##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWASHINGTON, D.C.
    20549
    FORM 10-K
  For the
    fiscal year ended December 31, 2008
  of
  ARRIS
    GROUP, INC.
   A
    Delaware Corporation
    IRS Employer Identification
    No. 58-2588724
    SEC File Number
    000-31254
  3871
    Lakefield Drive
    Suwanee, GA 30024(678) 473-2000
   
      Regulation S-K.




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##### 



TABLE OF
    CONTENTS
   
 PagePART IITEM 1.

Business


1ITEM 1A.

Risk Factors


18ITEM 1B.

Unresolved Staff Comments


25ITEM 2.

Properties


25ITEM 3.

Legal Proceedings


25ITEM 4A.

Executive Officers and Board Committees


27PART IIITEM 5.

Market for Registrants Common Equity,
    Related Stockholder Matters, Issuer Purchases of Equity
    Securities, and Stock Performance Graph


29ITEM 6.

Selected Consolidated Historical Financial
    Data


31ITEM 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


32ITEM 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


61ITEM 8.

Consolidated Financial Statements and
    Supplementary Data


62ITEM 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


62ITEM 9A.

Controls and Procedures


63ITEM 9B.

Other Information


63PART IIIITEM 10.

Directors, Executive Officers, and Corporate
    Governance


112ITEM 11.

Executive Compensation


112ITEM 12.

Security Ownership of Certain Beneficial Owners,
    Management and Related Stockholders Matters


112ITEM 13.

Certain Relationships, Related Transactions, and
    Director Independence


112ITEM 14.

Principal Accountant Fees and Services


112PART IVITEM 15.

Exhibits and Financial Statement Schedules


113Signatures


118EX-21EX-23EX-24EX-31.1EX-31.2EX-32.1EX-32.2   i




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##### Table of Contents



PART I  Item 1.
    Business    General
  (678) 473-2000.
  Glossary
    of Terms
    Acronym

TerminologyAdVOD

Linear and Demand Oriented AdvertisingARPU

Average Revenue Per UserCable VoIP

Cable Voice over Internet ProtocolCAM

Cable Access ModuleCBR

Constant Bit RateCLEC

Competitive Local Exchange CarrierCMTS

Cable Modem Termination SystemCPE

Customer Premises EquipmentCWDM

Coarse Wave Division MultiplexingDBS

Digital Broadcast SatelliteDOCSIS®

Data Over Cable Service Interface SpecificationDPI

Digital Program InsertionDSG

DOCSIS Set-Top GatewayDSL

Digital Subscriber LineDWDM

Dense Wave Division MultiplexingEMTA

Embedded Multimedia Terminal AdaptereQAM

Edge Quadrature Amplitude ModulatorFMC

Fixed Mobile ConvergenceFPGA

Field Programmable Gate ArraysFTTH

Fiber to the HomeFTTP

Fiber to the PremisesGAAP

Generally Accepted Accounting PrinciplesGHZ

GigahertzGPA

General Purchase AgreementsHDTV

High Definition TelevisionHFC

Hybrid Fiber-CoaxialIFRS

International Financial Reporting StandardsILEC

Incumbent Local Exchange Carrier 1




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##### Table of Contents



Acronym

TerminologyIP

Internet ProtocolIPTV

Internet Protocol TelevisionMbps

Megabits per SecondMPEG-2

Moving Picture Experts Group, Standard No. 2MPEG-4

Moving Picture Experts Group, Standard No. 4M-CMTS

Modular CMTSMSO

Multiple Systems OperatorMTA

Multimedia Terminal AdapterNGNA

Next Generation Network ArchitecturenPVR

Network Personal Video RecorderNSM

Network Service ManagerNIU

Network Interface UnitPCS

Post Contract SupportPCT

Patent Convention TreatyPSTN

Public-Switched Telephone NetworkQAM

Quadrature Amplitude ModulationQoS

Quality of ServiceRF

Radio FrequencyRGU

Revenue Generating UnitSDV

Switched Digital VideoSLA

Service Level AgreementSTB

Set Top BoxVAR

Value-Added ResellerVOD

Video on DemandVoIP

Voice over Internet ProtocolVPN

Virtual Private NetworkVSOE

Vendor-Specific Objective Evidence   Overview
             2




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##### Table of Contents



Industry
    Overview
          last-mile,
 3




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##### Table of Contents



® ® ® ® ® ® ® ® ® tm
    ® tm ® tm tm tm
  Our
    Strategy
    
    Maintain a strong capital structure, mindful of our 2013 debt
    maturity, share repurchase opportunities and other capital needs
    including mergers and acquisitions.
    Grow our current business into a more complete portfolio
    including a strong video product suite. Continue to invest in
    the evolution toward enabling true network convergence onto an
    all IP platform. 4




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
    Continue to expand our product/service portfolio through
    internal developments, partnerships and acquisitions.
    Expand our international business and begin to consider
    opportunities in markets other than cable.
    Continue to invest in and evolve the ARRIS talent pool to
    implement the above strategies.      Providing a Comprehensive Line of Broadband
    Products.
  Offering a Unified Video Platform for On Demand
    Services.
  Providing Integrated Software Solutions to Enhance Content
    and Operations Management.
  Integrating Products, Content and Operations Management
    Systems, and Services for End-to-End
    Solutions.
  Expansion via Strategic Acquisitions.
 5




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##### Table of Contents



Our
    Principal Products
    
    Headend.  The headend is a central point in the
    cable system where signals are received via satellite and other
    sources. Interfaces that connect the Internet and public
    switched telephone networks are located in the headend. The
    headend organizes, processes and retransmits those signals
    through the distribution network to subscribers. Larger networks
    include both primary headends and a series of secondary headends
    or hubs.
    Distribution Network.  The distribution network
    consists of fiber optic and coaxial cables and associated
    optical and electronic equipment that take the combined signals
    from the headend and transmits them throughout the cable system
    to optical nodes and ultimately the subscriber premises. The
    distribution network also collects requests and transmissions
    from subscribers and transports them back to the headend for
    processing and transmission.
    Subscriber Premises.  Cable drops extend from
    multi taps to subscribers homes and connect to a
    subscribers television set, set-top box, telephony network
    interface device or high speed cable modem.    Broadband Communications Systems (BCS):
  
    VoIP and High Speed Data products  
    CMTS
    2-Line Residential EMTA
    Multi-line
    E-MTA for
    Residential and Commercial Services
    Wireless Gateway EMTA
    High-speed data Cable Modems  
    Video / IP headend products  
    CMTS
    Universal EdgeQAM  Access, Transport and Supplies (ATS):
  
    HFC plant equipment products, including  
    Headend and hub products
    Optical nodes
    Radio frequency products and
    Transport products  
    Infrastructure products for fiber optic or coaxial networks
    built under or above ground, including  
    Cable and strand
    Vaults
    Conduit
    Drop materials
    Tools
    Connectors
    Test equipment 6




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##### Table of Contents



Media & Communications Systems
    (MCS):
  
    Content and Operations management systems, including products for  
    Video on Demand
    Ad Insertion
    Digital Advertising  
    Operations management systems, including products for  
    Service Assurance
    Service Fulfillment
    Mobile Workforce Management  
    Fixed Mobile Convergence Network, including product for  
    Mobility Application Server (MAS) for continuity of
    services across wireless and Packetcable Networks
    Voice Call Continuity (VCC)% Application Server for
    continuity of services in IP Multimedia Subsystem
    (IMS) Networks  Broadband
    Communication Systems
  Voice
    over IP and Data Products
  Headend ® tm
    Subscribe Premises ® ® tm ® ® tm ® ®
    back-up
 7




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Video/IP
    Products
  Headend tm tm tm ® tm
  Access
    Transport and Supplies
    Headend
    and Hubs
  ® tm
  Optical
    Nodes
        Radio
    Frequency Products
   8




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Supplies
    ® ® ®
    just-in-time
  Media &
    Communications Systems
    On Demand
    and Ad Insertion
    nABLEtm On Demand Software
   9




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Digital
    Advertising
      Operations
    Management Systems
  ®
  Service
    Assurance
  tm o
  Service
    Fulfillment
    Mobile
    Workforce Management
    Fixed
    Mobile Convergence (FMC)
   10




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Sales and
    Marketing
          Customers
    Years Ended December 31,2008


2007


2006(in thousands)Comcast

$
300,934


$
366,894


$
316,124% of sales


26.3
%


37.0
%


35.4
%Time Warner Cable

$
235,405


$
106,376


$
82,758% of sales


20.6
%


10.7
%


9.3
%    11




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International
    Operations
      Research
    and Development
  and/or best-in-class
  ® tm ® ® ® tm ® ® ® ® tm Video-On-Demand,
        
    Continued development and acceptance of open standards for
    delivering voice, video and data; 12




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
    Widespread deployment of VoIP;
    Continued increase in peer-to-peer and over-the-top services
    accelerating demand for new services requiring intensive,
    high-touch processing and sophisticated management techniques;
    Increasing demand for higher speed broadband connections to the
    home;
    The rapid adoption of video on demand and switched digital video
    services;
    Expanded deployment of high definition video channels;
    Innovations in video encoding and decoding technology making
    possible very low bit rate, high quality video streaming;
    Increased competition from DBS and telephone companies that
    drives our customers to focus on delivering additional and
    enhanced services. These services include more HDTV, faster
    internet speeds and more video options, including niche video
    content. All these services drove an increase in bandwidth
    towards 1GHz, reduction in service group sizes, and the rapid
    adoption of DOCSIS 3.0.
    Decreased size of service groups through the segmenting of nodes
    and the implementation of new optics to support those nodes;
    Growing scarcity of dark fiber for the provision of new service
    applications
    Increased focus on Commercial Services by our customer base
    Increased complexity of triple play markets and SLAs for QoS
    driving stringent requirements for management tools;
    Increased use of comprehensive tool sets to reduce operating
    expenses and improve QoS;
    Increasing digital STB penetrations which adds complexity and
    network constraint;
    Lower ARPU markets requiring cost effective management
    tools; and
    Continued silicon integration, multicore processor, and high
    speed digital to analog convertor technology innovations are
    making possible very low cost, multi-functional broadband
    headend and consumer devices, integrating not only telephony but
    wireless and video decompression and digital rights management
    functionality.    
    Development of network and client technologies to address the
    emerging worldwide market opportunities in next generation video
    and multimedia delivery (video over IP and
    PacketCabletm

    multimedia), as embodied in
    CableLabs®

    DOCSIS®

    3.0 and M-CMTS standards including 100Mbps+ data speeds, IPv6
    address and routing support, enhanced data security, and
    enhanced multicast video support;
    Development of new CMTS line cards to separate upstream and
    downstream functions to provide higher and greater flexibility
    to our customers to add network capacity
    Development of Modular-CMTS capabilities on the
    C4®

    and
    D5tm

    products to allow for convergence of voice, video and data
    traffic
    Development of a Compact version of the C4 CMTS, called the C4c.
    This product will re-use the existing C4 line cards and
    software, but will have fewer slots and therefore a smaller
    footprint for headends and hubs that require less capacity.
    Expanding the range of next-generation, lithium-ion-based
    Touchstone®

    Telephony Modem EMTAs for both residential and commercial voice
    and data applications;
    Product value engineering and cost reductions;
    Development of switched digital video and Modular CMTS features
    on the
    D5tm

    Universal Edge QAM; 13




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
    Network segmentation options for node families that provide MSOs
    scalable, flexible network capacity with a minimal impact to
    existing infrastructures;
    Multi-wavelength optical transport solutions to maximize the
    utilization of limited, existing MSO fiber infrastructures;
    Development of headend and CPE products that enable and support
    RF over Glass (RFoG) and Ethernet-based Passive
    Optical (ePON) transport solutions;
    Development of a 1 GHz Optical Lid Upgrade providing a
    solution for fiber deeper architectures and advanced services
    like SDV, HSD, HD and VOIP.
    Development of drop-in 1 GHz Amplifiers
    providing bandwidth enhancement for plant modernization while
    minimizing the need for plant disruptions associated with
    resplicing.
    Development of mid-sized Segmentable Node, 1 GHz providing
    bandwidth expansion and a pay as you grow solution.
    Next generation Mobile Workforce Management System;
    Expanding capabilities of
    ServAssuretm;
    Development of innovative VOD and Ad Insertion solutions;
    Development of a Fixed Mobile Convergence application server for
    seamless call control handling; and
    Process innovations to lower development and manufacturing costs.  Intellectual
    Property
    ® ® ®
   14




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Product
    Sourcing and Distribution
    6-month 12-month 15-month
      ® ®
  Backlog
   15




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Competition
    
    Ambit Microsystems;
    Aurora Networks;
    BigBand Networks;
    Cisco Systems, Inc.;
    Commscope, Inc;
    Concurrent Computer Corporation;
    Ericsson (TandbergTV);
    Harmonic, Inc.;
    Motorola, Inc.;
    SeaChange, Inc.;
    Thomson; and
    TVC Communications, Inc.       16




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Broadband CPE Quarterly Worldwide Market
    Share and Forecasts for Q3 2008
          Employees
   17




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Item 1A.
    Risk
    Factors  Our
    business is dependent on customers capital spending on
    broadband communication systems, and reductions by customers in
    capital spending adversely affect our business.
    
    general economic conditions;
    customer specific financial or stock market conditions;
    availability and cost of capital;
    governmental regulation;
    demands for network services;
    competition from other providers of broadband and high speed
    services;
    acceptance of new services offered by our customers; and
    real or perceived trends or uncertainties in these factors.    The
    markets in which we operate are intensely competitive, and
    competitive pressures may adversely affect our results of
    operations.
    
    Ambit Microsystems;
    Aurora Networks;
    BigBand Networks;
    Cisco Systems, Inc.;
    Commscope, Inc;
    Concurrent Computer Corporation;
    Ericsson (TandbergTV);
    Harmonic, Inc.;
    Motorola, Inc.; 18




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
    SeaChange, Inc.;
    Thomson; and
    TVC Communications, Inc.  start-up
    Consolidations
    in the telecommunications industry could result in delays or
    reductions in purchases of products, which would have a material
    adverse effect on our business.
      We may
    pursue acquisitions and investments that could adversely affect
    our business.
    We may
    fail to realize the anticipated revenue and earnings growth and
    other benefits expected from our recently completed acquisition
    of C-COR, which could adversely affect the value of our
    shares.
   19




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We
    have substantial goodwill.
  Goodwill and Other
    Intangible Assets
  Our
    business comes primarily from a few key customers. The loss of
    one of these customers or a significant reduction in sales to
    one of these customers would have a material adverse effect on
    our business.
    We may
    have difficulty in forecasting our sales.
   20




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The
    broadband products that we develop and sell are subject to
    technological change and a trend toward open standards, which
    may impact our future sales and margins.
    Failure
    to increase our Media & Communications Systems revenue
    would adversely affect our financial results.
    
    our customers may decide to continue to manage their networks by
    focusing on limited, individual elements of the network rather
    than managing their entire network integrity and service
    delivery processes using a suite of software application modules
    such as those we offer;
    our software products may not perform as expected;
    new and better products may be developed by competitors;
    others may claim that our products infringe on their
    intellectual property;
    our customers may decide to use internally developed software
    tools to manage their networks rather than license software from
    us;
    the software business is volatile, and we may not be able to
    effectively utilize our resources and meet the needs of our
    customers if we are unable to forecast the future demands of
    such customers;
    if our customers increase the amount of spending on automated
    network, service, and content and operations management tools,
    new suppliers of these tools may enter the market and
    successfully capture market share; and
    we may be unable to hire and retain enough qualified technical
    and management personnel to support our growth plans.  Fluctuations
    in our Media & Communications Systems sales result in
    greater volatility in our operating results.
    Products
    currently under development may fail to realize anticipated
    benefits.
   21




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##### Table of Contents




    are not cost-effective;
    are not brought to market in a timely manner;
    fail to achieve market acceptance; or
    fail to meet industry certification standards.    Our
    success depends in large part on our ability to attract and
    retain qualified personnel in all facets of our
    operations.
    We are
    substantially dependent on contract manufacturers, and an
    inability to obtain adequate and timely delivery of supplies
    could adversely affect our business.
    Our
    international operations may be adversely affected by any
    decline in the demand for broadband systems designs and
    equipment in international markets.
    Our
    international operations may be adversely affected by changes in
    the foreign laws in the countries in which we and our
    manufacturers and assemblers have plants.
   22




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
    changes in international trade laws, such as the North American
    Free Trade Agreement and Prosec, affecting our import and export
    activities;
    changes in, or expiration of, the Mexican governments
    IMMEX (Manufacturing Industry Maquiladora and Export Services)
    program, which provides economic benefits to us;
    changes in labor laws and regulations affecting our ability to
    hire and retain employees;
    fluctuations of foreign currency and exchange controls;
    potential political instability and changes in the Mexican
    government;
    potential regulatory changes; and
    general economic conditions in Mexico.    We
    face risks relating to currency fluctuations and currency
    exchange.
      We
    depend on channel partners to sell our products in certain
    regions and are subject to risks associated with these
    arrangements.
    
    ability of our selected channel partners to effectively sell our
    products to end customers;
    our ability to continue channel partner arrangements into the
    future since most are for a limited term and subject to mutual
    agreement to extend;
    a reduction in gross margins realized on sale of our
    products; and
    a diminution of contact with end customers which, over time,
    could adversely impact our ability to develop new products that
    meet customers evolving requirements. 23




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Our
    profitability has been, and may continue to be, volatile, which
    could adversely affect the price of our stock.
    We may
    face higher costs associated with protecting our intellectual
    property or obtaining access necessary to intellectual property
    of others.
    Changes
    in accounting pronouncements can impact our
    business.
    We do
    not intend to pay cash dividends in the foreseeable
    future.
    We
    have anti-takeover defenses that could delay or prevent an
    acquisition of our company.
    We
    have the ability to issue preferred shares without stockholder
    approval.
   24




---



##### Table of Contents



Item 1B.
    Unresolved
    Staff Comments    Item 2
    Properties      Location

Description

Area (sq. ft.)


Lease Expiration

SegmentSuwanee, Georgia

Office space


129,403


April 14, 2012

AllTijuana, Mexico

Manufacturing


89,400


March 1, 2011

(2)Wallingford, Connecticut

Office space


82,155


December 31, 2014

(2)Beaverton, Oregon

Office space/
    Manufacturing


60,389


January 31, 2011

(3)Ontario, California

Warehouse


59,269


March 31, 2014

AllLisle, Illinois

Office space


56,008


November 1, 2013

(1)Waltham, Massachusetts

Office space


21,033


February 15, 2011

(3)Englewood, Colorado

Office space


32,240


March 31, 2011

AllOntario, California

Warehouse


26,565


December 31, 2009

AllCork, Ireland

Office space


11,135


October 28, 2020

(1)     Location

Description

Area (sq. ft.)


SegmentCary, North Carolina

Warehouse


151,500


AllState College, Pennsylvania

Office space


133,000


(2)(3)Chicago, Illinois

Warehouse/
    Office space


18,000


(2)     (1)
    
    Broadband Communications Systems(2)
    
    Access, Transport and Supplies(3)
    
    Media & Communications Systems    Item 3.
    Legal
    Proceedings       25




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and/or ®
      and/or
   26




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video-on-demand
        Item 4.
    Submission
    of Matters to a Vote of Security Holders    Item 4A.
    Executive
    Officers and Board Committees  Executive
    Officers of the Company
    Name

Age

PositionRobert J. Stanzione


60


Chief Executive Officer, Chairman of the BoardLawrence A. Margolis


61


Executive Vice President, Administration, Legal, HR, and
    Strategy, Chief Counsel, and SecretaryDavid B. Potts


51


Executive Vice President, Chief Financial Officer and Chief
    Information OfficerJohn O. Caezza


51


President, Access, Transport and SuppliesRonald M. Coppock


54


President, Worldwide Sales & MarketingBryant K. Isaacs


49


President, Media & Communications SystemsJames D. Lakin


65


President, Advanced Technology & ServicesBruce W. McClelland


42


President, Broadband Communications SystemsMarc S. Geraci


55


Vice President, Treasurer   Robert J. Stanzione
 27




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##### Table of Contents



Lawrence A. Margolis
  David B. Potts
  John O. Caezza
  Ronald M. Coppock
  Bryant K. Isaacs
  James D. Lakin
  Bruce W. McClelland
  Marc S. Geraci
 28




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Board
    Committees
   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    High


Low2007First Quarter

$
15.45


$
12.32Second Quarter


17.74



13.93Third Quarter


17.89



11.21Fourth Quarter


12.75



9.532008First Quarter

$
10.03


$
4.96Second Quarter


10.39



5.84Third Quarter


10.02



6.67Fourth Quarter


8.05



4.47      29




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##### Table of Contents



Stock
    Performance Graph
  3600-3699),
  
  12/03


12/04


12/05


12/06


12/07


12/08ARRIS Group Inc.



100.00




97.24




130.80




172.79




137.85




109.81S & P 500



100.00




110.88




116.33




134.70




142.10




89.53SIC Codes 3600 -3699



100.00




94.33




100.56




97.24




103.38




56.01Copyright
    ©

    2009 Standard & Poors, a division of The
    McGraw-Hill Companies, Inc. All rights reserved.www.researchdatagroup.com/S&P.htm   Form 10-K,
 30




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##### Table of Contents



Item 6.
    Selected
    Consolidated Historical Financial Data    2008


2007


2006


2005


2004Consolidated Operating Data:Net sales

$
1,144,565


$
992,194


$
891,551


$
680,417


$
490,041Cost of sales


751,436



718,312



639,473



489,703



343,864Gross margin


393,129



273,882



252,078



190,714



146,177Selling, general, and administrative expenses


143,997



99,879



87,203



74,308



68,539Research and development expenses


112,542



71,233



66,040



60,135



63,373Impairment of goodwill


209,297















Acquired in-process research and development charge






6,120











Amortization of intangible assets


44,195



2,278



632



1,212



28,690Restructuring charges


1,211



460



2,210



1,331



7,648Operating income (loss)


(118,113
)


93,912



95,993



53,728



(22,073
)Interest expense


6,740



6,614



976



2,101



5,006Loss on debt retirement














2,372



4,406Gain related to terminated acquisition, net of expenses






(22,835
)










Interest income


(7,224
)


(24,776
)


(11,174
)


(3,100
)


(1,525
)Other expense (income), net


(1,465
)


418



(1,092
)


421



(878
)Loss (gain) on investments and notes receivable


717



(4,596
)


29



146



1,320Income (loss) from continuing operations before income taxes


(116,881
)


139,087



107,254



51,788



(30,402
)Income tax expense (benefit)


6,258



40,951



(34,812
)


513



108Net income (loss) from continuing operations


(123,139
)


98,136



142,066



51,275



(30,510
)Discontinued Operations:Income from discontinued operations, net of tax






204



221



208



2,114Net income (loss)

$
(123,139
)

$
98,340


$
142,287


$
51,483


$
(28,396
) 31




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##### Table of Contents



2008


2007


2006


2005


2004Net income (loss) per common share:Basic:Income (loss) from continuing operations

$
(0.99
)

$
0.89


$
1.32


$
0.53


$
(0.36
)Income from discontinued operations


















0.02Net income (loss)

$
(0.99
)

$
0.89


$
1.33


$
0.53


$
(0.33
)Diluted:Income (loss) from continuing operations

$
(0.99
)

$
0.87


$
1.30


$
0.52


$
(0.36
)Income from discontinued operations


















0.02Net income (loss)

$
(0.99
)

$
0.87


$
1.30


$
0.52


$
(0.33
)Selected Balance Sheet Data:Total assets

$
1,351,397


$
1,561,949


$
1,013,557,


$
529,403


$
450,678Long-term obligations

$
336,372


$
356,955


$
296,723


$
18,230


$
91,781   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
       32




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##### Table of Contents



Industry
    Conditions
    Competition
    Between Cable Operators and Telephone Companies is
    Increasing.
    Competition
    Between U.S. Cable Operators and Direct Broadcast Satellite
    Services is Increasing.
    Macroeconomic
    Crisis is Expected to Affect our Industry.
    Personalized
    Programming is Becoming More Readily Available Across Multiple
    Platforms.
    Growth in
    Enhanced Broadband Services Requires Continued Upgrades and
    Maintenance by Domestic and International Cable
    Operators.
  last-mile,
 33




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##### Table of Contents



Growing
    Demand for Bundled Services  Video, Voice, and
    Data.
    Cable
    Operators are Demanding Advanced Network Technologies and
    Software Solutions.
    Digital
    Video Recorders are Impacting the Advertising
    Business.
    Cable
    Operators are Developing Strategies to Offer Business
    Services.
    Volatile
    Capital Market Conditions for Many Large Cable
    Operators.
   34




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##### Table of Contents



Consolidation
    of Vendors Has Occurred and May Continue.
    Our
    Strategy and Key Highlights
    
    Maintain a strong capital structure, mindful of our 2013 debt
    maturity, share repurchase opportunities and other capital needs
    including mergers and acquisitions.
    Grow our current business into a more complete portfolio
    including a strong video product suite. Continue to invest in
    the evolution toward enabling true network convergence onto an
    all IP platform.
    Continue to expand our product/service portfolio through
    internal developments, partnerships and acquisitions.
    Expand our international business and begin to consider
    opportunities in markets other than cable.
    Continue to invest in and evolve the ARRIS talent pool to
    implement the above strategies.      Convergence
    is taking hold as MSOs globally have embraced IP.
  
    We have successfully leveraged our market position and industry
    experience and continue to generate robust demand for both EMTA
    and CMTS products. Furthermore, we have leveraged the market
    position we acquired as a result of the purchase of C-COR in
    December 2007 to increase sales of new products, notably sales
    of Video on Demand, Operations Support Software, Access, and
    Transport products.
    As expected, sales to Comcast increased significantly in the
    third quarter of 2008 as they begin the rollout of DOCSIS3.0
    capabilities. This trend continued through the end of 2008 as
    Comcast achieved their goal of 20% penetration of DOCSIS3.0
    capabilities across their network.
    We experienced increased sales in 2008 to other customers,
    notably Time Warner and Liberty Media affiliates, as well as
    certain international customers in countries such as Japan,
    Germany, Mexico and Columbia.
    We expect strong demand for CMTS products to continue in future
    periods as new services and competition between our customers
    and other service providers intensifies the need to provide ever
    faster download speeds requiring added CMTS capacity and
    features. In the third quarter of 2008, a new generation of CMTS 35




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##### Table of Contents



products based upon the DOCSIS 3.0 standard was introduced,
    leveraging the installed base of current ARRIS CMTS products by
    providing an efficient upgrade to these systems. Significant
    shipments of this new product were made in the third and fourth
    quarter.  
    Cable operators, particularly in North America, are aggressively
    expanding their voice, video and data services to attract
    commercial small and medium sized businesses. We provide several
    products to address this opportunity, and in particular have
    seen substantial growth of our DOCSIS multiline business service
    terminals.
    We introduced our Universal EdgeQAM D5 towards the end of 2007.
    Our initial expectation, based on customer input, was that
    demand for this product would be robust in the first quarter of
    2008 driven by Switched Digital Video (SDV)
    requirements. However, customers, in particular Comcast, delayed
    network-wide introduction of SDV in favor of a more aggressive
    conversion to all-digital. We have expanded our marketing and
    development efforts to include other applications including
    Modular CMTS, Broadcast and Video on Demand (VOD),
    but sales in 2008 were modest. In 2008, we introduced an upgrade
    to the existing installed base of D5 enabling an increase in the
    number of ports withing the existing footprint. This enhancement
    allows operators to expand their VOD and linear television
    offerings without the need to add additional equipment.
    We expect demand for EMTAs to remain robust; however, many
    operators have reached a plateau in deployments and are also
    managing churn due to competitive subscriber offerings. We do
    not anticipate the growth in aggregate sales that we have
    experienced in the past few years. However, we do anticipate the
    start of a replacement cycle as DOCSIS3.0 services are launched
    more aggressively in the second half of 2009 and 2010. This is
    expected to spur further growth in the business. Shipments to
    Central and Latin American countries almost doubled in 2008, as
    large service providers such as Telmex and Telefonica competed
    for residential communication and entertainment dollars.
    Through our acquisition of C-COR in late 2007, we expanded our
    portfolio to include several key new products that leverage the
    capital spending of our customers. The Access and Transport
    products are expected to benefit from the plant upgrades MSOs
    will undertake to expand the capacity they will require to offer
    new services to their subscribers. We are beginning to get
    customer acceptance with our
    CORWavetm

    multi-wavelength optical platform that provides higher transport
    capacity of traditional transport for a fraction of the
    traditional infrastructure cost. This trend continues to
    accelerate over time as a result of increasing capacity demands
    on the networks and the increased scrutiny of new capital
    investments. The operations support system (OSS) and
    On-Demand products also are well positioned to provide value
    added services and operational improvements to the MSOs.
    Sales of our Access, Transport and Supplies products declined
    quarter-over-quarter and year-over-year. The sale of these
    infrastructure products are in part dependent upon line
    extensions resulting from new home starts. We believe that the
    slowdown of the US economy, and in particular new housing
    construction, has and will have a near term impact on the sales
    of these products.  We
    continue to invest significantly in research and
    development.
  
    We have made significant investments in research and development
    for new products and expansion of our existing products. Our
    primary focus has been on products and services that will enable
    MSOs to build and operate high-availability, fault-tolerant
    networks, which allow them to generate greater revenue by
    offering high-speed data, IP telephony and digital video to both
    residential and business subscribers. This
    success-based capital expenditure is a significant
    portion of the cable operators total capital spending. In
    addition, some MSOs have expressed interest in offering bundled
    wireless telephony as part of their product offering. This
    product, known as Fixed Mobile Convergence (FMC), will allow
    cable subscribers to use mobile phones in their homes,
    connecting to the MSOs VoIP network in the home, and to
    roam from the home VoIP network to the cellular network outside
    of the home and back seamlessly. We are developing products to
    support this new offering. 36




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##### Table of Contents




    With our acquisition of C-COR in late 2007, our research and
    development effort was significantly expanded to include Access
    and Transport, VOD, Ad Insertion and OSS products. Further, in
    the third quarter 2008 we completed the purchase of certain
    assets of Auspice which has and will increase our ongoing
    research and development investment in our OSS products. In
    2008, we spent approximately $112.5 million on research and
    development, or 9.8% of revenue, which compares to
    $71.2 million, or 7.2% of revenue, in 2007. We expect to
    continue to spend similar or slightly higher amounts on research
    and development in the future. We anticipate we may modestly
    increase our development efforts on VOD and OSS products.
    Key research and development accomplishments in 2008 included:  
    We introduced the 16D Cable Access Module (CAM) and
    the Router Control Module (RCM) for the C4 CMTS. The
    16D CAM provides higher downstream capacity than its predecessor
    and DOCSIS 3.0 downstream channel bonding enabling downstream
    speeds up to 160Mbps.
    We announced DOCSIS 3.0 certification of the WBM750 Data Modem
    and the TM702 Voice over IP EMTA. The ARRIS C4 CMTS reached a
    critical milestone in releasing the new DOCSIS 3.0 hardware and
    software for general availability opening a new era in ultra
    high speed communications.
    A new release was made available in the second quarter for the
    ARRIS D5 Universal EdgeQAM platform increasing its capacity.
    We released FM601 series amplifiers which extended the bandwidth
    of the legacy Philips product lines to 1GHz. This release allows
    us to significantly reduce network bandwidth upgrade costs
    relative to the large installed bases in both the US and
    internationally.
    We received qualification of the CORWave multi-wavelength
    optical platform increasing channel capacity and increasing
    range over previous Coarse Wave Division Multiplexing
    (CWDM) solutions.
    We introduced the CORWave II platform which expands
    capacity over traditional optical transport.
    We released to production a first of its kind, new segmentable
    node (OM2100) targeted specifically at the European and MDU
    markets. As advanced services gain additional traction in these
    markets, this release allows us to cost effectively address of
    the growing need for segmentation.
    We introduced Start Over, a feature for On Demand that allows a
    viewer to view a program from the beginning even when they tune
    in a few minutes late.
    We released new features for our
    ServAssuretm

    and
    WorkAssuretm

    products including an integrated house check feature
    that allows field technicians to remotely check the network and
    multi-service health of an end-customers installation,
    reducing the potential for a repeat truck roll. The
    ServAssuretm

    release allows operators to assure the service integrity of
    DOCSIS 3.0 deployments.  We
    continue to expand through partnerships and
    acquisitions.
  
    To further our strategy, on December 14, 2007 we acquired
    C-COR in a cash and stock transaction valued at approximately
    $682 million closed successfully on December 14, 2007.
    As a result of this acquisition we now have substantially
    greater scale and critical mass, as well as greater product
    breadth and enhanced customer diversity. As our customer base
    continues to consolidate, supplier scale and product breadth
    have become increasingly important. On a combined basis, we
    expect our increased product breadth and greater scale to be
    strategically relevant to our customers, thereby giving us an
    opportunity to capture a larger share of their spending. The
    combination of our industry-leading voice, data and video
    products together with C-CORs leading access,
    transmission, video and software solutions will enhance our
    competitive market position. Our new organization has an
    impressive global footprint with excellent customer and product
    line diversity and an even stronger international presence both
    in terms of sales and staff presence. The ability to offer
    end-to-end solutions should enable us to optimize customer
    relationships and drive greater product pull through.
    Further, in the third quarter of 2008, we completed the purchase
    of certain assets of Auspice which expanded the customer base
    and features of our OSS products. 37




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##### Table of Contents



At the
    end of 2008, we had cash, cash equivalents and short term
    investments of approximately $427.3 million.
  
    In the first quarter 2008, we announced a share buyback program.
    During the first quarter 2008, we repurchased 13.0 million
    shares at an average price of $5.84 per share for an aggregate
    consideration of approximately $76 million. No additional
    shares were repurchased during the rest of 2008.
    In the first quarter 2008, we redeemed, at par,
    $35.0 million of convertible notes we assumed as part of
    the C-COR
    acquisition.
    We generated $189.1 million of cash from operating
    activities in 2008.  Results
    of Operations
  Overview
      Key
    Operating Data (as a percentage of net sales)
  Years Ended December 31,2008


2007


2006Net sales


100.0
%


100.0
%


100.0
%Cost of sales


65.7



72.4



71.7Gross margin


34.3



27.6



28.3Operating expenses:Selling, general, and administrative expenses


12.5



10.1



9.8Research and development expenses


9.8



7.2



7.4Impairment of goodwill


18.3







Acquired in-process research and development charge






0.6



Amortization of intangible assets


3.9



0.2



0.1Restructuring charges


0.1







0.2Operating income (loss)


(10.3
)


9.5



10.8Other (income) expense:Interest expense


0.6



0.7



0.1Gain on terminated acquisition, net of expenses






(2.3
)


Gain on investments


(0.1
)


(0.5
)


Gain on foreign currency










(0.1
)Interest income


(0.6
)


(2.4
)


(1.2
)Income (loss) before income taxes


(10.2
)


14.0



12.0Income tax expense (benefit)


0.6



4.1



(3.9
)Net income (loss)


(10.8
)%


9.9
%


15.9
%  38




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##### Table of Contents



Comparison
    of Operations for the Three Years Ended December 31,
    2008
  Net
    Sales
  Form 10-K
  Net Sales


Increase (Decrease)For the Years Ended


Between PeriodsDecember 31,


2008 vs. 2007


2007 vs. 20062008


2007


2006


$


%


$


%Segment:BCS

$
822,816


$
859,164


$
766,470


$
(36,348
)


(4.2
)%

$
92,694



12.1
%ATS


262,478



130,644



123,581



131,834



100.9
%


7,063



5.7
%MCS


59,271



2,386



1,500



56,885



2384.1
%


886



59.1
%Total

$
1,144,565


$
992,194


$
891,551


$
152,371



15.4
%

$
100,643



11.3
%     Net Sales


Increase (Decrease)For the Years Ended


Between PeriodsDecember 31,


2008 vs. 2007


2007 vs. 20062008


2007


2006


$


%


$


%Domestic

$
811,823


$
724,065


$
668,093


$
87,758



12.1
%

$
55,972



8.4
%International:Asia Pacific


50,435



41,997



52,859



8,438



20.1



(10,862
)


(20.6
)Europe


127,102



98,575



74,991



28,527



28.9



23,584



31.5Latin America


97,798



71,507



41,731



26,291



36.8



29,776



71.4Canada


57,407



56,050



53,877



1,357



2.4



2,173



4.0Total international


332,742



268,129



223,458



64,613



24.1
%


44,671



20.0
%Total

$
1,144,565


$
992,194


$
891,551


$
152,371



15.4
%

$
100,643



11.3
%   Broadband
    Communications Systems Net Sales 2008 vs. 2007
    
    Sales of our EMTA product decreased as many of our customers
    have passed through the initial launch stage of telephony. In
    2008, we shipped 5.9 million units as compared to
    7.1 million units in 2007. The majority of the decrease is
    due to lower EMTA sales to Comcast. This decrease was a result
    of Comcast awarding market share to one of our competitors in
    the fourth quarter of 2007. As a strategy, most of our customers
    utilize multiple vendors.
    Sales of our CMTS product increased reflecting higher sales to
    Time Warner Cable, and Kabel Deutschland. Sales to Comcast,
    Liberty Media International and other customers also increased
    in conjunction with the launch of our DOCSIS 3.0 product in the
    third quarter of 2008. Continued increased demand for bandwidth
    coupled with the launch of telephony has driven increased demand
    for our CMTS products from our customers.  Access,
    Transport and Supplies Net Sales 2008 vs. 2007
    
    The increase was the result of the acquisition of C-COR. In
    2007, we estimate that C-COR, prior to being acquired, recorded
    sales associated within this segment of approximately
    $216.3 million. The estimated 39




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##### Table of Contents



combined sales of ARRIS and C-COR in 2007 for this segment were
    $347.0 million which compares to $262.5 million in
    2008. The decline on a combined basis is the result of the
    slowdown of the US economy, and in particular new housing
    construction.  
    Sales in 2007 for this segment consisted of sales of our
    Supplies products. Sales of our supply products decreased year
    over year as a result of lower purchases by MSOs for new plant
    and extension equipment reflecting the decline in new home
    construction in the U.S.  Media &
    Communications Systems Net Sales 2008 vs. 2007
    
    The increase was the result of the acquisition of C-COR. In
    2007, we estimate that C-COR, prior to being acquired, recorded
    sales associated within this segment of approximately
    $65.4 million. Sales of our Media &
    Communications Systems products as compared to the same sales by
    C-COR in the prior year is not directly comparable because we
    revalued C-CORs deferred revenue in connection with
    recording the acquisition.  Broadband
    Communications Systems Net Sales 2007 vs. 2006
    
    Sales of our EMTA product increased as operators ramped up
    deployment of VoIP. In 2007, we shipped 7.1 million units
    as compared to 4.8 million units in 2006. The increase in
    EMTA sales was broad-based and included sales to many new
    customers. Many of our customers are now through the initial
    launch stage of telephony. We enjoyed sole supplier status with
    many customers, including Comcast, through much of 2007. As a
    strategy, most of our customers utilize multiple vendors. As
    expected, Comcast began awarding market share to one of our
    competitors in the fourth quarter 2007.
    Sales of our CMTS product increased reflecting higher sales to
    Comcast and our success in capturing new customers, for example
    Time Warner Cable and Cablevision Systems (NY). Continued
    increased demand for bandwidth coupled with the launch of
    telephony has driven increased demand for our CMTS products from
    our customers.
    Sales of our CBR voice products declined year-over-year as
    customers migrated to VoIP products. As previously disclosed,
    this product is now at end-of-life.  Access,
    Transport and Supplies Net Sales 2007 vs. 2006
    
    Sales of this segment include Access and Transport Products of
    the former C-COR, which was acquired on December 14, 2007.
    For the period December 15 through December 31, 2007, we
    sold approximately $5.0 million of these products.
    Sales of the remaining products in this segment relate to our
    Supplies product. Sales levels were similar in 2007 as compared
    to 2006, which reflect primarily spending by MSOs for product to
    maintain and repair their networks.  Media &
    Communications Systems Net Sales 2007 vs. 2006
    
    Sales in this segment are mostly attributable to OSS and
    On-Demand products acquired as part of the C-COR acquisition.
    Since the acquisition occurred so late in 2007 there was not a
    significant level of activity during 2007. 40




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##### Table of Contents



Gross
    Margin
    Gross Margin $


Increase (Decrease)For the Years Ended


Between PeriodsDecember 31,


2008 vs. 2007


2007 vs. 20062008


2007


2006


$


%


$


%Business Segment:BCS

$
285,136


$
251,416


$
229,871


$
33,720



13.4
%

$
21,545



9.4
%ATS


76,387



22,930



22,081



53,457



233.1
%


849



3.8
%MCS


31,606



(464
)


126



32,070



6911.6
%


(590
)


468.3
%Total

$
393,129


$
273,882


$
252,078


$
119,247



43.5
%

$
21,804



8.6
%     Gross Margin%


Percentage Point IncreaseFor the Years Ended December 31,


(Decrease) Between Periods2008


2007


2006


2008 vs. 2007


2007 vs. 2006Business Segment:BCS


34.7
%


29.3
%


30.0
%


5.4



(0.7
)ATS


29.1
%


17.6
%


17.9
%


11.5



(0.3
)MCS


53.3
%


(19.4
)%


8.4
%


72.7



(27.7
)Total


34.3
%


27.6
%


28.3
%


6.7



(0.7
)     Broadband
    Communications Systems Gross Margin 2008 vs. 2007
    
    Increases due to sales variations in product mix and increases
    achieved due to cost reductions. In particular, as compared to
    2007 we sold more CMTS products and fewer EMTA products. CMTS
    products carry a higher gross margin percentage than the EMTA
    products.  Access,
    Transport and Supplies Gross Margin 2008 vs. 2007
    
    As a result of the C-COR acquisition, revenues and gross margin
    dollars increased significantly year over year. The increase in
    gross margin percentage was a result of the addition of
    C-CORs higher margin Access and Transport products.
    The increase due to the C-COR acquisition was partially offset
    by a decrease in the Supplies gross margin dollars as a result
    of lower sales. 41




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##### Table of Contents



Media &
    Communications Systems Gross Margin 2008 vs. 2007
    
    The increase is attributable to the higher margin VOD and OSS
    products we added to our portfolio as a result of the C-COR
    acquisition.  Broadband
    Communications Systems Gross Margin 2007 vs. 2006
    
    The increase in gross margin dollars is the result of the
    $92.7 million increase in sales, partially offset by lower
    gross margin percentage.
    The decrease in gross margin percentage reflects product mix
    (having more lower margin EMTAs in the mix than higher margin
    CMTS) and lower margins and higher startup costs associated with
    the introduction of the Universal EdgeQAM, which began shipping
    in late 2007.
    The decreases described above were offset by an increase in the
    gross profit percentage for our EMTAs. During 2006, in order to
    secure market share we chose to reduce the price of our Model 4
    EMTA in advance of introducing our cost reduced Model 5 EMTA. As
    a result our 2006 margins were lower than historical averages
    until the transition was completed in the fourth quarter 2006.  Access,
    Transport and Supplies Gross Margin 2007 vs. 2006
    Media &
    Communications Systems Gross Margin 2007 vs. 2006
    Operating
    Expenses
    Operating Expenses


Increase (Decrease)For the Years Ended


Between PeriodsDecember 31,


2008 vs. 2007


2007 vs. 20062008


2007


2006


$


%


$


%Selling, general, & administrative

$
143,997


$
99,879


$
87,203


$
44,118



44.2
%

$
12,676



14.5
%Research & development


112,542



71,233



66,040



41,309



58.0
%


5,193



7.9
%Impairment of goodwill


209,297











209,297



100.0







Acquired in-process research & development






6,120







(6,120
)


(100.0
)%


6,120



100
%Amortization of intangible assets


44,195



2,278



632



41,917



1840.1
%


1,646



260.4
%Restructuring


1,211



460



2,210



751



163.3
%


(1,750
)


(79.2
)%Total

$
511,242


$
179,970


$
156,085


$
331,272



184.1
%

$
23,885



15.3
%   Selling,
    General, and Administrative, or SG&A, Expenses
  2008 vs. 2007
    
    The inclusion of expenses associated with the former C-COR. 42




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##### Table of Contents




    The year-over-year SG&A expenses declined when comparing
    2008 to the combined expenses of ARRIS and the former C-COR for
    2007, reflecting synergies achieved as a result of the
    combination of the two companies.
    Legal expenses increased by approximately $6.0 million year
    over year as a result of increased costs associated with various
    litigation matters, specifically patent related (see Legal
    Proceedings). We anticipate that this trend may continue.
    We anticipate spending slightly less on SG&A in 2009,
    excluding potential variability in legal costs.  2007 vs. 2006
    
    Increased costs (salaries, fringe benefits, travel) of
    approximately $7.0 million associated with increased
    staffing levels, particularly in the sales organization, as a
    result of the growth in the business and the decision to further
    invest in the sales force.
    Variable compensation costs (bonuses) decreased by
    $2.0 million year-over-year reflecting less favorable
    business results versus plan as compared to 2006.
    We acquired C-COR on December 14, 2007 and as a result
    incurred $1.8 million of SG&A cost in 2007 that did
    not exist in 2006. Further, we incurred approximately
    $1.4 million of integration expenses associated with the
    acquisition.
    We incurred $1.9 million higher legal costs defending
    various matters, in particular patent litigation claims.
    In 2006 we benefited by approximately $1.6 million from
    recoveries of previous written off accounts receivable. This
    benefit did not recur in 2007.  Research &
    Development, or R&D, Expenses
    2008 vs. 2007
    
    The inclusion of expenses associated with the former C-COR.
    As planned, we increased our R&D spending as a combined
    company, particularly on Video on Demand and OSS products.
    We anticipate that we may spend slightly more on R&D in
    2009.  2007 vs. 2006
    
    Salaries, benefits, and travel costs increased by approximately
    $4.1 million reflecting higher staffing levels.
    Variable compensation costs (bonuses) decreased by
    $1.5 million year-over-year reflecting not as strong
    business results versus plan as compared to 2006.
    We acquired C-COR on December 14, 2007 and as a result
    incurred $1.1 million of R&D expenses in 2007 that did
    not exist in 2006.
    Outside services related to R&D, such as testing and
    certifications, increased approximately $1.0 million
    year-over-year.  Acquired
    In-Process Research and Development Charge
   43




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##### Table of Contents



Restructuring
    Charges
    Impairment
    of Goodwill
    Amortization
    of Intangibles
    Other
    Expense (Income)
    Other Expense (Income)For the Years Ended


Increase (Decrease)December 31,


Between Periods2008


2007


2006


2008 vs. 2007


2007 vs. 2006Interest expense

$
6,740


$
6,614


$
976


$
126


$
5,638Gain related to terminated acquisition, net of expenses






(22,835
)






22,835



(22,835
)Loss (gain) on investments


717



(4,596
)


29



5,313



(4,625
)Loss (gain) on foreign currency


(422
)


48



(1,360
)


(470
)


1,408Interest income


(7,224
)


(24,776
)


(11,174
)


17,552



(13,602
)Other expense (income)


(1,043
)


370



268



(1,413
)


102Total expense (income)

$
(1,232
)

$
(45,175
)

$
(11,261
)

$
43,943


$
(33,914
)   Interest
    Expense
  14-1 Accounting for Convertible Debt Instruments That May be
    Settled in Cash Upon Conversion (including Partial Cash
    Settlement)
  Gain
    Related to Terminated Acquisition of Tandberg Television
    ASA
   44




---



##### Table of Contents



break-up
  Loss
    (Gain) on Investments
    Loss
    (Gain) in Foreign Currency
    Interest
    Income
      Income
    Tax Expense
       45




---



##### Table of Contents



Discontinued
    Operations
    Financial
    Liquidity and Capital Resources
  Overview
    Liquidity &
    Capital Resources Data
  Year Ended December 31,2008


2007


2006(in thousands, except DSO and Turns)Key Working Capital ItemsCash provided by operating activities

$
189,073


$
63,424


$
144,241Cash, cash equivalents, and short-term investments

$
427,265


$
391,808


$
549,193Accounts Receivable, net

$
159,443


$
166,953


$
115,304- Days Sales Outstanding


52



48
*


41Inventory

$
129,752


$
131,792


$
94,226- Turns


5.7



7.2
*


6.1Key Debt Items Convertible notes due 2026

$
276,000


$
276,000


$
276,000C-COR convertible notes

$



$
35,000


$
Key Shareholder Equity Items Share Repurchases

$
75,960


$



$
Shares Issued for acquisitions

$



$
281,011


$
Capital Expenditures

$
21,352


$
15,072


$
12,728   *
    
    Full year excluding C-COR    
    Liquidity  ensure that we have sufficient cash
    resources or other short term liquidity to manage day to day
    operations
    Growth  implement a plan to ensure that we have
    adequate capital resources, or access thereto, fund internal
    growth and execute acquisitions while retiring our notes in a
    timely fashion.    Accounts
    Receivable & Inventory
   46




---



##### Table of Contents



Issuance
    of the 2026 Notes
    Redemption
    of $35.0 Million Notes Acquired as Part of the C-COR
    Acquisition
    Shares
    Issued for Acquisition
    Share
    Repurchases
    Summary
    of Current Liquidity Position and Potential for Future Capital
    Raising
    Contractual
    Obligations
    Payments due by periodContractual Obligations

Less than 1 Year


1-3 Years


3-5 Years


More than 5 Years


Total(in thousands)Debt

$
146


$
137


$
276,000


$



$
276,283Operating leases, net of sublease income(1)


7,155



10,328



5,286



3,067



25,836Purchase obligations(2)


119,261















119,261Total contractual obligations(3)

$
126,562


$
10,465


$
281,286


$
3,067


$
421,380   (1)
    
    Includes leases which are reflected in restructuring accruals on
    the consolidated balance sheets.(2)
    
    Represents obligations under agreements with non-cancelable
    terms to purchase goods or services. The agreements are
    enforceable and legally binding, and specify terms, including
    quantities to be purchased and the timing of the purchase.(3)
    
    Approximately $15.9 million of FIN 48 liabilities have
    been excluded from the contractual obligation table because we
    are unable to make reasonably reliable estimates of the period
    of cash settlement with the respective taxing authorities. 47




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
  Regulation S-K.
  Cash
    Flow
    2008


2007


2006Cash provided by operating activities

$
189,073


$
63,424


$
144,241Cash provided by (used in) investing


9,778



(221,667
)


(45,841
)Cash provided by (used in) financing


(112,754
)


20,422



287,932Net increase (decrease) in cash

$
86,097


$
(137,821
)

$
386,332   Operating Activities:
    2008


2007


2006Net income (loss)

$
(123,139
)

$
98,340


$
142,287Adjustments to reconcile net income to cash provided by
    (used in ) operating activities


275,412



(1,042
)


(29,951
)Net income including adjustments


152,273



97,298



112,336(Increase)/Decrease in accounts receivable


8,579



(17,498
)


(32,153
)(Increase)/Decrease in inventory


4,023



(9,502
)


19,683Increase/(Decrease) in accounts payable and accrued liabilities


38,800



(9,906
)


50,200Other, net


(14,602
)


3,032



(5,825
)Cash provided by operating activities

$
189,073


$
63,424


$
144,241             build-up
 48




---



##### Table of Contents



Investing
    Activities:
    2008


2007


2006Capital expenditures

$
(21,352
)

$
(15,072
)

$
(12,728
)Acquisitions/other


(10,500
)


(285,284
)


Purchases of short-term investments


(109,347
)


(356,366
)


(129,475
)Sales of short-term investments


155,114



412,217



96,150Purchases of investments securities


(4,387
)






Cash proceeds from sale of property, plant and equipment


250



3



212Proceeds from termination of TandbergTV acquisition, net of
    payments






22,835



Cash provided by (used in) investing activities

$
9,778


$
(221,667
)

$
(45,841
)               Financing Activities:
    2008


2007


2006Proceeds from issuance of 2026 notes

$



$



$
276,000Deferred financing fees paid










(7,760
)Repurchase of shares to satisfy employee tax withholdings


(1,035
)


(3,093
)


(2,019
)Payment of debt and capital lease obligations


(35,864
)


(19
)


Repurchase of common stock


(75,960
)






Proceeds from issuance of common stock


49



14,377



12,266Excess tax benefits from stock-based compensation plans


56



9,157



9,445Cash provided by (used in) financing activities

$
(112,754
)

$
20,422


$
287,932  49




---



##### Table of Contents



Issuance
    of Convertible Senior Notes due 2026
    Debt
    Assumed as Part of the Acquisition of C-COR
      Common
    Stock Transactions
        Income
    Taxes
   50




---



##### Table of Contents



Interest
    Rates
    Foreign
    Currency
      Financial
    Instruments
  and/or
    Cash,
    Cash Equivalents, Short-Term Investments and Available-For-Sale
    Investments
   51




---



##### Table of Contents



Fair Value Measurements
  Accounting for Certain Investments in
    Debt and Equity Securities
  No. 97-14, Accounting for Deferred Compensation Arrangements Where
    Amounts Earned Are Held in a Rabbi Trust and Invested
  Accounting for Certain Investments in Debt and Equity
    Securities
  Capital
    Expenditures
    Net
    Operating Loss Carryforwards and Research and Development Credit
    Carryforwards
   52




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##### Table of Contents



Defined
    Benefit Pension Plans
  Employers Accounting for
    Settlements and Curtailments of Defined Benefit Pension Plans
    and for Termination Benefits.
    Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans.
  
    fully recognize the funded status of defined benefit
    plans  an asset for an overfunded status or a
    liability for an underfunded status,
    measure a defined benefit plans assets and obligations
    that determine its funded status as of the end of the
    entitys fiscal year, and
    recognize changes in the funded status of a defined benefit plan
    in comprehensive earnings in the year in which the changes occur.  ARRIS adopted SFAS No. 158 as of December 31,
    2006.
 53




---



##### Table of Contents



2008


2007


2006Assumed discount rate for non-qualified plan participants


6.25
%


6.25
%


5.75
%Assumed discount rate for qualified plan participants


6.25
%


6.25
%


5.75
%Rates of compensation increase


3.75
%


3.75
%


3.75
%     2008


2007


2006Assumed discount rate for non-qualified plan participants


6.25
%


5.75
%


5.50
%Assumed discount rate for qualified plan participants


6.25
%


5.75
%


5.75
%Rates of compensation increase


3.75
%


3.75
%


3.75
%Expected long-term rate of return on plan assets


7.50
%


8.00
%


8.00
%       2009

$
8502010


10,5162011


9332012


1,0962013


1,3832014 - 2018


7,592   Other
    Benefit Plans
         54




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##### Table of Contents



Critical
    Accounting Policies
    a)
    Revenue
    Recognition  Recognition in Financial
    Statements Revenue Recognition No. 97-2, Software Revenue Recognition
    (SOP 97-2), 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts (SOP 81-1) , No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21), SOP No. 98-9, Software Revenue Recognition, With Respect to Certain
    Transactions (SOP 98-9), EITF 03-05, Applicability of AICPA Statement of Position
    97-2 to
    Non-Software Deliverables in an Arrangement containing
    More-Than-Incidental
    Software (EITF 03-05), Long-Term
    Construction-Type Contracts EITF 01-9, (EITF 01-9),
    
    When persuasive evidence of an arrangement
    exists.  Contracts and customer purchase orders
    are used to determine the existence of an arrangement.
    Delivery has occurred.  Shipping documents,
    proof of delivery and customer acceptance (when applicable) are
    used to verify delivery.
    The fee is fixed or determinable.  Pricing is
    considered fixed and determinable at the execution of a customer
    arrangement, based on specific products and quantities to be
    delivered at specific prices. This determination includes a
    review of the payment terms associated with the transaction and
    whether the sales price is subject to refund or adjustment or
    future discounts.
    Collectability is reasonably assured.  We
    assess the ability to collect from our customers based on a
    number of factors that include information supplied by credit
    agencies, analyzing customer accounts, reviewing payment history
    and consulting bank references. Should we have a circumstance
    arise where a customer is deemed not creditworthy, all revenue
    related to the transaction will be deferred until such time that
    payment is received and all other criteria to allow us to
    recognize revenue have been met.    
    When undelivered products or services that are essential to the
    functionality of the delivered product exist, revenue is
    deferred until such undelivered products or services are
    delivered as the customer would not have full use of the
    delivered elements.
    When we dont have acceptance that is required.
    When trade-in rights are granted at the time of sale, that
    portion of the sale is deferred until the trade-in right is
    exercised or the right expires. In determining the deferral
    amount, management estimates the expected 55




---



##### Table of Contents



trade-in rate and future value of the product upon trade-in.
    These factors are periodically reviewed and updated by
    management, and the updates may result in either an increase or
    decrease in the deferral.  Equipment 
  Software  SOP 97-2, SOP No. 98-9, Software Revenue Recognition, With Respect to Certain
    Transactions SOP 97-2:
  Services  on-site on-site SOP 97-2,
  Incentives 
  Multiple Element Arrangements  EITF 00-21, SOP 97-2 SOP 81-1
  SOP 97-2 EITF 03-05, Applicability of AICPA Statement of Position
    97-2 to
    Non-Software Deliverables in an Arrangement Containing
    More-Than-Incidental Software.
 56




---



##### Table of Contents



SOP 98-9.
  SOP 81-1. SOP 81-1 Long-Term
    Construction-Type Contracts SOP 81-1.
  EITF 00-21.
      2008


2007


IncreaseDeferred revenue

$
47,131


$
8,588


$
38,543Deferred cost


14,488



1,542



12,946  57




---



##### Table of Contents



b)
    Goodwill
    and Intangible Assets  Goodwill
  Goodwill and Other Intangible Assets, EITF 02-13, Deferred Income Tax Considerations in Applying the Goodwill
    Impairment Test in FASB Statement No. 142, Goodwill and
    Other Intangible Assets
   58




---



##### Table of Contents



ATS

BCS

MCSWeighted average cost of capital

17%

15%

20%Comparable companies used for guideline method

ADC Telecommunications, Amphenol Corp., BigBand Networks, CIENA,
    CommScope, CPI International, Harmonic, JDS Uniphase, Sycamore
    Networks, Westell Technologies

3Com Corp., ADC Telecommunications, Commscope, Harmonic, Sonus
    Network, Tellabs, Cisco Systems

BigBand Networks, Harmonic, OpenTV, SeaChange International, TII
    Network Technologies, Concurrent Computer       December 31, 2008Gross


Impairment


NetGoodwill by Reporting Unit:ATS

$
167,250


$
(128,884
)

$
38,366BCS


150,569







150,569MCS


123,162



(80,413
)


42,749Total

$
440,981


$
(209,297
)

$
231,684   Intangible
    Assets
  Accounting for the Impairment or Disposal of Long-lived
    Assets
    December 31, 2008


December 31, 2007Gross


Accumulated


Net Book


Gross


Accumulated


Net BookAmount


Amortization


Value


Amount


Amortization


ValueIntangible Assets by Reporting Units:ATS

$
164,242


$
(25,858
)

$
138,384


$
164,339


$
(1,086
)

$
163,253BCS


106,429



(106,429
)






106,429



(106,429
)


MCS


110,039



(21,075
)


88,964



108,292



(1,652
)


106,640Total

$
380,710


$
(153,362
)

$
227,348


$
379,060


$
(109,167
)

$
269,893  59




---



##### Table of Contents



c)
    Allowance
    for Doubtful Accounts and Sales Returns          d)
    Inventory
    Valuation  first-in,
    2008


2007Gross inventory

$
148,563


$
144,640Reserves


(18,811
)


(12,848
)Net inventory

$
129,752


$
131,792   C-COR
   60




---



##### Table of Contents



e)
    Warranty    2008


2007January 1,

$
14,370


$
8,234Accruals related to warranties (including changes in estimates)


5,445



4,961Settlements made (in cash or in kind)


(8,769
)


(4,675
)C-COR warranty reserves acquired, including purchase price
    adjustments


(862
)


5,850Balance at December 31,

$
10,184


$
14,370       f)
    Stock-Based
    Compensation  Share-Based Payment
 61




---



##### Table of Contents



Forward-Looking
    Statements
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk         62




---



##### Table of Contents



Item 8.
    Consolidated
    Financial Statements and Supplementary Data    Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure  N/A
  Item 9A.
    Controls
    and Procedures  Evaluation of Disclosure Controls and
    Procedures. Rule 13a-15(e)
  Changes in Internal Control over Financial
    Reporting.
  Item 9B.
    Other
    Information  N/A
 63




---



##### Table of Contents



MANAGEMENTS
    REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  Rule 13a-15(f).
  Internal
    Control  Integrated Framework
                 64




---



##### Table of Contents



Internal Control  Integrated Framework
            
    65




---



##### Table of Contents



INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageReport of Independent Registered Public
    Accounting Firm


67Consolidated Balance Sheets at December 31,
    2008 and 2007


68Consolidated Statements of Operations for the
    years ended December 31, 2008, 2007 and 2006


69Consolidated Statements of Cash Flows for the
    years ended December 31, 2008, 2007 and 2006


70Consolidated Statements of Stockholders
    Equity for the years ended December 31, 2008, 2007 and
    2006


72Notes to the Consolidated Financial Statements


74  66




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans Accounting for Uncertainty in
    Income Taxes  an interpretation of FASB Statement
    No. 109, Accounting for Income Taxes, Fair Value Measurements
  Internal Control-Integrated Framework
  ERNST &
    YOUNG LLP
    67




---



##### Table of Contents



ARRIS
    GROUP, INC.
 CONSOLIDATED
    BALANCE SHEETS  December 31,2008


2007(in thousands except per share data)ASSETSCurrent assets:Cash and cash equivalents

$
409,894


$
323,797Short-term investments, at fair value


17,371



68,011Total cash, cash equivalents and short-term investments


427,265



391,808Restricted cash


5,673



6,977Accounts receivable (net of allowances for doubtful accounts of
    $3,988 in 2008 and $2,826 in 2007)


159,443



166,953Other receivables


4,749



4,330Inventories (net of reserves of $18,811 in 2008 and $12,848 in
    2007)


129,752



131,792Prepaids


8,004



5,856Current deferred income tax assets


44,004



44,939Other current assets


19,782



4,841Total current assets


798,672



757,496Property, plant and equipment (net of accumulated depreciation
    of $100,313 in 2008 and $83,644 in 2007)


59,204



59,156Goodwill


231,684



455,352Intangible assets (net of accumulated amortization of $153,362
    in 2008 and $109,167 in 2007)


227,348



269,893Investments


14,681



8,592Noncurrent deferred income tax assets


11,514



3,459Other assets


8,294



8,001$
1,351,397


$
1,561,949LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
75,863


$
58,852Accrued compensation, benefits and related taxes


27,024



26,177Accrued warranty


6,752



8,298Deferred revenue


44,461



8,474Current portion of long-term debt


146



35,305Current deferred income tax liabilities


1,059



Other accrued liabilities


25,410



42,121Total current liabilities


180,715



179,227Long-term debt, net of current portion


276,137



276,765Accrued pension


18,820



10,455Noncurrent income taxes payable


9,607



6,322Noncurrent deferred income tax liabilities


17,565



45,255Other noncurrent liabilities


14,243



18,158Total liabilities


517,087



536,182Stockholders equity:Preferred stock, par value $1.00 per share, 5.0 million
    shares authorized; none issued and outstanding






Common stock, par value $0.01 per share, 320.0 million
    shares authorized; 123.1 million and 132.4 million
    shares issued and outstanding in 2008 and 2007, respectively


1,362



1,356Capital in excess of par value


1,105,998



1,093,498Treasury stock at cost, 13 million shares in 2008 and 51
    thousand shares in 2007


(75,960
)


(572
)Accumulated deficit


(188,562
)


(64,993
)Unrealized gain (loss) on marketable securities


(274
)


20Unfunded pension liability, including income tax impact of
    $2,778 and $665 in 2008 and 2007, respectively


(8,070
)


(3,358
)Cumulative translation adjustments


(184
)


(184
)Total stockholders equity


834,310



1,025,767$
1,351,397


$
1,561,949    68




---



##### Table of Contents



ARRIS
    GROUP, INC.
 CONSOLIDATED
    STATEMENTS OF OPERATIONS  For The Years Ended December 31,2008


2007


2006(in thousands, except per share data)Net sales

$
1,144,565


$
992,194


$
891,551Cost of sales


751,436



718,312



639,473Gross margin


393,129



273,882



252,078Gross margin%


34.3
%


27.6
%


28.3
%Operating expenses:Selling, general, and administrative expenses


143,997



99,879



87,203Research and development expenses


112,542



71,233



66,040Impairment of goodwill


209,297







Acquired in-process research and development charge






6,120



Amortization of intangible assets


44,195



2,278



632Restructuring charges


1,211



460



2,210511,242



179,970



156,085Operating income (loss)


(118,113
)


93,912



95,993Other expense (income):Interest expense


6,740



6,614



976Gain related to terminated acquisition, net of expenses






(22,835
)


Loss (gain) on investments and notes receivable


717



(4,596
)


29Loss (gain) on foreign currency


(422
)


48



(1,360
)Interest income


(7,224
)


(24,776
)


(11,174
)Other expense (income), net


(1,043
)


370



268Income (loss) from continuing operations before income taxes


(116,881
)


139,087



107,254Income tax expense (benefit)


6,258



40,951



(34,812
)Net income (loss) from continuing operations


(123,139
)


98,136



142,066Income from discontinued operations






204



221Net income (loss)

$
(123,139
)

$
98,340


$
142,287Net income (loss) per common share  basic:Income (loss) from continuing operations

$
(0.99
)

$
0.89


$
1.32Income (loss) from discontinued operations










Net income (loss)

$
(0.99
)

$
0.89


$
1.33Net income (loss) per common share  diluted:Income (loss) from continuing operations

$
(0.99
)

$
0.87


$
1.30Income (loss) from discontinued operations










Net income (loss)

$
(0.99
)

$
0.87


$
1.30Weighted average common shares  basic


124,878



110,843



107,268Weighted average common shares  diluted


124,878



113,027



109,490    69




---



##### Table of Contents



ARRIS
    GROUP, INC.
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Years Ended December 31,2008


2007


2006(in thousands)Operating activities:Net income (loss)

$
(123,139
)

$
98,340


$
142,287Depreciation


20,915



10,852



9,787Amortization of intangible assets


44,195



2,278



632Amortization of deferred finance fees


1,113



1,116



139Goodwill impairment


209,297







Deferred income tax provision (benefit)


11,846



4,405



(38,490
)Deferred income tax related to goodwill impairment


(24,725
)






Stock compensation expense


11,277



10,903



9,423Provision for doubtful accounts


819



279



(174
)Gain related to previously written off receivables






(377
)


(1,573
)Loss (gain) on disposal of fixed assets


14



182



(61
)Loss (gain) on investments and notes receivable


717



(4,604
)


32Income from discontinued operations






(204
)


(221
)Gain related to terminated acquisition, net of expenses






(22,835
)


Acquired in-process research and development charge






6,120



Excess income tax benefits from stock-based compensation plans


(56
)


(9,157
)


(9,445
)Changes in operating assets and liabilities, net of effect of
    acquisitions and dispositions:Accounts receivable


8,579



(17,498
)


(32,153
)Other receivables


(471
)


(1,774
)


(2,270
)Inventories


4,023



(9,502
)


19,683Accounts payable and accrued liabilities


38,800



(9,906
)


50,200Other, net


(14,131
)


4,806



(3,555
)Net cash provided by operating activities


189,073



63,424



144,241Investing activities:Purchases of short-term investments


(109,347
)


(356,366
)


(129,475
)Sales of short-term investments


155,114



412,217



96,150Purchases of investments


(4,387
)






Purchases of property, plant and equipment


(21,352
)


(15,072
)


(12,728
)Cash proceeds from sale of property, plant, and equipment


250



3



212Cash paid for acquisition, net of cash acquired


(10,500
)


(285,284
)


Cash paid for hedge related to terminated acquisition






(26,469
)


Cash proceeds from hedge related to terminated acquisition






38,750



Cash received related to terminated acquisition, net of payments






10,554



Net cash provided by (used in) investing activities


9,778



(221,667
)


(45,841
)    70




---



##### Table of Contents



ARRIS
    GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS  (Continued)
  Years Ended December 31,2008


2007


2006(in thousands)Financing activities:Proceeds from issuance of common stock

$
49


$
14,377


$
12,266Proceeds from issuance of debt










276,000Repurchase of common stock


(75,960
)






Payment of debt and capital lease obligations


(35,864
)


(19
)


Excess income tax benefits from stock-based compensation plans


56



9,157



9,445Repurchase of shares to satisfy employee tax withholdings


(1,035
)


(3,093
)


(2,019
)Deferred financing costs paid










(7,760
)Net cash provided by (used in) financing activities


(112,754
)


20,422



287,932Net increase (decrease) in cash and cash equivalents


86,097



(137,821
)


386,332Cash and cash equivalents at beginning of year


323,797



461,618



75,286Cash and cash equivalents at end of year

$
409,894


$
323,797


$
461,618Noncash investing and financing activities:Net tangible assets acquired, excluding cash

$
23,108


$
11,645


$
Intangible assets acquired, including goodwill and adjustments


(12,608
)


582,847



Prior investment in acquired company






(5,973
)


Equity issued for acquisition, including fair value of assumed
    stock options






(303,235
)


Cash paid for acquisition, net of cash acquired

$
10,500


$
285,284


$
Landlord funded leasehold improvements

$



$
85


$
242Supplemental cash flow information:Interest paid during the year

$
5,800


$
6,182


$
87Income taxes paid during the year

$
19,834


$
22,687


$
2,482    71




---



##### Table of Contents



ARRIS
    GROUP, INC.
 CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY  Unrealized





UnrealizedCapital in








(Loss) Gain on


Unfunded


Gain


CumulativeCommon


Excess of


Treasury


Accumulated


Marketable


Pension


(Loss) on


TranslationStock


Par Value


Stock


Deficit


Securities


Liability


Derivatives


Adjustments


Total(In thousands)Balance, January 1, 2006

$
1,069


$
732,405


$



$
(305,555
)

$
1,077


$
(4,618
)

$
1,523


$
(184
)

$
425,717Comprehensive income (loss):Net income














142,287



















142,287Unrealized gain on marketable securities


















220















220Unrealized gain on derivative instruments


























(2,074
)






(2,074
)Minimum liability on unfunded pension adjustment






















156











156Comprehensive income


































140,589Compensation under stock award plans






9,423



























9,423Income tax benefit related to exercise of stock options






5,192



























5,192Income tax benefit related to exercise of stock options in prior
    years  due to release of valuation allowance






4,253



























4,253Issuance of common stock and other


20



10,227



























10,247Balance, December 31, 2006

$
1,089


$
761,500


$



$
(163,268
)

$
1,297


$
(4,462
)

$
(551
)

$
(184
)

$
595,421    72




---



##### Table of Contents



ARRIS
    GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
  Unrealized





UnrealizedCapital in








(Loss) Gain on


Unfunded


Gain


CumulativeCommon


Excess of


Treasury


Accumulated


Marketable


Pension


(Loss) on


TranslationStock


Par Value


Stock


Deficit


Securities


Liability


Derivatives


Adjustments


Total(In thousands)Balance, December 31, 2006

$
1,089


$
761,500


$



$
(163,268
)

$
1,297


$
(4,462
)

$
(551
)

$
(184
)

$
595,421Comprehensive income :Net income














98,340



















98,340Unrealized loss on marketable securities


















(1,277
)














(1,277
)Unrealized gain on derivative instruments


























551







551Change in unfunded pension liability, net of $665 of income tax
    impact






















1,104











1,104Comprehensive income


































98,718Compensation under stock award plans






10,903



























10,903Adoption of FIN 48














(65
)


















(65
)Income tax benefit related to exercise of stock options






8,987



























8,987Fair value of stock options related to C-COR acquisition






22,797



























22,797Issuance of common stock related to C-COR acquisition


251



280,759



(572
)






















280,438Issuance of common stock and other


16



8,552



























8,568Balance, December 31, 2007


1,356



1,093,498



(572
)


(64,993
)


20



(3,358
)






(184
)


1,025,767Comprehensive me (loss):Net loss














(123,139
)


















(123,139
)Unrealized loss on marketable securities


















(294
)














(294
)Change in unfunded pension liability, net of $2,778 of income
    tax impact






















(4,712
)










(4,712
)Comprehensive loss


































(128,145
)Service cost, interest cost, and expected return on plan assets
    for Oct 1  Dec 31, 2008














(310
)


















(310
)Amortization of prior service cost for Oct 1  Dec 31,
    2008














(120
)


















(120
)Compensation under stock award plans






11,277



























11,277Issuance of common stock and other


6



1,692



572























2,270Repurchase of common stock










(75,960
)






















(75,960
)Income tax benefit related to exercise of stock options






(469
)


























(469
)Balance, December 31, 2008

$
1,362


$
1,105,998


$
(75,960
)

$
(188,562
)

$
(274
)

$
(8,070
)

$



$
(184
)

$
834,310    73




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS  Note 1.
    Organization
    and Basis of Presentation    Note 2.
    Summary
    of Significant Accounting Policies  (a)
    Consolidation    (b)
    Use of
    Estimates    (c)
    Reclassifications    (d)
    Cash,
    Cash Equivalents, Short-Term Investments and Available-For-Sale
    Investments     74




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting for Certain Investments in
    Debt and Equity Securities
  No. 97-14, Accounting for Deferred Compensation Arrangements Where
    Amounts Earned Are Held in a Rabbi Trust and Invested
  Accounting for Certain Investments in Debt and Equity
    Securities
  (e)
    Inventories  first-in, work-in-process
  (f)
    Revenue
    recognition  Recognition in Financial
    Statements Revenue Recognition No. 97-2, Software Revenue Recognition
    (SOP 97-2), 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts (SOP 81-1) , No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21), SOP No. 98-9, Software Revenue Recognition, With Respect to Certain
    Transactions (SOP 98-9), EITF 03-05, Applicability of AICPA Statement of Position
    97-2 to
    Non-Software Deliverables in an Arrangement containing
    More-Than-Incidental Software (EITF 03-05), Long-Term
    Construction-Type Contracts EITF 01-9, (EITF 01-9),
    
    When persuasive evidence of an arrangement
    exists.  Contracts and customer purchase orders
    are used to determine the existence of an arrangement.
    Delivery has occurred.  Shipping documents,
    proof of delivery and customer acceptance (when applicable) are
    used to verify delivery.
    The fee is fixed or determinable. Pricing is considered
    fixed and determinable at the execution of a customer
    arrangement, based on specific products and quantities to be
    delivered at specific prices. This determination includes a
    review of the payment terms associated with the transaction and
    whether the sales price is subject to refund or adjustment or
    future discounts.
    Collectability is reasonably assured. We assess the
    ability to collect from our customers based on a number of
    factors that include information supplied by credit agencies,
    analyzing customer accounts, reviewing payment history and
    consulting bank references. Should we have a circumstance arise
    where a customer is deemed not creditworthy, all revenue related
    to the transaction will be deferred until such time that payment
    is received and all other criteria to allow us to recognize
    revenue have been met. 75




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     
    When undelivered products or services that are essential to the
    functionality of the delivered product exist, revenue is
    deferred until such undelivered products or services are
    delivered as the customer would not have full use of the
    delivered elements.
    When we dont have acceptance that is required.
    When trade-in rights are granted at the time of sale, that
    portion of the sale is deferred until the trade-in right is
    exercised or the right expires. In determining the deferral
    amount, management estimates the expected trade-in rate and
    future value of the product upon trade-in. These factors are
    periodically reviewed and updated by management, and the updates
    may result in either an increase or decrease in the deferral.  Equipment 
  Software  SOP 97-2, SOP No. 98-9, Software Revenue Recognition, With Respect to Certain
    Transactions SOP 97-2:
  Services  on-site on-site SOP 97-2,
  Incentives 
  Multiple Element Arrangements 
 76




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  EITF 00-21, SOP 97-2 SOP 81-1
  SOP 97-2 EITF 03-05, Applicability of AICPA Statement of Position
    97-2 to
    Non-Software Deliverables in an Arrangement Containing
    More-Than-Incidental Software. SOP 98-9.
  SOP 81-1. SOP 81-1 Long-Term
    Construction-Type Contracts SOP 81-1.
  EITF 00-21.
 77




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        2008


2007


IncreaseDeferred revenue

$
47,131


$
8,588


$
38,543Deferred cost


14,488



1,542



12,946   (g)
    Shipping
    and Handling Fees    (h)
    Depreciation
    of Property, Plant and Equipment    (i)
    Goodwill
    and Long-Lived Assets  Goodwill and Other
    Intangible Assets,
   78




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Purchased technology

4 - 6 yearsCustomer relationships

2 - 8 yearsNon-compete agreements

2 yearsTrademarks

2 yearsOrder backlog

1/2 year     Accounting for the Impairment or Disposal of Long-lived
    Assets
  (j)
    Advertising
    and Sales Promotion    (k)
    Research
    and Development    (l)
    Warranty    (m)
    Income
    Taxes   79




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting
    for Income Taxes
  (n)
    Foreign
    Currency Translation          (o)
    Stock-Based
    Compensation  Share-Based Payment
  (p)
    Concentrations
    of Credit Risk   80




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        
    Cash, cash equivalents, and short-term
    investments:  The carrying amounts reported in the
    consolidated balance sheets for cash, cash equivalents, and
    short-term investments approximate their fair values.
    Accounts receivable and accounts payable:  The
    carrying amounts reported in the balance sheet for accounts
    receivable and accounts payable approximate their fair values.
    The Company establishes a reserve for doubtful accounts based
    upon its historical experience in collecting accounts receivable.
    Marketable securities:  The fair values for
    trading and available-for-sale equity securities are based on
    quoted market prices.
    Non-marketable securities:  Non-marketable
    equity securities are subject to a periodic impairment review;
    however, there are no open-market valuations, and the impairment
    analysis requires significant judgment. This analysis includes
    assessment of the investees financial condition, the
    business outlook for its products and technology, its projected
    results and cash flow, recent rounds of financing, and the
    likelihood of obtaining subsequent rounds of financing.
    Short-term debt:  The fair value of the
    Companys senior unsecured convertible notes
    (Notes) which were assumed as part of the C-COR
    acquisition totaled approximately $35.0 million at
    December 31, 2007. The Company issued notification that it
    called the Notes on December 14, 2007 and subsequently
    extinguished the Notes on January 14, 2008 for
    $35.0 million plus accrued interest.
    Long-term debt:  The fair value of the
    Companys convertible subordinated debt is based on its
    quoted market price and totaled approximately
    $176.6 million and $258.1 million at December 31,
    2008 and 2007, respectively.
    Foreign exchange contracts:  The fair values of
    the Companys foreign currency contracts are estimated
    based on dealer quotes, quoted market prices of comparable
    contracts adjusted through interpolation where necessary,
    maturity differences or if there are no relevant comparable
    contracts on pricing models or formulas by using current
    assumptions. As of December 31, 2008, the Company had
    option collars outstanding with notional amounts totaling
    12.0 million euros, which mature through 2009. As of
    December 31, 2008, the Company had forward contracts
    outstanding with notional amounts totaling 16.3 million
    euros, which mature through 2009. The fair value of option
    contracts as of December 31, 2008 and 2007 resulted in a
    gain (loss) of approximately $0.4 million and
    $(0.6) million.  (q)
    Computer
    Software  SOP 98-1, Accounting for the Costs of Computer Software Developed or
    Obtained for Internal Use
 81




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  and/or
  Accounting for
    the Costs of Computer Software to Be Sold, Leased, or Otherwise
    Marketed,
  (r)
    Comprehensive
    Income (Loss)    Note 3.
    Impact of
    Recently Issued Accounting Standards  Employers Disclosures about
    Postretirement Benefit Plan Assets
  14-1, Accounting for Convertible Debt Instruments That May be
    Settled in Cash Upon Conversion (including Partial Cash
    Settlement) No. 90-19, Convertible Bonds with Issuer Options to Settle for Cash Upon
    Conversion Accounting Changes and Error Corrections
 82




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    The
    Hierarchy of Generally Accepted Accounting Principles The
    Meaning of Present Fairly in Conformity With Generally Accepted
    Accounting Principles
  Disclosures about Derivative Instruments and Hedging
    Activities  an amendment of FASB Statement
    No. 133.
  Noncontrolling
    Interests in Consolidated Financial Statements  an
    amendment of ARB No. 51.
  Business Combinations
  Fair Value Measurements FAS 157-2, Effective Date of FASB Statement No. 157,
  83




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 4.
    Investments    Fair ValueAs of December 31,


As of December 31,2008


2007Current Assets:Commercial paper

$
15,771


$
11,833Auction rate securities






30,270Certificates of deposit






9,807U.S. Government agency bonds






9,574Corporate obligations






3,447Asset-backed securities






2,974Variable rate demand notes


1,600



Equity securities






106Total classified as current assets

$
17,371


$
68,011Non-Current Assets:Cash surrender value of company owned life insurance

$
4,527


$
3,075Auction rate securities


4,908



Mutual funds


22



3,230Money market funds


437



70Corporate obligations


20



37Investment in private company


4,000



SERP investments


767



2,180Total classified as non-current assets

$
14,681


$
8,592Total

$
32,052


$
76,603       December 31, 2008Due in one year or less

$
23,123Due in one to five years securities


4,908Due after ten years


4,021Total


32,052   Note 5.
    Fair
    Value Measurements   84




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Level 1:
  Level 2:
  Level 3:
    Level 1


Level 2


Level 3


TotalCurrent investments

$



$
17,371


$



$
17,371Noncurrent investments


459



5,314







5,773Auction rate securities










4,908



4,908Investment in private company










4,000



4,000Foreign currency contracts


391











391Total

$
850


$
22,685


$
8,908


$
32,443       Level 3Estimated fair value January 1, 2008

$
5,0002008 change in fair value


(91
)Estimated fair value December 31, 2008

$
4,909    85




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Note 6.
    Guarantees  Warranty
        2008


2007January 1,

$
14,370


$
8,234Accruals related to warranties (including changes in estimates)


5,445



4,961Settlements made (in cash or in kind)


(8,769
)


(4,675
)C-COR warranty reserves acquired, including purchase price
    adjustments


(862
)


5,850Balance at December 31,

$
10,184


$
14,370   Note 7.
    Business
    Acquisitions  Acquisition
    of Auspice Corporation
  Accounting for
    Business Combinations
 86




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Acquisition
    of C-COR Incorporated
  C-COR
    Total purchase consideration  cash and equity

$
646,665Prior investment in acquired company


5,973Fair value of assumed stock options


22,797Acquisition-related transaction costs


6,912Total purchase price

$
682,347Net tangible assets

$
116,814Identifiable intangible assets:Acquired technology


38,810Order backlog


7,940Customer relationships


220,470Non-compete agreements


5,110Acquired in-process research and development


6,120Goodwill (prior to impairment charge in the fourth quarter of
    2008)


287,083Allocation of purchase price

$
682,347   Note 8.
    Segment
    Information  Disclosures About Segments of an
    Enterprise and Related Information
   87




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Broadband Communications Systems
  Access, Transport and Supplies
  Media & Communications Systems
    Broadband


Access,


Media &Communications


Transport and


CommunicationsSystems


Supplies


Systems


TotalDecember 31, 2008Net sales

$
822,816


$
262,478


$
59,271


$
1,144,565Gross margin


285,136



76,387



31,606



393,129Amortization of intangible assets






24,772



19,423



44,195Impairment of goodwill






128,884



80,413



209,297December 31, 2007Net sales

$
859,164


$
130,644


$
2,386


$
992,194Gross margin


251,416



22,930



(464
)


273,882Amortization of intangible assets






1,086



1,192



2,278Impairment of intangible assets










58



58Write-off of in-process research and development






1,320



4,800



6,120December 31, 2006Net sales

$
766,470


$
123,581


$
1,500


$
891,551Gross margin


229,871



22,081



126



252,078Amortization of intangible assets


402







230



632     Broadband


Access,


Media &Communications


Transport and


CommunicationsSystems


Supplies


Systems


TotalDecember 31, 2008Goodwill

$
150,569


$
38,366


$
42,749


$
231,684Intangible assets, net






138,384



88,964



227,348December 31, 2007Goodwill

$
150,569


$
179,827


$
124,956


$
455,352Intangible assets, net






163,253



106,640



269,893    88




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2008


2007


2006Comcast and affiliates

$
300,934


$
366,894


$
316,124% of sales


26.3
%


37.0
%


35.4
%Time Warner Cable and affiliates

$
235,405


$
106,376


$
82,758% of sales


20.6
%


10.7
%


9.3
%       Years Ended December 31,2008


2007


2006Asia Pacific

$
50,435


$
41,997


$
52,859Europe


127,103



98,575



74,991Latin America


97,798



71,507



41,731Canada


57,406



56,050



53,877Total

$
332,742


$
268,129


$
223,458     As of December 31,2008


2007Asia Pacific

$
1,222


$
1,166Europe


1,884



1,919Latin America Latin America


169



3,120Canada


3



Total

$
3,278


$
6,205   Note 9.
    Restructuring
    Charges  Accounting for Costs Associated with Exit or
    Disposal Activities.
   89




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (in thousands)Balance as of December 31, 2007

$
2,1212008 payments


(1,738
)2008 adjustments to accrual


162Balance as of December 31, 2008

$
545     (in thousands)Balance as of December 31, 2007

$
8,6222008 payments


(8,664
)2008 adjustments to accrual


253Balance as of December 31, 2008

$
211     (in thousands)Balance as of December 31, 2007

$
6422008 payments


(315
)2008 adjustments to accrual


167Balance as December 31, 2008

$
494   Note 10. Inventories
  first-in,
  December 31,2008


2007Raw material

$
19,247


$
20,004Work in process


4,814



2,533Finished goods


105,691



109,255Total inventories

$
129,752


$
131,792  90




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 11.
    Property,
    Plant and Equipment    December 31,2008


2007Land

$
2,612


$
2,612Buildings and leasehold improvements


20,048



19,432Machinery and equipment


136,857



120,756159,517



142,800Less: Accumulated depreciation


(100,313
)


(83,644
)Total property, plant and equipment, net

$
59,204


$
59,156   Note 12. Goodwill
    and Intangible Assets
  Goodwill
  Goodwill and Other Intangible Assets, EITF 02-13, Deferred Income Tax Considerations in Applying the Goodwill
    Impairment Test in FASB Statement No. 142, Goodwill and
    Other Intangible Assets
   91




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      ATS

BCS

MCSWeighted average cost of capital

17%

15%

20%Comparable companies used for guideline method

ADC Telecommunications, 
    Amphenol Corp., 
    BigBand Networks, 
    CIENA, CommScope, 
    CPI International, 
    Harmonic, JDS 
    Uniphase, Sycamore 
    Networks, Westell 
    Technologies

3Com Corp., ADC
    Telecommunications,
    Commscope, Harmonic,
    Sonus Network,
    Tellabs, Cisco Systems

BigBand Networks, Harmonic, 
    OpenTV, SeaChange 
    International, TII Network 
    Technologies, Concurrent 
    Computer       December 31, 2008


December 31, 2007Gross


Impairment


Net


Gross


Impairment


NetGoodwill by Reporting Unit:ATS

$
167,250


$
(128,884
)

$
38,366


$
179,827


$



$
179,827BCS


150,569







150,569



150,569







150,569MCS


123,162



(80,413
)


42,749



124,956







124,956Total

$
440,981


$
(209,297
)

$
231,684


$
455,352


$



$
455,332  92




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Intangibles
  Accounting for the Impairment or Disposal of Long-lived
    Assets
    December 31, 2008Net


December 31, 2007Gross


Accumulated


Book


Gross


Accumulated


Net BookAmount


Amortization


Value


Amount


Amortization


ValueIntangible Assets by Reporting Units:ATS

$
164,242


$
(25,858
)

$
138,384


$
164,339


$
(1,086
)

$
163,253BCS


106,429



(106,429
)






106,429



(106,429
)


MCS


110,039



(21,075
)


88,964



108,292



(1,652
)


106,640Total

$
380,710


$
(153,362
)

$
227,348


$
379,060


$
(109,167
)

$
269,893     2009

$
36,9462010

$
34,3682011

$
34,1872012

$
34,1202013

$
33,858  93




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 13.
    Long-Term
    Obligations    December 31,2008


20072.00% convertible senior notes due 2026

$
276,000


$
276,0002.00% Pennsylvania Industrial Development Authority debt, net of
    current portion


137



2719.26% equipment financing obligations, net of current portion






494Total long-term debt


276,137



276,765Other long-term liabilities:Deferred compensation


4,896



8,986Accrued warranty


3,432



6,072Deferred revenue


2,671



114Landlord funded leasehold improvements


1,308



1,747Other long-term liabilities


1,936



1,239Total other long-term liabilities


14,243



18,158Total long-term liabilities

$
290,380


$
294,923   14-1
   94




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 14.
    Earnings
    Per Share    For the Years Ended December 31,2008


2007


2006Basic:Income (loss) from continuing operations

$
(123,139
)

$
98,136


$
142,066Income from discontinued operations






204



221Net income (loss)

$
(123,139
)

$
98,340


$
142,287Weighted average shares outstanding


124,878



110,843



107,268Basic earnings (loss) per share

$
(0.99
)

$
0.89


$
1.33Diluted:Income (loss) from continuing operations

$
(123,139
)

$
98,136


$
142,066Income from discontinued operations






204



221Net income (loss)

$
(123,139
)

$
98,340


$
142,287Weighted average shares outstanding


124,878



110,843



107,268Net effect of dilutive shares






2,184



2,222Total


124,878



113,027



109,490Diluted earnings (loss) per share

$
(0.99
)

$
0.87


$
1.30        95




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 15.
    Income
    Taxes    Years Ended December 31,2008


2007


2006Current  Federal

$
13,492


$
31,044


$
2,235State


5,903



5,269



1,077Foreign


(258
)


233



36619,137



36,546



3,678Deferred  Federal


(12,007
)


4,744



(32,785
)State


(798
)


463



(3,429
)Foreign


(74
)


(802
)


(2,276
)(12,879
)


4,405



(38,490
)$
6,258


$
40,951


$
(34,812
)     Years Ended December 31,2008


2007


2006Statutory federal income tax expense (benefit)


(35.0
)%


35.0
%


35.0
%Effects of:State income taxes, net of federal benefit


4.4
%


2.8
%


1.7
%Differences between U.S. and foreign income tax rates


(1.0
)%


(0.7
)%


(0.1
)%Impairment of goodwill


43.3
%






Domestic manufacturing deduction


(1.7
)%






Decrease in valuation allowance


(0.1
)%


(3.8
)%


(62.3
)%Federal tax exempt interest


(0.3
)%


(2.1
)%


Acquired in-process research and development






1.6
%


Research and development tax credits


(4.0
)%


(4.3
)%


(7.2
)%Other, net


(0.2
)%


1.0
%


0.5
%5.4
%


29.5
%


(32.4
)%  96




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2008


2007Current deferred income tax assets:Inventory costs

$
10,504


$
8,626Federal alternative minimum tax (AMT) credit






850Federal research and development credits


3,000



8,755Federal/state net operating loss carryforwards


11,703



5,216Foreign net operating loss carryforwards


69



0Warranty reserve


2,840



3,527Deferred revenue


11,844



5,091Other, principally operating expenses


5, 995



12,874Total current deferred income tax assets


45,955



44,939Noncurrent deferred income tax assets:Federal/state net operating loss carryforwards


15,464



39,044Federal capital loss carryforwards


163



Foreign net operating loss carryforwards


13,242



16,739Federal alternative minimum tax credit


2,224



1,374Federal research and development credits


16,649



2,983Pension and deferred compensation


8,372



6,618Equity compensation


6,728



4,488Other, principally operating expenses


2,322



3,487



Total noncurrent deferred income tax assets


65,164



74,733Total deferred income tax assets


111,119



119,672Current deferred income tax liabilities:Other, principally operating expenses


(1,059
)


Total current deferred income tax liabilities


(1,059
)


Non-current deferred income tax liabilities:Property, plant and equipment, depreciation and basis differences


(833
)


(708
)Other noncurrent liabilities


(512
)


(226
)Goodwill and Intangibles


(56,103
)


(92,101
)Total noncurrent deferred income tax liabilities


(57,448
)


(93,035
)Total deferred income tax liabilities


(58,507
)


(93,035
)Net deferred income tax assets


52,612



26,637Valuation allowance


(15,718
)


(23,494
)Net deferred income tax assets

$
36,894


$
3,143    97




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         98




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Tabular Reconciliation of Unrecognized Tax Benefits (in
    thousands):
  December 31,2008


2007Beginning balance

$
9,873


$
3,459Gross increases  tax positions in prior period


8



943Gross decreases  tax positions in prior period






(1
)Gross increases  current-period tax positions


5,206



1,481Increases from acquired businesses


1,888



3,991Decreases relating to settlements with taxing authorities


(355
)


Ending balance

$
16,620


$
9,873   Accounting for Uncertainty in Income
    Taxes  an Interpretation of FASB Statement
    No. 109, Accounting for Income Taxes Accounting for Income
    Taxes
    non-U.S. income
   99




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 16.
    Commitments    Operating Leases2009

$
7,2852010


6,0682011


4,4272012


3,0082013


2,278Thereafter


3,067Less sublease income


(297
)Total minimum lease payments

$
25,836       Note 17.
    Stock-Based
    Compensation     100




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
             101




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stock
    Options
      WeightedAverage


AggregateWeighted


Remaining


IntrinsicAverage


Contractual Term


ValueOptions


Exercise Price


(in years)


(in thousands)Beginning balance, January 1, 2008


11,383,550


$
10.57Grants


75,000


$
9.11Exercised


(225,807
)

$
6.49Forfeited


(55,243
)

$
12.43Expired


(932,162
)

$
15.25Ending balance, December 31, 2008


10,245,338


$
9.19



3.61


$
8,646Exercisable at December 31, 2008


8,662,126


$
9.85



3.67


$
7,905     Restricted
    Stock (Non-Performance) and Stock Units
   102




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted AverageGrant DateShares


Fair ValueUnvested at January 1, 2008


583,186


$
12.10Granted


2,336,180


$
5.73Vested


(269,125
)

$
10.23Forfeited


( 99,750
)

$
7.19Unvested at December 31, 2008


2,550,491


$
6.66   Performance-Related
    Restricted Shares
      Weighted AverageGrant DateShares


Fair ValueUnvested at January 1, 2008


416,409


$
11.70Granted


212,676


$
5.65Vested


(190,881
)

$
9.71Forfeited






Unvested at December 31, 2008


438,204


$
9.63     Employee
    Stock Purchase Plan (ESPP)
  Accounting for Stock Issued to Employees,
 103




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Unrecognized
    Compensation Cost
    Treasury
    Stock
    Note 18.  Employee
    Benefit Plans
  Employers Accounting for Settlements and Curtailments
    of Defined Benefit Pension Plans and for Termination
    Benefits.
      Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans.
  
    fully recognize the funded status of defined benefit
    plans  an asset for an overfunded status or a
    liability for an underfunded status,
    measure a defined benefit plans assets and obligations
    that determine its funded status as of the end of the
    entitys fiscal year, and 104




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    recognize changes in the funded status of a defined benefit plan
    in comprehensive earnings in the year in which the changes occur.      Years Ended December 31,2008


2007(in thousands)Change in Projected Benefit Obligation:Projected benefit obligation at beginning of year

$
29,687


$
28,367Service cost


1,027



558Interest cost


2,316



1,648Actuarial loss (gain)


2,199



(294
)Benefit payments


(892
)


(592
)Projected benefit obligation at end of year

$
34,337


$
29,687Change in Plan Assets:Fair value of plan assets at beginning of year

$
19,188


$
16,204Actual return on plan assets


(4,096
)


2,174Company contributions


1,151



1,402Expenses and benefits paid from plan assets


(892
)


(592
)Fair value of plan assets at end of year

$
15,351


$
19,188Funded Status:Funded status of plan

$
(18,986
)

$
(10,500
)Unrecognized actuarial loss


9,461



1,374Unamortized prior service cost


722



1,320Employer contributions, 9/30  12/31






29Net amount recognized

$
(8,803
)

$
(7,777
)     Years Ended December 31,2008


2007(in thousands)Noncurrent assets

$



$
290Current liabilities


(166
)


(119
)Noncurrent liabilities


(18,820
)


(10,642
)Accumulated other comprehensive income(1)


10,183



2,694Total

$
(8,803
)

$
(7,777
)  105




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (1)
    
    The total unfunded pension liability on the Consolidated Balance
    Sheets as of December 31, 2008 and 2007 included a related
    income tax effect of $(2.1) million and $0.7 million,
    respectively.    Years Ended December 31,2008


2007(in thousands)Net (gain) loss

$
8,088


$
(1,190
)Amortization of net (loss) gain






(102
)Amortization of prior service cost


(598
)


(477
)Total recognized in other comprehensive income (loss)

$
7,490


$
(1,769
)     December 31,2008


2007(1)(in thousands)Accumulated benefit obligation

$
33,125


$
9,396Projected benefit obligation

$
34,337


$
10,790Plan assets

$
15,351



   (1)
    
    At December 31, 2007 the plan assets of the Companys
    qualified plan exceeded its accumulated benefit obligation and
    therefore is excluded.    2008


2007


2006Service cost

$
1,026


$
558


$
519Interest cost


2,316



1,648



1,478Return on assets (expected)


(1,792
)


(1,277
)


(1,125
)Recognized net actuarial (gain) loss






102



8Amortization of prior service cost(1)


598



477



477Net periodic pension cost(2)

$
2,148


$
1,508


$
1,357   (1)
    
    Prior service cost is amortized on a straight-line basis over
    the average remaining service period of employees expected to
    receive benefits under the plan.(2)
    
    For 2008, this represents 15 months of expense as a result
    of changing the measurement date from September 30 to
    December 31. Of the total net periodic pension cost of
    $2,148 thousand, approximately $1,718 thousand was included in
    pension expense in the Consolidated Statements of Operations and
    $430 thousand was reflected as an adjustment to retained
    earnings in the Consolidated Balance Sheet.    2008


2007


2006Assumed discount rate for non-qualified plan participants


6.25
%


6.25
%


5.75
%Assumed discount rate for qualified plan participants


6.25
%


6.25
%


5.75
%Rates of compensation increase


3.75
%


3.75
%


3.75
%  106




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008


2007


2006Assumed discount rate for non-qualified plan participants


6.25
%


5.75
%


5.50
%Assumed discount rate for qualified plan participants


6.25
%


5.75
%


5.75
%Rates of compensation increase


3.75
%


3.75
%


3.75
%Expected long-term rate of return on plan assets


7.50
%


8.00
%


8.00
%         2009

$
8502010


10,5162011


9332012


1,0962013


1,3832014  2018


7,592   Other
    Benefit Plans
         107




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 19.
    Summary
    Quarterly Consolidated Financial Information
    (unaudited)    Quarters in 2008 EndedMarch 31,


June 30,


September 30,


December 31,Net sales

$
273,506


$
281,110


$
297,551


$
292,398Gross margin(1)


85,248



92,884



106,134



108,863Operating income (loss)(2)


6,485



15,547



36,301



(176,446
)Income (loss) from continuing operations


5,405



9,437



24,075



(176,233
)Income from discontinued operations














Net income (loss)(4)

$
5,405


$
9,437


$
24,075


$
(162,056
)Net income (loss) per basic share:Income (loss) from continuing operations

$
0.04


$
0.08


$
0.20


$
(1.32
)Income from discontinued operations

$



$



$



$
Net income (loss)

$
0.04


$
0.08


$
0.20


$
(1.32
)Net income (loss) per diluted share:Income (loss) from continuing operations

$
0.04


$
0.08


$
0.19


$
(1.32
)Income from discontinued operations

$



$



$



$
Net income (loss)

$
0.04


$
0.08


$
0.19


$
(1.32
)   Quarters in 2007 EndedMarch 31,


June 30,


September 30,


December 31,Net sales

$
235,253


$
252,718


$
254,662


$
249,561Gross margin(1)


68,747



72,376



68,834



63,925Operating income(2)


25,997



28,072



27,202



12,641Income from continuing operations(3)


37,644



23,274



27,522



9,696Income from discontinued operations










330



(126
)Net income(4)

$
37,644


$
23,274


$
27,852


$
9,570Net income per basic share:Income from continuing operations

$
0.35


$
0.21


$
0.25


$
0.08Income from discontinued operations

$



$



$



$
Net income

$
0.35


$
0.21


$
0.25


$
0.08Net income per diluted share:Income from continuing operations

$
0.34


$
0.21


$
0.25


$
0.08Income from discontinued operations

$



$



$



$
Net income

$
0.34


$
0.21


$
0.25


$
0.08   (1)
    
    During each quarter in 2008 and 2007, the Company recognized
    stock compensation expense of approximately $0.2 million in
    cost of goods sold which impacted gross margins.During the fourth quarter of 2007, the Company recorded a charge
    of approximately $1.0 million related to the write off of
    inventory for the discontinuation of a particular product.(2)
    
    In addition to (1) above, the following items impacted
    operating income:  
    During the first, second, third and fourth quarters of 2008, the
    Company recognized stock compensation expense (included in
    operating expenses) of approximately $2.5 million,
    $2.6 million, $2.6 million and 108




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  $2.7 million, respectively. During the first, second, third
    and fourth quarters of 2007, the Company recognized stock
    compensation expense (included in operating expenses) of
    approximately $2.5 million, $3.1 million,
    $2.5 million and $2.0 million, respectively.  
    During the first, second, third and fourth quarters of 2008, the
    Company recorded restructuring reserve adjustments of
    $0.4 million, $0.2 million, $0.2 million, and
    $0.4 million, respectively. During the first quarter of
    2007, the Company recorded a restructuring reserve adjustment of
    approximately $0.4 million. The adjustments predominantly
    related to changes in estimates related to real estate leases.
    During the first quarter of 2007, the Company recorded a gain of
    $0.4 million related to previously written off receivables.
    This gain resulted in a reduction in bad debt expense for the
    quarter.
    During the first quarter of 2008, the Company recorded expenses
    of approximately $0.4 million related to the integration of
    C-COR into ARRIS following the December 2007 acquisition.
    During the fourth quarter of 2007, ARRIS completed its
    acquisition of C-COR. As a result, the Company acquired
    approximately $6.1 million of in-process
    research & development which was subsequently written
    off. Additionally, the Company recorded amortization of
    intangibles during the fourth quarter of 2007 of approximately
    $2.1 million, predominantly related to the intangible
    assets acquired from C-COR. Prior to the fourth quarter of 2007,
    ARRIS recorded approximately $0.1 million to
    $0.2 million per quarter in 2006 and 2007 related to the
    amortization of it prior intangibles.
    During the first, second, third and fourth quarters of 2008, the
    Company recognized amortization of intangible assets of
    approximately $13.3 million, $12.5 million,
    $9.1 million and $9.3 million, respectively. During
    the first, second, third and fourth quarters of 2007, the
    Company recognized amortization of intangible assets of
    approximately $0.1 million, $0.1 million,
    $0.1 million and $2.1 million, respectively.
    During the fourth quarter 2008, ARRIS recorded goodwill
    impairment charges of $209.3 million with respect to the
    goodwill testing.  (3)
    
    During the second and third quarters of 2007, ARRIS recorded
    gains of approximately $1.3 million and $3.5 million,
    respectively, related to its investments.In January 2007, ARRIS announced its intention to acquire
    TANDBERG Television. TANDBERG subsequently choose to accept
    another partys bid and the ARRIS bid lapsed. As part
    of the initial agreement, the Company received a
    break-up fee
    of $18.0 million. In conjunction with the proposed
    transaction, ARRIS incurred expenses of approximately
    $7.5 million. ARRIS also realized a gain of approximately
    $12.3 million on the sale of foreign exchange contracts the
    Company purchased to hedge the transaction purchase price. The
    net impact was the recognition of a gain of approximately
    $22.8 million during the first quarter of 2007 as a result
    of the failed acquisition.(4)
    
    During the third quarter of 2008, the Company recorded an income
    tax benefit of $1.5 million related to certain provision to
    return adjustments.During the fourth quarter of 2008, ARRIS recorded an income tax
    adjustment of approximately $24.7 million related to the
    deferred tax impacts associated with the goodwill impairment.During the first, third, and fourth quarters of 2007, the
    Company recorded tax adjustments of $3.2 million,
    $3.5 million, and $1.2 million, respectively, related
    to valuation allowance and R&D tax credits. These
    adjustments resulted in a reduction of income tax expense during
    those quarters.  Note 20.
    Contingencies   109




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        and/or ®
       110




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  and/or
  video-on-demand
       111




---



##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers, and Corporate Governance    www.arrisi.com
    Item 11.
    Executive
    Compensation  Change-In-Control
  Item 12.
    Security
    Ownership of Certain Beneficial Owners, Management and Related
    Stockholders Matters    Item 13.
    Certain
    Relationships, Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   112




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##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  (a)
    (1) Financial
    Statements    PageReport of Independent Registered Public Accounting Firm


67Consolidated Balance Sheets at December 31, 2008 and 2007


68Consolidated Statements of Operations for the years ended
    December 31, 2008, 2007 and 2006


69Consolidated Statements of Cash Flows for the years ended
    December 31, 2008, 2007 and 2006


70Consolidated Statements of Stockholders Equity for the
    years ended December 31, 2008, 2007 and 2006


72Notes to the Consolidated Financial Statements


74  113




---



##### Table of Contents



(a)
    (2) Financial
    Statement Schedules    Schedule II 
    Valuation and Qualifying Accounts
    SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS
  Balance at








Balance atBeginning


Charge to





End ofDescription

of Period


Expenses(1)


Deductions(2)


Period(in thousands)YEAR ENDED DECEMBER 31, 2008Reserves and allowance deducted from asset accounts:Allowance for doubtful accounts

$
2,826


$
1,151


$
(11
)

$
3,988Reserve for obsolete and excess inventory(3)

$
12,848


$
12,815


$
6,852


$
18,811Income tax valuation allowance(4)

$
23,494


$



$
7,776


$
15,718YEAR ENDED DECEMBER 31, 2007Reserves and allowance deducted from asset accounts:Allowance for doubtful accounts

$
3,576


$
279


$
1,029


$
2,826Reserve for obsolete and excess inventory(3)

$
13,245


$
3,397


$
3,794


$
12,848Income tax valuation allowance(4)

$
9,393


$
19,294


$
5,193


$
23,494YEAR ENDED DECEMBER 31, 2006Reserves and allowance deducted from asset accounts:Allowance for doubtful accounts

$
3,729


$
(174
)

$
(21
)

$
3,576Reserve for obsolete and excess inventory(3)

$
15,151


$
2,880


$
4,786


$
13,245Income tax valuation allowance(4)

$
87,202


$



$
77,809


$
9,393   (1)
    
    In the year ended December 31, 2007, the charge to expense
    primarily represents an adjustment to goodwill for the acquired
    valuation allowances from C-COR.(2)
    
    Represents: a) Uncollectible accounts written off, net of
    recoveries and write-offs, b) Net change in the sales
    return and allowance account, and c) Disposal of obsolete
    and excess inventory, and d) Release and correction of
    valuation allowances.(3)
    
    The reserve for obsolescence and excess inventory is included in
    inventories.(4)
    
    The income tax valuation allowance is included in current and
    noncurrent deferred income tax assets. 114




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##### Table of Contents



(a)
    (3) Exhibit List    The filings referenced forincorporation by reference areARRIS (formerly known asExhibit



Broadband Parent, Inc.) filingsNumber

Description of Exhibit

unless otherwise noted3
.1

Amended and Restated Certificate of Incorporation

Registration Statement #333-61524, Exhibit 3.13
.2

Certificate of Amendment to Amended and Restated Certificate of
    Incorporation

August 3, 2001 Form 8-A, Exhibit 3.23
.3

By-laws

Registration Statement #333-61524, Exhibit 3.2, filed by
    Broadband Parent Corporation4
.1

Form of Certificate for Common Stock

Registration Statement #333-61524, Exhibit 4.14
.2

Rights Agreement dated October 3, 2002

October 3, 2002 Form 8-K, Exhibit 4.14
.3

Indenture dated November 13, 2006

November 16, 2006 Form 8-K, Exhibit 4.510
.1(a)*

Amended and Restated Employment Agreement with Robert J.
    Stanzione, dated August 6, 2001

September 30, 2001 Form 10-Q, Exhibit 10.10(c)10
.1(b)*

Supplemental Executive Retirement Plan for Robert J. Stanzione,
    effective August 6, 2001

September 30, 2001 Form 10-Q, Exhibit 10.10(d)10
.1(c)*

Amendment to Employment Agreement with Robert J. Stanzione,
    dated December 8, 2006

December 12, 2006 Form 8-K, Exhibit 10.710
.1(d)*

Second Amendment to Amended and Restated Employment Agreement
    with Robert J. Stanzione, dated November 26, 2008

November 28, 2008 Form 8-K, Exhibit 10.810
.1(e)*

First Amendment to the Robert Stanzione Supplemental Executive
    Retirement Plan, dated November 26, 2008

November 28, 2008 Form 8-K, Exhibit 10.910
.2(a)*

Amended and Restated Employment Agreement with Lawrence A.
    Margolis, dated April 29, 1999

June 30, 1999 Form 10-Q, Exhibit 10.33, filed by ANTEC Corp10
.2(b)*

Amendment to Employment Agreement with Lawrence Margolis, dated
    December 8, 2006

December 12, 2006 Form 8-K, Exhibit 10.610
.2(c)*

Second Amendment to Amended and Restated Employment Agreement
    with Lawrence Margolis, dated November 26, 2008

November 28, 2008 Form 8-K, Exhibit 10.710
.3(a)*

Employment Agreement with David B. Potts dated December 8,
    2006

December 12, 2006 Form 8-K, Exhibit 10.4 115




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##### Table of Contents



The filings referenced forincorporation by reference areARRIS (formerly known asExhibit



Broadband Parent, Inc.) filingsNumber

Description of Exhibit

unless otherwise noted10
.3(b)*

First Amendment to Employment Agreement with David B. Potts,
    dated November 26, 2008

November 28, 2008 Form 8-K, Exhibit 10.610
.4(a)*

Employment Agreement with Ronald M. Coppock, dated
    December 8, 2006

December 12, 2006 Form 8-K, Exhibit 10.110
.4(b)*

First Amendment to Employment Agreement with Ronald M. Coppock,
    dated November 26, 2008

November 28, 2008 Form 8-K, Exhibit 10.310
.5(a)*

Employment Agreement with James D. Lakin, dated December 8,
    2006

December 12, 2006 Form 8-K, Exhibit 10.210
.5(b)*

First Amendment to Employment Agreement with James D. Lakin,
    dated November 26, 2008

November 28, 2008 Form 8-K, Exhibit 10.510
.6(a)*

Employment Agreement with Bryant K. Isaacs, dated
    December 8, 2006

December 12, 2006 Form 8-K,Exhibit 10.310
.6(b)*

First Amendment to Employment Agreement with Bryant K. Isaacs,
    dated November 26, 2008

November 28, 2008 Form 8-K, Exhibit 10.410
.7*

Employment Agreement with Bruce McClelland, dated
    November 26, 2008

November 28, 2008 Form 8-K, Exhibit 10.210
.8*

Employment Agreement with John Caezza, dated November 26,
    2008

November 28, 2008 Form 8-K, Exhibit 10.110
.9*

Management Incentive Plan

July 2, 2001 Appendix IV of Proxy Statement filed as part
    of Registration Statement #333-61524, filed by Broadband Parent
    Corporation10
.10*

2001 Stock Incentive Plan

July 2, 2001 Appendix III of Proxy Statement filed as part
    of Registration Statement #333-61524, files by Broadband Parent
    Corporation10
.11*

2004 Stock Incentive Plan

Appendix B of Proxy Statement filed on April 20, 200410
.12*

2007 Stock Incentive Plan

June 30, 2007, Form 10-Q Exhibit 10.1510
.13*

2008 Stock Incentive Plan

June 30, 2008, Form 10-Q Exhibit 10.1510
.14*

Form of Stock Options Grant under 2001 and 2004 Stock Incentive
    Plans

March 31, 2005 Form 10-Q, Exhibit 10.20 116




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##### Table of Contents



The filings referenced forincorporation by reference areARRIS (formerly known asExhibit



Broadband Parent, Inc.) filingsNumber

Description of Exhibit

unless otherwise noted10
.15*

Form of Restricted Stock Grant under 2001 and 2004 Stock
    Incentive Plans

March 31, 2005 Form 10-Q, Exhibit 10.2110
.16*

Form of Incentive Stock Option Agreement

September 30, 2007, Form 10-Q Exhibit 10.110
.17*

Form of Nonqualified Stock Option Agreement

September 30, 2007, Form 10-Q Exhibit 10.210
.18*

Form of Restricted Stock Award Agreement

September 30, 2007, Form 10-Q Exhibit 10.310
.19*

Form of Nonqualified Stock Options Agreement

April 11, 2008
    Form 8-K,
    Exhibit 10.110
.20*

Form of Restricted Stock Grant

April 11, 2008
    Form 8-K,
    Exhibit 10.210
.21*

Form of Restricted Stock Unit Grant

April 11, 2008
    Form 8-K,
    Exhibit 10.310
.22

Solectron Manufacturing Agreement and Addendum

December 31, 2001 Form 10-K, Exhibit 10.1510
.23

Mitsumi Agreement

December 31, 2001 Form 10-K, Exhibit 10.1621


Subsidiaries of the Registrant

Filed herewith.23


Consent of Ernst & Young LLP

Filed herewith.24


Powers of Attorney

Filed herewith.31
.1

Section 302 Certification of the Chief Executive Officer

Filed herewith.31
.2

Section 302 Certification of the Chief Financial Officer

Filed herewith.32
.1

Section 906 Certification of the Chief Executive Officer

Filed herewith.32
.2

Section 906 Certification of the Chief Financial Officer

Filed herewith.  117




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##### Table of Contents



SIGNATURES      /s/  DAVID
    B. POTTS   Executive Vice President,
 Chief Financial Officer and
 Chief Accounting Officer
      /s/  RJ
    StanzioneRobert
    J. Stanzione

Chief Executive Officer and
    Chairman of the Board of Directors

February 26, 2009/s/  David
    B. PottsDavid
    B. Potts

Executive Vice President,
    Chief Financial Officer and
    Chief Accounting Officer

February 26, 2009/s/  Alex
    B. Best*Alex
    B. Best

Director

February 26, 2009/s/  Harry
    L.
    Bosco*Harry
    L. Bosco

Director

February 26, 2009/s/  John
    A. Craig*John
    A. Craig

Director

February 26, 2009/s/  Matthew
    B.
    Kearney*Matthew
    B. Kearney

Director

February 26, 2009/s/  William
    H. Lambert*William
    H. Lambert

Director

February 26, 2009/s/  John
    R. Petty*John
    R. Petty

Director

February 26, 2009/s/  David
    A. Woodle*David
    A. Woodle

Director

February 26, 2009*By:

/s/  Lawrence
    A. MargolisLawrence
    A. Margolis(as attorney in fact
    for each person indicated)  118