8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): February 8, 2012

ARRIS Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	000-31254	58-2588724
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)
3871 Lakefield Drive, Suwanee, Georgia		30024
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 678-473-2000

Not Applicable

Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On February 8, 2012, ARRIS Group, Inc. issued a press release regarding preliminary and unaudited financial results for the fourth quarter and full year 2011 results. The press release is attached hereto as Exhibit 99.1 and is incorporated by reference.

Item 9.01. Financial Statements and Exhibits.

99.1 Press Release dated February 8, 2012

SIGNATURES

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

ARRIS Group, Inc.
By:	/s/ David B Potts
	David B Potts Executive Vice President and CFO

Date: February 8, 2012

EXHIBIT INDEX

99.1 Press Release dated February 8, 2012

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE	Contact:	Jim Bauer
		Investor Relations
		(678) 473-2647
		jim.bauer@arrisi.com

ARRIS ANNOUNCES PRELIMINARY AND UNAUDITED

FOURTH QUARTER AND FULL YEAR 2011 RESULTS

Suwanee, Ga. (February 8, 2012) ARRIS Group, Inc. (NASDAQ:ARRS), today announced preliminary and unaudited financial results for the fourth quarter and full year 2011.

Revenues in the fourth quarter 2011 were $281.1 million, up from both the fourth quarter 2010 revenues of $266.2 million, and third quarter 2011 revenues of $274.4 million. Full year 2011 and 2010 revenues were $1,088.7 million and $1,087.5 million, respectively.

Adjusted net income (a non-GAAP measure) in the fourth quarter 2011 was $0.21 per diluted share, compared to $0.19 per diluted share for the fourth quarter 2010 and $0.21 per diluted share for the third quarter of 2011. Adjusted net income in the fourth quarter 2011 includes approximately $(0.01) net loss per diluted share related to BigBand’s operations (excluding acquisition, severance, amortization expenses). Adjusted net income was $0.82 per diluted share for the full year 2011 and compares to $0.85 per diluted share for the full year 2010.

During the fourth quarter the company recorded an estimated non-cash goodwill and intangible assets impairment associated with the MCS segment (net of related estimated tax benefits) of approximately $(59) million, or $(0.50) per diluted share, resulting from the Company’s lower year over year long-term projections for this segment. This analysis is not complete and the impairment related estimates may change when the analysis is completed. As a result, the GAAP net loss in the fourth quarter 2011 is estimated to be $(0.47) per diluted share, as compared to fourth quarter 2010 GAAP net income of $0.09 per diluted share and third quarter 2011 GAAP net income of $0.11 per diluted share. Full year 2011 GAAP net loss is estimated to be $(0.11) per diluted share as compared to GAAP net income of $0.50 per diluted share in 2010. Significant GAAP items that have been adjusted in computing adjusted net income and adjusted net income per diluted share include: purchase accounting impacts related to acquired deferred revenue; amortization of intangible assets; goodwill, intangible and long term investment impairments; equity compensation; non-cash interest expense; acquisition and restructuring charges; and certain discrete tax items. A reconciliation of adjusted net income to GAAP net income (loss) per diluted share is attached to this release and also can be found on the Company’s website (www.arrisi.com).

Gross margin for the fourth quarter 2011 was 37.9%, which compares to the fourth quarter 2010 gross margin of 36.2% and the third quarter 2011 gross margin of 36.5%.

The Company ended the fourth quarter 2011 with $561.1 million of cash resources, which includes $518.8 million of cash, cash equivalents and short-term investments, and $42.3 million of long-term marketable security investments, as compared to $620.1 million at the end of the fourth quarter 2010 and $590.6 million at the end of the third quarter 2011. During the fourth quarter the Company used $34.4 million to repurchase 3.3 million shares of its common stock. During 2011, the Company used a total of $109.1 million to repurchase 10.0 million shares of its common stock and $5 million in face value of convertible notes. Also, in the fourth quarter 2011 the Company used approximately $53 million of cash (net of cash and marketable securities acquired) to complete the acquisition of BigBand Networks. The Company generated $60.9 million of cash from operating activities during the fourth quarter 2011 and $113.2 million during the full year 2011, which compares to $22.6 million and $118.5 million during the same periods in 2010, respectively.

Order backlog at the end of the fourth quarter 2011 was $148.5 million as compared to $140.4 million and $155.3 million at the end of the fourth quarter 2010 and the third quarter 2011, respectively. The Company’s book-to-bill ratio in the fourth quarter 2011 was 0.98 as compared to the fourth quarter 2010 of 1.08 and the third quarter 2011 of 1.00.

“Our business continues to be driven by the dramatic rise in the number and usage of connected devices in the home. This in turn drove strong demand for our products during the December quarter. Our customers continue to increase their broadband market share and expand their networks as they meet subscribers’ demand for more bandwidth,” said Bob Stanzione, ARRIS Chairman & CEO, “Looking forward, I believe we are well positioned for revenue growth as we continue to see gathering momentum across our entire product line.”

During the fourth quarter, the Company closed its acquisition of BigBand Networks. This acquisition supports the Company’s strategy of expanding its video product suite and the ongoing investment in the evolution towards network convergence onto an all IP platform.

“With respect to the first quarter, we now project that revenues for the Company will be in the range of $285 to $305 million, with adjusted net income per diluted share in the range of $0.13 to $0.17 and GAAP net income per diluted share in the range of $0.01 to $0.05,” said David Potts, ARRIS EVP & CFO. “Included in our first quarter guidance we estimate an approximate non-GAAP $(0.03) per

diluted share loss related to the full quarter inclusion of BigBand in our results. Also, Congress has not renewed the R&D tax credit legislation resulting in an approximate $(0.01) per diluted share impact in the first quarter.”

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, February 8, 2012, to discuss these results in detail. You may participate in this conference call by dialing 888-680-0879 or 617-213-4856 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 14376738 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 5:00 pm EDT conference call. A replay of the conference call can be accessed approximately two hours after the call through Monday, February 13, 2012 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 16001901. 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 communications and IP technologies that support broadband services for residential and business customers around the world. The company supplies broadband operators with the tools and platforms they need to deliver and monitor advanced video, data and voice subscriber services, including whole home video across multiple screens, ultra high-speed data, personalized advertising and carrier-grade telephony. Headquartered near Atlanta, in Suwanee, Georgia, USA, ARRIS has R&D centers in Beaverton, OR; Beijing, China, Chicago, IL; Cork, Ireland; Kirkland, WA; Redwood City, CA; Shenzhen, China; State College, PA; Tel Aviv, Israel; Wallingford, CT and Waltham, MA, 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;

• revenues and net income for the first quarter 2012, full year 2012, and beyond;

• expected market and product expansion;

• 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 first quarter as well as the general outlook for 2012 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 materially 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 September 30, 2011. 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 31, 2011			September 30, 2011			June 30, 2011			March 31, 2011			December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	235,875		$	354,659		$	360,281		$	358,747		$	353,121
Short-term investments, at fair value		282,904			220,318			231,254			260,862			266,981
Total cash, cash equivalents and short term investments		518,779			574,977			591,535			619,609			620,102
Restricted cash		4,101			3,647			3,646			4,176			4,937
Accounts receivable, net		152,437			165,821			152,436			149,976			125,933
Other receivables		8,789			5,296			406			5,275			6,528
Inventories, net		115,912			116,769			113,020			105,787			101,763
Prepaids		10,408			10,692			10,272			12,115			9,237
Current deferred income tax assets		22,048			24,239			22,681			20,450			19,819
Other current assets		28,148			21,695			25,216			33,535			33,054
Total current assets		860,622			923,136			919,212			950,923			921,373
Property, plant and equipment, net		61,375			57,619			57,100			56,617			56,306
Goodwill		194,047			233,430			233,440			233,471			234,964
Intangible assets, net		131,192			141,784			150,728			159,672			168,616
Investments		71,095			47,221			34,237			32,787			31,015
Noncurrent deferred income tax assets		35,982			9,637			9,839			10,183			6,293
Other assets		10,997			5,400			5,878			5,798			5,520
	$	1,365,310		$	1,418,227		$	1,410,434		$	1,449,451		$	1,424,087
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable	$	40,671		$	38,918		$	27,825		$	35,796		$	50,736
Accrued compensation, benefits and related taxes		36,764			25,320			20,832			26,278			28,778
Accrued warranty		3,350			2,933			3,300			2,931			2,945
Deferred revenue		43,746			39,094			47,166			43,019			31,625
Other accrued liabilities		32,907			19,653			17,805			17,594			18,847
Total current liabilities		157,438			125,918			116,928			125,618			132,931
Long-term debt, net of current portion		209,766			206,825			208,336			205,447			202,615
Accrued pension		25,260			17,989			17,730			17,472			17,213
Accrued severance liability		4,191			—			—			—			—
Noncurrent income taxes payable		24,450			22,471			21,844			21,844			17,702
Noncurrent deferred income tax liabilities		—			21,117			24,808			25,827			29,151
Other noncurrent liabilities		23,088			16,253			17,367			18,271			15,406
Total liabilities		444,193			410,573			407,013			414,479			415,018
Stockholders’ equity:
Preferred stock		—			—			—			—			—
Common stock		1,449			1,446			1,443			1,438			1,409
Capital in excess of par value		1,245,115			1,237,852			1,228,729			1,219,615			1,206,157
Treasury stock at cost		(254,409	)		(220,034	)		(202,933	)		(145,286	)		(145,286	)
Unrealized gain (loss) on marketable securities		(648	)		26			1,530			1,244			392
Unfunded pension liability		(9,850	)		(5,813	)		(5,813	)		(5,813	)		(5,813	)
Accumulated deficit		(60,356	)		(5,639	)		(19,351	)		(36,042	)		(47,606	)
Cumulative translation adjustments		(184	)		(184	)		(184	)		(184	)		(184	)
Total stockholders' equity		921,117			1,007,654			1,003,421			1,034,972			1,009,069
	$	1,365,310		$	1,418,227		$	1,410,434		$	1,449,451		$	1,424,087

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	For the Three Months						For the Twelve Months
	Ended December 31,						Ended December 31,
	2011			2010			2011			2010
Net sales	$	281,076		$	266,168		$	1,088,685		$	1,087,506
Cost of sales		174,531			169,855			678,172			663,417
Gross margin		106,545			96,313			410,513			424,089
Operating expenses:
Selling, general, and administrative expenses		40,829			34,205			148,755			137,694
Research and development expenses		37,785			35,427			146,519			140,468
Acquisition costs		2,730			—			3,205			—
Restructuring charges		3,391			(8	)		4,360			65
Goodwill and intangibles impairment		82,561			—			82,561			—
Amortization of intangible assets		6,520			8,944			33,352			35,957
		173,816			78,568			418,752			314,184
Operating income (loss)		(67,271	)		17,745			(8,239	)		109,905
Other expense (income):
Interest expense		4,258			4,237			16,940			17,965
Impairment of investment		3,000			—			3,000			—
Gain on investments		(926	)		(13	)		(1,430	)		(414	)
Gain on foreign currency		(705	)		(327	)		(579	)		(44	)
Interest income		(715	)		(528	)		(3,154	)		(1,997	)
Loss (gain) on debt redemption		—			5			19			(373	)
Other (income) expense, net		(211	)		31			(893	)		138
Income (loss) from continuing operations before income taxes		(71,972	)		14,340			(22,142	)		94,630
Income tax expense (benefit)		(17,255	)		3,019			(9,392	)		30,502
Net income (loss)	$	(54,717	)	$	11,321		$	(12,750	)	$	64,128
Net income (loss) per common share:
Basic	$	(0.47	)	$	0.09		$	(0.11	)	$	0.51
Diluted	$	(0.47	)	$	0.09		$	(0.11	)	$	0.50
Weighted average common shares:
Basic		117,316			122,866			120,157			125,157
Diluted		117,316			125,758			120,157			128,271

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	For the Three Months Ended December 31,						For the Twelve Months Ended December 31,
	2011			2010			2011			2010
Operating Activities:
Net income (loss)	$	(54,717	)	$	11,321		$	(12,750	)	$	64,128
Depreciation		6,589			5,972			24,139			22,865
Amortization of intangible assets		6,520			8,944			33,352			35,956
Amortization of deferred finance fees		160			164			647			691
Impairment of goodwill & intangibles		82,561			—			82,561			—
Non-cash interest expense		2,941			2,777			11,545			11,325
Deferred income tax provision (benefit)		2,997			5,990			(12,490	)		8,588
Deferred income tax related to goodwill & intangible impairment		(23,242	)		—			(23,242	)		—
Stock compensation expense		5,108			5,769			22,055			21,827
Provision for doubtful accounts		201			(366	)		200			(283	)
Loss (gain) on debt retirement		—			5			19			(373	)
Loss on disposal of fixed assets		10			37			16			406
Gain on investments		(926	)		(13	)		(1,430	)		(414	)
Impairment of investment		3,000			—			3,000			—
Excess tax benefits from stock-based compensation plans		(679	)		(69	)		(3,668	)		(2,752	)
Changes in operating assets & liabilities, net of effects of acquisitions and disposals:
Accounts receivable		17,794			8,348			(22,093	)		18,058
Other receivables		(1,618	)		(2,819	)		(1,635	)		(59	)
Inventory		7,862			(12,560	)		(7,144	)		(5,912	)
Income taxes payable/recoverable		(2,158	)		(3,614	)		15,795			(17,787	)
Accounts payable and accrued liabilities		7,003			(6,082	)		671			(48,308	)
Other, net		1,476			(1,236	)		3,605			10,553
Net cash provided by operating activities		60,882			22,568			113,153			118,509
Investing Activities:
Purchases of investments		(49,833	)		(182,829	)		(277,937	)		(514,376	)
Disposals of investments		36,547			204,163			296,774			364,077
Purchases of property & equipment, net		(4,359	)		(5,518	)		(23,307	)		(22,645	)
Cash proceeds from sale of property & equipment		14			2			84			245
Cash paid for acquisition, net of cash acquired (1)		(130,227	)		(4,000	)		(130,227	)		(4,000	)
Net cash provided by (used in) investing activities		(147,858	)		11,818			(134,613	)		(176,699	)
Financing Activities:
Payment of debt obligations		—			(12	)		—			(124	)
Early redemption of long-term debt		—			(4,956	)		(4,984	)		(23,287	)
Repurchase of common stock		(34,375	)		(30,038	)		(109,123	)		(69,326	)
Excess income tax benefits from stock-based compensation plans		679			69			3,668			2,752
Repurchase of shares to satisfy employee tax withholdings		(72	)		(25	)		(8,332	)		(6,447	)
Fees and proceeds from issuance of common stock, net		1,960			1,803			22,985			7,178
Net cash used in financing activities		(31,808	)		(33,159	)		(95,786	)		(89,254	)
Net increase (decrease) in cash and cash equivalents		(118,784	)		1,227			(117,246	)		(147,444	)
Cash and cash equivalents at beginning of period		354,659			351,894			353,121			500,565
Cash and cash equivalents at end of period	$	235,875		$	353,121		$	235,875		$	353,121

⁽¹⁾  Excludes $77,074 thousand of short and long-term investments acquired from BigBand in 2011

ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION

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

	Q4 2011						YTD 2011
	Amount						Amount
Sales	$	281,076					$	1,088,685
Highlighted items:
Purchase accounting impacts of deferred revenue		4,332						4,332
Sales excluding highlighted items	$	285,408					$	1,093,017
	Q4 2011						YTD 2011						Q4 2010						YTD 2010
				Per Diluted						Per Diluted						Per Diluted						Per Diluted
	Amount			Share			Amount			Share			Amount			Share			Amount			Share
Net income (loss)	$	(54,717	)	$	(0.47	)	$	(12,750	)	$	(0.11	)	$	11,321		$	0.09		$	64,128		$	0.50
Highlighted items:
Impacting gross margin:
Purchase accounting impacts of deferred revenue		3,126			0.03			3,126			0.03			—			—			—			—
Stock compensation expense		521			—			2,040			0.02			492			—			1,897			0.01
Impacting operating expenses:
Acquisition costs		2,730			0.02			3,205			0.03			—			—			—			—
Restructuring		3,391			0.03			4,360			0.04			(8	)		—			65			—
Amortization of intangible assets		6,520			0.05			33,352			0.27			8,944			0.07			35,957			0.28
Goodwill and intangibles impairment		82,561			0.69			82,561			0.67			—			—			—			—
Stock compensation expense		4,587			0.04			20,015			0.16			5,277			0.04			19,930			0.15
Impacting other (income) / expense:
Non-cash interest expense		2,941			0.02			11,545			0.09			2,777			0.02			11,325			0.09
Impairment of investment		3,000			0.03			3,000			0.02			—			—			—			—
Loss on retirement of debt		—			—			19			—			5			—			(373	)		—
Impacting income tax expense:
Adjustments of income tax valuation allowances and other		2,344			0.02			(3,573	)		(0.03	)		1,058			0.01			889			0.01
Tax impact related to goodwill and intangibles impairment		(23,242	)		(0.19	)		(23,242	)		(0.19	)		—			—			—			—
Tax related to highlighted items above, except goodwill and intangibles impairment		(8,448	)		(0.07	)		(23,652	)		(0.19	)		(6,503	)		(0.05	)		(24,311	)		(0.19	)
Total highlighted items		80,031			0.67			112,756			0.92			12,042			0.10			45,379			0.35
Net income excluding highlighted items	$	25,314		$	0.21		$	100,006		$	0.82		$	23,363		$	0.19		$	109,507		$	0.85
Weighted average common shares - basic					117,316						120,157
Weighted average common shares - diluted(1)					119,609						122,555						125,758						128,271

⁽¹⁾  Basic shares used for 2001 as losses were reported for those periods and the inclusion of dilutive shares would be antidilutive

See Notes to GAAP to Adjusted Non-GAAP Financial Measures

Notes to GAAP to Adjusted Non-GAAP Financial Measures

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

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

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

Acquisition Costs: We have excluded the effect of acquisition related and other expenses and the effect of restructuring expenses in calculating our non-GAAP operating expenses and net income (loss) measures. We incurred significant expenses in connection with our recent acquisition of BigBand, which we generally would not have otherwise incurred in the periods presented as part of our continuing operations. Acquisition related expenses consist of transaction costs, costs for transitional employees, other acquired employee related costs, and integration related outside services. We believe it is useful to understand the effects of these items on our total operating expenses.

Restructuring Costs: We have excluded the effect of restructuring charges in calculating our non-GAAP operating expenses and net income (loss) measures. Restructuring expenses consist of employee severance, abandoned facilities, and other exit costs. We believe it is useful to understand the effects of these items on our total operating expenses.

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

Impairment of Goodwill and Intangibles: We have excluded the effect of the estimated impairment of goodwill and intangible assets in calculating our non-GAAP operating expenses and net income (loss) measures. Although an impairment does not directly impact the Company’s current cash position, such expense represents the declining value of the technology and other intangibles assets that were acquired. We exclude these impairments when significant and they are not reflective of ongoing business and operating results.

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

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

Loss (Gain) on Retirement of Debt: We have excluded the effect of the loss (gain) on retirement of debt in calculating our non-GAAP financial measures. We believe it is useful for investors to understand the effect of this non-cash item in our other expense (income).

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