1,000.4 million, which excludes the estimated sales of approximately $66 million from Motorola Home prior to the close of the acquisition on April 17, 2013.  First quarter 2014 revenues were $1,225.0 million.    

Through the first two quarters of 2014 and 2013, revenues were $2,654.1 million and $1,354.0 million, respectively. 

Adjusted net income (a non-GAAP measure) in the second quarter 2014 was $0.70 per diluted share, as compared to $0.45 per diluted share for the second quarter 2013.  The Company estimates that prior to the close of the acquisition, Motorola Home generated an operating loss of approximately $(30) million or an impact of approximately $(0.15) per diluted share had the result been included in the Company's second quarter 2013 results. Adjusted net income for the first quarter 2014 was $0.47 per diluted share.    

Year to date, adjusted net income was $1.17 per diluted share for 2014, as compared to $0.72 per diluted share in 2013.

GAAP net income in the second quarter 2014 was $0.26 per diluted share, as compared to second quarter 2013 GAAP net loss of $(0.36) per diluted share and first quarter 2014 GAAP net income  of $0.28 per diluted share. Year to date, GAAP net income was $0.54 per diluted share in 2014 as compared to GAAP net loss of $(0.51) 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 second quarter 2014 with $551.9 million of cash, cash equivalents and short-term investments, as compared to $521.5 million at the end of the first quarter 2014.  The Company generated $220.3 million of cash from operating activities during the second quarter 2014 as compared to $294.0 million in the second quarter 2013. During the second quarter 2014, the Company made an optional prepayment of $150 million towards its term loan debt in addition to the mandatory payments.  Through the first six months of 2014, the Company generated $255.2 million of cash from operating activities, which compares to $344.0 million generated during the same period in 2013.   

Order backlog at the end of the second quarter 2014 was $787.6 million as compared to $534.9 million and $996.1 million at the end of the second quarter 2013 and the first quarter 2014, respectively. The Company's book-to-bill ratio in the second quarter 2014 was 0.85 as compared to the second quarter 2013 of 0.95 and the first quarter 2014 of 1.37.

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Thursday, July 31, 2014, to discuss these results in detail. You may participate in this conference call by dialing 888-680-0878 or 617-213-4855 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 57162764 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 August 7, 2014 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 89274799. 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 across the world. The people of ARRIS are dedicated to the success of our customers, bringing a passion for invention that has fueled our 60-year 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 third quarter 2014, and beyond;
  • the integration of the Motorola Home business
  • 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 third 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 March 31, 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)






















June 30,


March 31,


December 31,


September 30,


June 30,


2014


2014


2013(1)


2013(1)


2013(1)











ASSETS




















Current assets:










Cash and cash equivalents

$   483,277


$   440,707


$  442,438


$   541,114


$   610,502

Short-term investments, at fair value

68,586


80,818


67,360


125,387


130,723

Total cash, cash equivalents and short term investments

551,863


521,525


509,798


666,501


741,225











Restricted cash

1,096


1,076


1,079


1,818


3,801

Accounts receivable, net

738,008


724,430


637,059


627,844


662,156

Other receivables 

14,610


11,694


8,366


4,076


11,007

Inventories, net

297,848


286,058


330,129


343,895


311,608

Prepaid income taxes

32,802


51,758


13,034


49,447


38,186

Prepaids

33,715


15,986


61,482


18,881


17,296

Current deferred income tax assets

79,070


80,427


77,167


75,875


132,113

Other current assets

57,588


58,628


39,930


60,111


281,987

Total current assets

1,806,600


1,751,582


1,678,044


1,848,448


2,199,379











Property, plant and equipment, net 

376,509


388,653


396,152


398,353


393,594

Goodwill

944,115


940,149


940,402


943,258


943,316

Intangible assets, net

1,057,557


1,114,231


1,176,192


1,241,258


1,270,211

Investments

68,852


72,372


71,176


96,711


95,551

Noncurrent deferred income tax assets

20,468


21,862


7,678


6,535


6,368

Other assets

56,719


56,180


52,363


52,300


54,847


$4,330,820


$4,345,029


$4,322,007


$4,586,863


$4,963,266





















LIABILITIES AND STOCKHOLDERS' EQUITY




















Current liabilities:










Accounts payable

$   701,293


$   596,191


$  662,919


$   573,673


$   485,291

Accrued compensation, benefits and related taxes

101,644


93,251


116,262


101,233


88,494

Accrued warranty

54,546


53,940


48,755


46,536


57,532

Deferred revenue

114,489


126,451


69,071


77,267


80,254

Current portion of LT debt

60,171


53,268


53,254


293,399


289,990

Current income taxes liability

19,672


13,508


3,068


7,012


6,528

Other accrued liabilities

127,335


143,018


141,699


148,282


549,995

Total current liabilities

1,179,150


1,079,627


1,095,028


1,247,402


1,558,084

Long-term debt, net of current portion

1,507,796


1,677,712


1,691,034


1,822,941


1,837,952

Accrued pension

59,552


58,733


58,657


65,395


64,263

Accrued severance liability, net of current portion

4,213


3,833


3,814


3,870


3,782

Noncurrent income taxes payable

22,597


21,913


21,048


25,012


35,320

Noncurrent deferred income tax liabilities

74,297


83,903


74,791


74,242


146,086

Other noncurrent liabilities

64,299


58,842


58,648


53,465


48,196

Total liabilities

2,911,904


2,984,563


3,003,020


3,292,327


3,693,683











Stockholders' equity:










Preferred stock

-


-


-


-


-

Common stock

1,795


1,794


1,766


1,729


1,726

Capital in excess of par value

1,710,845


1,689,907


1,688,782


1,669,667


1,657,383

Treasury stock at cost

(306,330)


(306,330)


(306,330)


(306,330)


(306,330)

Unrealized gain (loss) on marketable securities

150


27


306


85


(19)

Unfunded pension liability

(2,416)


(2,416)


(2,416)


(8,558)


(8,558)

Unrealized gain (loss) on derivative Instruments

(4,503)


(2,660)


(2,541)


(4,277)


-

Retained earnings (deficit)

19,255


(19,769)


(60,569)


(57,752)


(74,922)

Cumulative translation adjustments

120


(87)


(11)


(28)


303

Total stockholders' equity

1,418,916


1,360,466


1,318,987


1,294,536


1,269,583


$4,330,820


$4,345,029


$4,322,007


$4,586,863


$4,963,266





















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

 









 ARRIS GROUP, INC.

 PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)










For the Three Months


For the Six Months


Ended June 30,


Ended June 30,


2014


2013(1)


2014


2013(1)









Net sales

$1,429,071


$1,000,362


$2,654,088


$1,354,012

Cost of sales

1,009,659


769,405


1,887,901


1,014,529

Gross margin

419,412


230,957


766,187


339,483

Operating expenses:








Selling, general, and administrative expenses

112,362


87,899


211,494


128,025

Research and development expenses

144,121


123,557


278,274


167,639

Amortization of intangible assets

58,735


55,914


122,736


63,517

Acquisition, integration, restructuring and other costs

12,518


51,649


24,020


58,848


327,736


319,019


636,524


418,029

Operating income (loss)

91,676


(88,062)


129,663


(78,546)

Other expense (income):








Interest expense

18,225


18,612


34,823


23,243

Loss (gain) on investments

3,236


(729)


4,911


(1,293)

Loss on foreign currency

1,332


206


653


1,027

Interest income

(701)


(640)


(1,284)


(1,478)

Other (income) expense, net

4,422


(7,735)


6,594


11,681

Income (loss) before income taxes

65,162


(97,776)


83,966


(111,726)

Income tax expense (benefit)

26,138


(49,313)


4,142


(48,613)

Net income (loss)

$     39,024


$    (48,463)


$     79,824


$    (63,113)









Net income (loss) per common share:








Basic

$        0.27


$       (0.36)


$        0.56


$       (0.51)

Diluted

$        0.26


$       (0.36)


$        0.54


$       (0.51)









Weighted average common shares:








Basic

144,415


134,626


143,637


124,940

Diluted

148,063


134,626


147,610


124,940









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

 












ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)






For the Three Months


For the Six Months





Ended June 30,


Ended June 30,





2014


2013(1)


2014


2013(1)












Operating Activities:









Net income (loss)

$  39,024


$   (48,463)


$  79,824


$   (63,113)



Depreciation

19,681


16,010


39,675


22,519



Amortization of intangible assets

58,735


55,915


122,736


63,518



Amortization of deferred finance fees and debt discount

4,863


2,077


7,194


2,237



Non-cash interest expense

-


3,308


-


6,552



Deferred income tax provision (benefit)

(5,643)


(35,204)


(14,028)


(41,199)



Stock compensation expense

15,284


7,180


26,317


13,924



Reduction in revenue related to Comcast investment in ARRIS

-


-


-


13,182



Mark-to-market fair value adjustment related to Comcast investment in ARRIS

-


(6,159)


-


13,189



Provision for doubtful accounts

1,237


-


1,244


-



Loss on disposal of fixed assets

2,774


(33)


3,186


(37)



Loss (gain) on investments

236


(730)


1,910


(1,294)



Impairment of investments

3,000


-


3,000


-



Excess tax benefits from stock-based compensation plans

(868)


(1,111)


(11,325)


(5,770)


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










Accounts receivable

(13,651)


1,141


(101,029)


(16,514)



Other receivables

(793)


(3,238)


(8,047)


(7,127)



Inventory

(11,790)


85,314


32,281


92,632



Income taxes payable/recoverable

25,834


(20,441)


(1,585)


(16,633)



Accounts payable and accrued liabilities

104,166


223,285


62,295


251,299



Prepaids and other, net

(21,781)


15,101


11,508


16,644




Net cash provided by operating activities

220,308


293,952


255,156


344,009












Investing Activities:









Purchases of investments

(1,920)


(58,021)


(31,015)


(58,021)


Disposals of investments

13,506


113,310


24,681


358,021


Purchases of property & equipment, net

(13,368)


(15,113)


(26,292)


(21,402)


Sale of property & equipment

2


37


19


90


Acquisitions, net of cash acquired

84


(2,159,762)


84


(2,159,762)




Net cash provided by (used in) investing activities

(1,696)


(2,119,549)


(32,523)


(1,881,074)












Financing Activities:









Proceeds from issuance of debt

-


1,925,000


-


1,925,000


Cash paid for debt discount

-


(9,853)


-


(9,853)


Payment of debt obligations

(168,403)


(15,813)


(182,153)


(15,813)


Early redemption of long-term debt

-


(79)


-


(79)


Deferred financing costs paid

-


(42,207)


-


(42,207)


Excess income tax benefits from stock-based compensation plans

868


1,111


11,325


5,770


Repurchase of shares to satisfy employee tax withholdings

(16,173)


(415)


(22,412)


(12,407)


Fees and proceeds from issuance of common stock, net

7,666


154,804


11,446


165,453




Net cash provided by (used in) financing activities

(176,042)


2,012,548


(181,794)


2,015,864




Net increase (decrease) in cash and cash equivalents

42,570


186,951


40,839


478,799

Cash and cash equivalents at beginning of period

440,707


423,551


442,438


131,703

Cash and cash equivalents at end of period

$483,277


$  610,502


$483,277


$  610,502












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

 






















ARRIS GROUP, INC.


PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION


 (unaudited)























(in thousands, except per share data)

Q2 2013 


Q1 2014


Q2 2014


June YTD 2013


June YTD 2014
























Amount




Amount




Amount




Amount




Amount




Sales 

$ 1,000,362




$ 1,225,017




$ 1,429,071




$ 1,354,012




$ 2,654,088

























Highlighted items:





















Acquisition accounting impacts -  Motorola Home def revenue

2,417




206




3,489




2,417




3,695




Reduction in revenue related to Comcast investment in ARRIS

-




-




-




13,182




-




Sales excluding highlighted items

$ 1,002,779




$ 1,225,223




$ 1,432,560




$ 1,369,611




$ 2,657,783















































Q2 2013 (2)


Q1 2014


Q2 2014


June YTD 2013 (2)


June 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)

$     (48,463)


$      (0.36)

(1)

$      40,800


$       0.28


$      39,024


$       0.26


$     (63,113)


$      (0.51)

(1)

$      79,824


$       0.54























Highlighted items:





















Impacting gross margin:





















Acquisition accounting impacts related to inventory

57,600


0.42


-


-


-


-


57,600


0.45


-


-


Product rationalization

13,582


0.10


-


-


-


-


13,582


0.11


-


-


Acquisition accounting impacts related deferred revenue

1,472


0.01


199


0.00


2,802


0.02


1,472


0.01


3,001


0.02


Fair value impacts related to Comcast investment in ARRIS

-


-


-


-


-


-


13,182


0.10


-


-


Stock compensation expense

866


0.01


1,275


0.01


1,835


0.01


1,697


0.01


3,110


0.02























Impacting operating expenses:





















Restructuring, acquisition, integration and other costs

51,649


0.38


11,502


0.08


12,518


0.08


58,848


0.46


24,020


0.16


Amortization of intangible assets

55,915


0.41


64,001


0.43


58,735


0.40


63,518


0.50


122,736


0.83


Stock compensation expense

6,314


0.05


9,758


0.07


13,449


0.09


12,227


0.10


23,207


0.16

















-






Impacting other (income) / expense:















-




-


Non-cash interest expense

3,308


0.02


-


-


-


-


6,552


0.05


-


-


Credit facility - ticking fees

477


0.00


-


-


-


-


865


0.01


-


-


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

(6,159)


(0.05)


-


-


-


-


13,189


0.10


-


-


Impairment on investments 

-


-


-


-


3,000


0.02


-


-


3,000


0.02


Loss - building held for sale

-


-


-


-


2,125


0.01


-


-


2,125


0.01























Impacting income tax expense:





















Net tax items

(74,784)


(0.55)


(58,850)


(0.40)


(29,204)


(0.20)


(88,035)


(0.69)


(88,054)


(0.60)























Total highlighted items

110,240


0.81


27,885


0.19


65,260


0.44


154,697


1.21


93,145


0.63


Net income excluding highlighted items

$      61,777


$       0.45


$      68,685


$       0.47


$    104,285


$       0.70


$      91,584


$       0.72


$    172,970


$       1.17























Weighted average common shares - basic



134,626




142,854




144,415




124,940




143,637


Weighted average common shares - diluted

 


136,626




147,152




148,063




127,876




147,610












































(1) Basic shares used as losses were reported for those periods 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 retrospective acquisition accounting adjustments






















See Notes to GAAP and Adjust 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). 

Assets Held for Sale:  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 state valuation allowances, research and development tax credits and provision to return differences.

 

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