ARRIS GROUP INC

In July 2015, the FASB issued updated guidance related to the simplification of the measurement of inventory. This standard update does not apply to inventory that is measured using last-in, first-out or the retail inventory method. This standard update applies to all other inventory, which includes inventory that is measured using first-in, first-out or average cost methods. The standard update requires entities to measure inventory at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This standard update is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The adoption of this standard update is not expected to have an impact on our condensed consolidated financial statements.

On April 22, 2015, ARRIS and Pace plc (“Pace”) announced that they have agreed that ARRIS will acquire Pace for aggregate stock and cash consideration valued at $2.1 billion as of April 21, 2015. The cash portion will be funded through a combination of cash on hand and debt. As described in Note 13 Indebtedness, ARRIS secured a fully committed facility to meet the funding requirements. As of October 22, 2015, both ARRIS and Pace shareholders have approved the acquisition and merger which were conditions to the closing of the acquisition and the merger. The completion of the acquisition remains conditioned upon expiration or termination of the waiting period under the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the satisfaction of similar merger control requirements in Brazil and Colombia, together with satisfaction of other customary closing conditions.

Our effective income tax rate for the three months ended September 30, 2015, includes a benefit for the release of $21.6 million of valuation allowances on net operating loss carryforwards, as well as a benefit of $8.4 million from releasing uncertain tax positions relating to settled income tax audits. ARRIS recognized a gain relating to its Taiwanese entity, resulting in a tax expense of $19 million. The Company also recorded income tax expense relating to return to provision adjustments of $1.6 million. In addition, the Company was informed that foreign tax credit attributes that it had received from Google on the purchase of Motorola Home were reduced as Google filed its final tax returns relating to Motorola Home. This generated book income and tax expense of $3.7 million during the period ended September 30, 2015.

Our effective income tax rate for the nine month period ended September 30, 2015 also includes a benefit for the release of $3.8 million of valuation allowances on capital loss carryforwards, which were utilized to offset capital gains generated by the taxable sale of real property in San Diego, California. In addition, ARRIS did not record a tax benefit on operating losses of $7.2 million from AVN, including $5.2 million of losses which were recorded through the second quarter. ARRIS purchased a 65% interest in this joint venture during the second quarter. During the third quarter of 2015, AVN was converted into a limited liability company, generating $2.2 million of income tax expense.

Adjustment to Liability Related to Foreign Tax Credit Benefits: In connection with our acquisition of Motorola Home, we have obtained certain foreign tax credit benefits for which we have recorded a liability to Google resulting from certain provisions in the acquisition agreement. The expense and subsequent adjustments related to this liability has been recorded as part of other expense (income). We have excluded the effect of the expense in the calculation of our non-GAAP financial measures. We believe it is useful to understand the effects of this item on our total other expense (income).

The broadcast and broadband communication systems industry has historically experienced, and continues to experience, the consolidation of many industry participants. For example, Charter Communications, Inc. has announced its intention to acquire Time Warner Cable, AT&T recently completed its acquisition of DIRECTV, Verizon Communications Inc. announced that it is selling certain wireline businesses to Frontier Communications Corp. and Altice announced its intention to acquire Suddenlink and Cablevision. When consolidations occur, it is possible that the acquirer will not continue using the same suppliers, possibly resulting in an immediate or future elimination of sales opportunities for us. Even if sales are not reduced, consolidations also could result in delays in purchasing decisions by the affected companies prior to completion of the transaction. Further, even if we believe we will receive additional sales from a customer following a transaction as a result of typical network upgrades that

following combinations or otherwise, no assurance can be provided that such anticipated sales will be realized. In addition, consolidations can also result in increased pressure from customers for lower prices or better terms, reflecting the increase in the total volume of products purchased or the elimination of a price differential between the acquiring customer and the company acquired. Any of these results could have a material adverse effect on our business.