ARRIS GROUP INC (Form: 10-Q, Received: 05/08/2009 16:11:37)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarter ended March 31, 2009

ARRIS GROUP, INC.

A Delaware Corporation
IRS Employer Identification No. 58-2588724
SEC File Number 000-31254

3871 Lakefield Drive
Suwanee, GA 30024
(678) 473-2000

ARRIS Group, Inc. (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

ARRIS Group, Inc. is a large accelerated filer and is not a shell company. ARRIS Group, Inc. is not required to file Interactive Data Files.

As of April 30, 2009, 123,896,535 shares of the registrant’s Common Stock, $0.01 par value, were outstanding.

ARRIS GROUP, INC.
FORM 10-Q
For the Three Months Ended March 31, 2009

INDEX


	Page
Part I. Financial Information

Item 1. Financial Statements (unaudited)

a) Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008		2

b) Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2008		3

c) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008		4

d) Notes to the Consolidated Financial Statements		5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18

Item 3. Quantitative and Qualitative Disclosures on Market Risk		29

Item 4. Controls and Procedures		30

Part II. Other Information

Item 1. Legal Proceedings		30

Item 1A. Risk Factors		32

Item 6. Exhibits		37

Signatures		38
EX-10.24
EX-10.25
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

ARRIS GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data) (unaudited)


	March 31,			December 31,
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	398,938		$	409,894
Short-term investments, at fair value		25,494			17,371

Total cash, cash equivalents and short-term investments		424,432			427,265
Restricted cash		4,550			5,673
Accounts receivable (net of allowances for doubtful accounts of $3,745 in 2009 and $3,988 in 2008)		155,792			159,443
Other receivables		6,636			4,749
Inventories (net of reserves of $19,099 in 2009 and $18,811 in 2008)		120,774			129,752
Prepaids		6,994			8,004
Current deferred income tax assets		49,027			44,004
Other current assets		18,315			19,782

Total current assets		786,520			798,672
Property, plant and equipment (net of accumulated depreciation of $105,158 in 2009 and $100,313 in 2008)		59,438			59,204
Goodwill		231,684			231,684
Intangible assets (net of accumulated amortization of $162,625 in 2009 and $153,362 in 2008)		218,085			227,348
Investments, at fair value		14,593			14,681
Noncurrent deferred income tax assets		3,771			12,157
Other assets		5,483			6,576

	$	1,319,574		$	1,350,322


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	44,422		$	75,863
Accrued compensation, benefits and related taxes		15,583			27,024
Accrued warranty		5,306			5,652
Deferred revenue		44,006			44,461
Current portion of long-term debt		147			146
Current deferred income tax liability		241			1,059
Other accrued liabilities		31,922			25,410

Total current liabilities		141,627			179,615
Long-term debt, net of current portion (net of discount of $58,069 in 2009 and $64,267 in 2008		203,080			211,870
Accrued pension		19,289			18,820
Noncurrent income taxes payable		12,441			9,607
Noncurrent deferred income tax liabilities		42,530			41,598
Other long-term liabilities		14,391			15,343

Total liabilities		433,358			476,853
Stockholders’ 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; 123.3 million and 123.1 million shares issued and outstanding in 2009 and 2008, respectively		1,368			1,362
Capital in excess of par value		1,159,054			1,159,097
Treasury stock at cost, 13 million shares in 2009 and 13 million shares in 2008		(75,960	)		(75,960	)
Accumulated deficit		(189,620	)		(202,502	)
Unrealized loss on marketable securities		(372	)		(274	)
Unfunded pension liability		(8,070	)		(8,070	)
Cumulative translation adjustments		(184	)		(184	)

Total stockholders’ equity		886,216			873,469

	$	1,319,574		$	1,350,322

See accompanying notes to the consolidated financial statements.

ARRIS GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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


	Three Months Ended
	March 31,
	2009			2008
Net sales	$	253,518		$	273,506
Cost of sales		158,008			188,258

Gross margin		95,510			85,248
Gross margin %		37.7	%		31.2	%
Operating expenses:
Selling, general, and administrative expenses		35,343			36,982
Research and development expenses		28,395			28,122
Restructuring charges		120			405
Amortization of intangible assets		9,263			13,254

Total operating expenses		73,121			78,763


Operating income		22,389			6,485
Other expense (income):
Interest expense		4,487			4,021
Loss on investments		297			2
Loss (gain) on foreign currency		958			(990	)
Interest income		(385	)		(2,685	)
Gain on debt retirement		(4,152	)		—
Other (income), net		(102	)		(36	)

Income from continuing operations before income taxes		21,286			6,173
Income tax expense		8,404			2,344

Net income	$	12,882		$	3,829


Net income per common share:
Basic	$	0.10		$	0.03

Diluted	$	0.10		$	0.03


Weighted average common shares:
Basic		123,281			130,763

Diluted		124,920			131,981

See accompanying notes to the consolidated financial statements.

ARRIS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (unaudited)


	Three Months Ended
	March 31,
	2009			2008
Operating activities:
Net income	$	12,882		$	3,829
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		4,827			4,963
Amortization of intangible assets		9,263			13,254
Stock compensation expense		3,401			2,551
Deferred income tax provision (benefit)		4,689			(6,389	)
Amortization of deferred finance fees		189			191
Provision for doubtful accounts		6			205
Loss on investments		297			2
Excess income tax benefits from stock-based compensation plans		(431	)		—
Non-cash interest expense		2,818			2,605
Gain on debt retirement		(4,152	)		—
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions:
Accounts receivable		3,645			(5,336	)
Other receivables		(2,032	)		(1,744	)
Inventory		8,978			10,245
Income taxes payable/recoverable		(1,123	)		(1,734	)
Accounts payable and accrued liabilities		(35,789	)		9,300
Prepaids and other, net		6,377			(1,427	)

Net cash provided by operating activities		13,845			30,515

Investing activities:
Purchases of property, plant and equipment		(5,066	)		(6,429	)
Cash paid for acquisition, net of cash acquired		(200	)		(4,192	)
Cash proceeds from sale of property, plant & equipment		—			224
Purchases of short-term investments		(23,870	)		(16,887	)
Sale of short-term investments		15,806			30,500

Net cash provided by (used in) investing activities		(13,330	)		3,216

Financing activities:
Payment of debt and capital lease obligations		(10,592	)		(35,097	)
Repurchase of common stock		—			(75,960	)
Excess income tax benefits from stock-based compensation plans		431			—
Repurchase of shares to satisfy tax withholdings		(1,807	)		(239	)
Proceeds from issuance of common stock, net		497			(2,717	)

Net cash (used in) financing activities		(11,471	)		(114,013	)

Net decrease in cash and cash equivalents		(10,956	)		(80,282	)
Cash and cash equivalents at beginning of period		409,894			323,797

Cash and cash equivalents at end of period	$	398,938		$	243,515

See accompanying notes to the consolidated financial statements.

ARRIS GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited )

Note 1. Organization and Basis of Presentation

ARRIS Group, Inc. (together with its consolidated subsidiaries, except as the context otherwise indicates, “ARRIS” or the “Company”), is an international communications technology company, headquartered in Suwanee, Georgia. ARRIS operates in three business segments, Broadband Communications Systems, Access, Transport and Supplies, and Media & Communications Systems, specializing in integrated broadband network solutions that include products, systems and software for content and operations management (including video on demand, or VOD), and professional services. ARRIS is a leading developer, manufacturer and supplier of cable telephony, video and high-speed data products, as well as outside plant construction and maintenance equipment for cable system operators. The Company provides products and equipment principally to cable system operators and, more specifically, to Multiple System Operators (“MSOs”). The Company provides its customers with products and services that enable reliable, high-speed, two-way broadband transmission of video, telephony, and data.

The consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, necessary for a fair presentation of the consolidated financial statements for the periods shown. Interim results of operations are not necessarily indicative of results to be expected from a twelve-month period. These financial statements should be read in conjunction with the Company’s most recently audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the United States Securities and Exchange Commission (“SEC”).

Note 2. Impact of Recently Adopted Accounting Standards

In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133. SFAS No. 161 was effective for ARRIS as of January 1, 2009. SFAS No. 161 amends SFAS No. 133 to change the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. See Note 5 of Notes to the Consolidated Financial Statements for required disclosures.

In May 2008, the FASB issued FASB Staff Position (“FSP”) APB 14-1, Accounting for Convertible Debt Instruments That May be Settled in Cash upon Conversion (including Partial Cash Settlement) . The FSP requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The resulting debt discount is accreted over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. Retrospective application to all periods presented is required except for instruments that were not outstanding during any of the periods that will be presented in the annual financial statements for the period of adoption but were outstanding during an earlier period. The adoption of FSP APB 14-1 on January 1, 2009 impacted the accounting treatment of the Company’s 2% convertible senior subordinated notes due 2026, which were issued on November 6, 2006. Upon adoption, the Company recorded an adjustment to increase additional paid-in capital as of the November 6, 2006 issuance date by approximately $87.3 million. The Company is accreting the resulting debt discount to interest expense over the estimated seven year life of the convertible notes, which represents the first redemption date of November 15, 2013 when the Company may redeem the notes at its election or the note holders may require their redemption. The Company recorded a pre-tax adjustment of approximately $23.0 million to retained earnings that represents the debt discount accretion during the years ending December 31, 2006, 2007 and 2008 and will recognize additional non-cash interest expense of $11.1 million, $11.9 million, $12.9 million, $13.9 million and $11.2 million during the years ending December 31, 2009, 2010, 2011, 2012 and 2013, respectively, for accretion of the debt discount. As a result of the adoption of FSP APB 14-1, the Company reduced income from continuing operations and net income for the three months ended March 31, 2009 by $2.8 million and reduced basic and diluted earnings per share by $0.02 per share.

The following tables present the effect of the adoption of FSP APB14-1 on the Company’s affected financial statement line items for the three months ended March 31, 2008 and as of December 31, 2008 (in thousands, except per share data):


	Three Months Ended March 31, 2008
	As Originally		As		Increase
	Reported		Adjusted		(Decrease)
Statement of Operations:
Interest expense	$	1,504	$	4,021	$	2,517
Income from continuing operations before income taxes		8,690		6,173		(2,517	)
Income tax expense		3,285		2,344		(941	)
Net income		5,405		3,829		(1,576	)

Basic net income per share:
Income from continuing operations before income taxes	$	0.07	$	0.05	$	(0.02	)
Basic net income per share		0.04		0.03	$	(0.01	)

Diluted net income per share:
Income from continuing operations before income taxes	$	0.07	$	0.05	$	(0.02	)
Diluted net income per share		0.04		0.03	$	(0.01	)


	As of December 31, 2008
	As Originally			As			Increase
	Reported			Adjusted			(Decrease)
Balance Sheet:
Noncurrent deferred income tax assets	$	11,514		$	12,157		$	643
Other 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			24,033
Capital in excess of par value		1,105,998			1,159,097			53,099
Accumulated deficit		(188,562	)		(202,502	)		(13,940	)

Note 3. Investments

ARRIS’ investments as of March 31, 2009 and December 31, 2008 consisted of the following (in thousands):


	Fair Value
	As of March 31,		As of December 31,
	2009		2008
Current Assets:
Commercial paper	$	—		15,771
Certificates of deposit		8,900		—
U.S. Government agency bonds		14,994		—
Variable rate demand notes		1,600		1,600
Total classified as current assets		25,494		17,371

Non-Current Assets:
Cash surrender value of company owned life insurance		4,286		4,527
Auction rate securities		4,924		4,908
Mutual funds		19		22
Money market funds		437		437
Corporate obligations		20		20
Investment in private company		4,000		4,000
SERP investments		907		767

Total classified as non-current assets		14,593		14,681

Total	$	40,087		32,052

The unrealized gains and losses at March 31, 2009 and December 31, 2008 were not material.

Note 4. Fair Value Measurement

As defined in SFAS No. 157, fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

The following table presents the Company’s investment assets measured at fair value on a recurring basis subject to the disclosure requirements of SFAS 157 (in thousands):


	March 31, 2009
	Level 1		Level 2		Level 3		Total
Current investments	$	—	$	25,494	$	—	$	25,494
Non-current investments		456		5,213		—		5,669
Auction rate securities		—		—		4,924		4,924
Investment in private company		—		—		4,000		4,000
Foreign currency contracts		1,653		—		—		1,653

Total	$	2,109	$	30,707	$	8,924	$	41,740

Substantially all of the Company’s short-term investments and long-term investments instruments are classified within Level 1 or Level 2 of the fair value hierarchy as they are valued using quoted market prices, market prices for similar securities, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include the Company’s investment in money market funds and mutual funds. Such instruments are generally classified within Level 1 of the fair value hierarchy. The types of instruments valued based on other observable inputs include the Company’s U.S. government agency notes, variable rate demand notes, cash surrender value of company owned life insurance, corporate obligations and certificates of deposit. Such instruments are classified within Level 2 of the fair value hierarchy. See Note 3 for further information on the Company’s investments.

The table below includes a roll-forward of the Company’s auction rate securities that have been classified as a Level 3 in the fair value hierarchy (in thousands):


	Level 3
Estimated fair value January 1, 2009	$	4,909
First quarter 2009 change in fair value		15

Estimated fair value March 31, 2009	$	4,924

ARRIS had $5.0 million invested in a single auction rate security at March 31, 2009 and December 31, 2008. As of March 31, 2009, there was no active market for this auction rate security or comparable securities due to current market conditions. Therefore, until such a market becomes active, the auction rate security is classified as Level 3 within the fair value hierarchy. Due to the current market conditions and the failure of the security to reprice, beginning in the second quarter of 2008, the Company has recorded changes in the fair value of the instrument as an impairment charge in the Statement of Operations in the loss (gain) on investments line. The security was held as of March 31, 2009 as a long-term investment, classified as a trading security, with a fair market value of $4.9 million, which includes the fair value of the put option described below. The Company may not be able to liquidate this security until a successful auction occurs, or, alternatively, beginning June 30, 2010 through July 2, 2012, when the Company has the option to sell the security to a major financial institution. This security is a single student loan issue rated AAA and is substantially guaranteed by the federal government. ARRIS will continue to evaluate the fair value of its investment in this auction rate security for any further impairment.

During the third quarter of 2008, ARRIS invested $4.0 million in equity in a venture-backed private company focused on video processing and management. As part of the investment, ARRIS secured exclusive rights to sell the products developed by this company to some of our customers. The private company is in its early stages of development and is currently not traded on any exchanges. Since its offering in July 2008, there have been no further offerings of equity ownership. For these reasons, ARRIS has concluded that its investment should be classified as a Level 3 asset. SFAS No. 157 recognizes that unobservable inputs may need to be used for measuring fair value for Level 3 assets and liabilities as observable inputs are not available. ARRIS has obtained current financial projections from the private company, and concluded that it has no reason to believe that its investment is impaired and that the balance of $4.0 million is stated at fair value.

All of the Company’s foreign currency contracts are over-the-counter instruments. There is an active market for these instruments, and therefore, they are classified as Level 1 in the fair value hierarchy. ARRIS does not enter into currency contracts for trading purposes. The Company has a master netting agreement with the primary counterparty to the derivative instruments. This agreement allows for the net settlement of assets and liabilities arising from different transactions with the same counterparty.

Note 5. Derivative Instruments and Hedging Activities

ARRIS has certain international customers who are billed in their local currency. Changes in the monetary exchange rates may adversely affect the Company’s results of operations and financial condition. When appropriate, ARRIS enters into various derivative transactions to enhance its ability to manage the volatility relating to these typical business exposures. The Company does not hold or issue derivative instruments for trading or other speculative purposes. In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, The Company’s derivative instruments are recorded on the Consolidated Balance Sheets at their fair values. The

Company’s derivative instruments are not designated as hedges, and accordingly, all changes in the fair value of the instruments are recognized as a loss (gain) on foreign currency in the Consolidated Statements of Operations. The maximum time frame for ARRIS’ derivatives is 12 months. As of January 1, 2009, derivative instruments which are subject to master netting arrangements are not offset in the Consolidated Balance Sheets.

The fair values of ARRIS’ derivative instruments recorded in the Consolidated Balance Sheet as of March 31, 2009 were as follows (in thousands):


	Asset Derivatives		Liability Derivatives
	Balance Sheet Location	Fair Value	Balance Sheet Location	Fair Value
Derivatives Not Designated as Hedging Instruments:
Foreign exchange contracts	Other current assets	$1,654	Other accrued liabilities	$	837

Prior to the adoption of SFAS No. 161 on January 1, 2009, the Company recorded its derivative instruments on a net basis on the Consolidated Balance Sheet. As of December 31, 2008, the fair value of the instruments was recorded as a net asset of $391 thousand, comprised of an asset of $1,094 thousand offset with a liability of $703 thousand.

The change in the fair values of ARRIS’ derivative instruments recorded in the Consolidated Statements of Operations during the three months ended March 31, 2009 and 2008 were as follows (in thousands):

Note 6. Pension Benefits

Components of Net Periodic Pension Cost


	Three Months Ended March 31,
	2009			2008
	(in thousands)
Service cost	$	245		$	190
Interest cost		530			470
Expected return on plan assets		(281	)		(355	)
Amortization of prior service cost		115			119
Amortization of net loss		119			—

Net periodic pension cost	$	728		$	424

Employer Contributions

No minimum funding contributions are required in 2009 under the Company’s defined benefit plan. However, the Company made voluntary contributions to the plan of approximately $31 thousand and $29 thousand for the three month periods ended March 31, 2009 and 2008, respectively.

Note 7. Guarantees

Warranty

ARRIS provides warranties of various lengths to customers based on the specific product and the terms of individual agreements. The Company provides for the estimated cost of product warranties based on historical trends, the embedded base of product in the field, failure rates, and repair costs at the time revenue is recognized. Expenses related to product defects and unusual product warranty problems are recorded in the period that the problem is identified. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its suppliers, the estimated warranty obligation could be affected by changes in ongoing product failure rates, material usage and service delivery costs incurred in correcting a product failure, as well as specific product failures outside of ARRIS’ baseline experience. If actual product failure rates, material usage or service delivery costs differ from estimates, revisions (which could be material) would be recorded to the warranty liability. ARRIS evaluates its warranty obligations on an individual product basis.

The Company offers extended warranties and support service agreements on certain products. Revenue from these agreements is deferred at the time of the sale and recognized on a straight-line basis over the contract period. Costs of services performed under these types of contracts are charged to expense as incurred, which approximates the timing of the revenue stream.

Information regarding the changes in ARRIS’ aggregate product warranty liabilities for the three months ended March 31, 2009 was as follows (in thousands):


Balance at December 31, 2008	$	10,184
Accruals related to warranties (including changes in estimates)		1,255
Settlements made (in cash or in kind)		(1,773	)

Balance at March 31, 2009	$	9,666

Note 8. Restructuring Charges

The Company’s restructuring activities are accounted for in accordance with Statement of Financial Accounting Standards No 146, Accounting for Costs Associated with Exit or Disposal Activities .

During the first quarter of 2004, ARRIS consolidated two facilities in Georgia, giving the Company the ability to house many of its core technology, marketing, and corporate headquarters functions in a single building. This consolidation resulted in a restructuring charge of approximately $6.2 million in 2004 related to lease commitments and the write-off of leasehold improvements and other fixed assets. ARRIS expects the remaining payments to be made by the second quarter of 2009, which is the end of the lease.


	(in thousands)
Balance as of December 31, 2008	$	545
Q1 2009 payments		(396	)
Q1 2009 adjustments to accrual		41

Balance as of March 31, 2009	$	190

In the fourth quarter of 2007, the Company initiated a restructuring plan related to its acquisition of C-COR, Incorporated (“C-COR”). The plan focuses on the rationalization of personnel, facilities and systems across the entire organization. The restructuring affected approximately 60 employees. The plan also includes contractual obligations related to change of control provisions included in certain C-COR employment contracts. The total estimated cost of this restructuring plan was approximately $8.6 million, of which approximately $0.5 million was recorded as severance expense during the fourth quarter of 2007 and $8.1 million was assumed liabilities related to employee severance and termination benefits which were accounted for as an adjustment to the allocation of the original purchase price for C-COR upon acquisition. The restructuring plan was completed in the first quarter of 2009.


	(in thousands)
Balance as of December 31, 2008	$	211
Q1 2009 payments		(218	)
Q1 2009 adjustments to accrual		7

Balance as of March 31, 2009	$	—

Additionally, ARRIS acquired remaining restructuring accruals of approximately $0.7 million representing C-COR contractual obligations that related to excess leased facilities. These payments will be made over the remaining lease terms through 2014, unless terminated earlier.


	(in thousands)
Balance as of December 31, 2008	$	494
Q1 2009 payments		(93	)
Q1 2009 adjustments to accrual		72

Balance as of March 31, 2009	$	473

Note 9. Inventories

Inventories are stated at the lower of average cost, approximating first-in, first-out, or market. The components of inventory were as follows, net of reserves (in thousands):


	March 31,		December 31,
	2009		2008
Raw material	$	21,598	$	19,247
Work in process		5,929		4,814
Finished goods		93,247		105,691

Total net inventories	$	120,774	$	129,752

Note 10. Property, Plant and Equipment

Property, plant and equipment, at cost, consisted of the following (in thousands):


	March 31,			December 31,
	2009			2008
Land	$	2,612		$	2,612
Building and leasehold improvements		21,629			20,048
Machinery and equipment		140,355			136,857

		164,596			159,517
Less: Accumulated depreciation		(105,158	)		(100,313	)

Total property, plant and equipment, net	$	59,438		$	59,204

Note 11. Long-Term Obligations

Debt, capital lease obligations and other long-term liabilities consist of the following (in thousands):


	March 31,		December 31,
	2009		2008
2.00% convertible senior notes due 2026 (net of discount of $58,069 in 2009 and $64,267 in 2008)	$	202,981	$	211,733
2.00% Pennsylvania Industrial Development Authority debt, net of current portion		99		137

Total long-term debt		203,080		211,870

Other long-term liabilities:
Deferred compensation	$	4,784	$	4,896
Accrued warranty		4,360		4,532
Deferred revenue		2,110		2,671
Landlord funded leasehold improvements		1,237		1,308
Other long-term liabilities		1,900		1,936

Total other long-term liabilities	$	14,391	$	15,343

On November 6, 2006, the Company issued $276.0 million of 2% convertible senior notes due 2026. The notes are convertible, at the option of the holder, based on an initial conversion rate, subject to adjustment, of 62.1504 shares per $1,000 base amount (which represents an initial conversion price of approximately $16.09 per share of our common stock), into cash up to the principal amount and, if applicable, shares of the Company’s common stock, cash or a combination thereof. The notes may be converted during any calendar quarter in which the closing price of ARRIS’ common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 120% of the conversion price in effect at that time (which, based on the current conversion price would be $19.31) and upon the occurrence of certain other events. Upon conversion, the holder will receive the principal amount in cash and an additional payment, in either cash or stock at the option of the Company. The additional payment will be based on a formula which calculates the difference between the initial conversion rate ($16.09) and the market price at the date of the conversion. As of May 8, 2009, the notes could not be converted by the holders thereof. Interest is payable on May 15 and November 15 of each year. The Company may redeem the notes at any time on or after November 15, 2013, subject to certain conditions. In addition, the holders may require the Company to purchase all or a portion of their convertible notes on or after November 13, 2013.

As of March 31, 2009 and December 31, 2008, the face value of the outstanding notes was $261.0 million and $276.0 million respectively. During the quarter, the Company acquired $15.0 million face value of the notes for approximately $10.6 million. The Company also wrote off approximately $0.2 million of deferred finance fees associated with the portion of the notes acquired. As a result, the Company realized a gain of approximately $4.2 million on the retirement of the notes.

On January 1, 2009, the Company adopted FSP APB 14-1, which requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) be separately accounted for in a manner that reflects an issuer’s non-convertible debt borrowing rate. The resulting debt discount is accreted over the period of the convertible debt is expected to be outstanding as additional non-cash interest expense. The adoption of FSP ABP 14-1 on January 1, 2009 affected the accounting for the Company’s convertible senior notes. Upon adoption, the Company recorded an adjustment to increase additional paid-in capital as of the November 6, 2006 issuance date by approximately $87.3 million. The Company is accreting the resulting debt discount to interest expense over the estimated seven year life of the convertible notes, which represents the first redemption date of November 15, 2013 when the Company may redeem the notes at its election or the note holders may require their redemption. The Company recorded a pre-tax adjustment of approximately $23.0 million to retained earnings that represents the debt discount accretion during the years ending December 31, 2006, 2007 and 2008 and will recognize additional non-cash interest expense of $11.1 million, $11.9 million, $12.9 million, $13.9 million and $11.2 million during the years ending December 31, 2009, 2010, 2011, 2012 and 2013, respectively, for accretion of the debt discount. Additionally, the Company paid approximately $7.8 million of finance fees related to the issuance of the notes. Of the $7.8 million, $2.5 million were attributed to the equity component of the convertible debt instrument. The portion related to the debt issuance costs are being amortized over seven years. The remaining balance of unamortized financing costs from these notes as of March 31, 2009 and December 31, 2008 was $3.3 million, and $3.7 million, respectively.

In conjunction with the acquisition of C-COR, the Company assumed certain debt obligations, including unsecured convertible notes and financing related to equipment purchases and property expansion. On December 14, 2007, the Company gave notice to the note holders that it was calling all of the Notes and that redemption would occur on January 14, 2008. The notes were subsequently redeemed on January 14, 2008.

The Company has not paid cash dividends on its common stock since its inception.

Note 12. Comprehensive Income

Total comprehensive income represents the net change in stockholders’ equity during a period from sources other than transactions with stockholders. For ARRIS, the components of comprehensive income include the unrealized gain (loss) on marketable securities. The components of comprehensive income for the three months ended March 31, 2009 and 2008 are as follows (in thousands):


	Three Months Ended March 31,
	2009			2008
Net income	$	12,882		$	3,829
Changes in the following equity accounts:
Unrealized gain (loss) on marketable securities		(98	)		131

Comprehensive income	$	12,784		$	3,960

Note 13. Segment Information

The “management approach” required under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information , has been followed in order to present our segment information. This approach is based upon the way the management of the Company organizes segments within an enterprise for making operating decisions and assessing performance. Financial information is reported on the basis that it is used internally by the chief operating decision maker for evaluating segment performance and deciding how to allocate resources to segments.

The Company manages its business under three segments: Broadband Communications Systems (“BCS”), Access, Transport & Supplies (“ATS”), and Media & Communications Systems (“MCS”). A detailed description of each segment is contained in our December 31, 2008 Form 10-K under Item 1 in “Our Principal Products.”

The Broadband Communications Systems segment’s product solutions include Headend and Subscriber Premises equipment that enable cable operators to provide Voice over IP, Video over IP and high-speed data services to residential and business subscribers.

The Access, Transport & Supplies segment’s product lines cover all components of a hybrid fiber coax network, including managed and scalable headend and hub equipment, optical nodes, radio frequency products, transport products and supplies.

The Media & Communications Systems segment provides content and operations management systems, including products for Video on Demand, Ad Insertion, Digital Advertising, Service Assurance, Service Fulfillment and Mobile Workforce Management.

The table below presents information about the Company’s reporting segments for the three months ended March 31, 2009 and 2008 (in thousands):


	BCS		ATS		MCS		Total
Quarter Ended March 31, 2009
Net sales	$	194,131	$	42,990	$	16,397	$	253,518
Gross margin		78,921		9,268		7,321		95,910
Amortization of intangible assets		—		5,654		3,609		9,263

Quarter Ended March 31, 2008
Net sales	$	189,637	$	72,894	$	10,975	$	273,506
Gross margin		57,991		21,876		5,381		85,248
Amortization of intangible assets		—		6,852		6,402		13,254

The Company’s net intangible assets and goodwill by reportable segment as of March 31, 2009 has not materially changed from December 31, 2008.

Note 14. Sales Information

The Company had two customers (including their affiliates, as applicable) with sales of more than 10% during the three months ended March 31, 2009. Over the past year, certain customers’ beneficial ownership may have changed as a result of mergers and acquisitions. Therefore, the revenue for ARRIS’ customers for prior periods has been adjusted to include the affiliates currently understood to be under common control. A summary of sales to these customers for the three month periods ended March 31, 2009 and 2008 are set forth below (in thousands):


	Three Months Ended
	March 31,
	2009			2008
Comcast and affiliates	$	65,210		$	34,226
% of sales		25.7	%		12.5	%

Time Warner Cable and affiliates	$	49,083		$	70,921
% of sales		19.4	%		25.9	%

ARRIS sells its products primarily in United States. The Company’s international revenue is generated from Asia Pacific, Europe, Latin America and Canada. The Asia Pacific market primarily includes China, Hong Kong, Japan, Korea, Singapore and Taiwan. The European market primarily includes Austria, Belgium, France, Germany, the Netherlands, Poland, Portugal, Spain and Switzerland. The Latin American market primarily includes Argentina, Brazil, Chile, Colombia, Mexico, and Puerto Rico. Sales to international customers were approximately $67.5 million, or 26.6% of total sales, for the three months ended March 31, 2009. International sales during the same period in 2008 were $84.8 million, or 31.0% of total sales.

Note 15. Earnings Per Share

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share (“EPS”) computations for the periods indicated (in thousands except per share data):


	Three Months Ended
	March 31,
	2009		2008
Basic:
Net income	$	12,882	$	3,829

Weighted average shares outstanding		123,281		130,763

Basic earnings per share	$	0.10	$	0.03


Diluted:
Net income	$	12,882	$	3,829

Weighted average shares outstanding		123,281		130,763
Net effect of dilutive equity awards		1,639		1,218

Total		124,920		131,981

Diluted earnings per share	$	0.10	$	0.03

Excluded from the dilutive securities described above are employee stock options to acquire approximately 7.0 million shares and 8.1 million shares for the three months ended March 31, 2009 and 2008, respectively. These exclusions were made because they were antidilutive.

Note 16. Income Taxes

In the first quarters of 2009 and 2008, the Company recorded income tax expense of $8.4 million and $3.3 million, respectively. Below is a summary of the components of the tax expense in each period (in millions, except for percentages):


	Three Months Ended March 31,
	2009							2008
	Income Before Tax		Income Tax Expense		Effective Tax Rate			Income Before Tax		Income Tax Expense		Effective Tax Rate
Non-Discrete Items		17.0	$	5.5		32.3	%	$	8.7	$	3.3		37.8	%
Discrete Accounting Events		4.2		1.4		35.2	%		—		—		—
Discrete Tax Events — Valuation Allowances / FIN 48 Reserves		—		1.5					—		—

Total	$	21.2	$	8.4		39.6	%	$	8.7	$	3.3		37.8	%

	•		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 35.2%. 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 quarter 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 Reporting and FIN 18, Accounting for Income Taxes in Interim Periods .

The Company anticipates that the effective tax rate for full year 2009 for non-discrete items will be approximately 33%.

Note 17. Contingencies

From time to time, ARRIS is involved in claims, disputes, litigation or legal proceedings incidental to the ordinary course of its business, such as employment matters, environmental proceedings, contractual disputes and intellectual property disputes. Except as described below, ARRIS is not party to any proceedings that are, or reasonably could be expected to be, material to its business, results of operations or financial condition.

Commencing in 2005, Rembrandt Technologies, LP filed a series of lawsuits against Charter Communications, Inc, Time Warner Cable, Inc., Comcast Corporation and others alleging infringement of eight (8) patents related to the cable systems operators’ use of data transmission, video, cable modem, voice-over-internet, and other technologies and applications. Although ARRIS is not a defendant in any of these lawsuits, its customers are, and its customers either have requested indemnification from, or may request indemnification or cooperation with the defense costs from, ARRIS and the other manufacturers of the equipment that is alleged to infringe. ARRIS is party to a joint defense agreement with respect to one of the lawsuits and has various understandings with the defendants in the remaining lawsuits with respect to cost sharing. In June 2007, the Judicial Panel of multi district litigation issued an order centralizing the litigation for administrative purposes in the District Court for Delaware. In November 2007, ARRIS, Cisco, Motorola and other suppliers filed a declaratory judgment action in the District Court of Delaware seeking to have the court declare the patents invalid and not infringed. After a favorable Markman hearing, Rembrandt reduced the number of asserted patents from eight to four with leave to reassert under certain circumstances. It is premature to assess the likelihood of a favorable outcome. In the event of an adverse outcome, ARRIS could be required to indemnify its customers, pay royalties, and/or cease using certain technology. Also, an adverse outcome may require a change in the DOCSIS ^® standards to avoid using the patented technology.

In connection with our acquisition of C-COR, ARRIS on October 31, 2007, was named as the defendant in a suit entitled CIBC World Market Corp. vs. ARRIS Group, Inc., Action No. 603605/2007, in the Supreme Court of the State of New York, New York County. This suit was settled, and the settlement cost was included in operating expenses for the three months ended March 31, 2009.

In 2007, ARRIS received correspondence from attorneys for the Adelphia Recovery Trust (“Trust”), that the Company may have received transfers from Adelphia Cablevision, LLC (“Cablevision”), one of the Adelphia debtors, during the year prior to its filing of a Chapter 11 petition on June 25, 2002 (the “Petition Date”). The correspondence further asserts that information obtained during the course of the Adelphia Chapter 11 proceedings indicates that Cablevision was insolvent during the year prior to the Petition Date, and, accordingly, the Trust intends to assert that the payments made to ARRIS were fraudulent transfers under section 548 (a) of the Bankruptcy Code that may be recovered for the benefit of Cablevision’s bankruptcy estate pursuant to section 550 of the Bankruptcy Code. Prior to its acquisition by ARRIS, C-COR received a similar correspondence making the same claims. We understand that similar letters were received by other Adelphia suppliers and we may seek to enter into a joint defense agreement to share legal expenses if a suit is commenced. To date, no suit has been commenced by the Trust. In the event a suit is commenced, ARRIS intends to contest the case vigorously. No estimate can be made of the possible range of loss, if any, associated with a resolution of these assertions.

In January and February 2008, Verizon Services Corp. filed separate lawsuits against various affiliates of Cox and against Charter, in the District Courts for the Eastern District of Virginia and for the Eastern District of Texas respectively, alleging infringement of eight patents. In the Verizon v. Cox suit, the jury issued a verdict in favor of Cox, finding non-infringement in all patents and invalidating two of Verizon’s patents. Verizon has filed a notice of appeal. The suit against Charter is still pending, and trial is anticipated to take place in 2010. Verizon and Comcast have reached a settlement of the subject patents. It is premature to assess the likelihood of a favorable outcome of the Charter case or Cox appeal; though the Cox outcome at trial increases the likelihood of a favorable Charter outcome. In the event of an unfavorable outcome, ARRIS may be required to indemnify Charter and Cox, pay royalties and/or cease utilizing certain technology.

Acacia Media Technologies Corp. has sued Charter and Time Warner Cable, Inc. for allegedly infringing U.S. Patent Nos. 5,132,992; 5,253,275; 5,550,863; and 6,144,702. The case has been bifurcated, where the case for invalidity of the patents will be tried first, and only if one or more patents are found to be valid, then the case for infringement will be tried. Both customers requested C-COR’s, as well as other vendors’, support under the indemnity provisions of the purchase agreements (related to video-on-demand products). It is premature to assess the likelihood of a favorable outcome. In the event of an unfavorable outcome, ARRIS may be required to indemnify the defendants, pay royalties and /or cease using certain technology.

V-Tran Media Technologies has filed a number of lawsuits against 21 different parties, including suits against Comcast, Charter, Verizon, Time Warner and numerous smaller MSOs for infringement on two patents related to television broadcast systems for selective transmission. Both patents expired in June 2008. C-COR manufactured products that allegedly infringed on their patents. It is premature to assess the likelihood of a favorable outcome. In the event of an unfavorable outcome, ARRIS may be required to indemnify the defendants, or pay royalties. Given that the patents have expired, it is unlikely that the case will result in injunctions or ceasing the use of the technology.

In February 2008, sixteen former employees of a former subsidiary of C-COR, filed a Fair Labor Standards Act suit against the former subsidiary and C-COR alleging that the plaintiffs were not properly paid for overtime. The suit was filed as a class action and the proposed class could include 1,000 cable installers and field technicians. ARRIS is actively contesting the suit.

From time to time third parties approach ARRIS or an ARRIS customer, seeking that ARRIS or its customer consider entering into a license agreement for such patents. Such invitations cause ARRIS to dedicate time to study such patents and enter into discussions with such third parties regarding the merits and value, if any, of the patents. These discussions, may materialize into license agreements or patents asserted against ARRIS or its customers. If asserted against our customers, our customers may seek indemnification from ARRIS. It is not possible to determine the impact of any such ongoing discussions on ARRIS’s business financial conditions.

Note 18. Purchases of ARRIS Common Stock

During the first quarter of 2008, ARRIS publicly announced that its Board of Directors had authorized a plan (the “2008 Plan”) for the Company to purchase up to $100 million of the Company’s common stock. ARRIS repurchased 13 million shares at an average price of $5.84 per share for an aggregate consideration of approximately $76 million during the first quarter of 2008. The remaining authorized amount of $24 million was not purchased.

During the first quarter of 2009, ARRIS’ Board of Directors authorized a new plan (the “2009 Plan”), which replaced the 2008 Plan, for the Company to purchase up to $100 million of the Company’s common stock. The Company did not purchase any shares under the 2009 Plan during the first quarter of 2009.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a global communications technology company specializing in the design and engineering of broadband network solutions. We are a leading developer, manufacturer and supplier of cable telephony, video and high-speed data products, as well as outside plant construction and maintenance equipment for cable system operators. We provide products and equipment principally to cable system operators and, more specifically, to Multiple System Operators (“MSOs”). Our products allow MSOs and other broadband service providers to deliver a full range of integrated voice, video and high-speed data services to their subscribers. Our core strategy is to lead network operators through the transition to Internet Protocol-based networks by leveraging our extensive global installed base of products and experienced workforce to deliver network solutions that meet the business needs of our customers.

We operate our business in three segments:

	•		Broadband Communications Systems (“BCS”)

	•		Access, Transport and Supplies (“ATS”)

	•		Media & Communications Systems (“MCS”)

A detailed description of each segment is contained in “Our Principal Products” in our Form 10-K for the year ended December 31, 2008.

Our Strategy and Key Highlights

Our long-term business strategy “Convergence Enabled” includes the following key elements:

	•		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.

Our mission is to simplify technology, facilitate its implementation, and enable operators to put their subscribers in control of their entertainment, information, and communication needs. Through a set of business solutions that respond to specific market needs, we are integrating our products, software, and services solutions to work with our customers as they address Internet Protocol telephony deployment, high speed data deployment, network capacity issues, on demand video rollout, operations management, network integration, and business services opportunities.

Below are some key highlights and trends relative to our first quarter 2009:

Financial Highlights

	•		Earnings per diluted share increased to $0.10 in the first quarter 2009 as compared to $0.03 in the first quarter 2008 despite a 7% decline in sales.

	•		Gross margin percentage increased 6.5 percentage points year over year to 37.7% in the first quarter 2009 reflecting a stronger product mix notably higher sales of our higher margin CMTS product line.

	•		We ended the first quarter 2009 with $424.4 million of cash & short-term investments. We generated approximately $13.8 million of cash from operating activities in the quarter.

	•		We used $10.6 million of cash 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 as a result of the retirement.

	•		We ended the first quarter with an order backlog of approximately $155 million and a book-to-bill ratio of 1.16. Both order backlog and book-to-bill are up relative to the first and fourth quarters of 2008.

Product Line Highlights

•

CMTS

	o		Downstream port shipments were 24,516 in the first quarter of 2009

	o		DOCSIS 3.0 equipment has had wide market acceptance

	o		Key wins occurred in Korea, Japan and North America

	o		Worldwide market share improved in the fourth quarter of 2008 (source: Infonetics)

•

CPE

	o		1.3 million EMTAs were shipped in the first quarter of 2009. We have retained number one market share for 16 consecutive quarters (source: Infonetics)

	o		We have twice as large a market share as our nearest competitor in the fourth quarter of 2008

	o		We increased shipments of Multi-line and Wireless Gateways in the first quarter of 2009

	o		DOCSIS 3.0 CPE shipments increased over fourth quarter of 2008, but we still expect more significant transition to this product later in 2009

•

Access, Transport & Supplies

	o		Business continues to be impacted by macro economics which resulted in lower sales year over year and sequentially

	o		Product mix and lower volumes impacted margins

•

Media & Communications Systems

	o		We have seen strong acceptance of WorkAssure projects

	o		Won a new WorkAssure customer in Latin America in the first quarter of 2009

	o		Experienced mix shift toward On-Demand and Ad insertion in the first quarter of 2009

	o		Introduced two new video distribution platforms

Significant Customers

The vast majority of our sales are to cable system operators worldwide. As the U.S. cable industry continued a trend toward consolidation, the six largest MSOs controlled approximately 89.9% of the triple play Revenue Generating Units (“RGU”) within the U.S. cable market (according to Dataxis in the third quarter 2008), thereby making our sales to those MSOs critical to our success. Our sales are substantially dependent upon a system operator’s selection of ARRIS’ network equipment, demand for increased broadband services by subscribers, and general capital expenditure levels by system operators. Our two 10% customers (including their affiliates, as applicable) are Comcast and Time Warner Cable. Over the past year, certain customers’ beneficial ownership may have changed as a result of mergers and acquisitions. Therefore, the revenue for ARRIS’ customers for prior periods has been adjusted to include the affiliates currently understood to be under common control. A summary of sales to these customers for the three month periods ended March 31, 2009 and 2008 are set forth below (in thousands):


	Three Months Ended
	March 31,
	2009			2008
Comcast and affiliates	$	65,210		$	34,226
% of sales		25.7	%		12.5	%

Time Warner Cable and affiliates	$	49,083		$	70,921
% of sales		19.4	%		25.9	%

Comparison of Operations for the Three Months Ended March 31, 2009 and 2008

Net Sales

The table below sets forth our net sales for the three months ended March 31, 2009 and 2008, for each of our segments (in thousands):


	Net Sales
	Three Months Ended				Increase (Decrease) -
	March 31,				2009 vs. 2008
	2009		2008		$			%
Business Segment:
Broadband Communications Systems	$	194,131	$	189,637	$	4,494			2.4	%
Access, Transport & Supplies		42,990		72,894		(29,904	)		(41.0	)%
Media & Communications Systems		16,397		10,975		5,422			49.4	%

Total sales	$	253,518	$	273,506	$	(19,988	)		(7.3	)%

The table below sets forth our domestic and international sales for the three months ended March 31, 2009 and 2008 (in thousands):


	Net Sales
	Three Months Ended				Increase (Decrease) -
	March 31,				2009 vs. 2008
	2009		2008		$			%
Domestic sales	$	186,025	$	188,743	$	(2,718	)		(1.4	)%
International sales		67,493		84,763		(17,270	)		(20.4	)%

Total sales	$	253,518	$	273,506	$	(19,988	)		(7.3	)%

Broadband Communication Systems Net Sales 2009 vs. 2008

During the first quarter of 2009, sales of our BCS segment products increased by approximately 2.4% as compared to the first quarter of 2008. This increase in sales primarily resulted from:

	•		Higher sales to Comcast of both CMTS and EMTAs. Sales to Comcast were lower in the first quarter of 2008 as they awaited the launch of our DOCSIS 3.0 product in the third quarter of 2008.

	•		Comcast sales were partially offset by decreases in sales to several customers, notably Charter and Liberty Media International.

Access, Transport and Supplies Net Sales 2009 vs. 2008

Access, Transport and Supplies segment revenue decreased by approximately 41.0% in the first quarter of 2009, as compared to the first quarter of 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.

Media & Communication Systems Net Sales 2009 vs. 2008

During the first quarter of 2009, sales of our MCS segment products increased by approximately 49.4% as compared to the first quarter of 2008. This increase in sales primarily reflects the build-up of deferred revenue throughout 2008. The deferred revenue acquired from C-COR acquisition was marked to fair value at the date of the acquisition and rebuilt through 2008.

Gross Margin

The table below sets forth our gross margin for the three months ended March 31, 2009 and 2008, for each of our reporting segments (in thousands):


	Gross Margin $
	Three Months Ended				Increase (Decrease)
	March 31,				2009 vs. 2008
	2009		2008		$			%
Business Segment:
Broadband Communications Systems	$	78,921	$	57,991	$	20,930			36.1	%
Access, Transport and Supplies		9,268		21,876		(12,608	)		(57.6	)%
Media & Communications Systems		7,321		5,381		1,940			36.1	%

Total	$	95,510	$	85,248	$	10,262			12.0	%

The table below sets forth our gross margin percentages for the three months ended March 31, 2009 and 2008, for each of our business segments:


	Gross Margin %
							Percentage Point
	Three Months Ended						Increase
	March 31,						(Decrease)
	2009			2008			2009 vs. 2008
Business Segment:
Broadband Communications Systems		40.7	%		30.6	%		10.1
Access, Transport and Supplies		21.6	%		30.0	%		(8.4	)
Media & Communications Systems		44.6	%		49.0	%		(4.4	)
Total		37.7	%		31.2	%		6.5

Broadband Communications Systems Gross Margin 2009 vs. 2008

Broadband Communications Systems segment gross margin dollars and percentage increased year over year:

	•		The increase in gross margin dollars was primarily the result of higher sales and product mix.

	•		The increase in gross margin percentage in the first quarter of 2009 as compared to the first quarter of 2008 primarily reflects product mix, as we sold more CMTS products and fewer EMTA products. CMTS products carry a higher gross margin percentage than the EMTA products.

Access, Transport and Supplies Gross Margin 2009 vs. 2008

The Access, Transport and Supplies segment gross margin dollars and percentage decreased year over year:

	•		The decrease in gross margin dollars was primarily the result of a decrease in sales.

	•		The decrease in gross margin percentage was primarily the result of both a change in product mix and a decrease in sales. Access and Transport sales decreased proportionally more than the Supplies sales decreased, in particular the higher gross margin optics gear.

Media & Communications Systems Gross Margin 2009 vs. 2008

Media & Communications Systems segment gross margin dollars increased as gross margin percentage decreased year over year:

	•		The increase in gross margin dollars was primarily the result of increased sales.

	•		The decrease in gross margin percentage was primarily the result of product mix.

Operating Expenses

The table below provides detail regarding our operating expenses (in thousands):


	Operating Expenses
	Three Months Ended				Increase (Decrease) — 2009
	March 31,				vs. 2008
	2009		2008		$			%
Selling general and administrative	$	35,343	$	36,982	$	(1,639	)		(4.4	)%
Research and development		28,395		28,122		273			1.0	%
Restructuring		120		405		(285	)		(70.4	)%
Amortization of intangible assets		9,263		13,254		(3,991	)		(30.1	)%

Total	$	73,121	$	78,763	$	(5,642	)		(7.2	)%

Selling, General, and Administrative, or SG&A, Expenses

The year over year decrease in SG&A expense reflects:

	•		The synergies we achieved during 2008 primarily related to the C-COR acquisition.

	•		The decrease achieved by the synergies was partially offset by an increase in legal costs of approximately $1.2 million associated with patent and other litigation matters.

Research & Development Expenses

We continue to aggressively invest in research and development. Our primary focus is on products that allow MSOs to capture new revenues and reduce operating costs. The research and development expenses increased slightly as compared to first quarter 2008.

Restructuring Charges

On a quarterly basis, we review our existing restructuring accruals and make adjustments if necessary. For the first three months of 2009 and 2008, we recorded increases to the accruals $0.1 million and $0.4 million, respectively. The $0.4 million recorded in the first quarter 2008 related to severance for the C-COR acquisition and changes in estimates associated with real estate leases.

Amortization of Intangibles

Intangibles amortization expense for the three months ended March 31, 2009 and 2008 was $9.3 million and $13.3 million, respectively. Our intangible expense in 2009 and 2008 is related to the acquisitions of Auspice Corporation in August of 2008 and C-COR Incorporated in December of 2007. The decline reflects the completion of the amortization of the C-COR order backlog in 2008.

Goodwill Impairment

Goodwill impairment for the three months ended March 31, 2009 and 2008 was $0 for each period. We recorded a noncash goodwill impairment charge of $128.9 million and $80.4 million related to the ATS and MCS reporting units, respectively, during the fourth quarter of 2008. We continue to monitor our assessments of goodwill, particularly in light of the current economic climate, most notably with respect to the ATS segment. For the first quarter of 2009, we concluded that indicators of potential impairment did not exist. As the ongoing expected cash flows and carrying amounts of our remaining goodwill are assessed, changes in the economic conditions, changes to our business strategy, changes in operating performance or other indicators of impairment could cause us to realize additional impairment charges in the future.

Other Expense (Income)

Interest Expense

Interest expense for the first quarter 2009 and 2008 was $4.5 million and $4.0 million, respectively. Interest expense reflects interest and the amortization of a portion of the deferred finance fees primarily associated with

our $276.0 million 2% convertible subordinated notes. It also includes the non-cash interest expense recorded in accordance with FSP ABP 14-1, Accounting for Convertible Debt Instruments That May be Settle in Cash Upon Conversion (including Partial Cash Settlement ). See Note 2 and Note 11 of Notes to the Consolidated Financial Statements.

Loss (Gain) in Foreign Currency

During the first quarter 2009, we recorded a foreign currency loss of approximately $1.0 million. During the first quarter 2008, we recorded a foreign currency gain of approximately $1.0 million. The gains and losses are primarily driven by the fluctuation of the value of the euro, as compared to the U.S. dollar, as we had several European customers whose receivables and collections are denominated in euros. We have implemented a hedging strategy to mitigate the monetary exchange fluctuations from the time of invoice to the time of payment, and have occasionally entered into forward contracts based on a percentage of expected foreign currency receipts.

Interest Income

Interest income during the first quarter of 2009 and 2008 was $385 thousand and $2.7 million, respectively. The income reflects interest earned on cash, cash equivalents and short term investments. Interest income decreased year over year as result of lower interest rates earned in 2009 as compared to 2008.

Other Income

Other income for the three months ended March 31, 2009 and 2008 was $103 thousand and $36 thousand, respectively.

Income Taxes

In the three months ended March 31, 2009 and 2008, we recorded income tax expense of $8.4 million and $2.3 million, respectively. See Note 16 of the Notes to the Consolidated Financial Statements for additional information about income taxes.

Financial Liquidity and Capital Resources

Overview

One of our key strategies is to maintain and improve our capital structure. The key metrics we focus on are summarized in the table below:

Liquidity & Capital Resources Data


	Three Months Ended March 31,
	2009		2008
	(in thousands, except DSO and turns)
Key Working Capital Items
Cash provided by operating activities	$	13,845	$	30,515
Cash, cash equivalents, and short-term investments	$	424,432	$	293,028
Accounts receivable, net	$	155,792	$	172,719
Days Sales Outstanding (“DSOs”)		57		57
Inventory	$	120,774	$	122,361
Inventory turns		5.0		5.9

Convertible notes at face value*	$	261,050	$	276,000

Capital Expenditures	$	5,066	$	6,429


*		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

We use the number of times per year that inventory turns over (based upon sales for the most recent period, or turns) to evaluate inventory management, and days sales outstanding, or DSOs, to evaluate accounts receivable management.

Accounts receivable decreased in the first quarter of 2009 as compared to 2008 as a result of lower sales during the quarter. The DSOs remained unchanged year over year.

Inventory decreased in the first quarter of 2009 as compared to the first quarter of 2008 by approximately $1.6 million. Declines in our inventory levels of the ATS and MCS segments were partially offset with a modest increase in the BCS segment. Inventory turns in the first quarter of 2009 were 5.0 as compared to 5.9 in the same period of 2008. The decrease in turns relates to a couple factors:

	•		With the market driven decline in the ATS sales, inventory was not reduced at a similar rate resulting in higher inventory turns for this segment. We anticipate that inventory turns for the ATS segment will improve over the next several quarters.

	•		Despite a year over year increase in BCS segment sales of $4.5 million, the cost of goods sold decreased by approximately $16.4 million reflecting a shift in product mix. This resulted in lower inventory turns for the BCS segment year over year.

Summary of Current Liquidity Position and Potential for Future Capital Raising

We believe our current liquidity position, where we have approximately $424 million of cash, cash equivalents, and short-term investments on hand as of March 31, 2009, together with the prospects for continued generation of cash from operations are adequate for our short- and medium-term business needs. We may in the future elect to repurchase additional shares of our common stock or additional principal amounts of our outstanding convertible notes. In addition, a key part of our overall long-term strategy may be implemented through additional acquisitions, and a portion of these funds may be used for that purpose. Should our available funds be insufficient

for those purposes, it is possible that we will raise capital through private, or public, share or debt offerings. Absent a major acquisition, we do not anticipate a need to access the capital markets in 2009.

Commitments

Our contractual obligations are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008. There has been no material change to our contractual obligations during the first quarter of 2009.

Cash Flow

Below is a table setting forth the key line items of our Consolidated Statements of Cash Flows (in thousands):


	For the Three Months Ended
	March 31,
	2009			2008
Cash provided by operating activities	$	13,845		$	30,515
Cash provided by (used in) investing activities		(13,330	)		3,216
Cash (used in) financing activities		(11,471	)		(114,013	)

Net decrease in cash	$	(10,956	)	$	(80,282	)

Operating Activities:

Below are the key line items affecting cash provided by (used in) operating activities (in thousands):


	For the Three Months Ended
	March 31,
	2009			2008
Net income	$	12,882		$	3,829
Adjustments to reconcile net income to cash provided by operating activities		20,907			17,382

Net income including adjustments		33,789			21,211
Decrease/(increase) in accounts receivable		3,645			(5,336	)
Decrease in inventory		8,978			10,245
(Decrease) /increase in accounts payable and accrued liabilities		(35,789	)		9,300
All other — net		3,222			(4,905	)

Cash provided by operating activities	$	13,845		$	30,515

Net income including adjustments increased $12.6 million during the first quarter of 2009 as compared to 2008. Our net income before adjustments to net income increased approximately $9.1 million in the first quarter 2009 as compared to 2008. The adjustments to reconcile net income to cash provided by operating activities increased approximately $3.5 million during the first quarter of 2009 as compared to the same period in 2008. This increase was related to primarily three factors: (1) a gain of $4.2 million associated with the redemption of a portion of our convertible debt, (2) a decrease in intangible amortization of $4.0 million in the first quarter of 2009 as compared to 2008 as the order backlog acquired from C-COR was fully amortized during the first half of 2008, and (3) the net deferred tax asset increased by $6.4 million during the first quarter of 2008 as compared to a net decrease in the net deferred tax asset of $4.7 million during the first quarter of 2009.

Accounts receivable decreased in the first quarter of 2009 and increased in the first quarter 2008. These moderate changes related to the level of sales and the timing of sales during the quarters.

Inventory decreased in the first quarter of both 2009 and 2008. During 2009 the decrease was due to timing and an effort to reduce our inventory levels.

The decline in accounts payable and accrued liabilities in 2009 reflects the payment of the annual bonus in the first quarter coupled with normal timing variations associated with payments of accounts payable. In 2008, accounts payable and accrued liabilities increased as a result of the build-up of deferred revenue from the MCS segment. The deferred revenue acquired from C-COR during the acquisition was marked to fair value at the date

of acquisition. The increase in deferred revenue was partially offset by the payment of the annual bonus in the first quarter of 2008.

Investing Activities:

Below are the key line items affecting investing activities (in thousands):


	Three Months Ended
	March 31,
	2009			2008
Capital expenditures	$	(5,066	)	$	(6,429	)
Cash paid for acquisition		(200	)		(4,192	)
Cash proceeds from sale of property, plant & equipment		—			224
Purchases of short-term investments		(23,870	)		(16,887	)
Disposals of short-term investments		15,806			30,500

Cash provided by (used in) investing activities	$	(13,330	)	$	3,216

Capital Expenditures —

Capital expenditures are mainly for test equipment, manufacturing equipment, leasehold improvements, computer equipment, and business application software. We anticipate investing approximately $20 million in fiscal year 2009.

Cash Paid for Acquisition —

This represents the cash payments made during the quarter related to the C-COR acquisition, net of cash acquired.

Purchases and Disposals of Short-Term Investments —

This represents purchases and disposals of short-term securities.

Financing Activities:

Below are the key line items affecting our financing activities (in thousands):


	For the Three Months Ended
	March 31,
	2009			2008
Payment of debt and capital lease obligations	$	(10,592	)	$	(35,097	)
Repurchase of common stock		—			(75,960	)
Excess income tax benefits from stock-based compensation plans		431			—
Repurchase of shares to satisfy tax withholdings		(1,807	)		(239	)
Proceeds from issuance of common stock, net		497			(2,717	)

Cash (used in) financing activities	$	(11,471	)	$	(114,013	)

Payment of Debt and Capital Lease Obligation —

During the first quarter of 2009, we purchased $15 million of face value of our convertible debt for approximately $10.6 million. The Company also wrote off approximately $0.2 million of deferred finance fees associated with the portion of the notes retired. The Company realized a gain of approximately $4.2 million on the retirement of the convertible notes. As part of the C-COR acquisition in December 2007, we assumed $35.0 million of 3.5% senior unsecured convertible notes due on December 31, 2009. We redeemed the notes were on January 14, 2008.

Repurchase of Common Stock —

repurchased 13 million shares at an average price of $5.84 per share for an aggregate consideration of approximately $76 million during the first quarter of 2008. The remaining authorized amount of $24 million was not purchased.

Repurchase of Shares to Satisfy Tax Withholdings—

This represents the minimum shares withheld to satisfy the tax withholding when restricted stock vests.

Excess Income Tax Benefits from Stock-Based Compensation Plans

This represents the cash that otherwise would have been paid for income taxes if increases in the value of equity instruments also had not been deductible in determining taxable income.

Proceeds from Issuance of Common Stock, Net

Represents expenses paid related to the issuance of stock for the C-COR acquisition, offset with cash proceeds related to the exercise of stock options by employees.

Interest Rates

As of March 31, 2009, we did not have any floating rate indebtedness or outstanding interest rate swap agreements.

Foreign Currency

A significant portion of our products are manufactured or assembled in Mexico, Taiwan, China, Ireland, and other foreign countries. Further, as part of the C-COR acquisition we acquired a manufacturing facility in Mexico. Our sales into international markets have been and are expected in the future to be an important part of our business. These foreign operations are subject to the usual risks inherent in conducting business abroad, including risks with respect to currency exchange rates, economic and political destabilization, restrictive actions and taxation by foreign governments, nationalization, the laws and policies of the United States affecting trade, foreign investment and loans, and foreign tax laws.

We have certain international customers who are billed in their local currency. We use a hedging strategy and enter into forward or currency option contracts based on a percentage of expected foreign currency revenues. The percentage can vary, based on the predictability of the revenues denominated in foreign currency.

Financial Instruments

In the ordinary course of business, we, from time to time, will enter into financing arrangements with customers. These financial arrangements include letters of credit, commitments to extend credit and guarantees of debt. These agreements could include the granting of extended payment terms that result in longer collection periods for accounts receivable and slower cash inflows from operations and/or could result in the deferral of revenue.

ARRIS executes letters of credit in favor of certain landlords and vendors to guarantee performance on lease and insurance contracts. Additionally, we have cash collateral account agreements with our financial institutions as security against potential losses with respect to our foreign currency hedging activities. The letters of credit and cash collateral accounts are reported as restricted cash. As of March 31, 2009 and December 31, 2008, we had approximately $4.6 million and $5.7 million outstanding, respectively, of cash collateral.

Cash, Cash Equivalents, and Investments

Our cash and cash equivalents (which are highly-liquid investments with an original maturity of three months or less) are primarily held in money market funds that pay either taxable or non-taxable interest. We hold short-term investments consisting of debt securities classified as available-for-sale, which are stated at estimated fair value. These debt securities consist primarily of commercial paper, certificates of deposits, and U.S. government agency

financial instruments. Additionally, as of March 31, 2009, we had approximately $4.9 million of a single auction rate security outstanding at fair value, classified as a trading security within our long-term investments. Because it has failed at auction, we are uncertain of when we will be able to liquidate the security. However, the Company has been provided the option to sell the security to a major financial institution at par on June 30, 2010. Therefore, ARRIS has classified the investment at long-term. The security is a single student loan issue rated AAA and is substantial guaranteed by the federal government. Applying the provision of SFAS 157, we analyzed the fair value of the security as of March 31, 2009. We have concluded that the fair value is approximately $4.9 million (including the fair value of the put options), which compares to a face value of $5.0 million. We will continue to evaluate the fair value of this security and mark it to market accordingly.

From time to time, we held certain investments in the common stock of publicly-traded companies, which were classified as available-for-sale. As of March 31, 2009 and December 31, 2008 our holdings in these investments were immaterial. Changes in the market value of these securities are typically recorded in other comprehensive income and gain or losses on related sales of these securities are recognized in income.

On January 1, 2008, ARRIS adopted SFAS No. 157, Fair Value Measurements , for its financial assets and liabilities. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. See Note 4 of Notes to the Consolidated Financial statement for disclosures related to the fair value of our investments.

The Company has a deferred compensation plan that was available to certain current and former officers and key executives of C-COR. During 2008, this plan was merged into a new non-qualified deferred compensation plan which is also available to key executives of the Company. Employee compensation deferrals and matching contributions are held in a rabbi trust, and are accounted for in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities . A rabbi trust is a funding vehicle used to protect the deferred compensation from various events (but not from bankruptcy or insolvency).

Additionally, ARRIS previously offered a deferred compensation arrangement, which was available to certain employees. As of December 31, 2004, the plan was frozen and no further contributions are allowed. The deferred earnings are invested in a rabbi trust, and are accounted for in accordance with Emerging Issues Task Force Issue No. 97-14, Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested .

The Company also has a deferred retirement salary plan, which was limited to certain current or former officers of C-COR. ARRIS holds an investment to cover its liability, and accounts for the investment in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities .

Capital Expenditures

Capital expenditures are made at a level designed to support the strategic and operating needs of the business. ARRIS’ capital expenditures were $5.1 million in the first quarter 2009 as compared to $6.4 million in the first quarter 2008. Management expects to invest approximately $20 million in capital expenditures for the fiscal year 2009.

Critical Accounting Estimates

The accounting and financial reporting policies of the ARRIS are in conformity with U.S. generally accepted accounting principles. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Management has discussed the development and selection of the Company’s critical accounting estimates with the audit committee of the Company’s Board of Directors and the audit committee has reviewed the Company’s related disclosures. Our critical accounting policies and estimates are disclosed extensively in our Form 10-K for the year ended December 31, 2008, as filed with the SEC. Our critical accounting estimates have not changed in any material respect during the three months ended March 31, 2009.

Forward-Looking Statements

Certain information and statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this report, including statements using terms such as “may,” “expect,” “anticipate,” “intend,” “estimate,” “believe,” “plan,” “continue,” “could be,” or similar variations or the negative thereof, constitute forward-looking statements with respect to the financial condition, results of operations, and business of ARRIS, including statements that are based on current expectations, estimates, forecasts, and projections about the markets in which we operate and management’s beliefs and assumptions regarding these markets. These and any other statements in this document that are not statements about historical facts are “forward-looking statements.” We caution investors that forward-looking statements made by us are not guarantees of future performance and that a variety of factors could cause our actual results to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. Important factors that could cause results or events to differ from current expectations are described in the risk factors set forth in Item 1A, “Risk Factors.” These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the operations, performance, development and results of our business. In providing forward-looking statements, ARRIS expressly disclaims any obligation to update publicly or otherwise these statements, whether as a result of new information, future events or otherwise except to the extent required by law.

Item 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, including interest rates and foreign currency rates. The following discussion of our risk-management activities includes “forward-looking statements” that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements.

We have had investments in auction rate securities that are classified as “available-for-sale” securities. As of March 31, 2009 and December 31, 2008, we held one auction rate security of $5.0 million. Although these securities have maturity dates of 15 to 30 years, they have characteristics of short-term investments as the interest rates reset every 7, 28, or 35 days and we have the potential to liquidate them in an auction process. Due to the short duration of these investments, a movement in market interest rates would not have a material impact on our operating results. However, it is possible that a security will fail to reprice at the scheduled auction date. In these instances, we are entitled to receive a penalty interest rate above market and the auction rate security will be held until the next scheduled auction date. ARRIS’ auction rate security of $5.0 million has continued to fail at auction, resulting in ARRIS continuing to hold this security. Due to the current market conditions and the failure of the auction rate security to reprice, beginning in the second quarter of 2008, we recorded changes in the fair value of the instrument as an impairment charge in the Statement of Operations in the gain (loss) on investment line. This particular security was held as of March 31, 2009 as a trading security within long-term investments with a fair market value of $4.9 million (including the fair value of the put option). ARRIS may not be able to liquidate this security until a successful auction occurs, or alternatively, we have been provided the option to sell the security to a major financial institution at par on June 30, 2010. During the quarter ended March 31, 2009, we recorded an increase in fair value of $15 thousand.

A significant portion of our products are manufactured or assembled in China, Mexico, Ireland, Taiwan, and other countries outside the United States. Our sales into international markets have been and are expected in the future to be an important part of our business. These foreign operations are subject to the usual risks inherent in conducting business abroad, including risks with respect to currency exchange rates, economic and political destabilization, restrictive actions and taxation by foreign governments, nationalization, the laws and policies of the United States affecting trade, foreign investment and loans, and foreign tax laws.

We have certain international customers who are billed in their local currency. Changes in the monetary exchange rates may adversely affect our results of operations and financial condition. To manage the volatility relating to these typical business exposures, we may enter into various derivative transactions, when appropriate. We do not hold or issue derivative instruments for trading or other speculative purposes. The euro and the yen are the predominant currencies of those customers who are billed in their local currency. Taking into account the effects of foreign currency fluctuations of the euro and the yen versus the dollar, a hypothetical 10% weakening of the U.S. dollar (as of December 31, 2008) would provide a gain on foreign currency of approximately $1.9 million. Conversely, a hypothetical 10% strengthening of the U.S. dollar would provide a loss on foreign currency of approximately $1.9 million. There were no material changes in this market risk since December 31, 2008. The actual impact of foreign exchange rate changes will depend on, among other factors, the timing of rate

changes and changes in the volume and mix of the our business. As of March 31, 2009, we had no material contracts, other than accounts receivable, denominated in foreign currencies.

We regularly review our forecasted sales in euros and enter into option contracts when appropriate. In the event that we determine a hedge to be ineffective prior to expirations earnings may be effected by the change in the hedge value. As of March 31, 2009, we had option collars outstanding with notional amounts totaling $6.0 million euros, which mature through 2009. As of March 31, 2009, we had forward contracts outstanding with notional amounts totaling $29.5 million euros, which mature in 2009 and $4.5 million euros maturing in 2010. The fair value of these option collars and forward contracts was a net asset of approximately $0.8 million as of March 31, 2009.

Item 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report (the “Evaluation Date”). Based on that evaluation, such officers concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective as contemplated by the Act.

(b) Changes in Internal Control over Financial Reporting . Our principal executive officer and principal financial officer evaluated the changes in our internal control over financial reporting that occurred during the most recent fiscal quarter. Based on that evaluation, our principal executive officer and principal financial officer concluded that there had been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Commencing in 2005, Rembrandt Technologies, LP filed a series of lawsuits against Charter Communications, Inc, Time Warner Cable, Inc., Comcast Corporation and others alleging infringement of eight (8) patents related to the cable systems operators’ use of data transmission, video, cable modem, voice-over-internet, and other technologies and applications. Although ARRIS is not a defendant in any of these lawsuits, its customers are, and its customers either have requested indemnification from, or may request indemnification or cooperation with the defense costs from, ARRIS and the other manufacturers of the equipment that is alleged to infringe. ARRIS is party to a joint defense agreement with respect to one of the lawsuits and has various understandings with the defendants in the remaining lawsuits with respect to cost sharing. In June 2007, the Judicial Panel of multi district litigation issued an order centralizing the litigation for administrative purposes in the District Court for Delaware. In November 2007 ARRIS, Cisco, Motorola and other suppliers filed a declaratory judgment action in the District Court of Delaware seeking to have the court declare the patents invalid and not infringed. After a favorable Markman hearing, Rembrandt reduced the number of asserted patents from eight to four with leave to reassert under certain circumstances. It is premature to assess the likelihood of a favorable outcome. In the event of an adverse outcome, ARRIS could be required to indemnify its customers, pay royalties, and/or cease using certain technology. Also, an adverse outcome may require a change in the DOCSIS ^® standards to avoid using the patented technology.

In connection with our acquisition of C-COR, Inc., ARRIS on October 31, 2007, was named as the defendant in a suit entitled CIBC World Market Corp. vs. ARRIS Group, Inc., Action No. 603605/2007, in the Supreme Court of the State of New York, New York County. This suit was settled, and the settlement cost was included in operating expenses for the quarter ended March 31, 2009.

correspondence further asserts that information obtained during the course of the Adelphia Chapter 11 proceedings indicates that Cablevision was insolvent during the year prior to the Petition Date, and, accordingly, the Trust intends to assert that the payments made to ARRIS were fraudulent transfers under section 548 (a) of the Bankruptcy Code that may be recovered for the benefit of Cablevision’s bankruptcy estate pursuant to section 550 of the Bankruptcy Code. Prior to its acquisition by ARRIS, C-COR received a similar correspondence making the same claims. We understand that similar letters were received by other Adelphia suppliers and we may seek to enter into a joint defense agreement to share legal expenses if a suit is commenced. To date, no suit has been commenced by the Trust. In the event a suit is commenced, ARRIS intends to contest the case vigorously. No estimate can be made of the possible range of loss, if any, associated with a resolution of these assertions.

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.

Our performance is dependent on customers’ capital spending for constructing, rebuilding, maintaining or upgrading broadband communications systems. Capital spending in the telecommunications industry is cyclical and can be curtailed or deferred on short notice. A variety of factors affect the amount of capital spending and, therefore, our sales and profits, including:

	•		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.

Several of our customers have accumulated significant levels of debt. These high debt levels, coupled with the current turbulence and uncertainty in the capital markets, have affected the market values of domestic cable operators and may impact their access to capital in the future. Even if the financial health of our customers remains intact, we cannot assure you that these customers may not purchase new equipment at levels we have seen in the past or expect in the future. During the later part of 2008 and continuing into 2009, the economy and financial markets have been heavily impacted by housing market disruptions and foreclosures as well as the recent material credit market disruptions. One major MSO, Charter Communications, recently filed for bankruptcy protection, and others may do so in due course. We cannot predict the impact if any of the recent financial market turmoil, or of specific customer financial challenges on our customer’s upgrade and maintenance expenditures.

The markets in which we operate are intensely competitive, and competitive pressures may adversely affect our results of operations.

The markets for broadband communication products and services are extremely competitive and dynamic, requiring the companies that compete in these markets to react quickly and capitalize on change. This requires us to retain skilled and experienced personnel as well as to deploy substantial resources toward meeting the ever-changing demands of the industry. We compete with national and international manufacturers, distributors and wholesalers including many companies that are larger than we are. Our major competitors include:

	•		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.

In some instances, notably our software products, our customers themselves may be our competition as they may develop their own software. The rapid technological changes occurring in the broadband markets may lead to the entry of new competitors, including those with substantially greater resources than our own. Because the markets in which we compete are characterized by rapid growth and, in some cases, low barriers to entry, smaller niche market companies and start-up ventures also may become principal competitors in the future. Actions by existing

competitors and the entry of new competitors may have an adverse effect on our sales and profitability. The broadband communications industry is further characterized by rapid technological change. In the future, technological advances could lead to the obsolescence of some of our current products, which could have a material adverse effect on our business.

Further, many of our larger competitors are in a better position to withstand any significant reduction in capital spending by customers in these markets. They often have broader product lines and market focus and therefore are not as susceptible to downturns in a particular market. In addition, several of our competitors have been in operation longer than we have been, and therefore they have more established relationships with domestic and foreign broadband service users. We may not be able to compete successfully in the future, and competition may negatively impact our business.

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.

The telecommunications industry has experienced the consolidation of many industry participants, and this trend may continue. When consolidations occur, it is possible that the acquirer will not continue using the same suppliers, thereby possibly resulting in an immediate or future elimination of sales opportunities for us or our competitors, depending upon who had the business initially. Consolidations also could result in delays in purchasing decisions by the merged businesses. The purchasing decisions of the merged companies could have a material adverse effect on our business.

Mergers among the supplier base also have increased, and this trend may continue. For example, in February 2006, Cisco Systems, Inc. acquired Scientific-Atlanta, Inc.; in April 2007, Ericsson acquired TANDBERG Television ASA; and in July 2007, Motorola, Inc. acquired Terayon, Inc. Larger combined companies with pooled capital resources may be able to provide solution alternatives with which we would be put at a disadvantage to compete. The larger breadth of product offerings by these consolidated suppliers could result in customers electing to trim their supplier base for the advantages of one-stop shopping solutions for all of their product needs. Consolidation of the supplier base could have a material adverse effect on our business.

We may pursue acquisitions and investments that could adversely affect our business.

In the past, we have made acquisitions of and investments in businesses, products, and technologies to complement or expand our business. While we have no announced plans for additional acquisitions, future acquisitions are part of our strategic objectives and may occur. If we identify an acquisition candidate, we may not be able to successfully negotiate or finance the acquisition or integrate the acquired businesses, products, or technologies with our existing business and products. Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, amortization expenses, and substantial goodwill. We will test the goodwill that is created by acquisitions, at least annually and will record an impairment charge if its value has declined. For instance, in the fourth quarter of 2008, we recorded a substantial impairment charge with respect to the goodwill that was created as part of our acquisition of C-COR.

We have substantial goodwill.

Our financial statements reflect substantial goodwill, approximately $231.7 million as of March 31, 2009, that was recognized in connection with the acquisitions that we have made. In accordance with Statement of Financial Accounting Standard (“SFAS”) No. 142, Goodwill and Other Intangible Assets , we annually (and more frequently if changes in circumstances indicate that the asset may be impaired) review the carrying amount of our goodwill in order to determine whether it has been impaired for accounting purposes. In general, if the fair value of the corresponding reporting unit is less that the carrying value of the goodwill, we record an impairment charge. The determination of fair value is dependent upon a number of factors, including assumptions about future cash flows and growth rates that are based on our current and long-term business plans. In 2008, we recorded an impairment charge to our goodwill of approximately $209.3 million. As the ongoing expected cash flows and carrying amounts of our remaining goodwill are assessed, changes in the economic conditions, changes to our business strategy, changes in operating performance or other indicators of impairment could cause us to realize an additional impairment charge in the future.

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.

Our two largest customers (including their affiliates, as applicable) are Comcast, and Time Warner Cable. For the quarter ended March 31, 2009, sales to Comcast accounted for approximately 25.7%, and sales to Time Warner Cable accounted for approximately 19.4% of our total revenue. The loss of any of these customers, or one of our other large customers, or a significant reduction in the products or services provided to any of them would have a material adverse impact on our business. For each of these customers, we also are one of their largest suppliers. A consequence of that, if from time-to-time customers elect to purchase products from our competitors in order to diversify their supplier base and to dual-source key products or to curtail purchasing due to budgetary or market conditions, such decisions could have material consequences to our business. In addition, because of the magnitude of our sales to these customers the terms and timing of our sales are heavily negotiated, and even minor changes can have a significant impact upon or business.

We may have difficulty in forecasting our sales.

Because a significant portion of the purchases by our customers are discretionary, accurately forecasting sales is difficult. In addition, more so than historically, in recent years our customers have submitted their purchase orders less evenly over the course of each quarter and year and with shorter lead times. This has made it even more difficult for us to forecast sales and other financial measures and plan accordingly.

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.

The broadband products we sell are subject to continuous technological evolution. Further, the cable industry has and will continue to demand a move toward open standards. The move toward open standards is expected to increase the number of MSOs that will offer new services, in particular, telephony. This trend also is expected to increase the number of competitors and drive capital costs per subscriber deployed down. These factors may adversely impact both our future revenues and margins.

Fluctuations in our Media & Communications Systems sales result in greater volatility in our operating results.

The level of our Media & Communications Systems sales fluctuate significantly quarter to quarter and results in greater volatility of our operating results than has been typical in the past, when the main source of volatility was the high proportion of quick-turn product sales. The timing of revenue recognition on software and system sales is based on specific contract terms and, in certain cases, is dependent upon completion of certain activities and customer acceptance which are difficult to forecast accurately. Because the gross margins associated with software and systems sales are substantially higher than our average gross margins, fluctuations in quarterly software sales have a disproportionate effect on operating results and earnings per share and could result in our operating results falling short of the expectations of securities analysts and investors.

Products currently under development may fail to realize anticipated benefits.

Rapidly changing technologies, evolving industry standards, frequent new product introductions and relatively short product life cycles characterize the markets for our products. The technology applications that we currently are developing may not be ultimately successful. Even if the products in development are successfully brought to market, they may not be widely used or we may not be able to successfully capitalize on their technology. To compete successfully, we must quickly design, develop, manufacture and sell new or enhanced products that provide increasingly higher levels of performance and reliability. However, we may not be able to successfully develop or introduce these products if our products:

	•		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.

Furthermore, our competitors may develop similar or alternative technologies that, if successful, could have a material adverse effect on us. Our strategic alliances are based on business relationships that have not been the

subject of written agreements expressly providing for the alliance to continue for a significant period of time. The loss of a strategic relationship could have a material adverse effect on the progress of new products under development with that third party.

Our success depends in large part on our ability to attract and retain qualified personnel in all facets of our operations.

Competition for qualified personnel is intense, and we may not be successful in attracting and retaining key personnel, which could impact our ability to maintain and grow our operations. Our future success will depend, to a significant extent, on the ability of our management to operate effectively. In the past, competitors and others have attempted to recruit our employees and in the future, their attempts may continue. The loss of services of any key personnel, the inability to attract and retain qualified personnel in the future or delays in hiring required personnel, particularly engineers and other technical professionals, could negatively affect our business.

We are substantially dependent on contract manufacturers, and an inability to obtain adequate and timely delivery of supplies could adversely affect our business.

Many components, subassemblies and modules necessary for the manufacture or integration of our products are obtained from a sole supplier or a limited group of suppliers. Our reliance on sole or limited suppliers, particularly foreign suppliers, and our reliance on subcontractors involves several risks including a potential inability to obtain an adequate supply of required components, subassemblies or modules and reduced control over pricing, quality and timely delivery of components, subassemblies or modules. Historically, we have not maintained long-term agreements with any of our suppliers or subcontractors. An inability to obtain adequate deliveries or any other circumstance that would require us to seek alternative sources of supply could affect our ability to ship products on a timely basis. Any inability to reliably ship our products on time could damage relationships with current and prospective customers and harm our business.

Our international operations may be adversely affected by any decline in the demand for broadband systems designs and equipment in international markets.

Sales of broadband communications equipment into international markets are an important part of our business. Our products are marketed and made available to existing and new potential international customers. In addition, United States broadband system designs and equipment are increasingly being employed in international markets, where market penetration is relatively lower than in the United States. While international operations are expected to comprise an integral part of our future business, international markets may no longer continue to develop at the current rate, or at all. We may fail to receive additional contracts to supply equipment in these 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.

A significant portion of our products are manufactured or assembled in China, Ireland, Mexico, and other countries outside of the United States. The governments of the foreign countries in which our products are manufactured may pass laws that impair our operations, such as laws that impose exorbitant tax obligations or nationalize these manufacturing facilities.

In addition, we own a manufacturing facility located in Tijuana, Mexico. This operation is exposed to certain risks as a result of its location, including:

	•		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.

Any of these risks could interfere with the operation of this facility and result in reduced production, increased costs, or both. In the event that production capacity of this facility is reduced, we could fail to ship products on

schedule and could face a reduction in future orders from dissatisfied customers. If our costs to operate this facility increase, our margins would decrease. Reduced shipments and margins would have an adverse effect on our financial results.

We face risks relating to currency fluctuations and currency exchange.

On an ongoing basis we are exposed to various changes in foreign currency rates because significant sales are denominated in foreign currencies. These risk factors can impact our results of operations, cash flows and financial position. We manage these risks through regular operating and financing activities and periodically use derivative financial instruments such as foreign exchange forward and option contracts. There can be no assurance that our risk management strategies will be effective.

We also may encounter difficulties in converting our earnings from international operations to U.S. dollars for use in the United States. These obstacles may include problems moving funds out of the countries in which the funds were earned and difficulties in collecting accounts receivable in foreign countries where the usual accounts receivable payment cycle is longer.

We depend on channel partners to sell our products in certain regions and are subject to risks associated with these arrangements.

We utilize distributors, value-added resellers, system integrators, and manufacturers’ representatives to sell our products to certain customers and in certain geographic regions to improve our access to these customers and regions and to lower our overall cost of sales and post-sales support. Our sales through channel partners are subject to a number of risks, including:

	•		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.

Although we have been profitable in the last three fiscal years, prior to that we experienced significant losses and we may not be profitable, or meet the level of expectations of the investment community, in the future. This could have a material adverse impact on our stock price.

We may face higher costs associated with protecting our intellectual property or obtaining access necessary to intellectual property of others.

Our future success depends in part upon our proprietary technology, product development, technological expertise and distribution channels. We cannot predict whether we can protect our technology or whether competitors can develop similar technology independently. We have received, directly or indirectly, and may continue to receive from third parties, including some of our competitors, notices claiming that we, or our customers using our products, have infringed upon third-party patents or other proprietary rights. We are a defendant in proceedings (and other proceedings have been threatened) in which our customers were sued for patent infringement and sued, or made claims against, us and other suppliers for indemnification, and we may become involved in similar litigation involving these and other customers in the future. These claims, regardless of their merit, result in costly litigation, divert the time, attention and resources of our management, delay our product shipments, and, in some cases, require us to enter into royalty or licensing agreements. If a claim of product infringement against us is successful and we fail to obtain a license or develop non-infringing technology, our business and operating results could be materially and adversely affected. In addition, the payment of any damages or any necessary licensing fees or indemnification costs associated with a patent infringement claim could be material and could also materially adversely affect our operating results. See “Legal Proceedings.”

Changes in accounting pronouncements can impact our business.

We prepare our financial statements in accordance with U.S. generally accepted accounting principles. These principles periodically are modified by the Financial Accounting Standards Board and other governing authorities, and those changes can impact how we report our results of operations, cash flows and financial positions. For instance, the FASB recently announced that it has modified, the accounting principles that govern the reporting of interest expense with respect to certain convertible indebtedness, such as the convertible notes that we have outstanding. The consequence of this resulted in an increase in our interest expense and a restatement of interest expense for prior periods. These changes could be significant.

We do not intend to pay cash dividends in the foreseeable future.

Although from time to time we may consider repurchasing shares of our common stock, we do not anticipate paying cash dividends on our common stock in the foreseeable future. In addition, the payment of dividends in certain circumstances may be prohibited by the terms of our current and future indebtedness.

We have anti-takeover defenses that could delay or prevent an acquisition of our company.

We have a shareholder rights plan (commonly known as a “poison pill”). This plan is not intended to prevent a takeover, but is intended to protect and maximize the value of stockholders’ interests. This plan could make it more difficult for a third party to acquire us or may delay that process.

We have the ability to issue preferred shares without stockholder approval.

Our common shares may be subordinate to classes of preferred shares issued in the future in the payment of dividends and other distributions made with respect to common shares, including distributions upon liquidation or dissolution. Our Amended and Restated Certificate of Incorporation permits our board of directors to issue preferred shares without first obtaining stockholder approval. If we issued preferred shares, these additional securities may have dividend or liquidation preferences senior to the common shares. If we issue convertible preferred shares, a subsequent conversion may dilute the current common stockholders’ interest.

Item 6. EXHIBITS


Exhibit No.		Description of Exhibit

10.24*		Form of Restricted Stock Agreement

10.25*		Form of Restricted Stock Unit

31.1		Section 302 Certification of Chief Executive Officer, filed herewith

31.2		Section 302 Certification of Chief Financial Officer, filed herewith

32.1		Section 906 Certification of Chief Executive Officer, filed herewith

32.2		Section 906 Certification of Chief Financial Officer, filed herewith

SIGNATURES

Pursuant to the requirements the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ARRIS GROUP, INC.
	/s/ David B. Potts
	David B. Potts
	Executive Vice President, Chief Financial Officer, Chief Accounting Officer, and Chief Information Officer

Dated: May 8, 2009

EXHIBIT 10.24

ARRIS GROUP, INC.
2008 STOCK INCENTIVE PLAN

Restricted Stock Grant

Participant:
No. of Shares subject to
Restricted Stock Grant:

THIS RESTRICTED STOCK GRANT (this “Grant”) dated as of the ___day of , 20___(the “Date of Grant”), is made by ARRIS Group, Inc., a Delaware corporation (the “Company”), to the participant named above (the “Participant”), pursuant and subject to the provisions of the plan referenced above (the “Plan”). All terms used herein that are defined in the Plan have the same meaning given them in the Plan. Paragraph 22 of this Grant provides definitions of additional terms used herein.

1. Grant of Restricted Stock . Pursuant to the Plan, the Company, on the Date of Grant, granted to the Participant, subject to the terms and conditions of the Plan and subject further to the terms and conditions set forth herein, an award of the number of shares of the common stock of the Company, par value $0.01 per share (“Shares”), set forth above. This award hereinafter is referred to as the “Restricted Stock.”

2. Restrictions . Except as otherwise provided in this Grant, the shares of Restricted Stock are nontransferable and are subject to a substantial risk of forfeiture.

3. No Shareholder Rights . Before shares of Restricted Stock become transferable and nonforfeitable (“Vested”), the Participant will have none of the rights of a shareholder in the shares of Restricted Stock, including without limitation, the right to vote the shares of Restricted Stock or to receive dividends and distributions thereon. Additionally, during such period, the Participant may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of shares of Restricted Stock, which shall remain subject to a substantial risk of forfeiture and nontransferable as described in this Grant. Notwithstanding the preceding sentence, the Participant may designate a beneficiary or beneficiaries to receive, in the event of the Participant’s death, any rights to which the Participant would be entitled under this Grant. Such designation shall be filed with the Company, and may be changed or revoked, all in accordance with uniform procedures specified by the Committee.

4. Vesting . Except as provided in paragraph 5 below and subject to paragraph 20, the Participant’s interest in the shares of Restricted Stock shall become Vested at the time or times set forth on Exhibit A attached hereto. If the Participant ceases to be employed by the Company or any Affiliate for any reason (except as may be provided on Exhibit A or in any other agreement between the Company and the Participant), all shares of Restricted Stock that are not then Vested shall be forfeited, without any payment whatsoever to the Participant.

5. Securities Law Restrictions .

(a) Notwithstanding any other provision of this Grant, no Shares shall be issued and no certificates for Shares shall be delivered except in compliance with all applicable federal and state laws and regulations (including, without limitation, withholding tax requirements), any listing agreement to which the Company is a party, and the rules of all domestic stock exchanges on which the Company’s Shares may be listed. The Company shall have the right to rely on an opinion of its counsel as to such compliance. Any stock certificate evidencing Shares issued pursuant to this Grant may bear such legends and statements as the Committee may deem advisable to assure compliance with federal and state laws and regulations and to reflect any other restrictions applicable to such shares as the Committee otherwise deems appropriate. No Shares shall be issued and no certificates for Shares shall be delivered until the Company has obtained such consent or approval as the Committee may deem advisable from regulatory bodies having jurisdiction over such matters.

(b) Notwithstanding any other provision of this Grant, the Committee may postpone the vesting of the Restricted Stock for such time as the Committee in its sole discretion may deem necessary in order to permit the Company (i) to effect, amend or maintain any necessary registration of the Plan or the Shares subject to this Grant under the securities laws; (ii) to take any action in order to (A) list such Shares on a stock exchange if Shares are not then listed on such exchange or (B) comply with restrictions or regulations incident to the maintenance of a public market for its Shares, including any rules or regulations of any stock exchange on which the Shares are listed; (iii) to determine that such Shares are exempt from such registration or that no action of the kind referred to in (ii)(B) above needs to be taken; (iv) to comply with any other applicable law, including without limitation, securities laws; (v) to comply with any legal or contractual requirements during any such time the Company or any Affiliate is prohibited from doing any of such acts under applicable law, including without limitation, during the course of an investigation of the Company or any Affiliate, or under any contract, loan Grant or covenant or other Grant to which the Company or any Affiliate is a party or (vi) to otherwise comply with any prohibition on such acts or payments during any applicable blackout period; and the Company shall not be obligated by virtue of any terms and conditions of the Grant or any provision of the Plan to recognize the grant or vesting of the Restricted Stock or to issue Shares in violation of the securities laws or the laws of any government having jurisdiction thereof or any of the provisions hereof. Any such postponement shall not extend the term of the Restricted Stock (unless expressly agreed to by the Company) and neither the Company nor its directors and officers nor the Committee shall have any obligation or liability to the Participant or to any other person with respect to Shares as to which this award shall lapse because of such postponement.

6. Stock Power . With respect to any shares of Restricted Stock forfeited under this Grant, the Participant does hereby irrevocably constitute and appoint Lawrence A. Margolis or any successor Secretary of the Company (the “Secretary”) as his or her attorney to transfer the forfeited shares on the books of the Company with full power of substitution in the premises. The Secretary shall use the authority granted in this paragraph to cancel any shares of Restricted Stock that are forfeited under this Grant.

7. Additional Restrictions . The Participant can only become Vested in the shares of Restricted Stock during the Participant’s lifetime. Neither this grant of Restricted Stock nor the Participant’s right or interest in any shares of Restricted Stock shall be liable for, or subject to, any lien, obligation or liability of the Participant. Participant’s rights and interests in any shares of Restricted Stock are subject to the Company’s Executive Compensation Adjustment and Recovery Policy to the extent that Participant now or in the future is subject thereto. To the extent that the Company adopts, pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 or otherwise, any additional or alternative plan generally applicable to the Company’s senior management that provides for the forfeiture or repayment of bonuses, incentive-based or equity-based compensation or proceeds from the sale of Company securities, as a result of non-compliance with securities laws or other misconduct, whether by the Participant or some other person, the shares of Restricted Stock and proceeds there from shall be subject to forfeiture or repayment in accordance wit the terms of such plan.

8. Custody of Certificates . The Company shall retain custody of stock certificates evidencing the shares of Restricted Stock. Within ten (10) days after shares of Restricted Stock become Vested, Subject to Participant’s fulfillment of the obligations contained in Paragraph 20, the Company will deliver to the Participant the stock certificates evidencing the shares of Restricted Stock that have become Vested.

9. Non-Competition and Non-Solicitation Agreement . By accepting the Restricted Stock, the Participant agrees as follows:

(a) During employment and for a period of four (4) months from the date of termination of the Participant’s employment with the Company and its Affiliates for any reason whatsoever, the Participant will not, directly or indirectly, compete with the Company or any Affiliate by providing to any entity that is in a Competing Business services substantially similar to the services provided by the Participant at the time of termination.

(b) During employment and for a period of two (2) years after the termination of the Participant’s employment with the Company and its Affiliates for any reason whatsoever, the Participant will not, on his own behalf or on behalf of any other person, partnership, association, corporation or other entity, solicit or in any manner attempt to influence or induce any employee of the Company or its Affiliates (known by the Participant to be such) to leave the employment of the Company or its Affiliates, nor shall the Participant use or disclose to any person, partnership, association, corporation or other entity any information obtained while an employee of the Company or any Affiliate concerning the name and addresses of the Company’s or any Affiliate’s employees.

(c) During employment and for the applicable period under any other agreement between the Company and the Participant or as otherwise provided in applicable law, the Participant will comply with all confidentiality, trade secrets and similar requirements.

If the Participant violates any of the provisions of this paragraph 9, the Participant shall pay the Company any profits the Participant received as a result of the Vesting of the Restricted Stock

(including the greater of the value of the Restricted Stock on the day of Vesting or the proceeds from the ultimate sale of the Restricted Stock), provided that in the case of violations subsequent to the termination of the Participant’s employment, such payments shall apply only to Restricted Stock that Vests subsequent to six months prior to such termination. Such payment shall be in addition to any other remedies the Company may have.

10. Agreement to Terms of the Plan and Agreement . The Participant has received a copy of the Plan, has read and understands the terms of the Plan and this Grant, and by accepting the Restricted Stock (which acceptance shall conclusively be evidenced by either the failure of Participant to promptly reject this grant following receipt or Participant’s acceptance of any benefits hereunder) agrees to be bound by their terms and conditions.

11. Fractional Shares . Fractional Shares shall not be issuable hereunder, and when any provision hereof may entitle the Participant to a fractional Share, such fractional Share shall be rounded up to the nearest whole Share.

12. Change in Capital Structure . The terms of the Restricted Stock shall be adjusted in accordance with the terms and conditions of the Plan as the Committee determines is equitably required in the event the Company effects one or more stock dividends, subdivisions or consolidations of Shares, reorganizations, recapitalizations, spin-offs or other similar changes in capitalization.

13. Notice . Any notice or other communication given pursuant to this Grant, or in any way with respect to the Restricted Stock, shall be in writing and shall be personally delivered or mailed by United States registered or certified mail, postage prepaid, return receipt requested, to the following addresses or such other address as the addressee may provide to the other party in writing:


		If to the Company:		ARRIS Group, Inc.
				3871 Lakefield Drive
				Suwanee, Georgia 30024
				Attn: Secretary

		If to the Participant:		The address of the Participant as it appears in the employment records of the Company

14. No Right to Continued Employment . Neither this Grant nor the Restricted Stock confers upon the Participant any right with respect to continued employment by the Company or any Affiliate, nor shall it interfere in any way with the right of the Company or any Affiliate to terminate the Participant’s employment at any time without assigning a reason therefor.

15. Impact on Other Plans and Arrangements . The determination of whether the value of the Restricted Stock will be included or excluded in calculating any severance, resignation, redundancy, end of service payments, bonuses or long-service awards, any payments or benefits under any pension or retirement plans or any other compensation or benefits will be based on the terms of the applicable plan, program or arrangement. If such plan, program or

arrangement would not otherwise require the inclusion of Restricted Stock in such calculation, then the Restricted Stock shall be excluded from such calculation.

16. Binding Effect . Subject to the limitations stated above and in the Plan, this Grant shall be binding upon and inure to the benefit of the legatees, distributees, transferees and personal representatives of the Participant and the successors of the Company.

17. Conflicts . In the event of any conflict between the provisions of the Plan and the provisions of this Grant, the provisions of the Plan shall govern. All references herein to the Plan shall mean the Plan as in effect on the date hereof.

18. Governing Law . This Grant shall be governed by the laws of the State of Delaware, except to the extent federal law applies.

19. Tax Consequences and Section 409A . The Participant acknowledges that there may be tax consequences upon the vesting of the Restricted Stock and that the Participant should consult a tax advisor. The Restricted Stock is intended to be exempt from the requirements of Section 409A of the Code. Notwithstanding the preceding, the Company and its Affiliates shall not be liable to the Participant or any other person if the Internal Revenue Service or any court or other authority having jurisdiction over such matter determines for any reason that this Grant is subject to taxes, penalties or interest as a result of failing to comply with Section 409A of the Code.

20. Withholding Obligations . At the applicable time, the Participant shall remit to the Company amounts sufficient to satisfy any federal, state or local withholding tax requirements before the delivery of any certificate or certificates for such shares of Restricted Stock by making payment in cash or cash equivalent or such other form of payment acceptable to the Committee (which may include Shares) or shall arrange for the withholding from other payments due the Participant of the applicable amounts.

21. Amendment or Termination . This Grant may be amended or terminated at any time by the mutual Grant and written consent of the Participant and the Company, but only to the extent permitted under the Plan.

22. Definitions . For purposes of this Grant, the following words shall have the meanings set forth below:

(a) “ Affiliate ” means any entity that is part of a controlled group of corporations or is under common control with the Company within the meaning of Code Sections 1563(a), 414(b) or 414(c) , except that, in making any such determination, 50 percent shall be substituted for 80 percent under such Code Sections and the related regulations.

obligations to the Company or Affiliate, including, but not limited to, the Participant’s dishonesty, disloyalty, insubordination, unsatisfactory performance, or failure to follow policies, rules, or procedures of the Company or Affiliate.

(c) “ Change in Control ” means (1) any Person (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) becomes the “beneficial owner” (as determined pursuant to Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities; or (2) during any period of twelve (12) consecutive months, individuals who at the beginning of such period constitute the members of the board of directors of the corporation and any new director, whose election to the board or nomination for election to the board of directors by the corporation’s stockholders was approved by a vote of a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the board of directors (for this purpose “corporation” shall be determined in accordance with Treas. Reg. Section 1.409A-3(i)(5)(vi)(A)(2)); or (3) the Company shall merge with or consolidate into any other corporation, other than a merger or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto holding immediately thereafter securities representing more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (4) the sale or disposition of all or substantially all of the Company’s assets during a period of twelve (12) consecutive months to any Person. Whether a Change in Control shall have occurred shall be determined in accordance with Section 409A(a)(2)(A)(v) of the Code and the regulations thereunder.

(d) “ Code ” means the Internal Revenue Code of 1986, as amended.

(e) “ Competing Business ” means any business that engages, in whole or in part, in the equipment and supply for broadband communications systems in the United States.

(f) “ Disabled ” means fully and permanently disabled within the meaning of the Company’s group long term disability plan then in effect. The Committee, in its sole discretion, shall determine whether the Participant is Disabled for purposes of this Grant.

IN WITNESS WHEREOF, the Company has caused this Grant to be signed by a duly authorized officer.


		COMPANY:

		ARRIS GROUP, INC.

		By:

EXHIBIT A
Vesting Provisions

Except as provided in paragraph 5 of the Grant, the Participant’s interest in the shares of Restricted Stock shall Vest as set forth below. For purposes of the Grant, including the vesting provisions in this Exhibit A , the Participant will be deemed to have terminated employment as of his or her last day of active work for the Company and its Affiliates; provided, however, that the Participant shall be deemed to be actively at work during any period the Participant is on approved paid medical leave or during the protected reemployment period applicable to military leave. Where, under General Vesting below, both Service-Based and Performance-Based Vesting are indicated, Vesting shall occur only to the extent both Vesting conditions are met.

I. General Vesting

Service-Based Vesting

o Shares of the Restricted Stock granted hereunder shall Vest as set forth below:


Percentage of Shares That Vest		Vesting Date
__%		, 20__
__%		, 20__
__%		, 20__
__%		, 20__

Performance-Based Vesting

o Shares of the Restricted Stock granted hereunder are performance shares (the “Performance Shares”). Vesting with respect to the Performance Shares of Restricted Stock is set forth below with respect to each applicable vesting date, provided that, at each such time, (a) the Participant is still employed by the Company or any Affiliate and (b) the performance measures set forth below have been met and certified by the Committee.

[Describe Performance Criteria]

II. Accelerated Vesting

Accelerated Vesting on Death

o Notwithstanding the foregoing, one-hundred percent (100%) of the shares of Restricted Stock shall Vest if the Participant dies while still employed by the Company or any Affiliate.

Accelerated Vesting on Disability

o Notwithstanding the foregoing, one-hundred percent (100%) of the shares of Restricted Stock shall Vest if the Participant dies or becomes Disabled while still employed by the Company or any Affiliate.

Accelerated Vesting on Change in Control

o Notwithstanding the foregoing, one hundred percent (100%) of the Participant’s interest in the shares of Restricted Stock shall Vest (a) if, following a Change in Control, Participant is discharged from employment with the Company or any Affiliate other than for Cause, or (b) as otherwise provided in any employment agreement between the Company or any Affiliate and the Participant.

EXHIBIT 10.25

ARRIS GROUP, INC.
2008 STOCK INCENTIVE PLAN

Restricted Stock Unit Grant

Participant:
No. of Units subject to
Restricted Stock Unit Grant:

THIS RESTRICTED STOCK UNIT GRANT (this “Grant”) dated as of the ___day of , 20___ (the “Date of Grant”), is made by ARRIS Group, Inc., a Delaware corporation (the “Company”), to the participant named above (the “Participant”), pursuant and subject to the provisions of the plan referenced above (the “Plan”). All terms used herein that are defined in the Plan have the same meaning given them in the Plan. Paragraph 22 of this Grant provides definitions of additional terms used herein.

1. Grant of Restricted Stock Units . Pursuant to the Plan, the Company, on the Date of Grant, granted to the Participant, subject to the terms and conditions of the Plan and subject further to the terms and conditions set forth herein, an award of the number of restricted stock units set forth above (the “RSUs”).

2. Restrictions . Except as otherwise provided in this Grant, the RSUs are nontransferable and are subject to a substantial risk of forfeiture.

3. No Shareholder Rights . Before shares of the common stock of the Company, par value $0.01 per share (the “Shares”), are issued upon conversion as provided herein, the Participant will have none of the rights of a shareholder in the Shares, including without limitation, the right to vote the Shares or to receive dividends and distributions thereon. Additionally, during such period, the Participant may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of RSUs or Shares, which shall remain subject to a substantial risk of forfeiture and nontransferable as described in this Grant. Notwithstanding the preceding sentence, the Participant may designate a beneficiary or beneficiaries to receive, in the event of the Participant’s death, any rights to which the Participant would be entitled under this Grant. Such designation shall be filed with the Company, and may be changed or revoked, all in accordance with uniform procedures specified by the Committee.

4. Vesting . The Participant’s interest in the RSUs shall become vested (“Vested”) at the time or times set forth on Exhibit A attached hereto. If the Participant ceases to be employed by the Company or any Affiliate for any reason (except as may be provided on Exhibit A ), all RSUs that are not then Vested shall be forfeited, without any payment whatsoever to the Participant.

5. Conversion . Except as provided in paragraph 6 and subject to paragraph 20, the Company shall issue to Participant one Shares for each RSU that has Vested in accordance with paragraph 4. This obligation is an unsecured obligation of the Company.

6. Securities Law Restrictions .

(b) Notwithstanding any other provision of this Grant, the Committee may postpone the issuance of Shares for such time as the Committee in its sole discretion may deem necessary in order to permit the Company (i) to effect, amend or maintain any necessary registration of the Plan or the Shares subject to this Grant under the securities laws; (ii) to take any action in order to (A) list such Shares on a stock exchange if Shares are not then listed on such exchange or (B) comply with restrictions or regulations incident to the maintenance of a public market for its Shares, including any rules or regulations of any stock exchange on which the Shares are listed; (iii) to determine that such Shares are exempt from such registration or that no action of the kind referred to in (ii)(B) above needs to be taken; (iv) to comply with any other applicable law, including without limitation, securities laws; (v) to comply with any legal or contractual requirements during any such time the Company or any Affiliate is prohibited from doing any of such acts under applicable law, including without limitation, during the course of an investigation of the Company or any Affiliate, or under any contract, loan Grant or covenant or other Grant to which the Company or any Affiliate is a party or (vi) to otherwise comply with any prohibition on such acts or payments during any applicable blackout period; and the Company shall not be obligated by virtue of any terms and conditions of the Grant or any provision of the Plan to recognize the grant or vesting of any RSUs or to issue Shares in violation of the securities laws or the laws of any government having jurisdiction thereof or any of the provisions hereof. Any such postponement shall not extend the term of the RSUs (unless expressly agreed to by the Company) and neither the Company nor its directors and officers nor the Committee shall have any obligation or liability to the Participant or to any other person with respect to RSUs or Shares as to which this award shall lapse because of such postponement.

7. Additional Restrictions . The Participant can only become Vested in RSUs or receive Shares during the Participant’s lifetime. Neither this grant of RSUs nor the Participant’s right or interest in any Shares shall be liable for, or subject to, any lien, obligation or liability of the Participant. Participant’s rights and interests in any RSUs or Shares are subject to the Company’s Executive Compensation Adjustment and Recovery Policy to the extent that Participant now or in the future is subject thereto. To the extent that the Company adopts,

pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 or otherwise, any additional or alternative plan generally applicable to the Company’s senior management that provides for the forfeiture or repayment of bonuses, incentive-based or equity-based compensation or proceeds from the sale of Company securities, as a result of non-compliance with securities laws or other misconduct, whether by the Participant or some other person, the RSUs, Shares and proceeds there from shall be subject to forfeiture or repayment in accordance wit the terms of such plan.

8. Delivery of Certificates . Subject to the other terms and conditions hereof, within ten (10) days after RSUs convert into Shares, the Company will deliver to the Participant the stock certificates evidencing the Shares.

9. Non-Competition and Non-Solicitation Grant . By accepting the RSUs, the Participant agrees as follows:

If the Participant violates any of the provisions of (a) or (b) of this paragraph 9, the Participant shall pay the Company any profits the Participant received as a result of the Vesting of the RSUs, provided that the RSUs became Vested subsequent to six months prior to termination of the Participant’s employment. Such payment shall be in addition to any other remedies the Company may have.

10. Agreement to Terms of the Plan and Grant . The Participant has received a copy of the Plan, has read and understands the terms of the Plan and this Grant, and by accepting the RSUs (which acceptance shall conclusively be evidenced by either the failure of Participant to promptly reject this Grant following receipt or Participant’s acceptance of any benefits hereunder) agrees to be bound by their terms and conditions.

12. Change in Capital Structure . The terms of the RSUs shall be adjusted in accordance with the terms and conditions of the Plan as the Committee determines is equitably required in the event the Company effects one or more stock dividends, subdivisions or consolidations of Shares, reorganizations, recapitalizations, spin-offs or other similar changes in capitalization.

13. Notice . Any notice or other communication given pursuant to this Grant, or in any way with respect to the RSUs, shall be in writing and shall be personally delivered or mailed by United States registered or certified mail, postage prepaid, return receipt requested, to the following addresses or such other address as the addressee may provide to the other party in writing:


		If to the Company:		ARRIS Group, Inc.
				3871 Lakefield Drive
				Suwanee, Georgia 30024
				Attn: Secretary

		If to the Participant:		The address of the Participant as it appears in the employment records of the Company

14. No Right to Continued Employment . Neither this Grant nor the RSUs confer upon the Participant any right with respect to continued employment by the Company or any Affiliate, nor shall it interfere in any way with the right of the Company or any Affiliate to terminate the Participant’s employment at any time without assigning a reason therefor.

15. Impact on Other Plans and Arrangements . The determination of whether the value of the RSUs or Shares will be included or excluded in calculating any severance, resignation, redundancy, end of service payments, bonuses or long-service awards, any payments or benefits under any pension or retirement plans or any other compensation or benefits will be based on the terms of the applicable plan, program or arrangement. If such plan, program or arrangement would not otherwise require the inclusion of RSUs or Shares in such calculation, then the RSUs and Shares shall be excluded from such calculation.

18. Governing Law . This Grant shall be governed by the laws of the State of Delaware, except to the extent federal law applies.

19. Tax Consequences and Section 409A . The Participant acknowledges that there may be tax consequences upon the vesting of the RSUs and the receipt of Shares and that the Participant should consult a tax advisor. The RSUs and Shares are intended to be exempt from

the requirements of Section 409A of the Code. Notwithstanding the preceding, the Company and its Affiliates shall not be liable to the Participant or any other person if the Internal Revenue Service or any court or other authority having jurisdiction over such matter determines for any reason that this Grant is subject to taxes, penalties or interest as a result of failing to comply with Section 409A of the Code.

20. Withholding Obligations . At the applicable time, the Participant shall remit to the Company amounts sufficient to satisfy any federal, state or local withholding tax requirements before the delivery of any certificate or certificates for Shares by making payment in cash or cash equivalent or such other form of payment acceptable to the Committee (which may include Shares) or shall arrange for the withholding from other payments due the Participant of the applicable amounts.

22. Definitions . For purposes of this Grant, the following words shall have the meanings set forth below:

(b) “ Cause ” shall have the same meaning as under any employment agreement between the Company or any Affiliate and the Participant or, if no such employment agreement exists or if such employment agreement does not contain any such definition, Cause means Participant’s termination of employment by the Company or any Affiliate by reason of his or her misconduct in respect of the Participant’s obligations to the Company or Affiliate, including, but not limited to, the Participant’s dishonesty, disloyalty, insubordination, unsatisfactory performance, or failure to follow policies, rules, or procedures of the Company or Affiliate.

“corporation” shall be determined in accordance with Treas. Reg. Section 1.409A-3(i)(5)(vi)(A)(2)); or (3) the Company shall merge with or consolidate into any other corporation, other than a merger or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto holding immediately thereafter securities representing more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (4) the sale or disposition of all or substantially all of the Company’s assets during a period of twelve (12) consecutive months to any Person. Whether a Change in Control shall have occurred shall be determined in accordance with Section 409A(a)(2)(A)(v) of the Code and the regulations thereunder.

(d) “ Code ” means the Internal Revenue Code of 1986, as amended.

(e) “ Competing Business ” means any business that engages, in whole or in part, in the equipment and supply for broadband communications systems in the United States.

(e) “ Disabled ” means fully and permanently disabled within the meaning of the Company’s group long term disability plan then in effect. The Committee, in its sole discretion, shall determine whether the Participant is Disabled for purposes of this Grant.

IN WITNESS WHEREOF, the Company has caused this Grant to be signed by a duly authorized officer.


		COMPANY:

		ARRIS GROUP, INC.

		By:

EXHIBIT A
Vesting Provisions

Except as provided in paragraph 5 of the Grant, the Participant’s interest in RSUs shall Vest as set forth below. For purposes of the Grant, including the vesting provisions in this Exhibit A , the Participant will be deemed to have terminated employment as of his or her last day of active work for the Company and its Affiliates; provided, however, that the Participant shall be deemed to be actively at work during any period the Participant is on approved paid medical leave or during the protected reemployment period applicable to military leave. Where, under General Vesting below both Service-Based and Performance-Based Vesting are indicated, Vesting shall occur only when both Vesting conditions are met.

I. General Vesting

Service-Based Vesting

o The RSUs shall become Vested as set forth below:


Percentage of Shares That Vest		Vesting Date
___%		__, 20__
___%		__, 20__
___%		__, 20__
___%		__, 20__

II. Accelerated Vesting

Accelerated Vesting on Death

o Notwithstanding the foregoing, one-hundred percent (100%) of the RSUs shall Vest if the Participant dies or becomes Disabled while still employed by the Company or any Affiliate.

Accelerated Vesting on Disability

o Notwithstanding the foregoing, one-hundred percent (100%) of the shares of the RSUs shall Vest if the Participant dies or becomes Disabled while still employed by the Company or any Affiliate.

Accelerated Vesting on Change in Control

o Notwithstanding the foregoing, one-hundred percent (100%) of the RSUs shall Vest (a) if, following a Change in Control, Participant is discharged from employment with the Company or any Affiliate other than for Cause or (b) as otherwise provided in any employment agreement between the Company or any Affiliate and the Participant.

Exhibit 31.1

Certification Pursuant to § 302 of the Sarbanes-Oxley Act of 2002

I, Robert J. Stanzione, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of ARRIS Group, Inc.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for internal purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: May 8, 2009	/s/ RJ Stanzione
	Robert J. Stanzione
	Chief Executive Officer, Chairman

Exhibit 31.2

Certification Pursuant to § 302 of the Sarbanes-Oxley Act of 2002

I, David B. Potts, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of ARRIS Group, Inc.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for internal purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: May 8, 2009	/s/ David B. Potts
	David B. Potts
	Executive Vice President, Chief Financial Officer, Chief Accounting Officer, and Chief Information Officer

Exhibit 32.1

Certification Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)

The undersigned, as the chief executive officer of ARRIS Group, Inc., certifies that to the best of his knowledge the Quarterly Report on Form 10-Q for the period ended March 31, 2009, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of ARRIS Group, Inc. at the dates and for the periods indicated. The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose.

Dated this 8th day of May, 2009.



	/s/ RJ Stanzione
	Robert J. Stanzione
	Chief Executive Officer, Chairman

Exhibit 32.2

Certification Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)

The undersigned, as the chief financial officer of ARRIS Group, Inc., certifies that to the best of his knowledge the Quarterly Report on Form 10-Q for the period ended March 31, 2009, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of ARRIS Group, Inc. at the dates and for the periods indicated. The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose.

Dated this 8th day of May, 2009.



	/s/ David B. Potts
	David B. Potts
	Executive Vice President, Chief Financial Officer, Chief Accounting Officer, and Chief Information Officer

Three Months Ended March 31,

Statement of Operations Location

Derivatives Not Designated as Hedging Instruments:

Foreign exchange contracts

Loss (gain) on foreign currency