================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
ARRIS GROUP, INC. EMPLOYEE SAVINGS PLAN
of
ARRIS GROUP, INC.
A Delaware Corporation
IRS Employer Identification No. 58-2588724
SEC File Number 000-31254
3871 LAKEFIELD DRIVE
SUWANEE, GA 30024
(770) 622-8400
================================================================================
ARRIS GROUP, INC.
EMPLOYEE SAVINGS PLAN
AS OF DECEMBER 31, 2003 AND 2002 AND YEAR ENDED DECEMBER 31, 2003
TABLE OF CONTENTS
Page
----
Report of Independent Registered Public Accounting Firm 1
Financial Statements:
Statements of Net Assets Available for Benefits 2
Statements of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4
Supplemental Schedule:
Schedule H, Line 4(i) - Schedule of Assets (Held at End of Year) 9
Signatures 10
Exhibit 23 - Consent of Independent Registered Public Accounting Firm 11
ARRIS GROUP, INC.
EMPLOYEE SAVINGS PLAN
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors of ARRIS Group, Inc.
and the Trustees of the ARRIS Group, Inc.
Employee Savings Plan
We have audited the accompanying statements of net assets available for benefits
of ARRIS Group, Inc. Employee Savings Plan as of December 31, 2003 and 2002, and
the related statement of changes in net assets available for benefits for the
year ended December 31, 2003. These financial statements are the responsibility
of the Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 2003 and 2002, and the changes in its net assets available for
benefits for the year ended December 31, 2003, in conformity with U.S. generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at end of year) as of December 31, 2003, is presented for the purpose of
additional analysis and is not a required part of the financial statements but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audits of the financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
June 10, 2004
1
ARRIS GROUP, INC.
EMPLOYEE SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31,
2003 2002
----------- -----------
ASSETS
Investments, at fair value $35,011,182 $27,679,656
Contributions receivable:
Participants -- 142,490
Employer 1,000,000 100,511
----------- -----------
1,000,000 243,001
----------- -----------
Net assets available for benefits $36,011,182 $27,922,657
=========== ===========
See accompanying notes.
2
ARRIS GROUP, INC.
EMPLOYEE SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2003
Additions to net assets attributed to:
Contributions:
Participants $ 5,086,099
Employer 2,565,806
------------
7,651,905
Dividends and interest 628,221
Net realized and unrealized depreciation in fair
value of investments 6,221,832
------------
Total additions 14,501,958
Deductions from net assets attributed to:
Benefits paid to participants (5,024,142)
Transfers out of plan - disposal of product line (1,378,924)
Administrative expenses (10,367)
------------
Total deductions (6,413,433)
Net increase 8,088,525
Net assets available for benefits:
Beginning of year 27,922,657
------------
End of year $ 36,011,182
============
See accompanying notes.
3
ARRIS GROUP, INC.
EMPLOYEE SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. DESCRIPTION OF THE PLAN
The following description of ARRIS Group, Inc. Employee Savings Plan (the
"Plan") provides only general information. Participants should refer to the
Summary Plan Description and Plan document for a more complete description of
the Plan's provisions.
GENERAL
The Plan, a defined contribution plan covering substantially all employees of
ARRIS Group, Inc. ("ARRIS" or the "Company"), is subject to the provisions of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
CONTRIBUTIONS
Effective January 1, 2003, participants may contribute up to 50% of their pretax
compensation in increments of 0.1%, subject to Internal Revenue Service ("IRS")
limitations. Until June 30, 2003, the Company contributed an amount equal to a
percent of compensation depending on the participating subsidiary and active
participation in the ARRIS Group, Inc. Pension Plan ("Pension Plan"), with a
maximum range of 1.5% to 6% of compensation. Effective July 1, 2003,
participants that were previously active participants in the Pension Plan began
receiving matching contributions calculated in a similar fashion as those that
were not active participants in the Pension Plan.
Effective July 1, 2003, the Company suspended employer-matching contributions.
As such, no employer matching contributions were made or will be made under the
Plan for any payroll period occurring during the period beginning on July 1,
2003 and ending as of the effective date of an amendment to the Plan by the
Company to remove this suspension. However, as of December 31, 2003, the Company
made the decision to make a $1,000,000 one-time discretionary contribution (in
aggregate) for eligible employees, equivalent to approximately 1.7% of each
employee's salary, which is reported as employer contributions receivable on the
Statement of Net Assets Available for Benefits.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contributions,
allocations of the Company's matching contributions, allocable share of
investment results, and allocable share of administrative expenses not otherwise
paid by the Company. Investment results are allocated by fund based on the ratio
of a participant's account invested in a particular fund to all participants'
investments in that fund.
4
VESTING
Participants are immediately vested in their contributions plus actual earnings
thereon. Vesting in the Company contribution portion of participant accounts
plus actual earnings thereon is based on years of service. Participants are
fully vested after three years of credited service.
FORFEITURES
During 2003, approximately $63,228 of nonvested employer contributions were
forfeited by terminated Plan participants. Forfeited balances of nonvested
terminated participants' accounts are used to reduce Company contributions. As
of December 31, 2003 and 2002, unallocated assets (e.g., forfeitures) included
in investments totaled $64,557 and $264,944, respectively.
PAYMENT OF BENEFITS
Upon termination of service, retirement, death or permanent disability, a
participant may receive a lump-sum distribution equal to the nonforfeitable
portion of his/her account.
PARTICIPANT LOANS
Participants may borrow from their fund accounts a minimum of $1,000 up to a
maximum of the lesser of $50,000 or 50% of their vested account balances. Loan
terms range from one to five years or up to ten years for the purchase of a
primary residence. The loans are secured by the balance in the participant's
account and bear interest at the prime rate, plus 1%, in effect at the time of
the disbursement of the loan. Principal and interest are paid ratably through
payroll deductions.
ADMINISTRATIVE EXPENSES
Substantially all expenses of administering the Plan are paid by the Company,
with the exception of certain fees associated with participant loans in which
case the fees are paid from the employee's investments.
PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right
under the Plan to terminate the Plan, subject to the provisions of ERISA. In the
event of Plan termination, participants will become 100% vested in their
accounts.
5
DISPOSAL OF PRODUCT LINE
On August 18, 2003, ARRIS sold its engineering consulting services product line,
known as ESP, to an unrelated third party. In conjunction with the sale, the
Plan was amended to fully vest the accounts of participants whose employment was
terminated in connection with the sale. These balances were transferred out
during 2003.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Plan's financial statements have been prepared on the accrual basis of
accounting.
INVESTMENT VALUATION AND INCOME RECOGNITION
The Plan's investments in mutual funds and ARRIS common stock are stated at fair
value, which is based on quoted market prices on national exchanges. Participant
loans are stated at carrying value, which approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
6
NOTE 3. INVESTMENTS
The fair value of individual investments that represent 5% or more of the Plan's
net assets are as follows:
DECEMBER 31
2003 2002
---------- ----------
MFS Retirement Service - MFS Emerging Growth Fund-A $2,543,363 $1,988,725
MFS Retirement Service - MFS Bond Fund-A 2,342,233 2,692,246
MFS Retirement Service - MFS Research Fund-A 2,018,902 1,745,102
MFS Retirement Service - MFS Global Equity Fund-A 2,119,226 1,653,927
MFS Retirement Service - MFS Capital Opportunity Fund-A 2,686,166 2,235,409
MFS Retirement Service - Mass Invest Growth Stock Fund-A 4,196,009 2,512,918
MFS Retirement Service - MFS Total Return Fund-A 3,428,325 3,051,896
MFS Retirement Service - MFS Fixed Fund-Institutional 4,697,432 5,156,968
Scudder Equity 500 Index Fund 3,029,980 1,975,192
ARRIS Group, Inc. common stock 1,956,815 1,112,198
The Plan's investments (including investments bought, sold, and held during the
year) appreciated in fair value as follows:
YEAR ENDED
DECEMBER 31,
2003
------------
Mutual funds $5,051,116
Common stock 1,170,716
----------
Total Plan appreciation $6,221,832
==========
NOTE 4. INCOME TAX STATUS
The Plan has received determination letters from the Internal Revenue Service
dated October 11, 2002 and May 5, 2003, stating that the Plan is qualified under
Section 401(a) of the Internal Revenue Code (the "Code") and, therefore, the
related trust is exempt from taxation. Subsequent to this determination letter
by the Internal Revenue Service, the Plan was amended. Once qualified, the Plan
is required to operate in conformity with the Code to maintain its
qualification. The Plan administrator believes the Plan is being operated in
compliance with the applicable requirements of the Code and, therefore, believes
that the Plan, as amended, is qualified and the related trust is tax exempt.
7
NOTE 5. TRANSACTIONS WITH PARTIES-IN-INTEREST
Certain Plan investments are shares of funds managed by Heritage Trust
Corporation, who is the Plan's trustee, and by MFS Retirement Services, Inc.,
who is the Plan's record keeper, and, therefore, these transactions qualify as
party-in-interest transactions.
The Plan held 405,843 and 427,933 shares of the ARRIS common stock valued at
$1,956,815 and $1,112,198 at December 31, 2003 and 2002, respectively.
8
ARRIS GROUP, INC.
EMPLOYEE SAVINGS PLAN
EIN: 58-2588724 PLAN NUMBER: 002
SCHEDULE H, LINE 4(I)
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2003
(c) (e)
(b) DESCRIPTION OF CURRENT
(a) IDENTITY OF ISSUE INVESTMENT VALUE
---- ----------------------------- --------------------------------------------------- ------------
* MFS Retirement Services, Inc. MFS Emerging Growth Fund-A; 89,967 shares $2,543,363
Scudder Equity 500 Index Fund Scudder Equity 500 Index Fund; 24,253 shares 3,029,980
* MFS Retirement Services, Inc. MFS Research Fund-A; 115,432 shares 2,018,902
* MFS Retirement Services, Inc. MFS Global Equity Fund-A; 99,728 shares 2,119,226
* MFS Retirement Services, Inc. MFS Capital Opportunity Fund-A; 225,728 shares 2,686,166
* MFS Retirement Services, Inc. Mass Invest Growth Stock Fund-A; 370,672 shares 4,196,009
* MFS Retirement Services, Inc. MFS Total Return Fund-A; 227,043 shares 3,428,325
* MFS Retirement Services, Inc. MFS Bond Fund-A; 178,796 shares 2,342,233
* MFS Retirement Services, Inc. MFS Fixed Fund-Institutional; 4,697,432 shares 4,697,432
* MFS Retirement Services, Inc. MFS High Income Fund-A; 119,540 shares 473,379
* MFS Retirement Services, Inc. MFS Government Security Fund-A; 15,679 shares 152,713
* MFS Retirement Services, Inc. MFS Mid Cap Growth Fund-A; 65,070 shares 508,199
* MFS Retirement Services, Inc. MFS International Value Fund-A; 5,710 shares 112,650
Franklin Templeton Investments Franklin Balance Sheet Investment Fund-A; 21,424
shares 1,019,146
Liberty Funds Services, Inc. Liberty Acorn Fund-A; 27,995 shares 621,500
* MFS Retirement Services, Inc. MFS Conservative Allocation Fund-A; 9,842 shares 106,487
* MFS Retirement Services, Inc. MFS Moderate Allocation-A; 8,797 shares 99,497
* MFS Retirement Services, Inc. MFS Growth Allocation-A; 18,071 shares 211,246
* MFS Retirement Services, Inc. MFS Aggressive Growth Allocation-A; 11,290 shares 133,109
Lord Abbett Lord Abbett Mid-Cap Value-A; 25,107 shares 472,766
Van Kampen Investments Van Kampen Growth and Income; 80,635 shares 1,454,656
* ARRIS Group, Inc. Common stock; 405,843 shares 1,956,815
* Participants Loans receivable; interest rates range 5.00% -
10.50%; maturities within 10 years 627,383
-----------
$35,011,182
===========
* Represents a party-in-interest to the Plan.
Note: Cost information (column d) has not been included as all investments are
participant directed.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee savings plan) have duly
caused this annual report to be signed by the undersigned thereunto duly
authorized,
ARRIS GROUP, INC.
EMPLOYEE SAVINGS PLAN
By: Administrative Committee
(Plan Administrator)
/s/ LAWRENCE A. MARGOLIS
------------------------
Lawrence A. Margolis
Executive Vice President,
Strategic Planning, Administration,
and Chief Counsel
Dated: June 28, 2004
10