##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 For the quarter ended June 30, 2009
 of
 ARRIS GROUP, INC.
 
 3871 Lakefield Drive
Suwanee, GA 30024
(678) 473-2000




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##### 



ARRIS GROUP, INC.
FORM 10-Q
For the Three and Six Months Ended June 30, 2009
 INDEX
 PagePart I. Financial InformationItem 1.
    
    Financial Statements (unaudited)a)  Consolidated Balance Sheets 
as of June 30, 2009 and December 31, 2008
    
    
    1b)  Consolidated Statements of Operations for the 
Three and Six Months Ended June 30, 2009 and 2008
    
    
    2c)  Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2009 and 2008
    
    
    3d)  Notes to the Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures on Market Risk
    
    
    26Item 4.
    
    Controls and Procedures
    
    
    27Part II. Other InformationItem 1.
    
    Legal Proceedings
    
    
    28Item 1A.
    
    Risk Factors
    
    
    30Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    35Item 6.
    
    Exhibits
    
    
    36Signatures
    
    
    
    
    37EX-31.1EX-31.2EX-32.1EX-32.2
  ii




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PART I. FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 
 ARRIS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) (unaudited)
 June 30, 2009
    
    
    December 31, 2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    476,846
    
    
    $
    409,894Short-term investments, at fair value
    
    
    47,195
    
    
    
    17,371Total cash, cash equivalents and short-term investments
    
    
    524,041
    
    
    
    427,265Restricted cash
    
    
    4,552
    
    
    
    5,673Accounts receivable (net of allowances for doubtful
accounts of $3,672 in 2009 and $3,988 in 2008)
    
    
    128,482
    
    
    
    159,443Other receivables
    
    
    5,904
    
    
    
    4,749Inventories
(net of reserves of $18,921 in 2009 and $18,811 in 2008)
    
    
    115,944
    
    
    
    129,752Prepaids
    
    
    7,700
    
    
    
    8,004Current deferred income tax assets
    
    
    41,166
    
    
    
    44,004Other current assets
    
    
    12,361
    
    
    
    19,782Total current assets
    
    
    840,150
    
    
    
    798,672Property, plant and equipment (net of accumulated
depreciation of $101,527 in 2009 and $100,313 in 2008)
    
    
    60,048
    
    
    
    59,204Goodwill
    
    
    231,684
    
    
    
    231,684Intangibles (net of accumulated amortization of $171,888 in
2009 and $153,362 in 2008)
    
    
    208,822
    
    
    
    227,348Investments
    
    
    10,317
    
    
    
    14,681Noncurrent deferred income tax assets
    
    
    3,870
    
    
    
    12,157Other assets
    
    
    6,251
    
    
    
    6,576$
    1,361,142
    
    
    $
    1,350,322LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    48,859
    
    
    $
    75,863Accrued compensation, benefits and related taxes
    
    
    20,753
    
    
    
    27,024Accrued warranty
    
    
    5,185
    
    
    
    5,652Deferred revenue
    
    
    43,727
    
    
    
    44,461Current portion of long-term debt
    
    
    148
    
    
    
    146Current deferred income tax liability
    
    
    248
    
    
    
    1,059Other accrued liabilities
    
    
    35,852
    
    
    
    25,410Total current liabilities
    
    
    154,772
    
    
    
    179,615Long-term debt, net of current portion
    
    
    205,710
    
    
    
    211,870Accrued pension
    
    
    19,665
    
    
    
    18,820Noncurrent income taxes payable
    
    
    12,386
    
    
    
    9,607Noncurrent deferred income tax liabilities
    
    
    33,999
    
    
    
    41,598Other noncurrent liabilities
    
    
    15,094
    
    
    
    15,343Total liabilities
    
    
    441,626
    
    
    
    476,853Stockholders equity:Preferred stock, par value $1.00 per share, 5.0 million
shares authorized; none issued and outstanding
    
    
    
    
    
    
    Common stock, par value $0.01 per share, 320.0 million shares
authorized; 124.7 million and 123.1 million shares issued
and outstanding in 2009 and 2008, respectively
    
    
    1,379
    
    
    
    1,362Capital in excess of par value
    
    
    1,169,223
    
    
    
    1,159,097Treasury stock at cost, 13 million shares in 2009 and 2008
    
    
    (75,960
    )
    
    
    (75,960
    )Accumulated deficit
    
    
    (166,711
    )
    
    
    (202,502
    )Unrealized loss on marketable securities
    
    
    (161
    )
    
    
    (274
    )Unfunded pension losses
    
    
    (8,070
    )
    
    
    (8,070
    )Cumulative translation adjustments
    
    
    (184
    )
    
    
    (184
    )Total stockholders equity
    
    
    919,516
    
    
    
    873,469$
    1,361,142
    
    
    $
    1,350,322
  1




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ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited  (in thousands, except per share data and percentages)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008 (1)
    
    
    2009
    
    
    2008Net sales
    
    $
    278,521
    
    
    $
    281,110
    
    
    $
    532,039
    
    
    $
    554,616Cost of sales
    
    
    161,241
    
    
    
    188,226
    
    
    
    319,249
    
    
    
    376,484Gross margin
    
    
    117,280
    
    
    
    92,884
    
    
    
    212,790
    
    
    
    178,132Gross margin %
    
    
    42.1
    %
    
    
    33.0
    %
    
    
    40.0
    %
    
    
    32.1
    %Operating expenses:Selling, general and administrative expenses
    
    
    39,128
    
    
    
    37,046
    
    
    
    74,471
    
    
    
    74,028Research and development expenses
    
    
    30,143
    
    
    
    27,662
    
    
    
    58,538
    
    
    
    55,784Restructuring charges
    
    
    592
    
    
    
    175
    
    
    
    712
    
    
    
    580Amortization of intangible assets
    
    
    9,263
    
    
    
    12,454
    
    
    
    18,526
    
    
    
    25,708Total operating expenses
    
    
    79,126
    
    
    
    77,337
    
    
    
    152,247
    
    
    
    156,100Operating income
    
    
    38,154
    
    
    
    15,547
    
    
    
    60,543
    
    
    
    22,032Other expense (income):Interest expense
    
    
    4,278
    
    
    
    4,291
    
    
    
    8,765
    
    
    
    8,312Loss (gain) on investments
    
    
    (512
    )
    
    
    171
    
    
    
    (215
    )
    
    
    173Interest income
    
    
    (363
    )
    
    
    (1,702
    )
    
    
    (748
    )
    
    
    (4,387
    )Loss (gain) on foreign currency
    
    
    1,570
    
    
    
    350
    
    
    
    2,528
    
    
    
    (640
    )Gain on debt retirement
    
    
    
    
    
    
    
    
    
    
    (4,152
    )
    
    
    Other expense (income), net
    
    
    (522
    )
    
    
    65
    
    
    
    (624
    )
    
    
    29Income from continuing operations before income taxes
    
    
    33,703
    
    
    
    12,372
    
    
    
    54,989
    
    
    
    18,545Income tax expense
    
    
    10,794
    
    
    
    4,543
    
    
    
    19,198
    
    
    
    6,887Net income
    
    $
    22,909
    
    
    $
    7,829
    
    
    $
    35,791
    
    
    $
    11,658Net income per common share:Basic
    
    $
    0.18
    
    
    $
    0.06
    
    
    $
    0.29
    
    
    $
    0.09Diluted
    
    
    0.18
    
    
    
    0.06
    
    
    
    0.28
    
    
    
    0.09Weighted average common shares:Basic
    
    
    124,412
    
    
    
    122,741
    
    
    
    123,849
    
    
    
    126,752Diluted
    
    
    128,054
    
    
    
    124,651
    
    
    
    126,482
    
    
    
    128,190
 .
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ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited  (in thousands)
 Six Months Ended June 30,2009
    
    
    2008Operating activities:Net income
    
    $
    35,791
    
    
    $
    11,658Depreciation
    
    
    9,962
    
    
    
    10,095Amortization of intangible assets
    
    
    18,526
    
    
    
    25,708Stock compensation expense
    
    
    7,454
    
    
    
    5,391Deferred income tax provision (benefit)
    
    
    3,927
    
    
    
    (993
    )Amortization of deferred finance fees
    
    
    368
    
    
    
    381Provision for doubtful accounts
    
    
    (10
    )
    
    
    214Loss (gain) on disposal of fixed assets
    
    
    30
    
    
    
    (2
    )Loss (gain) on investments
    
    
    (215
    )
    
    
    173Excess tax benefits from stock-based compensation plans
    
    
    (556
    )
    
    
    Non-cash interest expense
    
    
    5,536
    
    
    
    5,262Gain on debt retirement
    
    
    (4,152
    )
    
    
    Changes in operating assets and liabilities, net of effect of acquisitions and
dispositions:Accounts receivable
    
    
    30,971
    
    
    
    (10,284
    )Other receivables
    
    
    (1,820
    )
    
    
    (4,737
    )Inventory
    
    
    13,808
    
    
    
    (11,210
    )Income taxes payable/recoverable
    
    
    1,932
    
    
    
    (5,629
    )Accounts payable and accrued liabilities
    
    
    (22,863
    )
    
    
    20,310Prepaids and other, net
    
    
    9,465
    
    
    
    (5,402
    )Net cash provided by operating activities
    
    
    108,154
    
    
    
    40,935Investing activities:Purchases of property, plant and equipment
    
    
    (10,868
    )
    
    
    (11,792
    )Cash paid for acquisition, net of cash acquired
    
    
    (200
    )
    
    
    (4,419
    )Cash proceeds from sale of property, plant and equipment
    
    
    1
    
    
    
    237Purchases of short-term investments
    
    
    (58,766
    )
    
    
    (16,887
    )Sales of short-term investments
    
    
    33,937
    
    
    
    72,480Net cash provided by (used in) investing activities
    
    
    (35,896
    )
    
    
    39,619Financing activities:Payment of debt and capital lease obligations
    
    
    (10,628
    )
    
    
    (35,196
    )Repurchase of common stock
    
    
    
    
    
    
    (75,960
    )Excess tax benefits from stock-based compensation plans
    
    
    556
    
    
    
    Employer repurchase of shares to satisfy minimum tax withholdings
    
    
    (2,180
    )
    
    
    (1,035
    )Proceeds from issuance of common stock, net
    
    
    6,946
    
    
    
    (1,894
    )Net cash used in financing activities
    
    
    (5,306
    )
    
    
    (114,085
    )Net increase (decrease) in cash and cash equivalents
    
    
    66,952
    
    
    
    (33,531
    )Cash and cash equivalents at beginning of period
    
    
    409,894
    
    
    
    323,797Cash and cash equivalents at end of period
    
    $
    476,846
    
    
    $
    290,266
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited
 Note 1. Organization and Basis of Presentation
   Note 2. Impact of Recently Issued Accounting Standards
 Subsequent Events
 Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, Recognition of Other-Than-Temporary Impairments, Accounting for Certain Investments in Debt and Equity Securities Interim Disclosures about Fair Value of Financial Instruments,
 Accounting for Convertible Debt Instruments That May be
Settled in Cash upon Conversion (including Partial Cash Settlement)
  4




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Three Months Ended June 30, 2008
    
    Six Months Ended June 30, 2008As
    
    
    
    
    
    
    
    
    
    AsOriginally
    
    As
    
    Increase
    
    Originally
    
    As
    
    IncreaseReported
    
    Adjusted
    
    (Decrease)
    
    Reported
    
    Adjusted
    
    (Decrease)Statement of Operations:Interest expense
    
    $
    1,722
    
    
    $
    4,291
    
    
    $
    2,569
    
    
    $
    3,226
    
    
    $
    8,312
    
    
    $
    5,086Income from continuing
operations before income
taxes
    
    
    14,941
    
    
    
    12,372
    
    
    
    2,569
    
    
    
    23,631
    
    
    
    18,545
    
    
    
    (5,086
    )Income tax expense
    
    
    5,504
    
    
    
    4,543
    
    
    
    (961
    )
    
    
    8,789
    
    
    
    6,887
    
    
    
    (1,902
    )Net income
    
    
    9,437
    
    
    
    7,829
    
    
    
    (1,608
    )
    
    
    14,842
    
    
    
    11,658
    
    
    
    (3,184
    )Basic net income per share:Income from continuing
operations before income
taxes
    
    $
    0.12
    
    
    $
    0.10
    
    
    $
    (0.02
    )
    
    $
    0.18
    
    
    $
    0.15
    
    
    $
    (0.03
    )Basic net income per share
    
    $
    0.08
    
    
    $
    0.06
    
    
    $
    (0.02
    )
    
    $
    0.12
    
    
    $
    0.09
    
    
    $
    (0.03
    )Diluted net income per share:Income from continuing
operations before income
taxes
    
    $
    0.12
    
    
    $
    0.10
    
    
    $
    (0.02
    )
    
    $
    0.18
    
    
    $
    0.14
    
    
    $
    (0.04
    )Diluted net income per share
    
    $
    0.08
    
    
    $
    0.06
    
    
    $
    (0.02
    )
    
    $
    0.12
    
    
    $
    0.09
    
    
    $
    (0.03
    )
 As of December 31, 2008As Originally
    
    As
    
    IncreaseReported
    
    Adjusted
    
    (Decrease)Balance Sheet:Noncurrent deferred income tax assets
    
    $
    11,514
    
    
    $
    12,157
    
    
    $
    643Other assets
    
    
    8,294
    
    
    
    6,576
    
    
    
    (1,718
    )Long-term debt, net of current portion
    
    
    276,137
    
    
    
    211,870
    
    
    
    (64,267
    )Noncurrent deferred income tax liabilities
    
    
    17,565
    
    
    
    41,598
    
    
    
    24,033Capital in excess of par value
    
    
    1,105,998
    
    
    
    1,159,097
    
    
    
    53,099Accumulated deficit
    
    
    (188,562
    )
    
    
    (202,502
    )
    
    
    (13,940
    )
 Note 3. Investments
  Fair ValueAs of June 30,
    
    
    As of December 31,2009
    
    
    2008Current Assets:Commercial paper
    
    $
    
    
    
    $
    15,771Auction rate securities
    
    
    4,939
    
    
    
    Certificates of deposit
    
    
    10,320
    
    
    
    U.S. Government agency bonds
    
    
    30,336
    
    
    
    Variable rate demand notes
    
    
    1,600
    
    
    
    1,600Total classified as current assets
    
    
    47,195
    
    
    
    17,371Noncurrent Assets:Cash surrender value of company owned life insurance
    
    
    4,714
    
    
    
    4,527Auction rate securities
    
    
    
    
    
    
    4,908Mutual funds
    
    
    22
    
    
    
    22Money market funds
    
    
    438
    
    
    
    437Corporate obligations
    
    
    20
    
    
    
    20Investment in private company
    
    
    4,000
    
    
    
    4,000SERP investments
    
    
    1,123
    
    
    
    767Total classified as noncurrent assets
    
    
    10,317
    
    
    
    14,681Total
    
    $
    57,512
    
    
    $
    32,052
  5




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Note 4. Fair Value Measurements
  
  Level 1
    
    Level 2
    
    Level 3
    
    TotalCurrent investments
    
    $
    
    
    
    $
    42,256
    
    
    $
    
    
    
    $
    42,256Noncurrent investments
    
    
    460
    
    
    
    5,857
    
    
    
    
    
    
    
    6,317Auction rate securities
    
    
    
    
    
    
    
    
    
    
    4,939
    
    
    
    4,939Foreign currency contracts
    
    
    174
    
    
    
    
    
    
    
    
    
    
    
    174Total
    
    $
    634
    
    
    $
    48,113
    
    
    $
    4,939
    
    
    $
    53,686
   Level 3Estimated fair value January 1, 2009
    
    $
    4,909First quarter 2009 change in fair value
    
    
    15Second quarter 2009 change in fair value
    
    
    15Estimated fair value June 30, 2009
    
    $
    4,939
  6




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Note 5. Derivative Instruments and Hedging Activities
 Accounting for Derivative Instruments and Hedging Activities, Disclosures about Derivative Instruments and Hedging Activities,
  Asset Derivatives
    
    Liability DerivativesBalance Sheet Location
    
    Fair Value
    
    Balance Sheet Location
    
    Fair ValueDerivatives Not
Designated as Hedging
Instruments:Foreign exchange contracts
    
    Other current assets
    
    $
    174
    
    
    Other accrued liabilities
    
    $
    2,393
   Three Months Ended
    Six Months EndedJune 30,
    June 30,Statement of Operations Location
    
    2009
    
    2008
    
    2009
    
    2008Derivatives Not
Designated as Hedging
Instruments:Foreign exchange contracts
    
    Loss (gain) on foreign currency
    
    $
    2,755
    
    
    $(606)
    
    $
    1,675
    
    
    $
    962
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Note 6. Pension Benefits
 Components of Net Periodic Pension Benefit Cost
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Service cost
    
    $
    245
    
    
    $
    190
    
    
    $
    490
    
    
    $
    380Interest cost
    
    
    530
    
    
    
    470
    
    
    
    1,060
    
    
    
    939Expected gain on plan assets
    
    
    (281
    )
    
    
    (354
    )
    
    
    (563
    )
    
    
    (709
    )Amortization of prior service cost
    
    
    115
    
    
    
    119
    
    
    
    231
    
    
    
    239Amortization of net loss
    
    
    119
    
    
    
    
    
    
    
    238
    
    
    
    Net periodic pension cost
    
    $
    728
    
    
    $
    425
    
    
    $
    1,456
    
    
    $
    849
 Employer Contributions
  Note 7. Guarantees
 Warranty
    (in thousands)Balance at December 31, 2008
    
    $
    10,184Accruals related to warranties (including changes in
estimates)
    
    
    3,304Settlements made (in cash or in kind)
    
    
    (4,318
    )Balance at June 30, 2009
    
    $
    9,170
 Note 8. Restructuring
 Accounting for Costs Associated with Exit or Disposal Activities
  8




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(in thousands)Balance as of December 31, 2008
    
    $
    545Q1 2009 payments
    
    
    (396
    )Q1 2009 adjustments to accrual
    
    
    41Q2 2009 payments
    
    
    ( 192
    )Q2 2009 adjustments to accrual
    
    
    86Balance as of June 30, 2009
    
    $
    84
  (in thousands)Balance as of December 31, 2008
    
    $
    494Q1 2009 payments
    
    
    (93
    )Q1 2009 adjustments to accrual
    
    
    72Q2 2009 payments
    
    
    (93
    )Q2 2009 adjustments to accrual
    
    
    73Balance as of June 30, 2009
    
    $
    453
  (in thousands)Balance as of May 2009
    
    $
    212Q2 2009 payments
    
    
    (74
    )Balance as of June 30, 2009
    
    $
    138
 Note 9. Inventories
  June 30,
    
    
    December 31,2009
    
    
    2008Raw material
    
    $
    17,791
    
    
    $
    19,247Work in process
    
    
    4,395
    
    
    
    4,814Finished goods
    
    
    93,758
    
    
    
    105,691Total net inventories
    
    $
    115,944
    
    
    $
    129,752
 9




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Note 10. Property, Plant and Equipment
  June 30,
    
    
    December 31,2009
    
    
    2008Land
    
    $
    2,612
    
    
    $
    2,612Building and leasehold improvements
    
    
    21,964
    
    
    
    20,048Machinery and equipment
    
    
    136,999
    
    
    
    136,857161,575
    
    
    
    159,517Less: Accumulated depreciation
    
    
    (101,527
    )
    
    
    (100,313
    )Total property, plant and equipment, net
    
    $
    60,048
    
    
    $
    59,204
 Note 11. Long-Term Obligations
  June 30,
    
    
    December 31,2009
    
    
    20082.00% convertible senior notes due 2026 (net of discount of $55,402 in 2009 and
$64,267 in 2008)
    
    $
    205,648
    
    
    $
    211,7332.00% Pennsylvania Industrial Development Authority debt, net of current portion
    
    
    62
    
    
    
    137Total long-term debt
    
    
    205,710
    
    
    
    211,870Other long-term liabilities:Deferred compensation
    
    $
    5,118
    
    
    $
    4,896Accrued warranty
    
    
    3,985
    
    
    
    4,532Deferred revenue
    
    
    2,925
    
    
    
    2,671Landlord funded leasehold improvements
    
    
    1,124
    
    
    
    1,308Other noncurrent liabilities
    
    
    1,942
    
    
    
    1,936Total other noncurrent liabilities
    
    $
    15,094
    
    
    $
    15,343
     10




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Note 12. Comprehensive Income
  Three Months Ended June 30,
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Net income
    
    $
    22,909
    
    
    $
    7,829
    
    
    $
    35,791
    
    
    $
    11,658Changes in the following equity accounts:Unrealized (loss)/gain on marketable
securities
    
    
    211
    
    
    
    (85
    )
    
    
    113
    
    
    
    46Comprehensive income
    
    $
    23,120
    
    
    $
    7,744
    
    
    $
    35,904
    
    
    $
    11,704
 Note 13. Segment Information
 Disclosures About Segments of an Enterprise
and Related Information
  Broadband Communications Systems
 Access, Transport & Supplies
 Media & Communications Systems
  BCS
    
    ATS
    
    MCS
    
    TotalThree Months Ended June 30, 2009Net sales
    
    $
    211,770
    
    
    $
    43,467
    
    
    $
    23,284
    
    
    $
    278,521Gross margin
    
    
    92,713
    
    
    
    9,815
    
    
    
    14,752
    
    
    
    117,280Amortization of intangible assets
    
    
    
    
    
    
    5,654
    
    
    
    3,609
    
    
    
    9,263Three Months Ended June 30, 2008Net sales
    
    $
    190,412
    
    
    $
    76,967
    
    
    
    13,731
    
    
    $
    281,110Gross margin
    
    
    61,487
    
    
    
    23,870
    
    
    
    7,527
    
    
    
    92,884Amortization of intangible assets
    
    
    
    
    
    
    6,612
    
    
    
    5,842
    
    
    
    12,454Six Months Ended June 30, 2009Net sales
    
    $
    405,901
    
    
    $
    86,457
    
    
    $
    39,681
    
    
    $
    532,039Gross margin
    
    
    171,635
    
    
    
    19,082
    
    
    
    22,073
    
    
    
    212,790Amortization of intangible assets
    
    
    
    
    
    
    11,308
    
    
    
    7,218
    
    
    
    18,526
 11




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BCS
    
    ATS
    
    MCS
    
    TotalSix Months Ended June 30, 2008Net sales
    
    $
    380,049
    
    
    $
    149,861
    
    
    $
    24,706
    
    
    $
    554,616Gross margin
    
    
    119,478
    
    
    
    45,746
    
    
    
    12,908
    
    
    
    178,132Amortization of intangible assets
    
    
    
    
    
    
    13,464
    
    
    
    12,244
    
    
    
    25,708
  Note 14. Sales Information
  Three Months Ended June 30,
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Comcast
    
    $
    96,658
    
    
    $
    46,727
    
    
    $
    161,868
    
    
    $
    80,953% of sales
    
    
    34.7
    %
    
    
    16.6
    %
    
    
    30.4
    %
    
    
    14.6
    %Time Warner Cable
    
    $
    52,883
    
    
    $
    75,298
    
    
    $
    101,967
    
    
    $
    146,219% of sales
    
    
    19.0
    %
    
    
    26.8
    %
    
    
    19.2
    %
    
    
    26.4
    %
   Note 15. Earnings Per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Basic:Net income
    
    $
    22,909
    
    
    $
    7,829
    
    
    $
    35,791
    
    
    $
    11,658Weighted average shares outstanding
    
    
    124,412
    
    
    
    122,741
    
    
    
    123,849
    
    
    
    126,752Basic earnings per share
    
    $
    0.18
    
    
    $
    0.06
    
    
    $
    0.29
    
    
    $
    0.09Diluted:Net income
    
    $
    22,909
    
    
    $
    7,829
    
    
    $
    35,791
    
    
    $
    11,658Weighted average shares outstanding
    
    
    124,412
    
    
    
    122,741
    
    
    
    123,849
    
    
    
    126,752Net effect of dilutive equity
awards
    
    
    3,642
    
    
    
    1,910
    
    
    
    2,633
    
    
    
    1,438Total
    
    
    128,054
    
    
    
    124,651
    
    
    
    126,482
    
    
    
    128,190Diluted earnings per share
    
    $
    0.18
    
    
    $
    0.06
    
    
    $
    0.28
    
    
    $
    0.09
  12




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Note 16. Income Taxes
  Six Months Ended June 30,2009
    
    
    2008Income
    
    
    Income
    
    
    
    
    
    
    Income
    
    
    IncomeBefore
    
    
    Tax
    
    
    Effective
    
    
    Before
    
    
    Tax
    
    
    EffectiveTax
    
    
    Expense
    
    
    Tax Rate
    
    
    Tax
    
    
    Expense
    
    
    Tax RateNon-Discrete Items
    
    $
    50.8
    
    
    $
    16.3
    
    
    
    32.1
    %
    
    $
    18.5
    
    
    $
    6.9
    
    
    
    37.3
    %Discrete Accounting Events
    
    
    4.2
    
    
    
    1.4
    
    
    
    33.3
    %
    
    
    
    
    
    
    
    
    
    
    Discrete Tax Events Valuation Allowances /
FIN 48 Reserves
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    55.0
    
    
    $
    19.2
    
    
    
    34.9
    %
    
    $
    18.5
    
    
    $
    6.9
    
    
    
    37.3
    %
 
    
    In the second quarter of 2009, there was no tax or accounting discrete events. In the
first quarter of 2009, the Company reported a discrete accounting gain of $4.2 million on
the repurchase of convertible debt. Income tax expense of $1.4 million was recorded on the
gain, reflecting a tax rate of 33.3%. Additionally, during the first quarter, the Company
identified $1.5 million of discrete tax expense relating to adjustments of FIN 48
allowances.
 
    
    In the first half of 2008, the Company recorded income tax expense at the applicable
federal rate and state rates. There was no discrete tax or accounting events pursuant to
the guidance of APB Opinion 28, Interim Financial Reportingand FIN 18, Accounting for
Income Taxes in Interim Periods. However, the tax rate for the first half of 2008 did not
include any benefit from research and development tax credits as legislation to extend the
credit was not enacted until the fourth quarter of 2008.
  Note 17. Contingencies
     13




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14




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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
   
    
    Broadband Communications Systems (BCS)
    
    Access, Transport & Supplies (ATS)
    
    Media & Communications Systems (MCS)
  Our Strategy and Key Highlights
  
    
    Maintain a strong capital structure, mindful of our 2013 debt maturity, share
repurchase opportunities and other capital needs including mergers and acquisitions.
    
    Grow our current business into a more complete portfolio including a strong video
product suite.
    
    Continue to invest in the evolution toward enabling true network convergence onto an
all IP platform.
    
    Continue to expand our product/service portfolio through internal developments,
partnerships and acquisitions.
    
    Expand our international business and begin to consider opportunities in markets other
than cable.
    
    Continue to invest in and evolve the ARRIS talent pool to implement the above
strategies.
   Financial Highlights
 
    
    Earnings per diluted share increased to $0.18 in the second quarter 2009 as compared to
$0.06 in the second quarter 2008 despite a 1% decline in sales.
    
    Gross margin percentage increased 9.1 percentage points year over year to 42.1% in the
second quarter 2009 reflecting a stronger product mix including notably higher sales of our
higher margin CMTS product line.
    
    We ended the second quarter 2009 with $524.0 million of cash, cash equivalents, &
short-term investments. We generated approximately $94.3 million of cash from operating
activities in the second quarter and $108.2 million during the first half of 2009.
 15




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##### Table of Contents




    
    We used $10.6 million of cash in the first quarter to retire $15.0 million principal
amount of our convertible debt, which represented a 29% discount. The Company also wrote
off approximately $0.2 million of deferred finance fees associated with the portion of the
notes retired. We recorded a pre-tax net gain of $4.2 million in the first quarter as a
result of the retirement.
    
    We ended the second quarter with an order backlog of approximately $165.7 million and a
book-to-bill ratio of 1.04. Both order backlog and book-to-bill are down compared to the
second quarter of 2008.
 Product Line Highlights
 
    
    Broadband Communications Systems
 CMTS
 
    
    Downstream port shipments were 32,005 in the second quarter of 2009,
56,521 through the first half of 2009.
    
    Operators continue to focus on deploying DOCSIS 3.0 technology in order
to increase overall capacity as well as compete aggressively with higher speed
service tiers. The ARRIS solution has been adopted broadly across the industry,
with new wins in Korea, CALA, and North America.
    
    Continued improvement in gross margins resulting from both customer and
product mix (increased DOCSIS 3.0).
    
    The first live deployment of a DOCSIS 3.0 Upstream Channel Bonding
service with JCN in Japan
    
    Solid CMTS market share results in the first quarter in North America
and Rest of World.
 CPE
 
    
    1.2 million and 2.4 million EMTAs were shipped in the second quarter
and first half of 2009, down 6% and 16% from first quarter of 2009 and first half
of 2008 levels as overall VoIP net subscriber additions have leveled off. We have
retained number one market share for 17 consecutive quarters.
    
    We increased shipments of Multi-line Gateways in the second quarter of
2009.
    
    DOCSIS 3.0 CPE shipments increased substantially in second quarter
2009. We expect a continuing transition from deployment of DOCSIS 2.0 to DOCSIS
3.0 CPE throughout the remainder of 2009.
 
    
    Access, Transport & Supplies
 
    
    Business continues to be impacted by macro economic factors, which
resulted in lower sales year over year with a small sequential gain over the first
quarter of 2009.
    
    DOCSIS 3.0 bandwidth efficiency improvements allow for network investments to be delayed.
    
    Product mix and lower volumes impacted margins.
 
    
    Media & Communications Systems
 
    
    Strong WorkAssureTM demand due to significant customer expansions in the US and CALA.
    
    Demand for Assurance products continue to be strong based on:
 
    
    DOCSIS 3.0 rollouts
    
    A continued focus on Opex management and control
 
    
    Introduced new server platforms for On Demand.
 Significant Customers
  16




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##### Table of Contents



Three Months Ended June 30
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Comcast
    
    $
    96,658
    
    
    $
    46,727
    
    
    $
    161,868
    
    
    $
    80,953% of sales
    
    
    34.7
    %
    
    
    16.6
    %
    
    
    30.4
    %
    
    
    14.6
    %Time Warner Cable
    
    $
    52,883
    
    
    $
    75,298
    
    
    $
    101,967
    
    
    $
    146,219% of sales
    
    
    19.0
    %
    
    
    26.8
    %
    
    
    19.2
    %
    
    
    26.4
    %
 Comparison of Operations for the Three and Six Months Ended June 30, 2009 and 2008
 Net Sales
  Net Sales
    
    
    Increase (Decrease) Between 2009 and 2008For the Three Months
    
    
    For the Six Months
    
    
    For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,
    
    
    Ended June 30
    
    
    Ended June 302009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    $
    
    
    %Business Segment:BCS
    
    $
    211,770
    
    
    $
    190,412
    
    
    $
    405,901
    
    
    $
    380,049
    
    
    $
    21,358
    
    
    
    11.2
    
    
    $
    25,852
    
    
    
    6.8ATS
    
    
    43,467
    
    
    
    76,967
    
    
    
    86,457
    
    
    
    149,861
    
    
    
    (33,500
    )
    
    
    (43.5
    )
    
    
    (63,404
    )
    
    
    (42.3
    )MCS
    
    
    23,284
    
    
    
    13,731
    
    
    
    39,681
    
    
    
    24,706
    
    
    
    9,553
    
    
    
    69.6
    
    
    
    14,975
    
    
    
    60.6Total sales
    
    $
    278,521
    
    
    $
    281,110
    
    
    $
    532,039
    
    
    $
    554,616
    
    
    $
    (2,589
    )
    
    
    (0.9
    )
    
    $
    (22,577
    )
    
    
    (4.1
    )
  Net Sales
    
    
    Increase (Decrease) Between 2009 and 2008For the Three Months
    
    
    For the Six Months
    
    
    For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,
    
    
    Ended June 30
    
    
    Ended June 302009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    $
    
    
    %Domestic
    
    $
    204,849
    
    
    $
    194,119
    
    
    $
    390,875
    
    
    $
    382,862
    
    
    $
    10,730
    
    
    
    5.5
    
    
    $
    8,013
    
    
    
    2.1International
    
    
    73,672
    
    
    
    86,991
    
    
    
    141,164
    
    
    
    171,754
    
    
    
    (13,319
    )
    
    
    (15.3
    )
    
    
    (30,590
    )
    
    
    (17.8
    )Total sales
    
    $
    278,521
    
    
    $
    281,110
    
    
    $
    532,039
    
    
    $
    554,616
    
    
    $
    (2,589
    )
    
    
    (0.9
    )
    
    $
    (22,577
    )
    
    
    (4.1
    )
 Broadband Communications Systems (BCS) Net Sales 2009 vs. 2008
  
    
    Higher sales to multiple customers of our CMTS products.
    
    Comcast sales were partially offset by a decrease in EMTA sales to several customers,
notably Time Warner Cable and Affiliates.
 Access, Transport and Supplies (ATS) Net Sales 2009 vs. 2008
  
    
    The decrease was primarily the result of the reduced spending by cable operators as a
result of the slowdown of the US economy, and in particular new housing construction that
drives capital equipment spending for plant upgrades and rebuilds by cable operators.
    
    Operators were also able to delay node segmentations by taking advantage of bandwidth
efficiency improvements brought about by the implementation of DOCSIS 3.0.
 17




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Media & Communications Systems (MCS) Net Sales 2009 vs. 2008
  
    
    Higher demand for our Assurance products.
    
    The impact of the build-up of deferred revenue throughout 2008. The deferred revenue
acquired from the C-COR acquisition was marked to fair value at the date of the acquisition
and rebuilt through 2008.
 Gross Margin
  Gross Margin $
    
    
    Increase (Decrease) Between 2009 and 2008For the Three Months
    
    
    For the Six Months
    
    
    For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,
    
    
    Ended June 30
    
    
    Ended June 302009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    $
    
    
    %Business Segment:BCS
    
    $
    92,713
    
    
    $
    61,487
    
    
    $
    171,635
    
    
    $
    119,478
    
    
    $
    31,226
    
    
    
    50.8
    
    
    $
    52,157
    
    
    
    43.7ATS
    
    
    9,815
    
    
    
    23.870
    
    
    
    19,082
    
    
    
    45,746
    
    
    
    (14,055
    )
    
    
    (58.9
    )
    
    
    (26,664
    )
    
    
    (58.3
    )MCS
    
    
    14,752
    
    
    
    7,527
    
    
    
    22,073
    
    
    
    12,908
    
    
    
    7,225
    
    
    
    96.0
    
    
    
    9,165
    
    
    
    71.0Total
    
    $
    117,280
    
    
    $
    92,884
    
    
    $
    212,790
    
    
    $
    178,132
    
    
    $
    24,396
    
    
    
    26.3
    
    
    $
    34,658
    
    
    
    19.5
  Gross Margin %
    
    Increase (Decrease) Between 2009 and 2008For the Three Months
    
    For the Six Months
    
    For the Three Months
    
    For the Six MonthsEnded June 30,
    
    Ended June 30,
    
    Ended June 30
    
    Ended June 302009
    
    2008
    
    2009
    
    2008
    
    Percentage PointsBusiness Segment:BCS
    
    
    43.8
    %
    
    
    32.3
    %
    
    
    42.3
    %
    
    
    31.4
    %
    
    
    11.5
    
    
    
    10.9ATS
    
    
    22.6
    %
    
    
    31.0
    %
    
    
    22.1
    %
    
    
    30.5
    %
    
    
    (8.4
    )
    
    
    (8.4
    )MCS
    
    
    63.4
    %
    
    
    54.8
    %
    
    
    55.6
    %
    
    
    52.2
    %
    
    
    8.6
    
    
    
    3.4Total
    
    
    42.1
    %
    
    
    33.0
    %
    
    
    40.0
    %
    
    
    32.1
    %
    
    
    9.1
    
    
    
    7.9
 Broadband Communications Systems Gross Margin 2009 vs. 2008
  
    
    The increase in gross margin dollars was primarily the result of higher sales due to the
successful introduction of our DOCIS 3.0 CMTS in the second half of last year and product
mix.
    
    The increase in gross margin percentage primarily reflects product mix, as we sold more
CMTS products and fewer EMTA products in the three and six month periods in 2009 as
compared to the same periods in 2008. CMTS products carry higher gross margin percentage
than the EMTA products.
 Access, Transport and Supplies Gross Margin 2009 vs. 2008
  
    
    The decrease in gross margin dollars was primarily the result of a decrease in sales in
both the three and six month periods in 2009.
    
    The decrease in gross margin percentage was primarily the result of both a change in
product mix and a decrease in sales. In the three and six month period in 2009, Access and
Transport sales decreased proportionally more than the Supplies sales decreased. In
addition, our gross margin was negatively
 18




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impacted by the decline in the overall volume resulting in a higher manufacturing cost per
unit due to the allocation of fixed factory overhead costs as well as lower gross margin on
certain headend optics gear.
 Media & Communications Systems Gross Margin 2009 vs. 2008
 e
 
    
    The increase in gross margin dollars was primarily the result of increased sales.
    
    The increase in gross margin percentage was primarily the result of product mix.
Performance in this segment is variable as revenue recognition is significantly tied to
customer acceptances associated with multiple month and quarter projects, and non linear
orders for licenses and hardware
 Operating Expenses
  Operating Expenses
    
    
    Increase (Decrease) Between 2009 and 2008For the Three Months
    
    
    For the Six Months
    
    
    For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,
    
    
    Ended June 30
    
    
    Ended June 302009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    $
    
    
    %SG&A
    
    $
    39,128
    
    
    $
    37,046
    
    
    $
    74,471
    
    
    $
    74,028
    
    
    $
    2,082
    
    
    
    5.6
    
    
    $
    443
    
    
    
    0.6Research &
development
    
    
    30,143
    
    
    
    27,662
    
    
    
    58,538
    
    
    
    55,784
    
    
    
    2,481
    
    
    
    9.0
    
    
    
    2,754
    
    
    
    4.9Restructuring
Charges
    
    
    592
    
    
    
    175
    
    
    
    712
    
    
    
    580
    
    
    
    417
    
    
    
    238.3
    
    
    
    132
    
    
    
    22.8Amortization of
intangibles
    
    
    9,263
    
    
    
    12,454
    
    
    
    18,526
    
    
    
    25,708
    
    
    
    (3,191
    )
    
    
    (25.6
    )
    
    
    (7,182
    )
    
    
    (27.9
    )Total
    
    $
    79,126
    
    
    $
    77,337
    
    
    $
    152,247
    
    
    $
    156,100
    
    
    $
    1,789
    
    
    
    2.3
    
    
    $
    (3,853
    )
    
    
    (2.5
    )
 Selling, General, and Administrative, or SG&A, Expenses
  
    
    Higher variable compensation costs, in particular sales commissions and incentive
accruals.
    
    An increase in legal expenses $2.8 million for the first six months of 2009 as compared
to the same period in 2008, as a result of increased costs associated with various patent
and other litigation matters (see Legal Proceedings).
 Research & Development Expenses
  
    
    Higher compensation costs, fringe benefits and incentive accruals.
    
    We have incrementally invested year over year in research and development, a trend which
we anticipate will continue.
 Restructuring Charges
  Amortization of Intangible Assets
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Goodwill Impairment
  Other Expense (Income)
 Interest Expense
 Accounting for Convertible Debt
Instruments That May be Settle in Cash Upon Conversion (including Partial Cash Settlement
 Loss (Gain) in Foreign Currency
  Interest Income
  Other (Income)/Expense
  Income Taxes
  Financial Liquidity and Capital Resources
 Overview
  20




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Liquidity & Capital Resources Data
 Six Months Ended June 30,2009
    
    2008(in thousands, except DSO and turns)Key Working Capital ItemsCash provided by operating activities
    
    $
    108,154
    
    
    $
    40,935Cash, cash equivalents, and
short-term investments
    
    $
    524,041
    
    
    $
    297,769Accounts receivable, net
    
    $
    128,482
    
    
    $
    178,178Days Sales Outstanding (DSOs)
    
    
    49
    
    
    
    58Inventory, net
    
    $
    115,944
    
    
    $
    144,507Inventory turns
    
    
    5.2
    
    
    
    5.5Convertible notes at face value*
    
    $
    261,050
    
    
    $
    276,000Capital Expenditures
    
    $
    10,868
    
    
    $
    11,792
 
 *
    
    The face value of our convertible notes will not agree to the amount on our balance sheet as
a result of the accounting treatment in accordance with FSP APB 14-1. See Notes 2 and 11 of
Notes to the Consolidated Financial Statements for more details. Accounts Receivable & Inventory
    Summary of Current Liquidity Position and Potential for Future Capital Raising
  Commitments
  21




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Cash Flow
  For the Six Months EndedJune 302009
    
    2008Cash provided by operating activities
    
    $
    108,154
    
    
    $
    40,935Cash provided by (used in ) investing activities
    
    
    (35,896
    )
    
    
    39,619Cash provided used in financing activities
    
    
    (5,306
    )
    
    
    (114,085
    )Net increase (decrease) in cash
    
    $
    66,952
    
    
    $
    (33,531
    )
 Operating Activities:
  For the Six Months EndedJune 30,2009
    
    2008Net income
    
    $
    35,791
    
    
    $
    11,658Adjustments to reconcile net income to cash
provided by operating activities
    
    
    40,870
    
    
    
    46,229Net income including adjustments
    
    
    76,661
    
    
    
    57,887Decrease/(Increase) in accounts receivable
    
    
    30,971
    
    
    
    (10,284
    )Decrease/ (Increase) in inventory
    
    
    13,808
    
    
    
    (11,210
    )(Decrease) /Increase in accounts payable
and accrued liabilities
    
    
    (22,863
    )
    
    
    20,310All other  net
    
    
    9,577
    
    
    
    (15,768
    )Cash provided by operating activities
    
    $
    108,154
    
    
    $
    40,935
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Investing Activities:
  Six Months EndedJune 302009
    
    2008Capital expenditures
    
    $
    (10,868
    )
    
    $
    (11,792
    )Cash paid for acquisition
    
    
    (200
    )
    
    
    (4,419
    )Cash proceeds from sale of property, plant & equipment
    
    
    1
    
    
    
    237Purchases of short-term investments
    
    
    (58,766
    )
    
    
    (16,887
    )Disposals of short-term investments
    
    
    33,937
    
    
    
    72,480Cash provided by (used in) investing activities
    
    $
    (35,896
    )
    
    $
    39,619
 Capital Expenditures 
  Cash Paid for Acquisition 
  Purchases and Sales of Short-Term Investments 
  Financing Activities:
  For the Six Months EndedJune 302009
    
    2008Payment of debt and capital lease obligations
    
    $
    (10,628
    )
    
    $
    (35,196
    )Repurchase of common stock
    
    
    
    
    
    
    (75,960
    )Excess tax benefits from stock-based compensation plans
    
    
    556
    
    
    
    Employer repurchase of shares to satisfy minimum tax
withholdings
    
    
    (2,180
    )
    
    
    (1,035
    )Fees and proceeds from issuance of common stock, net
    
    
    6,946
    
    
    
    (1,894
    )Cash provided used in financing activities
    
    $
    (5,306
    )
    
    $
    (114,085
    )
 Payment of Debt and Capital Lease Obligation 
  Repurchase of Common Stock 
   23




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Employer
Repurchase of Shares to Satisfy Minimum Tax Withholdings 
  Excess Tax Benefits from Stock-Based Compensation Plans
  Fees and Proceeds from Issuance of Common Stock, Net
  Interest Rates
  Foreign Currency
   Financial Instruments
   Cash, Short-Term Investments and Available-For-Sale Investments
  24




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Fair Value Measurements
 Accounting for Certain Investments in Debt and Equity Securities
 Accounting for Deferred Compensation Arrangements
Where Amounts Earned Are Held in a Rabbi Trust and Invested
 Accounting for Certain Investments in Debt and Equity
Securities
 Capital Expenditures
  Critical Accounting Estimates
  Forward-Looking Statements
  25




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Item 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      26




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Item 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control over Financial Reporting
 27




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PART II. OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
          28




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29




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Item 1A. RISK FACTORS
 Our business is dependent on customers capital spending on broadband communication systems, and
reductions by customers in capital spending adversely affect our business.
  
    
    general economic conditions;
    
    customer specific financial or stock market conditions;
    
    availability and cost of capital;
    
    governmental regulation;
    
    demand for network services;
    
    competition from other providers of broadband and high speed services;
    
    technological change;
    
    new housing starts;
    
    acceptance of new services offered by our customers; and
    
    real or perceived trends or uncertainties in these factors.
  The markets in which we operate are intensely competitive, and competitive pressures may adversely
affect our results of operations.
  
    
    Ambit Microsystems;
    
    Aurora Networks;
    
    BigBand Networks;
    
    Cisco Systems, Inc.;
    
    Commscope, Inc;
    
    Concurrent Computer Corporation;
    
    Ericsson (TandbergTV);
    
    Harmonic, Inc.;
    
    Motorola, Inc.;
    
    SeaChange, Inc.;
    
    Thomson; and
    
    TVC Communications, Inc.
  30




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Consolidations in the telecommunications industry could result in delays or reductions in purchases
of products, which would have a material adverse effect on our business.
   We may pursue acquisitions and investments that could adversely affect our business.
  We have substantial goodwill.
 Goodwill and Other Intangible
Assets
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Our business comes primarily from a few key customers. The loss of one of these customers or a
significant reduction in sales to one of these customers would have a material adverse effect on
our business.
  We may have difficulty in forecasting our sales.
  The broadband products that we develop and sell are subject to technological change and a trend
toward open standards, which may impact our future sales and margins.
  Fluctuations in our Media & Communications Systems sales result in greater volatility in our
operating results.
  Products currently under development may fail to realize anticipated benefits.
  
    
    are not cost-effective;
    
    are not brought to market in a timely manner;
    
    fail to achieve market acceptance; or
    
    fail to meet industry certification standards.
  32




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Our success depends in large part on our ability to attract and retain qualified personnel in all
facets of our operations.
  We are substantially dependent on contract manufacturers, and an inability to obtain adequate and
timely delivery of supplies could adversely affect our business.
  Our international operations may be adversely affected by any decline in the demand for broadband
systems designs and equipment in international markets.
  Our international operations may be adversely affected by changes in the foreign laws in the
countries in which we and our manufacturers and assemblers have plants.
   
    
    changes in international trade laws, such as the North American Free Trade Agreement and
Prosec, affecting our import and export activities;
    
    changes in, or expiration of, the Mexican governments IMMEX (Manufacturing Industry
Maquiladora and Export Services) program, which provides economic benefits to us;
    
    changes in labor laws and regulations affecting our ability to hire and retain
employees;
    
    fluctuations of foreign currency and exchange controls;
    
    potential political instability and changes in the Mexican government;
    
    potential regulatory changes; and
    
    general economic conditions in Mexico.
  We face risks relating to currency fluctuations and currency exchange.
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We depend on channel partners to sell our products in certain regions and are subject to risks
associated with these arrangements.
  
    
    ability of our selected channel partners to effectively sell our products to end
customers;
    
    our ability to continue channel partner arrangements into the future since most are for
a limited term and subject to mutual agreement to extend;
    
    a reduction in gross margins realized on sale of our products; and
    
    a diminution of contact with end customers which, over time, could adversely impact our
ability to develop new products that meet customers evolving requirements.
 Our profitability has been, and may continue to be, volatile, which could adversely affect the
price of our stock.
  We may face higher costs associated with protecting our intellectual property or obtaining access
necessary to intellectual property of others.
  Changes in accounting pronouncements can impact our business.
  34




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We do not intend to pay cash dividends in the foreseeable future.
  We have anti-takeover defenses that could delay or prevent an acquisition of our company.
  We have the ability to issue preferred shares without stockholder approval.
  
 Item 4. Submission of Matters to a Vote of Security Holders
   Number of
    
    Number ofShares Voted For
    
    Shares WithheldAlex B. Best
    
    
    106,434,791
    
    
    
    9,378,064Harry L. Bosco
    
    
    106,452,265
    
    
    
    9,360,590John Anderson Craig
    
    
    108,580,117
    
    
    
    7,232,738Matthew B. Kearney
    
    
    113,452,034
    
    
    
    2,360,821William H. Lambert
    
    
    101,363,686
    
    
    
    14,449,169John R. Petty
    
    
    101,465,463
    
    
    
    14,347,392Robert J. Stanzione
    
    
    108,151,316
    
    
    
    7,661,539David A. Woodle
    
    
    108,994,886
    
    
    
    6,817,696
  Number of Shares
    
    Number of Shares
    
    Number of SharesVoted For
    
    Voted Against
    
    WithheldApproval of the
amendment of the
Employees Stock
Purchase Plan
(ESPP)
    
    
    96,649,213
    
    
    
    1,830,209
    
    
    
    103,314
  Number of Shares
    
    Number of Shares
    
    Number of SharesVoted For
    
    Voted Against
    
    WithheldApproval of the
retention of Ernst
& Young LLP
    
    
    109,873,754
    
    
    
    5,835,787
    
    
    
    103,314
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Item 6. EXHIBITS
 Exhibit No.
    
    Description of Exhibit10.1
    
    Amended and Restated Employee Stock Purchase Plan, incorporated by reference in Appendix A of
the Proxy Statement filed on April 17, 2009.31.1
    
    Section 302 Certification of Chief Executive Officer, filed herewith31.2
    
    Section 302 Certification of Chief Financial Officer, filed herewith32.1
    
    Section 906 Certification of Chief Executive Officer, filed herewith32.2
    
    Section 906 Certification of Chief Financial Officer, filed herewith
 36




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SIGNATURES
  ARRIS GROUP, INC./s/ David B. PottsDavid B. PottsExecutive Vice President, Chief
Financial Officer, Chief Accounting
Officer, and Chief Information Officer  37