Notes to Financial Statements
December 31, 2012
1. Description of the Plan
The following description of the 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 Plans 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). The Plan contains the safe harbor provisions under Section 401(k) (12) of the Internal Revenue Code.
Contributions
Participants may contribute up to 50% of their pretax compensation in
increments of 0.1%, subject to Internal Revenue Service (IRS) limitations. The Plan permits participants to designate all or a portion of their contributions as after-tax Roth contributions.
Under the terms of the Plan, the Company may also make discretionary employer matching-contributions. The Company matches 100% of a participants contributions up to the first 3% of compensation
contributed to the Plan, plus 50% of the participants contributions with respect to the next 2% of compensation contributed to the Plan, for a maximum employer-matching contribution equal to 4% of compensation.
The Plan provides a true-up employer matching contribution to active participants accounts if, after the end of the Plan year, it is determined
that a participant received less than the maximum percentage of employer-matching contributions required based on the participants total contributions for the year.
Participant Accounts
Each participants account is credited with the
participants contributions, allocations of the Companys matching contributions, allocable share of investment results, and allocable share of administrative expenses not otherwise paid by the Company. Allocations are based on participant
earnings or account balances, as set forth in the Plan documents.
Vesting
Participants are immediately vested in their contributions plus actual earnings thereon. Employer matching contributions made on and after January 1, 2008, plus actual earnings thereon, are
immediately vested at 100%. The Company contribution portion of participant accounts made prior to January 1, 2008, plus actual earnings thereon become fully vested after three years of credited service.
4
1. Description of the Plan (continued)
Forfeitures
During 2012, approximately $17 thousand of nonvested employer contributions were forfeited by terminated Plan participants. Forfeited balances of
nonvested terminated participants accounts are used to reduce Company contributions. In 2012, the Company used $10 thousand of forfeitures to offset contributions. As of December 31, 2012 and 2011, unallocated assets
(e.g., forfeitures) included in investments totaled $0.4 thousand and $4 thousand, 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 Plan account. The Plan also provides for hardship distributions and, once a participant has attained age
59
1
/
2
, in-service distributions.
Participant Loans
Participants may borrow from their fund accounts a minimum of $500 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. Certain loans originating from the C-COR, Incorporated Retirement Savings, and Profit Sharing Plan (Prior Plan) that were assumed by the Plan in 2008
have longer terms as was permitted under the Prior Plan at the time the loans were made. The loans are secured by the balance in the participants 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
The Plan incurs administrative expenses directly related to the Plan. These expenses are paid through Plan Investments and are reported on the statements
of changes in net assets available for benefits as administrative expenses. Certain fees associated with participant loans are paid from the participants account balance. All other administrative expenses are paid by the Company on behalf of
the Plan.
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. The value of the trust assets and the shares of all participants and beneficiaries will be determined as of the effective date of the termination. Distributions
will be made as provided in the Plan document.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Plans
financial statements have been prepared on the accrual basis of accounting.
Loans Receivable
Loans receivable represents participant loans that are recorded at their unpaid principal balance plus any accrued but unpaid interest. Interest income on
loans receivable from participants is recorded when it is earned. Related fees are
5
2. Summary of Significant Accounting Policies (continued)
recorded as administrative expenses and are expensed when they are incurred. No allowance for credit losses has been recorded as of December 31, 2012 or 2011. If a participant ceases to make
loan repayments and the plan administrator deems the participant loan to be a distribution, the participant loan balance is reduced and a benefit payment is recorded.
Investments
The Plans investments in the mutual funds and the Company common stock
fund are stated at fair value, which is based on quoted market prices on national exchanges as of the last business day of the Plan year. The contract value or the book value of the collective trust fund with underlying fully benefit responsive
contracts is based on contributions made to the Plan plus earnings, less participant withdrawals and administrative expenses. The fair value of the participation units is based on the fair value of the underlying assets.
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.
The Plans investments in the Prudential Stable Fund, which is a fully benefit-responsive synthetic guaranteed
investment contracts (SGIC) consisting of a wrapper contract and a common collective trust whose underlying investments are guaranteed investment contracts, are recorded at fair value (see Note 4); however, because they are fully
benefit-responsive, an adjustment is reflected in the statements of net assets available for benefits to present the investments at contract value. Contract value is the relevant measurement attributable to fully benefit-responsive investment
contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. Contract value represents contributions made under the contract, plus earnings, less participant
withdrawals and fees.
Except for events which may result in termination for cause, including, but not limited to, plan termination or
merger, early retirement incentive, and layoffs, the issuer may not cause the contract to be terminated at an amount other than contract value. The Plan does not believe that the occurrence of any event limiting the Plans ability to transact
at contract value is probable.
Interest is credited on contract balances using a single portfolio rate approach. Under this
methodology, a single interest crediting rate is applied to all contributions made to the product regardless of the timing of those contributions. Interest crediting rates are reviewed on a quarterly basis for resetting. The minimum crediting rate
is 0%. The average earnings yield of the Prudential Stable Fund was approximately 1.52% and 1.93% at December 31, 2012 and 2011, respectively. The average yield credited to members was approximately 2.63% and 2.87% at December 31, 2012 and
2011, respectively. The average earnings yield differs from the average yield credited to participants as a result of the fund construction which utilizes contract value crediting rates that are intended to smooth out and blend in earnings yields
over time.
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
3. Recently Issued Accounting Standards
In May 2011, the FASB issued Accounting Standards Update 2011-04,
Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs
(ASU 2011-04). ASU
2011-04 amended ASC 820,
Fair Value Measurement
, to converge the fair value measurement guidance in US generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRSs). Some of the amendments clarify the
application of existing fair value measurement requirements, while other amendments change a particular principle in ASC 820. In addition, ASU 2011-04 requires additional fair value disclosures, although certain of these new disclosures are not
required for nonpublic entities, as defined in ASC 820. The amendments are to be applied prospectively and are effective for annual periods beginning after December 15, 2011. Adoption of ASU 2011-04 did not have an effect on the Plans net
assets available for benefits or its changes in net assets available for benefits.
4. Investments
Individual investments that represent 5% or more of the Plans net assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31
|
|
|
|
2012
|
|
|
2011
|
|
Prudential Core Conservative Bond Fund
(a)
|
|
$
|
26,547
|
|
|
$
|
24,468
|
|
Wells Fargo Advantage Growth ADM
|
|
|
15,262
|
|
|
|
10,087
|
|
Vanguard Institutional Index
|
|
|
13,328
|
|
|
|
10,235
|
|
PIMCO Total Return Admin
|
|
|
13,047
|
|
|
|
10,069
|
|
Wells Fargo Advantage DJ Target 2030 I
|
|
|
12,882
|
|
|
|
9,701
|
|
Wells Fargo Advantage DJ Target 2020 I
|
|
|
9,998
|
|
|
|
8,505
|
|
Columbia Acorn Z
|
|
|
9,942
|
|
|
|
7,759
|
|
Blackrock Equity Dividend A
|
|
|
9,721
|
|
|
|
8,206
|
|
Oakmark Equity & Income
|
|
|
9,705
|
|
|
|
9,491
|
|
(a)
|
Prudential Core Conservative Bond Fund is a common collective trust whose underlying investments are GICs, and is shown at fair value. The contract
value was $25.2 million and $23.4 million as of December 31, 2012 and 2011, respectively.
|
The Plans
investments (including investments bought, sold, and held during the year) appreciated in fair value as follows (in thousands):
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|
|
|
|
Year
Ended
December 31,
2012
|
|
Mutual funds and lifecycle funds (quoted market prices)
|
|
$
|
11,529
|
|
Collective trust fund (net asset value)
|
|
|
957
|
|
Common stock fund (quoted market prices)
|
|
|
2,007
|
|
|
|
|
|
|
|
|
$
|
14,493
|
|
|
|
|
|
|
7
4. Investments (continued)
Fair Value Measurements
Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the FASB established a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into
three broad levels, which are described below:
Level 1: Unadjusted quoted prices in active markets that are accessible to the
reporting entity at the measurement date for identical assets and liabilities
Level 2: Inputs other than quoted prices in
active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability.
Level 3: Unobservable inputs for the asset or liability (i.e., supported by little or no market activity). Level 3 inputs include managements own assumption about the assumptions that market
participants would use in pricing the asset or liability (including assumptions about risk).
A financial instruments level within
the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The following is a description of the valuation methodologies used for instruments measured at fair value, including the general
classification of such instruments pursuant to the valuation hierarchy.
ARRIS Group, Inc, Common Stock Fund
This fund represents employer securities valued at the closing price reported on the active market on which the individual securities are traded. A small
portion of the fund is invested in short-term instruments. The money market portion of the fund provides liquidity, which enables the Plan participants to transfer money daily among all investment choices. This common stock fund is classified as a
Level 1 investment.
Lifecycle Funds
These funds include investments in highly diversified funds designed to remain appropriate for investors in terms of risk throughout a variety of life circumstances. These funds share the common goal of
first growing and then later preserving principal and contain a mix of U.S. and international common stocks, U.S. issued bonds and cash. There are currently no redemption restrictions on these investments. The fair value of the investments in this
category is determined by obtaining quoted prices on nationally recognized securities exchanges. These investments are classified as Level 1 within the valuation hierarchy.
Synthetic GIC
The fair value of investments in SGICs is the market value of the assets
within the underlying portfolio as of the Plan year end date. The fair value of the wrapper equals zero, and is based on replacement cost for the contract. The fair value of this fund has been estimated based on the fair value of the underlying
investment contracts in the fund as reported by the issuer of the fund. The fair value differs from the contract value. As previously discussed in Note 2, contract value is the relevant measurement attributable to fully benefit-responsive
investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. Contract value represents contributions made under the contract, plus interest at the
contract rate, less withdrawals under the contract. The underlying investment of the SGIC, which is a common collective trust, is classified within Level 2 of the fair value hierarchy.
8
4. Investments (continued)
Mutual Funds
The fair value of the mutual funds is determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 input). The investment objective of the registered investment company is
a combination of current income and capital growth and holds a diversified mix of domestic and international equities, domestic and international investment grade bonds, domestic high-yield bonds, and investment grade money market instruments.
The following table presents the Plan assets measured at fair value on a recurring basis subject to the disclosure requirements (in
thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
ARRIS common stock fund
|
|
$
|
6,251
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,251
|
|
Lifecycle funds
|
|
|
43,474
|
|
|
|
|
|
|
|
|
|
|
|
43,474
|
|
Synthetic GIC collective trust
|
|
|
|
|
|
|
26,547
|
|
|
|
|
|
|
|
26,547
|
|
Mutual funds:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
233
|
|
Balanced funds
|
|
|
9,705
|
|
|
|
|
|
|
|
|
|
|
|
9,705
|
|
Blended funds
|
|
|
26,361
|
|
|
|
|
|
|
|
|
|
|
|
26,361
|
|
Growth funds
|
|
|
27,588
|
|
|
|
|
|
|
|
|
|
|
|
27,588
|
|
Value funds
|
|
|
19,242
|
|
|
|
|
|
|
|
|
|
|
|
19,242
|
|
International equities
|
|
|
7,447
|
|
|
|
|
|
|
|
|
|
|
|
7,447
|
|
Intermediate term bond
|
|
|
13,047
|
|
|
|
|
|
|
|
|
|
|
|
13,047
|
|
Real estate equity
|
|
|
3,317
|
|
|
|
|
|
|
|
|
|
|
|
3,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
156,665
|
|
|
$
|
26,547
|
|
|
$
|
|
|
|
$
|
183,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
ARRIS common stock fund
|
|
$
|
6,173
|
|
|
$
|
|
|
|
$
|
|
|
|
|
6,173
|
|
Lifecycle funds
|
|
|
32,875
|
|
|
|
|
|
|
|
|
|
|
|
32,875
|
|
Synthetic GIC collective trust
|
|
|
|
|
|
|
24,468
|
|
|
|
|
|
|
|
24,468
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
314
|
|
Balanced funds
|
|
|
9,491
|
|
|
|
|
|
|
|
|
|
|
|
9,491
|
|
Blended funds
|
|
|
20,642
|
|
|
|
|
|
|
|
|
|
|
|
20,642
|
|
Growth funds
|
|
|
19,495
|
|
|
|
|
|
|
|
|
|
|
|
19,495
|
|
Value funds
|
|
|
16,024
|
|
|
|
|
|
|
|
|
|
|
|
16,024
|
|
International equities
|
|
|
6,237
|
|
|
|
|
|
|
|
|
|
|
|
6,237
|
|
Intermediate term bond
|
|
|
10,069
|
|
|
|
|
|
|
|
|
|
|
|
10,069
|
|
Real estate equity
|
|
|
1,692
|
|
|
|
|
|
|
|
|
|
|
|
1,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
123,012
|
|
|
$
|
24,468
|
|
|
$
|
|
|
|
$
|
147,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
5. Plan Merger
On November 21, 2011, the Company acquired BigBand Networks Incorporated (BigBand). Effective March 30, 2012, the BigBand 401(k) was merged into the Plan. Former employees of BigBand began
participating in the Plan effective April 1, 2012. The net assets transferred to the Plan are reflected on the statement of changes in net assets available for benefits as a transfer from acquired plan.
6. Reconciliation of Financial Statements to the Form 5500
The following is a reconciliation of net assets available for benefits per the financial statements at December 31, 2012, to the Form 5500 (in thousands):
|
|
|
|
|
Net assets available for benefits per the financial statements
|
|
$
|
184,472
|
|
Add: Adjustment from contract value to fair value for fully benefit-responsive GIC
|
|
|
1,317
|
|
|
|
|
|
|
Net assets available for benefits per the Form 5500
|
|
$
|
185,789
|
|
|
|
|
|
|
The following is a reconciliation of total additions per the financial statements to total income per the Form 5500 for
the year ended December 31, 2012 (in thousands):
|
|
|
|
|
Total additions per the financial statements
|
|
$
|
46,356
|
|
Add: Adjustment from contract value to fair value for fully benefit-responsive GIC at December 31, 2012
|
|
|
1,317
|
|
Less: Transfer from acquired plan
|
|
|
(8,727
|
)
|
Less: Adjustment from contract value to fair value for fully benefit-responsive GIC at December 31, 2011
|
|
|
(1,043
|
)
|
|
|
|
|
|
Total income per the Form 5500
|
|
$
|
37,903
|
|
|
|
|
|
|
7. Income Tax Status
The Plan has received a determination letter from the IRS dated November 10, 2011, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (the Code) and 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 the Plan, as amended, is qualified and the related trust is tax-exempt.
Accounting principles generally accepted in the United States require Plan management to evaluate uncertain tax positions taken by the Plan. The
financial statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. The Plan administrator has analyzed the tax positions taken by the
Plan, and has concluded that as of December 31, 2012, there are no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by
taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan administrator believes it is no longer subject to income tax examinations for years prior to 2009.
10
8. Transactions with Parties-in-Interest
The following transactions qualify as related-party transactions; however, all of these types of transactions are exempt under the prohibited transaction rules:
|
|
|
The Plan held ARRIS common stock fund valued at $6.3 million and $6.2 million at December 31, 2012 and 2011, respectively.
|
|
|
|
Participants have loans from their fund accounts outstanding in the amount of $2.6 million and $2.3 million as of December 31, 2012 and
2011, respectively.
|
9. Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain
investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants account balances and the amounts reported in
the statements of net assets available for benefits.
11
Supplemental Schedule