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ARRIS Announces Preliminary and Unaudited Second Quarter 2010 Results

SUWANEE, Ga., July 28, 2010 /PRNewswire via COMTEX/ --

ARRIS Group, Inc. (Nasdaq: ARRS),a global technology leader in the development of advanced cable telephony, next generation high-speed data, demand driven video solutions, operations software and broadband access equipment, today announced preliminary and unaudited financial results for the second quarter 2010.

Revenues in the second quarter 2010 were $280.4 million, up approximately $1.9 million as compared to second quarter 2009 revenues of $278.5 million, and up $13.7 million as compared to first quarter 2010 revenues of $266.7 million. Through the first half of 2010 and 2009, revenues were $547.1 million and $532.0 million, respectively.

Adjusted net income (a non-GAAP measure) in the second quarter 2010 was $0.24 per diluted share, compared to $0.27 per diluted share for the second quarter 2009 and $0.24 per diluted share for the first quarter of 2010. Year to date, adjusted net income was $0.48 per diluted share for 2010 as compared to $0.45 per diluted share in 2009.

GAAP net income in the second quarter 2010 was $0.15 per diluted share, as compared to second quarter 2009 GAAP net income of $0.18 per diluted share and the first quarter 2010 GAAP net income of $0.15 per diluted share. Year to date, GAAP net income was $0.30 per diluted share in 2010 as compared to GAAP net income of $0.28 per diluted share in 2009. Significant GAAP items that have been excluded in computing adjusted net income and adjusted net income per diluted share include amortization of intangible assets, equity compensation, non-cash interest expense, restructuring charges, and certain discrete tax items. A reconciliation of adjusted net income to GAAP net income per share is attached to this release and also can be found on the Company's website (www.arrisi.com).

Gross margin for the second quarter 2010 was 40.4%, which compares to the second quarter 2009 gross margin of 42.1% and the first quarter 2010 gross margin of 42.2%.

The Company ended the second quarter 2010 with $663.4 million of cash, cash equivalents and short-term investments, up in the aggregate by approximately $139.3 million from the end of the second quarter 2009 and up $2.3 million from the end of the first quarter 2010. The Company generated $35.2 million of cash from operating activities during the second quarter 2010 and $83.4 million through the first six months of 2010, which compares to $94.3 million and $108.2 million during the same periods in 2009, respectively.

Order backlog at the end of the second quarter 2010 was $174.1 million as compared to $165.7 million and $195.1 million at the end of the second quarter 2009 and the first quarter 2010, respectively. The Company's book-to-bill ratio in the second quarter 2010 was 0.92 as compared to the second quarter 2009 of 1.04 and the first quarter 2010 of 1.19.

"The second quarter closed in line with our expectations and I continue to believe that we are well positioned for long-term growth," said Bob Stanzione, ARRIS Chairman & CEO. "I am particularly encouraged by our progress related to future products that will enable hybrid and full IP video architectures that our customers are now exploring. Also of note is that during the second quarter 2010, we repurchased approximately 1.9 million shares of ARRIS common stock for $20.6 million and repurchased $5.0 million (face value) of Convertible Notes for $4.8 million."

During the quarter the Company displayed its leading edge products at the National Cable show in Los Angles. A highlight of the show was the ARRIS IP Video Architecture, which accelerates the introduction and deployment of an open, scalable, converged IP Video service offering over cable that is both capital and operational expense efficient.

"Looking forward, we now project that third quarter 2010 revenues for the Company will be in the range of $270 to $290 million, with adjusted net income per diluted share in the range of $0.16 to $0.20 and GAAP net income per diluted share, in the range of $0.07 to $0.11," said David Potts, ARRIS EVP & CFO. "We are projecting accelerating DOCSIS 3.0 EMTA deployments. At the same time we anticipate some change in mix, in particular a modest decline in our CMTS revenue."

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, July 28, 2010, to discuss these results in detail. You may participate in this conference call by dialing 888-679-8035 or 617-213-4848 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 73491299 and Jim Bauer as the moderator. Please note that ARRIS will not accept any calls related to this earnings release until after the conclusion of the 5:00pm EDT conference call. A replay of the conference call can be accessed approximately two hours after the call through Wednesday, August 4, 2010 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 47814593. A replay also will be made available for a period of 12 months following the conference call on ARRIS' website at www.arrisi.com.

About ARRIS

ARRIS is a global communications technology company specializing in the design, engineering and supply of technology supporting triple and quad-play broadband services for residential and business customers around the world. The company supplies broadband operators with the tools and platforms they need to deliver carrier-grade telephony, demand driven video, next-generation advertising, network and workforce management solutions, access and transport architectures and ultra high-speed data services. Headquartered in Suwanee, Georgia, USA, ARRIS has R&D centers in Suwanee, GA; Beaverton, OR; Chicago, IL; Kirkland, WA; State College, PA; Wallingford, CT; Waltham, MA; Cork, Ireland; and Shenzhen, China, and operates support and sales offices throughout the world. Information about ARRIS products and services can be found at www.arrisi.com.

Forward-looking statements:

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

  • growth expectations and business prospects;
  • third quarter and 2010 revenues and net income;
  • expected sales levels and acceptance of new ARRIS products; and
  • the general market outlook and industry trends

are forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. Among other things,

  • projected results for the third quarter as well as the general outlook for 2010 and beyond are based on preliminary estimates, assumptions and projections that management believes to be reasonable at this time, but are beyond management's control;
  • ARRIS' customers operate in a capital intensive consumer based industry, and the current volatility in the capital markets or changes in customer spending may adversely impact their ability or willingness to purchase the products that the Company offers; and
  • because the market in which ARRIS operates is volatile, actions taken and contemplated may not achieve the desired impact relative to changing market conditions and the success of these strategies will be dependent on the effective implementation of those plans while minimizing organizational disruption.

In addition to the factors set forth elsewhere in this release, other factors that could cause results to differ from current expectations include: the uncertain current economic climate and its impact on our customers' plans and access to capital; the impact of rapidly changing technologies; the impact of competition on product development and pricing; the ability of ARRIS to react to changes in general industry and market conditions including regulatory developments; rights to intellectual property, market trends and the adoption of industry standards; and consolidations within the telecommunications industry of both the customer and supplier base. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the Company's business. Additional information regarding these and other factors can be found in ARRIS' reports filed with the Securities and Exchange Commission, including its Form 10-Q for the quarter ended March 31, 2010. In providing forward-looking statements, the Company expressly disclaims any obligation to update publicly or otherwise these statements, whether as a result of new information, future events or otherwise.

                                              ARRIS GROUP, INC.
                                   PRELIMINARY CONSOLIDATED BALANCE SHEETS
                                               (in thousands)
                                                 (unaudited)



                                                               December
                                      June 30,    March 31,       31,
                                            2010        2010        2009
                                            ----        ----        ----

    ASSETS

    Current assets:
      Cash and cash equivalents         $370,932    $500,044    $500,565
      Short-term investments, at fair
       value                             292,421     161,012     125,031
                                         -------     -------     -------
                                         663,353     661,056     625,596

      Restricted cash                      4,478       4,476       4,475
      Accounts receivable, net           139,673     139,207     143,708
      Other receivables                    6,368       3,057       6,113
      Inventories, net                    78,830      79,907      95,851
      Prepaids                            10,196      10,546      11,675
      Current deferred income tax
       assets                             30,469      37,324      35,994
      Other current assets                21,329      14,328      18,896
                                          ------      ------      ------
        Total current assets             954,696     949,901     942,308

    Property, plant and equipment,
     net                                  56,128      56,223      57,195
    Goodwill                             235,122     235,256     235,388
    Intangible assets, net               186,529     195,551     204,572
    Investments                           29,485      25,435      20,618
    Noncurrent deferred income tax
     assets                                6,127       6,298       6,759
    Other assets                           6,755       8,050       8,776
                                           -----       -----       -----
                                      $1,474,842  $1,476,714  $1,475,616
                                      ==========  ==========  ==========


    LIABILITIES AND STOCKHOLDERS'
     EQUITY

    Current liabilities:
      Accounts payable                   $72,652     $44,523     $53,979
      Accrued compensation, benefits
       and related taxes                  20,696      23,639      36,936
      Accrued warranty                     3,539       3,632       4,265
      Deferred revenue                    44,913      53,024      47,044
      Current portion of long-term
       debt                                   50          87         124
      Current deferred income tax
       liability                               -           -           -
      Other accrued liabilities           24,476      42,978      46,203
                                          ------      ------      ------
        Total current liabilities        166,326     167,883     188,551
    Long-term debt, net of current
     portion                             212,914     214,131     211,248
    Accrued pension                       17,058      16,733      16,408
    Noncurrent income taxes payable       16,523      16,248      14,815
    Noncurrent deferred income tax
     liability                            28,705      33,577      37,204
    Other noncurrent liabilities          15,704      16,871      16,021
                                          ------      ------      ------
         Total liabilities               457,230     465,443     484,247

    Stockholders' equity:
      Preferred stock                          -           -           -
      Common stock                         1,405       1,402       1,388
      Capital in excess of par value   1,194,829   1,187,854   1,183,872
      Treasury stock at cost             (99,645)    (79,019)    (75,960)
      Unrealized gain (loss) on
       marketable securities                 217           2          28
      Unfunded pension liability          (6,041)     (6,041)     (6,041)
      Accumulated deficit                (72,969)    (92,743)   (111,734)
      Cumulative translation
       adjustments                          (184)       (184)       (184)
                                            ----        ----        ----
        Total stockholders' equity     1,017,612   1,011,271     991,369
                                       ---------   ---------     -------
                                      $1,474,842  $1,476,714  $1,475,616
                                      ==========  ==========  ==========






                                             September
                                                 30,           June 30,
                                                   2009              2009
                                                   ----              ----

    ASSETS

    Current assets:
      Cash and cash equivalents                $461,795          $476,846
      Short-term investments, at fair
       value                                     99,917            47,195
                                                 ------            ------
                                                561,712           524,041

      Restricted cash                             4,473             4,552
      Accounts receivable, net                  119,125           128,482
      Other receivables                           2,235             5,904
      Inventories, net                          100,024           115,944
      Prepaids                                   10,764             7,700
      Current deferred income tax
       assets                                    32,883            41,166
      Other current assets                       17,193            12,361
                                                 ------            ------
        Total current assets                    848,409           840,150

    Property, plant and equipment,
     net                                         58,339            60,048
    Goodwill                                    234,416           231,684
    Intangible assets, net                      201,351           208,822
    Investments                                  30,574            10,317
    Noncurrent deferred income tax
     assets                                       3,593             3,870
    Other assets                                  7,648             6,251
                                                  -----             -----
                                             $1,384,330        $1,361,142
                                             ==========        ==========


    LIABILITIES AND STOCKHOLDERS'
     EQUITY

    Current liabilities:
      Accounts payable                          $42,659           $48,859
      Accrued compensation, benefits
       and related taxes                         27,054            20,753
      Accrued warranty                            5,292             5,185
      Deferred revenue                           35,423            43,727
      Current portion of long-term
       debt                                         148               148
      Current deferred income tax
       liability                                    250               248
      Other accrued liabilities                  34,979            35,852
                                                 ------            ------
        Total current liabilities               145,805           154,772
    Long-term debt, net of current
     portion                                    208,433           205,710
    Accrued pension                              18,914            19,665
    Noncurrent income taxes payable              10,632            12,386
    Noncurrent deferred income tax
     liability                                   35,188            33,999
    Other noncurrent liabilities                 15,301            15,094
                                                 ------            ------
         Total liabilities                      434,273           441,626

    Stockholders' equity:
      Preferred stock                                 -                 -
      Common stock                                1,385             1,379
      Capital in excess of par value          1,177,958         1,169,223
      Treasury stock at cost                    (75,960)          (75,960)
      Unrealized gain (loss) on
       marketable securities                        (60)             (161)
      Unfunded pension liability                 (8,070)           (8,070)
      Accumulated deficit                      (145,012)         (166,711)
      Cumulative translation
       adjustments                                 (184)             (184)
                                                   ----              ----
        Total stockholders' equity              950,057           919,516
                                                -------           -------
                                             $1,384,330        $1,361,142
                                             ==========        ==========




                                     ARRIS GROUP, INC.
                     PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS
                           (in thousands, except per share data)



                                              For the Three Months
                                                 Ended June 30,
                                                 --------------
                                                 2010               2009
                                          (unaudited)        (unaudited)
                                          -----------        -----------

    Net sales                                $280,355           $278,521
    Cost of sales                             167,077            161,241
                                              -------            -------
      Gross margin                            113,278            117,280

    Operating expenses:
      Selling, general, and
       administrative expenses                 34,458             39,128
      Research and development expenses        35,538             30,143
      Restructuring charges                        21                592
      Amortization of intangible assets         9,022              9,263
                                               79,039             79,126
                                               ------             ------
    Operating income                           34,239             38,154
    Other expense (income):
      Interest expense                          4,765              4,278
      Loss (gain) on investments                  114               (512)
      Loss on foreign currency                    457              1,570
      Interest income                            (696)              (363)
      Gain on debt retirement                    (115)                 -
      Other (income) expense, net                (131)              (522)
                                                 ----               ----
    Income from continuing operations
     before income taxes                       29,845             33,703
      Income tax expense                       10,071             10,794
                                                                  ------
        Net income                            $19,774            $22,909
                                              =======            =======

    Net income per common share
      Basic                                     $0.16              $0.18
                                                =====              =====
      Diluted                                   $0.15              $0.18
                                                =====              =====

    Weighted average common shares:
      Basic                                   126,584            124,412
                                              =======            =======
      Diluted                                 130,690            128,054
                                              =======            =======





                                              For the Six Months
                                                Ended June 30,
                                                --------------
                                                 2010              2009
                                          (unaudited)       (unaudited)
                                          -----------       -----------

    Net sales                                $547,052          $532,039
    Cost of sales                             321,263           319,249
                                              -------           -------
      Gross margin                            225,789           212,790

    Operating expenses:
      Selling, general, and
       administrative expenses                 69,576            74,471
      Research and development expenses        69,903            58,538
      Restructuring charges                        73               712
      Amortization of intangible assets        18,043            18,526
                                              157,595           152,247
                                              -------           -------
    Operating income                           68,194            60,543
    Other expense (income):
      Interest expense                          9,195             8,765
      Loss (gain) on investments                  (31)             (215)
      Loss on foreign currency                    189             2,528
      Interest income                          (1,070)             (748)
      Gain on debt retirement                    (115)           (4,152)
      Other (income) expense, net                (173)             (624)
                                                 ----              ----
    Income from continuing operations
     before income taxes                       60,199            54,989
      Income tax expense                       21,434            19,198
                                               ------            ------
        Net income                            $38,765           $35,791
                                              =======           =======

    Net income per common share
      Basic                                     $0.31             $0.29
                                                =====             =====
      Diluted                                   $0.30             $0.28
                                                =====             =====

    Weighted average common shares:
      Basic                                   126,277           123,849
                                              =======           =======
      Diluted                                 130,334           126,482
                                              =======           =======


                                            ARRIS GROUP, INC.
                            PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS
                                             (in thousands)


                                            For the Three Months
                                               Ended June 30,
                                               --------------
                                                 2010             2009
                                          (unaudited)      (unaudited)
                                          -----------      -----------

    Operating Activities:
      Net income                              $19,774          $22,909
        Depreciation                            5,697            5,135
        Amortization of intangible assets       9,022            9,263
        Stock compensation expense              5,752            4,053
        Deferred income tax provision
         (benefit)                              2,154             (762)
        Amortization of deferred finance
         fees                                     177              179
        Provision for doubtful accounts            (3)             (16)
        Loss (gain) on investments                115             (512)
        Loss on disposal of fixed assets           21               30
        Non-cash interest expense               2,884            2,718
        Gain on debt retirement                  (115)               -
        Excess income tax benefits from
         stock-based compensation plans          (161)            (125)
      Changes in operating assets &
       liabilities, net of effects of
       acquisitions and disposals:
        Accounts receivable                      (463)          27,326
        Other receivables                      (3,590)             212
        Inventory                               1,077            4,830
        Income taxes payable/recoverable      (12,175)           3,055
        Accounts payable and accrued
         liabilities                            5,312           13,300
        Other, net                               (266)           2,714
                                                 ----            -----
          Net cash provided by operating
           activities                          35,212           94,309

    Investing Activities:
      Purchases of property, plant, and
       equipment                               (5,626)          (5,802)
      Cash paid for acquisition, net of
       cash acquired                                -                -
      Cash proceeds from sale of
       property, plant & equipment                  3                1
      Purchases of short-term
       investments                           (188,650)         (34,896)
      Disposals of short-term
       investments                             53,054           18,131
                                               ------           ------
          Net cash provided used in
           investing activities              (141,219)         (22,566)

    Financing Activities:
      Payment of debt obligations                 (37)             (36)
      Early redemption of long-term
       debt                                    (4,800)               -
      Repurchase of common stock              (20,626)               -
      Excess income tax benefits from
       stock-based compensation plans             161              125
      Repurchase of shares to satisfy
       employee tax withholdings                 (432)            (373)
      Proceeds from issuance of common
       stock                                    2,629            6,449
                                                -----            -----
          Net cash provided by (used in)
           financing activities               (23,105)           6,165

          Net increase (decrease) in cash
           and cash equivalents              (129,112)          77,908
    Cash and cash equivalents at
     beginning of period                      500,044          398,938
                                              -------          -------
    Cash and cash equivalents at end
     of period                               $370,932         $476,846
                                             ========         ========




                                          For the Six Months
                                          Ended June 30,
                                          --------------
                                                  2010              2009
                                           (unaudited)       (unaudited)
                                           -----------       -----------

    Operating Activities:
      Net income                               $38,765           $35,791
        Depreciation                            11,056             9,962
        Amortization of intangible
         assets                                 18,043            18,526
        Stock compensation expense              10,273             7,454
        Deferred income tax provision
         (benefit)                              (2,341)            3,927
        Amortization of deferred finance
         fees                                      357               368
        Provision for doubtful accounts            292               (10)
        Loss (gain) on investments                 (31)             (215)
        Loss on disposal of fixed assets            32                30
        Non-cash interest expense                5,767             5,536
        Gain on debt retirement                   (115)           (4,152)
        Excess income tax benefits from
         stock-based compensation plans         (2,647)             (556)
      Changes in operating assets &
       liabilities, net of effects of
       acquisitions and disposals:
        Accounts receivable                      3,743            30,971
        Other receivables                       (1,170)           (1,820)
        Inventory                               17,021            13,808
        Income taxes payable/
         recoverable                            (3,008)            1,932
        Accounts payable and accrued
         liabilities                           (19,623)          (22,316)
        Other, net                               7,008             8,918
                                                 -----             -----
          Net cash provided by operating
           activities                           83,422           108,154

    Investing Activities:
      Purchases of property, plant,
       and equipment                           (10,280)          (10,868)
      Cash paid for acquisition, net
       of cash acquired                              -              (200)
      Cash proceeds from sale of
       property, plant & equipment                 243                 1
      Purchases of short-term
       investments                            (231,086)          (58,766)
      Disposals of short-term
       investments                              55,154            33,937
                                                ------            ------
          Net cash provided used in
           investing activities               (185,969)          (35,896)

    Financing Activities:
      Payment of debt obligations                  (74)              (72)
      Early redemption of long-term
       debt                                     (4,800)          (10,556)
      Repurchase of common stock               (23,685)                -
      Excess income tax benefits from
       stock-based compensation plans            2,647               556
      Repurchase of shares to satisfy
       employee tax withholdings                (6,425)           (2,180)
      Proceeds from issuance of common
       stock                                     5,251             6,946
                                                 -----             -----
          Net cash provided by (used in)
           financing activities                (27,086)           (5,306)

          Net increase (decrease) in cash
           and cash equivalents               (129,633)           66,952
    Cash and cash equivalents at
     beginning of period                       500,565           409,894
                                               -------           -------
    Cash and cash equivalents at end
     of period                                $370,932          $476,846
                                              ========          ========


                     ARRIS GROUP, INC.
     PRELIMINARY SUPPLEMENTAL NET INCOME RECONCILIATION
           (in thousands, except per share data)
                        (unaudited)




                                                         Q1 2010
                                                         -------
                                                                 Per
                                                               Diluted
                                                Amount          Share
                                                ------          -----
      Net income                                $18,991           $0.15

      Highlighted items:
        Impacting gross margin:
          Stock compensation expense                433               -

        Impacting operating expenses:
          Acquisition costs, restructuring and
           other                                     52               -
          Amortization of intangible assets       9,022            0.07
          Stock compensation expense              4,088            0.03

        Impacting other (income) /expense:
          Non-cash interest expense               2,883            0.02
          Gain on debt retirement                     -               -

        Impacting income tax expense:

          Adjustments of income tax valuation
           allowances and research &
           development credits and other          1,222            0.01
        Tax related to highlighted items
         above                                  (5,505)           (0.04)


      Total highlighted items                    12,195            0.09
                                                 ------            ----
      Net income excluding highlighted
       items                                    $31,186           $0.24
                                                =======           =====

      Weighted average common shares -
       diluted                                                  129,975
                                                                =======





                                                       Q1 2009
                                                       -------
                                                                 Per
                                                               Diluted
                                                Amount          Share
                                                ------          -----
      Net income                                $12,882           $0.10

      Highlighted items:
        Impacting gross margin:
          Stock compensation expense                303               -

        Impacting operating expenses:
          Acquisition costs, restructuring and
           other                                    120               -
          Amortization of intangible assets       9,263            0.07
          Stock compensation expense              3,098            0.02

        Impacting other (income) /expense:
          Non-cash interest expense               2,818            0.02
          Gain on debt retirement               (4,152)           (0.03)

        Impacting income tax expense:

          Adjustments of income tax valuation
           allowances and research &
           development credits and other          1,455            0.01
        Tax related to highlighted items
         above                                  (3,646)           (0.03)


      Total highlighted items                     9,259            0.07
                                                  -----            ----
      Net income excluding highlighted
       items                                    $22,141           $0.18
                                                =======           =====

      Weighted average common shares -
       diluted                                                  124,920
                                                                =======








                                                          Q2 2010
                                                          -------
                                                                   Per
                                                                 Diluted
                                                 Amount           Share
                                                 ------           -----
      Net income                                 $19,774            $0.15

      Highlighted items:
        Impacting gross margin:
          Stock compensation expense                 481                -

        Impacting operating expenses:
          Acquisition costs, restructuring and
           other                                      21                -
          Amortization of intangible assets        9,022             0.07
          Stock compensation expense               5,272             0.04

        Impacting other (income) /expense:
          Non-cash interest expense                2,884             0.02
          Gain on debt retirement                   (115)               -

        Impacting income tax expense:

          Adjustments of income tax valuation
           allowances and research &
           development credits and other            (351)               -
        Tax related to highlighted items
         above                                    (6,170)           (0.05)

      Total highlighted items                     11,044             0.08
                                                  ------             ----
      Net income excluding highlighted
       items                                     $30,818            $0.24
                                                 =======            =====

      Weighted average common shares -
       diluted                                                    130,690
                                                                  =======





                                                        Q2 2009
                                                        -------
                                                                   Per
                                                                 Diluted
                                                 Amount           Share
                                                 ------           -----
      Net income                                 $22,909            $0.18

      Highlighted items:
        Impacting gross margin:
          Stock compensation expense                 366                -

        Impacting operating expenses:
          Acquisition costs, restructuring and
           other                                     592                -
          Amortization of intangible assets        9,263             0.07
          Stock compensation expense               3,687             0.03

        Impacting other (income) /expense:
          Non-cash interest expense                2,718             0.02
          Gain on debt retirement                      -                -

        Impacting income tax expense:

          Adjustments of income tax valuation
           allowances and research &
           development credits and other               -                -
        Tax related to highlighted items
         above                                    (5,322)           (0.04)


      Total highlighted items                     11,304             0.09
                                                  ------             ----
      Net income excluding highlighted
       items                                     $34,213            $0.27
                                                 =======            =====

      Weighted average common shares -
       diluted                                                    128,054
                                                                  =======








                                                      First Half 2010
                                                      ---------------
                                                                   Per
                                                                 Diluted
                                                 Amount           Share
                                                 ------           -----
      Net income                                 $38,765            $0.30

      Highlighted items:
        Impacting gross margin:
          Stock compensation expense                 914             0.01

        Impacting operating expenses:
          Acquisition costs, restructuring and
           other                                      73                -
          Amortization of intangible assets       18,044             0.14
          Stock compensation expense               9,360             0.07

        Impacting other (income) /expense:
          Non-cash interest expense                5,767             0.04
          Gain on debt retirement                   (115)               -

        Impacting income tax expense:

          Adjustments of income tax valuation
           allowances and research &
           development credits and other             871             0.01
        Tax related to highlighted items
         above                                  (11,675)            (0.09)

      Total highlighted items                     23,239             0.18
                                                  ------             ----
      Net income excluding highlighted
       items                                     $62,004            $0.48
                                                 =======            =====

      Weighted average common shares -
       diluted                                                    130,334
                                                                  =======





                                                    First Half 2009
                                                    ---------------
                                                                   Per
                                                                 Diluted
                                                 Amount           Share
                                                 ------           -----
      Net income                                 $35,791             0.28

      Highlighted items:
        Impacting gross margin:
          Stock compensation expense                 669             0.01

        Impacting operating expenses:
          Acquisition costs, restructuring and
           other                                     712             0.01
          Amortization of intangible assets       18,526             0.15
          Stock compensation expense               6,785             0.05

        Impacting other (income) /expense:
          Non-cash interest expense                5,536             0.04
          Gain on debt retirement                 (4,152)           (0.03)

        Impacting income tax expense:

          Adjustments of income tax valuation
           allowances and research &
           development credits and other           1,455             0.01
        Tax related to highlighted items
         above                                    (8,968)           (0.07)


      Total highlighted items                     20,563             0.16
                                                  ------             ----
      Net income excluding highlighted
       items                                     $56,354            $0.45
                                                 =======            =====

      Weighted average common shares -
       diluted                                                    126,482
                                                                  =======





    With respect to stock compensation expense, ARRIS records non-cash
    compensation expense related to grants of options and restricted
    stock.  Depending upon the size, timing and the terms of the grants,
    this non-cash compensation expense may vary significantly.  With
    respect to amortization of intangibles, the intangibles being
    amortized relate to our acquisitions.  The acquisition costs,
    restructuring, and other reflect items that, although they or
    similar items might recur, are of a nature and magnitude that
    identifying them separately provides investors with a greater
    ability to project ARRIS'  future performance.  With respect to the
    convertible debt non-cash interest, ARRIS records non-cash
    interest expense related to the 2013 convertible debt as a result of
    the adoption of FSP ABP 14-1 on January 1, 2009.  Disclosing the
    non-cash piece provides investors with the information regarding
    interest that will not be paid out in cash.  In the first and second
    quarters of 2010 and in the first quarter of 2009, income tax
    expense adjustments were recorded for state valuation allowances and
    research and development tax credits.  During the first quarter of
    2009, and second quarter of 2010  ARRIS repurchased a portion of
    their convertible debt and recognized a gain of approximately $4.2
    million and $0.1 million, respectively.

    In assessing operating performance and preparing budgets and
    forecasts, ARRIS' management considers performance after making
    these adjustments and believes that providing investors with the
    same information provides greater transparency and insight into
    management's analysis.

                      ARRIS GROUP, INC.
            Net Income Reconciliation (unaudited)
                     Q3 2010 EPS Guidance



    Estimated GAAP EPS - diluted                 $0.07 - $0.11
    Reconciling Items:
        Amortization of intangibles, after tax            0.05
        Stock compensation expense, after tax             0.03
      Non-cash interest expense, after tax                0.01
          Subtotal                                        0.09
                                                          ----
    Estimated adjusted (non-GAAP) EPS -
     diluted                                     $0.16 - $0.20
                                                 =============



    See the Preliminary Supplemental Net Income Reconciliation for a
    discussion regarding these adjustments and management's reasoning
    for providing this adjusted financial measure.

                                  ARRIS GROUP, INC.
              PRELIMINARY SUPPLEMENTAL OPERATING INCOME RECONCILIATIONS
                                     (unaudited)
                                   (in thousands)



                                                             First Half
                                    Q1 2010      Q2 2010        2010
                                  (unaudited)  (unaudited)  (unaudited)
                                  -----------  -----------  -----------

     Operating Income as reported     $33,955      $34,239       $68,194
     Operating Income as a % of
      sales                                13%          12%           12%
     Highlighted Items:
       Stock compensation expense       4,521        5,753        10,274
       Acquisition costs,
        restructuring and other            52           21            73
       Amortization of intangible
        assets                          9,022        9,022        18,044
                                        -----        -----        ------
     Operating Income excluding
      highlighted items                47,550       49,035        96,585
     Operating Income excluding
      highlighted items as a % of
      sales                                18%          17%           18%


                                                             First Half
                                    Q1 2009      Q2 2009        2009
                                  (unaudited)  (unaudited)  (unaudited)
                                  -----------  -----------  -----------

     Operating Income as reported     $22,389      $38,154       $60,543
     Operating Income as a % of
      sales                                 9%          14%           11%
     Highlighted Items:
       Stock compensation expense       3,401        4,053         7,454
       Acquisition costs,
        restructuring and other           120          592           712
       Amortization of intangible
        assets                          9,263        9,263        18,526
                                        -----        -----        ------
     Operating Income excluding
      highlighted items                35,173       52,062        87,235
     Operating Income excluding
      highlighted items as a % of
      sales                                14%          19%           16%



    See the Preliminary Supplemental Net Income Reconciliation for a
    discussion regarding these adjustments and management's reasoning
    for providing this adjusted financial measure.

SOURCE ARRIS Group, Inc.