##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWASHINGTON, D.C.
    20549
    FORM 10-K
  For the
    fiscal year ended December 31, 2007
  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


26ITEM 4.

Submission of Matters to a Vote of Security
    Holders


28ITEM 4A.

Executive Officers and Board Committees


29PART IIITEM 5.

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


31ITEM 6.

Selected Consolidated Historical Financial
    Data


33ITEM 7.

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


34ITEM 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


60ITEM 8.

Consolidated Financial Statements and
    Supplementary Data


61ITEM 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


61ITEM 9A.

Controls and Procedures


61ITEM 9B.

Other Information


61PART IIIITEM 10.

Directors, Executive Officers, and Corporate
    Governance


110ITEM 11.

Executive Compensation


110ITEM 12.

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


110ITEM 13.

Certain Relationships, Related Transactions, and
    Director Independence


110ITEM 14.

Principal Accountant Fees and Services


110PART IVITEM 15.

Exhibits and Financial Statement Schedules


111Signatures


115EX-21 SUBSIDIARIES OF THE REGISTRANTEX-23 CONSENT OF ERNST & YOUNG LLPEX-24 POWERS OF ATTORNEYEX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE CFOEX-32.1 SECTION 906, CERTIFICATION OF CEOEX-32.2 SECTION 906, CERTIFICATION OF THE CFO   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 IPCAM

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 LineEMTA

Embedded Multimedia Terminal AdaptereQAM

Quadrature Amplitude ModulatedFMC

Fixed Mobile ConvergenceFPGA

Field Programmable Gate ArraysFTTH

Fiber to the HomeFTTP

Fiber to the PremisesGAAP

Generally Accepted Accounting PrinciplesGHZ

GigahertzGPA

General Purchase AgreementsHDT

Host Digital TerminalHDTV

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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Industry
    Overview
          last-mile,
 3




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##### Table of Contents



® ® ® ® ® ® ® ® ® tm
  ® tm ® tm tm tm
    Our
    Strategy
    
    Transition to IP with an Everything IP, Everywhere
    philosophy and build on current market successes;
    Leverage our current voice, video, and data businesses;
    Expand our existing product/services portfolio through internal
    developments, partnerships and acquisitions; and
    Maintain and improve an already strong capital and expense
    structure. 4




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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.
  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 telephony 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 5




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the cable system to optical nodes and ultimately the subscriber
    premises. The Distribution Network also collects requests and
    transmissions from subscribers and moves them back to the
    headend for processing.  
    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
    E-MTA
    Multi-line
    E-MTA for
    Residential and Commercial Services
    Wireless Gateway
    E-MTA
    High-speed data Cable Modems  
    Video / IP headend products  
    CMTS
    Universal EdgeQAM  
    Constant Bit Rate telephony products  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 and
    Test equipment  Media & Communications Systems
    (MCS):
  
    Content and Operations management systems, including products for  
    Video on Demand
    Ad Insertion and
    Digital Advertising 6




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
    Operations management systems, including products for  
    Service Assurance
    Service Fulfillment and
    Mobile Workforce Management  
    Fixed Mobile Convergence Network, including product for  
    A Mobility Application Server (MAS) for continuity
    of services across wireless and Packetcable Networks
    A 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 high-speed ® ®
  Subscribe Premises ® high-speed ® tm ® ® tm ® ® ®
  Video/IP
    Products
  Headend tm tm tm ® tm tm tm ® tm
  Constant
    Bit Rate Products
  ® ®
 7




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Access
    Transport and Supplies
    Headend
    and Hubs
    Nodes
    Radio
    Frequency Products
    Supplies
    ® ® ®
 8




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just-in-time
  Media &
    Communications Systems
  point-specific
  On Demand
    and Ad Insertion
  tm
  nABLEtmOn Demand Software
    Digital
    Advertising
   9




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##### Table of Contents



Operations
    Management Systems
  ®
  Service
    Assurance
  o
  Service
    Fulfillment
    Mobile
    Workforce Management
    Fixed
    Mobile Convergence (FMC)
  fully-converged
  Sales and
    Marketing
     10




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customer-centric
    Customers
    Years Ended December 31,2007


2006


2005(in millions)Comcast

$
395.2


$
345.8


$
163.3% of sales


39.8
%


38.8
%


24.0
%Time Warner Cable

$
106.4


$
82.8


$
72.3% of sales


10.7
%


9.3
%


10.6
%     Comcast. ® tm
  Time Warner Cable, Inc. ® ® ®
 11




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International
    Operations
      Research
    and Development
  and/or best-in-class
  ® tm ® ® Euro-DOCSIS ® tm ® ® ® tm
        
    Continued development and acceptance of open standards for
    delivering voice, video and data;
    Widespread deployment of VoIP;
    Continued increase in peer-to-peer 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; 12




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
    The rapid adoption of video on demand and switched digital video
    services;
    Expanded deployment of high definition video channels;
    Innovations in video encode/decode 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 and reduction in service group sizes
    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 and chip fabrication technology
    innovations are making possible very low cost, multi-functional
    broadband 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 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
    Rapid development and delivery of
    C4®
    and
    C3tm
    CMTS features, including
    DOCSIS®
    2.0 and 3.0,
    DOCSIS®
    Set-top Gateway or DSG and
    PacketCabletm
    Multimedia support, Layer 3 routing enhancements, packet
    inspection and filtering features, security enhancements, and
    increased downstream/upstream density;
    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 features on the
    D5tm
    Universal Edge QAM;
    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; 13




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
    Release and qualification of a 1 GHz Optical Lid Upgrade
    providing a solution for fiber deeper architectures and advanced
    services like SDV, HSD, HD and VOIP.
    Qualification of drop-in 1 GHz Amplifiers
    providing bandwidth enhancement for plant modernization while
    minimizing the need for plant disruptions associated with
    resplicing.
    Qualification 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;
    VOD in a Box  The ability to launch VOD, nPVR, and
    SDV using a unified low cost video server platform;
    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;
    Big Band Networks;
    Cisco Systems, Inc.;
    Commscope, Inc;
    Concurrent Computer Corporation;
    Ericsson (TandbergTV);
    Harmonic, Inc.;
    Motorola, Inc.;
    SeaChange, Inc.;
    Thomson; and
    TVC Communications, Inc.    carrier-grade
  Scientific-Atlanta
 16




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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;
    Big Band Networks;
    Cisco Systems, Inc.;
    Commscope, Inc;
    Concurrent Computer Corporation;
    Ericsson (TandbergTV);
    Harmonic, Inc.;
    Motorola, Inc.;
    SeaChange, Inc.;
    Thomson; and
    TVC Communications, Inc. 18




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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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Purchase
    accounting adjustments required under GAAP with respect to our
    acquisition of C-COR will have a significant impact on our GAAP
    earnings, which could impact the trading price of our common
    stock.
    Our
    results of operations after the proposed C-COR acquisition could
    be adversely affected as a result of goodwill
    impairment.
  Accounting for Business Combinations, Goodwill and
    Other Intangible Assets, non-amortized
  Our
    business has primarily come from several 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.
   20




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dual-source
  Forecasted
    reduction in sales
    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.
   21




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Products
    currently under development may fail to realize anticipated
    benefits.
    
    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.
   22




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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.
      
    Changes in international trade laws, such as the North American
    Free Trade Agreement, affecting our import and export activities;
    Changes in, or expiration of, the Mexican governments
    Maquiladora 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.
     23




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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
    Diminution of contact with end customers which, over time, could
    aversely impact our ability to develop new products that meet
    customers evolving requirements.  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.
   24




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##### Table of Contents



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.
    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


December 3, 2010

(2)Wallingford, Connecticut

Office space


82,200


December 31, 2012

(2)Beaverton, Oregon

Office space/
    Manufacturing


60,400


January 31, 2010

(3)Ontario, California

Warehouse


59,269


January 31, 2009

AllLisle, Illinois

Office space


56,008


November 1, 2013

(1)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


(1)(3)Chicago, Illinois

Warehouse/
    Office space


18,000


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




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Item 3.
    Legal
    Proceedings      No. 2:05-CV-436 and/or
  No. 03-54533MM, No. 06-5098MM
 26




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No. 2:06-CV-292 ® and/or ®
  and/or ®
  ® ® and/or ®
     27




---



##### Table of Contents



and/or
      video-on-demand
    Item 4.
    Submission
    of Matters to a Vote of Security Holders   28




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Item 4A.  Executive
    Officers and Board Committees  Executive
    Officers of the Company
    Name

Age

PositionRobert J. Stanzione


59


Chief Executive Officer, Chairman of the BoardLawrence A. Margolis


60


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


50


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


50


President, Access, Transport and SuppliesRonald M. Coppock


53


President, Worldwide Sales & MarketingBryant K. Isaacs


48


President, Media & Communications SystemsJames D. Lakin


64


President, Advanced Technology & ServicesBruce W. McClelland


41


President, Broadband Communications SystemsMarc S. Geraci


54


Vice President, Treasurer   Robert J. Stanzione
  Lawrence A. Margolis
  David B. Potts
  John O. Caezza
  Ronald M. Coppock
 29




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##### Table of Contents



Bryant K. Isaacs
  James D. Lakin
  Bruce W. McClelland
  Marc S. Geraci
  Board
    Committees
   30




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


Low2006First Quarter

$
14.30


$
9.50Second Quarter


14.22



10.66Third Quarter


13.12



9.25Fourth Quarter


13.80



10.842007First Quarter

$
15.45


$
12.32Second Quarter


17.74



13.93Third Quarter


17.89



11.21Fourth Quarter


12.75



9.53      31




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Stock
    Performance Graph  3600-3699),
  
  Cumulative Total Return12/02


12/03


12/04


12/05


12/06


12/07ARRIS Group Inc.



100.00




202.80




197.20




265.27




350.42




279.55S & P 500



100.00




128.68




142.69




149.70




173.34




182.87Peer Group



100.00




179.60




169.23




179.83




173.84




184.35Copyright
    ©
    2008 Standard & Poors, a division of The
    McGraw-Hill Companies, Inc. All rights reserved.www.researchdatagroup.com/S&P.htm   Form 10-K,
 32




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##### Table of Contents



Item 6.
    Selected
    Consolidated Historical Financial Data    2007


2006


2005


2004


2003Consolidated Operating Data:Net sales

$
992,194


$
891,551


$
680,417


$
490,041


$
433,986Cost of sales


718,312



639,473



489,703



343,864



307,726Gross margin


273,882



252,078



190,714



146,177



126,260Selling, general, and administrative expenses


99,879



87,203



74,308



68,539



89,117Research and development expenses


71,233



66,040



60,135



63,373



62,863Acquired in-process research and development charge


6,120















Amortization of intangibles


2,278



632



1,212



28,690



35,249Restructuring and impairment charges


460



2,210



1,331



7,648



891Operating income (loss)


93,912



95,993



53,728



(22,073
)


(61,860
)Interest expense


6,614



976



2,101



5,006



10,443Membership interest


















2,418Loss (gain) on debt retirement










2,372



4,406



(26,164
)Gain related to terminated acquisition, net of expenses


(22,835
)














Interest income


(24,776
)


(11,174
)


(3,100
)


(1,525
)


(414
)Other expense (income), net


418



(1,092
)


421



(878
)


(1,915
)Loss (gain) on investments and notes receivable


(4,596
)


29



146



1,320



1,436Income (loss) from continuing operations before income taxes


139,087



107,254



51,788



(30,402
)


(47,664
)Income tax expense (benefit)


40,951



(34,812
)


513



108



Net income (loss) from continuing operations


98,136



142,066



51,275



(30,510
)


(47,664
)Discontinued Operations:Income from discontinued operations, net of tax


204



221



208



2,114



351Net income (loss)

$
98,340


$
142,287


$
51,483


$
(28,396
)

$
(47,313
) 33




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##### Table of Contents



2007


2006


2005


2004


2003Net income (loss) per common share:Basic:Income (loss) from continuing operations

$
0.89


$
1.32


$
0.53


$
(0.36
)

$
(0.62
)Income from discontinued operations














0.02



Net income (loss)

$
0.89


$
1.33


$
0.53


$
(0.33
)

$
(0.62
)Diluted:Income (loss) from continuing operations

$
0.87


$
1.30


$
0.52


$
(0.36
)

$
(0.62
)Income from discontinued operations














0.02



Net income (loss)

$
0.87


$
1.30


$
0.52


$
(0.33
)

$
(0.62
)Selected Balance Sheet Data:Total assets

$
1,558,490


$
1,013,557


$
529,403


$
450,678


$
451,859Long-term obligations

$
347,424


$
296,723


$
18,230


$
91,781


$
138,052   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
       34




---



##### 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
    Personalized
    Programming is Becoming More Readily Available and Across
    Multiple Platforms
    Growth in
    Enhanced Broadband Services Requires Continued Upgrades and
    maintenance by Domestic and International Cable
    Operators
  last-mile,
 35




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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 Advertising Business
    Cable
    Operators are Developing Strategies to Offer Business
    Services
    Volatile
    Capital Market Conditions for Many Large Cable
    Operators
   36




---



##### Table of Contents



Consolidation
    of vendors has occurred and may continue
    Our
    Strategy and Key Highlights
    
    Transition to IP with an Everything IP, Everywhere
    philosophy and build on current market successes;
    Leverage our current voice, video and data business;
    Expand our existing product/services portfolio through internal
    developments, partnerships and acquisitions; and
    Maintain and improve an already strong capital and expense
    structure.      Everything
    IP, Everywhere is taking hold as MSOs globally have
    embraced VoIP and are now rapidly deploying this key new
    service.
  
    Our sales grew 11% and 31% in 2007 and 2006, respectively as we
    have successfully leveraged our existing market position and
    industry experience to increase sales of both EMTA and CMTS
    products.
    We expect strong demand for CMTS products to continue in future
    periods as new services and competition between our customers
    and their competitors intensifies the need to provide ever
    faster download speeds requiring added CMTS capacity and
    features. In the second half of 2008 a new generation of CMTS
    product based upon the DOCSIS 3.0 standard is expected to be
    introduced. It is possible that customers may reduce their short
    term purchases of DOCSIS 2.0 CMTS in anticipation of the new
    product.
    We introduced our Universal EdgeQAM D5 late in 2007. We expect
    that sales of this key new product will ramp up through 2008.
    Initial margins on this product will be low until cost
    reductions can be implemented later in 2008
    We expect demand for EMTAs to remain robust; however, we do not
    anticipate the growth in sales we have enjoyed for the past few
    years. Many of our customers have now passed through the initial
    launch stage, and are at steady state deployment
    rates and may not continue to incrementally increase the rate of
    their purchases. We enjoyed 100% market share with many
    customers into 2007. Most of our customers have a multi-vendor
    strategy. As a result, in 2007 several of our customers awarded
    a portion of their business to our competitors, which we expect
    will continue. Our ultimate level of sales of EMTAs will be
    affected by, but not limited to, such factors as the success our
    customers have marketing IP telephony to their subscribers, and
    the success our customers have retaining their IP telephony
    subscribers as well as our ability to limit the impact of the
    implementation of a multi vendor strategy by our customers. We
    also anticipate increased competition for EMTAs in the future.
    Through our acquisition of C-COR in late 2007 we expanded our
    portfolio to include several key new products that leverage the
    IP spending of our customers. The Access and Transport products
    are expected to benefit from the plant upgrades MSOs will
    undertake to expand the bandwidth they will require to offer new 37




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##### Table of Contents



services to their subscribers. The OSS and On-Demand products
    also are well positioned to provide value added service and
    operational offerings to the MSOs.  
    The cable industry is dominated by a small number of very large
    MSOs. Our business is primarily focused on serving the
    MSOs. As a result, we face customer concentration risks. In
    particular, Comcast represented 40% of our consolidated sales in
    2007. In 2006 and 2007 we were successful in adding new
    customers, particularly in Latin America and Canada, and also
    expanded our sales to key existing customer, notably Time
    Warner. This has helped offset some of the concentration risk.
    In February 2008 we announced that we anticipate that sales to
    Comcast will be lower in the first quarter of 2008 than in
    recent quarters.  We
    continue to invest significantly in research and
    development.
  
    We have made significant investments through our research and
    development efforts in 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. This success-based
    capital expenditure is becoming an increasing 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. With our late 2007 acquisition of C-COR our research
    and development was significantly expanded to include Access and
    Transport, Video on Demand, Ad Insertion and OSS products. In
    2007, we spent approximately $71.2 million on research and
    development, or 7.2% of revenue. We expect expenditures on
    research and development to be higher in the future as a result
    of the acquisition of C-COR. Prior to the acquisition on
    December 14, 2007, C-COR spent approximately
    $35.1 million on research and development in calendar 2007.
    Key research and development accomplishments in 2007 included:  
    Continued work on
    DOCSIS®
    3.0 technology across CMTS and CPE product lines
    Introduction of the TM508/TM512 multiline EMTAs for commercial
    and multiple dwelling unit applications.
    Continued work on a session initiated protocol (SIP)
    based version of our EMTA for Eastern European and Asian
    customers.
    Introduction of our FlexPathTM wideband technology enabling
    delivery of over 100Mbps to the subscriber over standard cable
    plant. We announced a significant deployment of this product
    with J:COM in 2007
    Continued work on our
    D5tm
    Universal Edge QAM product. We announced a significant
    deployment of Switched Digital Video with Comcast for this
    product line in third quarter 2007.
    Bronze qualification certification for the
    C4®
    CMTS
    DOCSIS®
    3.0 in the fourth quarter of 2007.
    Continued engagement at
    CableLabs®
    on the
    DOCSIS®
    3.0 and Modular CMTS standards to develop a Next Generation
    Network Architecture (NGNA). Based on the technology of our
    flagship
    C4®
    CMTS and
    D5tm
    Universal Edge QAM, we began the development of components that,
    when added to the existing installed base, should enable MSOs to
    cost effectively upgrade their networks to these new standards
    without the need to replace the existing equipment.
    Release and qualification of the 1 GHz Optical Lid Upgrade
    providing a solution for fiber deeper architectures and advanced
    services like HSD, HD and VoIP.
    Qualification of drop-in 1 GHz Amplifiers
    providing bandwidth enhancement for plant modernization while
    minimizing the need for plant disruptions associated with
    resplicing. 38




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##### Table of Contents




    Qualification of the mid-sized Segmentable 1 GHz Node
    (OM3100) to complement the full-sized segmentable, 1 GHz
    (OM4100) node providing bandwidth expansion and a pay as you
    grow solution.
    Next generation Mobile Workforce Management System release.
    Expanding capabilities of Network Service Manager.
    Released VOD in a Box  A solution that has the
    ability to launch VOD, nPVR, and SDV using a unified low cost
    video server platform.
    Developed innovative VOD and Ad Insertion solutions.  In November 2006, we issued Convertible Notes to supplement
    our cash position in anticipation of potential future
    acquisitions.
  
    In November 2006 we raised $276.0 million through the
    issuance of a 2% convertible note offering.
    Proceeds from this offering were used to fund the acquisition of
    C-COR on December 14, 2007.
    We ended 2007 with $391.8 million of cash, cash equivalents
    and short-term investments.
    In January 2008 we redeemed, at par, $35 million of
    convertible debt that was assumed as part of the C-COR
    acquisition.  We continue to expand through partnerships and
    acquisitions.
  
    To further our strategy we announced the acquisition of C-COR on
    September 24, 2007. The cash and stock transaction valued
    at approximately $680.4 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.  Results
    of Operations
  Overview
   39




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##### Table of Contents



Key
    Operating Data (as a percentage of net sales)
  Years Ended December 31,2007


2006


2005Net sales


100.0
%


100.0
%


100.0
%Cost of sales


72.4



71.7



72.0Gross margin


27.6



28.3



28.0Operating expenses:Selling, general, and administrative expenses


10.1



9.8



10.9Acquired in-process research and development charge


7.2



7.4



8.8In-process research and development


0.6







Amortization of intangibles


0.2



0.1



0.2Restructuring and impairment charges






0.2



0.2Operating income


9.5



10.8



7.9Other (income) expense:Interest expense


0.7



0.1



0.3Loss on debt retirement










0.3Gain on terminated acquisition, net of expenses


(2.3
)






Gain on investments


(0.5
)






Gain on foreign currency






(0.1
)


Interest income


(2.4
)


(1.2
)


(0.5
)Other expense (income), net










0.1Income from continuing operations before income taxes


14.0



12.0



7.7Income tax expense (benefit)


4.1



(3.9
)


0.1Net income from continuing operations


9.9



15.9



7.6Income from discontinued operations










Net income


9.9
%


15.9
%


7.6
%   Comparison
    of Operations for the Three Years Ended December 31,
    2007
  Net
    Sales
  Form 10-K
  Net Sales


Increase (Decrease)For the Years Ended


Between PeriodsDecember 31,


2007 vs. 2006


2006 vs. 20052007


2006


2005


$


%


$


%Segment:BCS

$
859.2


$
766.5


$
561.0


$
92.7



12.1
%

$
205.5



36.6
%ATS


130.6



123.6



118.1



7.0



5.7
%


5.5



4.7
%MCS


2.4



1.5



1.3



0.9



60.0
%


0.2



15.4
%Total

$
992.2


$
891.6


$
680.4


$
100.6



11.3
%

$
211.2



31.0
%  40




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##### Table of Contents



Net Sales


Increase (Decrease)For the Years Ended


Between PeriodsDecember 31,


2007 vs. 2006


2006 vs. 20052007


2006


2005


$


%


$


%Domestic

$
724.1


$
668.1


$
495.8


$
56.0



8.4
%

$
172.3



34.8
%International:Asia Pacific


42.0



52.9



51.1



(10.9
)


(20.6
)


1.8



3.5Europe


98.6



75.0



67.4



23.6



31.5



7.6



11.3Latin America


71.5



41.7



25.0



29.8



71.5



16.7



66.8Canada


56.0



53.9



41.1



2.1



3.9



12.8



31.1Total international


268.1



223.5



184.6



44.6



20.0
%


38.9



21.1
%Total

$
992.2


$
891.6


$
680.4


$
100.6



11.3
%

$
211.2



31.0
%   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. As a result of these
    factors, we do not expect similar growth in 2008.
    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 MSOs for
    product to maintain and repair their networks.  Media &
    Communications Systems Net Sales 2007 vs. 2006
   41




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##### Table of Contents




    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. This segment will be
    more significant in 2008.  Broadband
    Communications Systems Net Sales 2006 vs. 2005
    
    Sales of our EMTA product increased as operators ramped up
    deployment of VoIP. In 2006, we shipped 4.8 million units
    as compared to 2.3 million units in 2005.
    Sales of our CMTS product increased reflecting higher sales to
    Comcast and our success in capturing new customers. 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, in
    particular in the second half of 2006, as customers migrated to
    VoIP products.  Access,
    Transport and Supplies Net Sales 2006 vs. 2005
    
    Sales of Supplies products are the only revenues included in
    this segment in 2006 and 2005 as the balance of the products
    were acquired as a result of the C-COR acquisition in 2007.
    Sales levels were similar in 2006 as compared to 2005 and
    reflect primarily spending by MSOs for product to maintain
    and repair their networks.  Media &
    Communications Systems Net Sales 2006 vs. 2005
    
    Sales in this segment were immaterial in both years. Sales of
    this segment in the future will include OSS and On-Demand
    products acquired as part of the C-COR acquisition.  Gross
    Margin
    Gross Margin $


Increase (Decrease)For the Years Ended


Between PeriodsDecember 31,


2007 vs. 2006


2006 vs. 20052007


2006


2005


$


%


$


%Business Segment:BCS

$
251.4


$
229.9


$
170.7


$
21.5



9.4
%

$
59.2



34.7
%ATS


22.9



22.1



20.1



0.8



3.6
%


2.0



10.0
%MCS


(0.4
)


0.1



(0.1
)


(0.5
)


(500.0
)%


0.2



200.0
%Total

$
273.9


$
252.1


$
190.7


$
21.8



8.6
%

$
61.4



32.2
%  42




---



##### Table of Contents



Gross Margin %


Percentage Point IncreaseFor the Years Ended December 31,


(Decrease) Between Periods2007


2006


2005


2007 vs. 2006


2006 vs. 2005Business Segment:BCS


29.3
%


30.0
%


30.4
%


(0.7
)


(0.4
)ATS


17.6
%


17.9
%


17.1
%


(0.3
)


0.8MCS


(19.4
)%


8.3
%


(9.1
)%


(27.7
)


17.5Total


27.6
%


28.3
%


28.0
%


(0.7
)


0.3     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 primarily 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
  
    As explained above, sales and margins were immaterial in both
    periods.  Broadband
    Communications Systems Gross Margin 2006 vs. 2005
    
    The increase in gross margin dollars year-over-year is the
    result of the $205.5 million increase in sales, partially
    offset by lower gross margin percentage.
    The decrease in the gross margin percentage year-over-year
    primarily reflects several factors. Product mix (the sales
    growth was weighted towards lower margin EMTAs as compared to
    higher margin CMTSs) contributed to a decline in margin
    percentage. Also, in order to secure market share in 2006, 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
    margins were lower in 2006 until the transition was completed in
    the fourth quarter 2006. Offsetting these factors were increased
    sales and cost reductions achieved related to our
    C4®
    CMTS. 43




---



##### Table of Contents



Access,
    Transport and Supplies Gross Margin 2006 vs. 2005
    Media &
    Communications Systems Gross Margin 2006 vs. 2005
  
    As explained above, sales and margins were immaterial in both
    periods.  Operating
    Expenses
    Operating Expenses


Increase (Decrease)For the Years Ended


Between PeriodsDecember 31,


2007 vs. 2006


2006 vs. 20052007


2006


2005


$


%


$


%Selling, general, & administrative

$
99.9


$
87.2


$
74.4


$
12.7



14.6
%

$
12.8



17.2
%Research & development


71.2



66.1



60.1



5.1



7.7
%


6.0



10.0
%Acquired in-process research & development


6.1











6.1











Amortization of intangible assets


2.3



0.6



1.2



1.7



283.3
%


(0.6
)


(50.0
)%Restructuring, impairment & other


0.5



2.2



1.3



(1.7
)


(77.3
)%


0.9



69.2
%Total

$
180.0


$
156.1


$
137.0


$
23.9



15.3
%

$
19.1



13.9
%   Selling,
    General, and Administrative, or SG&A, Expenses
  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 higher professional and other fees
    associated with the acquisition.
    We incurred $1.9 million higher legal costs defending
    various matters, in particular patent litigation claims. We
    anticipate this trend may continue.
    In 2006 we benefited by approximately $1.6 million from
    recoveries of previous written off accounts receivable. This did
    not reoccur in 2007.  2006 vs. 2005
    
    Increased employee related costs (salaries, fringe benefits,
    travel) of approximately $5.1 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, commissions) increased by
    approximately $2.8 million year-over-year reflecting the
    increase in staff and our strong business performance relative
    to targets established by our board of directors. 44




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##### Table of Contents




    An increase in compensation expense of approximately
    $1.5 million related to the full year impact of equity
    compensation expense recorded under the provisions of
    SFAS No. 123R, Share-Based Payment.
    Increase in other costs (net) of $3.4 million including
    higher health care costs,
    legal / accounting / professional fees and
    sales sample expenses, partially offset by lower bad debt
    expense.  Research &
    Development, or R&D, Expenses
    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.  2006 vs. 2005
    
    Variable compensation costs and equity compensation costs
    increased by approximately $0.9 million.
    In April 2006, we entered into a joint development, licensing
    and supply agreement with UTStarcom that will enable the fourth
    component of the quadruple play for cable MSOs worldwide. The
    joint solution will allow customers with Wi-Fi enabled handsets
    to seamlessly roam between their cellular and Wi-Fi connections,
    or a service commonly referred to as fixed mobile convergence,
    or FMC. In the second quarter of 2006, we recognized R&D
    expense of $2.4 million related to this agreement with the
    remaining license fees of approximately $2.6 million
    expected to be expensed in 2007 and 2008, of which
    $1.5 million was recognized in the first quarter 2007.
    Outside services related to R&D, such as testing and
    certifications, increased approximately $1.7 million
    year-over-year.  Acquired
    In-Process Research and Development Charge
    Restructuring
    and Impairment Charges
    Impairment
    of Goodwill
   45




---



##### Table of Contents



Amortization
    of Intangibles
      Other
    Expense (Income)
    Other Expense (Income)


Increase (Decrease)For the Years Ended December 31,


Between Periods2007


2006


2005


2007 vs. 2006


2006 vs. 2005Interest expense

$
6.6


$
1.0


$
2.1


$
5.6


$
(1.1
)Loss (gain) on debt retirement










2.4







(2.4
)Gain related to terminated acquisition, net of expenses


(22.8
)










(22.8
)


Loss (gain) on investments and notes receivable


(4.6
)






0.1



(4.6
)


(0.1
)Gain on foreign currency






(1.4
)


(0.1
)


1.4



(1.3
)Interest income


(24.8
)


(11.2
)


(3.1
)


(13.6
)


(8.1
)Other expense (income)


0.4



0.3



0.5



0.1



(0.2
)Total expense (income)

$
(45.2
)

$
(11.3
)

$
1.9


$
(33.9
)

$
(13.2
)   Interest
    Expense
    Loss on
    Debt Retirement
    Gain
    Related to Terminated Acquisition of Tandberg Television
    ASA
  break-up
 46




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##### Table of Contents



Loss on
    Investments and Notes Receivable
    Loss
    (Gain) in Foreign Currency
    Income
    Tax Expense
          Discontinued
    Operations
  Accounting for the
    Impairment or Disposal of Long-Lived Assets
   47




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##### Table of Contents



Financial
    Liquidity and Capital Resources
  Overview
    Liquidity &
    Capital Resources Data
  Year Ended December 31,2007


2006


2005(in millions, except DSO and Turns)Key Working Capital ItemsCash provided by operating activities

$
63.4


$
144.2


$
26.7Cash, cash equivalents, and short-term investments

$
391.8


$
549.2


$
129.5Accounts Receivable, net

$
167.0


$
115.3


$
83.5- Days Sales Outstanding (full year excluding C-COR)


48



41



37Inventory

$
131.8


$
94.2


$
113.9- Turns (full year excluding C-COR)


7.2



6.1



4.7Key Debt ItemsConvertible notes due 2026

$
276.0


$
276.0


$
C-COR convertible notes (redeemed January 14, 2008)

$
35.0


$



$
Capital Expenditures

$
15.1


$
12.7


$
9.6     
    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.    Inventory &
    Accounts Receivable
       48




---



##### Table of Contents



Redemption
    of the 2008 Notes
    Issuance
    of the 2026 Notes
    Redemption
    of $35.0 Million Notes Acquired as Part of the C-COR
    Acquisition
    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 millions)Debt

$
35.3


$
0.7


$
0.1


$
276.0


$
312.1Capital leases


0.1















0.1Operating leases, net of sublease income(1)


5.8



7.6



4.8



3.6



21.8Purchase obligations(2)


104.8



0.1











104.9Total contractual obligations(3)

$
146.0


$
8.4


$
4.9


$
279.6


$
438.9   (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 $9.5 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. 49




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
  Regulation S-K.
  Cash
    Flow
    2007


2006


2005Cash provided by operating activities

$
63.5


$
144.2


$
26.7Cash provided by (used in) investing

$
(221.7
)

$
(45.8
)

$
13.8Cash provided by financing

$
20.4


$
287.9


$
9.7Net increase (decrease) in cash

$
(137.8
)

$
386.3


$
50.2   Operating Activities:
    2007


2006


2005Net income after non-cash adjustments

$
97.3


$
112.3


$
72.9(Increase)/Decrease in accounts receivable


(17.5
)


(32.2
)


(27.2
)(Increase)/Decrease in inventory


(9.5
)


19.7



(20.9
)(Increase)/Decrease in accounts payable and accrued liabilities


(9.9
)


50.2



7.1Other, net


3.1



(5.8
)


(5.2
)Cash provided by operating activities

$
63.5


$
144.2


$
26.7   
    Net income after adjustments for non cash items was
    $15.0 million lower in 2007 as compared to 2006.  
    Our year-over-year increase in sales resulted in higher
    operating income before depreciation, amortization and
    in-process research and development expense.
    We had higher net interest income/expense as a result of higher
    cash balances.
    We recorded approximately $22.8 million of gains in 2007
    associated with the failed Tandberg transaction.
    The above factors were more than offset with increases in income
    tax expenses.  
    Net income after adjustments for non cash items increased by
    $39.4 million in 2006 as compared to 2005, predominately
    the result of the $211 million increase in sales which
    resulted in $61 million of higher gross margins.
    Excluding assets acquired as part of the C-COR acquisition, our
    inventory increased by $9.4 million in 2007 as compared to
    2006. Throughout 2007 we chose to modestly increase our stocking
    levels to better serve customer demand. In 2006, our inventory
    decreased from 2005 as we balanced inventory levels with our
    customers.
    Our accounts receivable increased in both 2006 and 2007 as a
    result of higher revenues. Our days sales outstanding, or DSO,
    in 2007 (excluding C-COR) was 48 as compared to 41 in 2006.
    Accounts payable and accrued liabilities increased in 2007,
    primarily the result of the increase in inventory levels. 50




---



##### Table of Contents



Investing Activities:
    2007


2006


2005Capital expenditures

$
(15.1
)

$
(12.7
)

$
(9.6
)Acquisitions/other


(285.3
)


0.2



(0.2
)Purchases of short-term investments


(356.4
)


(129.5
)


(59.3
)Disposals of short-term investments


412.3



96.2



83.0Proceeds from termination of TandbergTV acquisition, net of
    payments


22.8







Cash provided by (used in) investing activities

$
(221.7
)

$
(45.8
)

$
13.9             Financing Activities:
    2007


2006


2005Proceeds from issuance of 2026 notes

$



$
276.0


$
Deferred financing fees paid






(7.8
)


Repurchase of shares to satisfy employee tax withholdings


(3.1
)


(2.0
)


(1.2
)Proceeds from issuance of common stock


14.3



12.3



10.9Excess tax benefits from stock-based compensation plans


9.2



9.4



Cash provided by financing activities

$
20.4


$
287.9


$
9.7   Issuance
    of Convertible Senior Notes due 2026
   51




---



##### Table of Contents



Debt
    Assumed as Part of the Acquisition of C-COR
        Common
    Stock Transactions
      Income
    Taxes
  non-qualified equity-based
  Interest
    Rates
    Foreign
    Currency
   52




---



##### Table of Contents



Financial
    Instruments
  and/or
    Cash,
    Short-Term Investments and Available-For-Sale
    Investments
      No. 97-14, Accounting for Deferred Compensation Arrangements Where
    Amounts Earned Are Held in a Rabbi Trust and Invested
 53




---



##### Table of Contents



Capital
    Expenditures
    Net
    Operating Loss Carryforwards and Research and Development Credit
    Carryforwards
        Defined
    Benefit Pension Plans
  Employers Accounting for Settlements and Curtailments
    of Defined Benefit Pension Plans and for
 54




---



##### Table of Contents



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.      2007


2006


2005Assumed 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
%     2007


2006


2005Assumed discount rate for non-qualified plan participants


5.75
%


5.50
%


6.00
%Assumed discount rate for qualified plan participants


5.75
%


5.75
%


6.00
%Rates of compensation increase


3.75
%


3.75
%


5.94
%Expected long-term rate of return on plan assets


8.00
%


8.00
%


8.00
%       2008

$
8122009


8522010


1,4282011


1,4202012


1,5782013 - 2017


10,411  55




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##### Table of Contents



Adoption
    of SFAS No. 123R, Share-Based Payment
  Share-Based Payment Accounting for Stock-Based
    Compensation Accounting for Stock
    Issued to Employees, Statement of Cash Flows. Accounting for Stock Issued to Employees
        Critical
    Accounting Policies
   56




---



##### Table of Contents



a)
    Revenue
    Recognition  Revenue
    Recognition in Financial Statements Revenue Recognition No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21), No. 97-2, Software Revenue Recognition
    (SOP 97-2), No. 98-9, Software Revenue Recognition, With Respect to Certain
    Transactions (SOP 98-9), Bulletin 90-1, Accounting for Separately Priced Extended Warranty and
    Product Maintenance Contracts, No. 00-24, Revenue Recognition: Sales Agreements that Include Specified
    Price Trade-In Rights No. 01-9, Accounting for Consideration Given by a Vendor to a Customer
    (Including a Reseller of the Vendors Products) Research and Development Arrangements Long-Term
    Construction-Type Contracts , 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts (SOP 81-1) , Guarantors
    Accounting and Disclosure Requirements for Guarantees, Including
    Indirect Guarantees of Indebtedness to Others, an interpretation
    of FASB Statements No. 5, 57, and 107 and a rescission of
    FASB Interpretation No. 34.
    SOP 97-2, SOP No. 98-9.
        1.
    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.2.
    When final acceptance of the product is specified by the
    customer, revenue is deferred until the acceptance criteria have
    been met.3.
    When trade-in rights are granted at the time of sale, a portion
    of the sale is treated as a guarantee and 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.  SOP 97-2: SOP 97-2,
  SOP 97-2 EITF 00-21,
 57




---



##### Table of Contents



SOP 81-1. percentage-of-completion
    (in thousands)

2007


2006


IncreaseDeferred revenue

$
8,588


$
5,498


$
3,090Deferred cost


1,542



1,467



75   b)
    Allowance
    for Doubtful Accounts and Sales Returns       58




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##### Table of Contents



c)
    Inventory
    Valuation  first-in,
    2007


2006Gross inventory

$
144.6


$
107.5Reserves


(12.8
)


(13.3
)Net inventory

$
131.8


$
94.2   C-COR
      d)
    Warranty  non-recurring
  2007


2006January 1,

$
8,234


$
8,479Accruals related to warranties (including changes in estimates)


4,961



4,026Settlements made (in cash or in kind)


(4,675
)


(4,271
)C-COR warranty reserve at acquisition on December 14, 2007


5,850



Balance at December 31,

$
14,370


$
8,234  59




---



##### Table of Contents



e)
    Stock-Based
    Compensation  Share-Based Payment
  Forward-Looking
    Statements
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk     60




---



##### Table of Contents



other-than-temporary
         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
 61




---



##### Table of Contents



MANAGEMENTS
    REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  Rule 13a-15(f).
    Internal
    Control  Integrated Framework
                 62




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
  Internal Control  Integrated Framework
              ERNST &
    YOUNG LLP
    63




---



##### Table of Contents



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


65Consolidated Balance Sheets at December 31,
    2007 and 2006


66Consolidated Statements of Operations for the
    years ended December 31, 2007, 2006 and 2005


67Consolidated Statements of Cash Flows for the
    years ended December 31, 2007, 2006 and 2005


68Consolidated Statements of Stockholders
    Equity for the years ended December 31, 2007, 2006 and
    2005


70Notes to the Consolidated Financial Statements


72  64




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM          Share-Based Payment, 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,
  Internal Control-Integrated Framework
  ERNST &
    YOUNG LLP
    65




---



##### Table of Contents



ARRIS
    GROUP, INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2007


2006(in thousands)ASSETSCurrent assets:Cash and cash equivalents

$
323,797


$
461,618Short-term investments, at fair value


68,011



87,575Total cash, cash equivalents and short-term investments


391,808



549,193Restricted cash


6,977



3,124Accounts receivable (net of allowances for doubtful accounts of
    $2,826 in 2007 and $3,576 in 2006)


166,953



115,304Other receivables


4,330



2,556Inventories, net


131,792



94,226Prepaids


5,856



3,547Current deferred income tax assets


44,939



29,285Other current assets


4,841



3,717Total current assets


757,496



800,952Property, plant and equipment (net of accumulated depreciation
    of $83,644 in 2007 and $77,311 in 2006)


59,156



28,287Goodwill


455,352



150,569Intangible assets (net of accumulated amortization of $109,167
    in 2007 and $106,832 in 2006)


269,893



288Investments


6,412



3,520Noncurrent deferred income tax assets






20,874Other assets


10,181



9,067$
1,558,490


$
1,013,557LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
58,852


$
60,853Accrued compensation, benefits and related taxes


26,177



23,269Accrued warranty


14,370



8,234Current portion of long term debt


35,305



Other accrued liabilities


50,595



29,057Total current liabilities


185,299



121,413Long-term debt , net of current portion


276,765



276,000Accrued pension


10,455



12,061Noncurrent income taxes payable


6,322



3,041Noncurrent deferred income tax liabilities


41,796



Other noncurrent liabilities


12,086



5,621Total liabilities


532,723



418,136Stockholders 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; 132.4 million and 107.9 million
    shares issued and outstanding in 2007 and 2006, respectively


1,356



1,089Capital in excess of par value


1,093,498



761,500Treasury stock at cost, 51,161 shares at December 31,
    2007


(572
)


Accumulated deficit


(64,993
)


(163,268
)Unrealized gain on marketable securities


20



1,297Unfunded pension liability, including income tax impact of $665
    thousand and $0 in 2007 and 2006, respectively


(3,358
)


(4,462
)Unrealized loss on derivatives






(551
)Cumulative translation adjustments


(184
)


(184
)Total stockholders equity


1,025,767



595,421$
1,558,490


$
1,013,557    66




---



##### Table of Contents



ARRIS
    GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  For The Years Ended December 31,2007


2006


2005(in thousands, except per share data)Net sales

$
992,194


$
891,551


$
680,417Cost of sales


718,312



639,473



489,703Gross margin


273,882



252,078



190,714Gross margin %


27.6
%


28.3
%


28.0
%Operating expenses:Selling, general, and administrative expenses


99,879



87,203



74,308Research and development expenses


71,233



66,040



60,135Acquired in-process research and development charge


6,120







Amortization of intangible assets


2,278



632



1,212Restructuring and impairment charges


460



2,210



1,331179,970



156,085



136,986Operating income


93,912



95,993



53,728Other expense (income):Interest expense


6,614



976



2,101Loss on debt retirement










2,372Gain related to terminated acquisition, net of expenses


(22,835
)






Loss (gain) on investments and notes receivable


(4,596
)


29



146Loss (gain) on foreign currency


48



(1,360
)


(65
)Interest income


(24,776
)


(11,174
)


(3,100
)Other expense, net


370



268



486Income from continuing operations before income taxes


139,087



107,254



51,788Income tax expense (benefit)


40,951



(34,812
)


513Net income from continuing operations


98,136



142,066



51,275Discontinued Operations:Income from discontinued operations


204



221



208Net income

$
98,340


$
142,287


$
51,483Net income per common share  basic:Income from continuing operations

$
0.89


$
1.32


$
0.53Income from discontinued operations










Net income

$
0.89


$
1.33


$
0.53Net income per common share  diluted:Income from continuing operations

$
0.87


$
1.30


$
0.52Income from discontinued operations










Net income

$
0.87


$
1.30


$
0.52Weighted average common shares  basic


110,843



107,268



96,581Weighted average common shares  diluted


113,027



109,490



98,264    67




---



##### Table of Contents



ARRIS
    GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 31,2007


2006


2005(in thousands)Operating activities:Net income

$
98,340


$
142,287


$
51,483Depreciation


10,852



9,787



10,529Amortization of intangible assets


2,278



632



1,212Amortization of deferred finance fees


1,116



139



305Deferred income tax provision (benefit)


4,405



(38,490
)


Stock compensation expense


10,903



9,423



6,915Provision for doubtful accounts


279



(174
)


(438
)Gain related to previously written off receivables


(377
)


(1,573
)


Loss (gain) on disposal of fixed assets


182



(61
)


202Loss (gain) on investments and notes receivable


(4,604
)


32



206Impairment of long-lived assets










291Loss on debt retirement










2,372Gain on discontinued operations


(204
)


(221
)


(208
)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


(9,157
)


(9,445
)


Changes in operating assets and liabilities, net of effect of
    acquisitions and dispositions:Accounts receivable


(17,498
)


(32,153
)


(27,191
)Other receivables


(1,774
)


(2,270
)


134Inventories


(9,502
)


19,683



(20,963
)Accounts payable and accrued liabilities


(9,906
)


50,200



7,107Other, net


4,806



(3,555
)


(5,290
)Net cash provided by operating activities


63,424



144,241



26,666Investing activities:Purchases of short-term investments


(356,366
)


(129,475
)


(59,250
)Sales of short-term investments


412,217



96,150



83,032Purchases of property, plant and equipment


(15,072
)


(12,728
)


(9,617
)Cash proceeds from sale of property, plant, and equipment


3



212



42Cash paid for acquisition, net of cash acquired


(285,284
)






(89
)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







Other










(259
)Net cash provided by (used in) investing activities


(221,667
)


(45,841
)


13,859    68




---



##### Table of Contents



ARRIS
    GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS  (Continued)
  Years Ended December 31,2007


2006


2005(in thousands)Financing activities:Proceeds from issuance of common stock

$
14,377


$
12,266


$
10,897Proceeds from issuance of debt






276,000



Payment of debt and capital lease obligations


(19
)






Excess income tax benefits from stock-based compensation plans


9,157



9,445



Repurchase of shares to satisfy employee tax withholdings


(3,093
)


(2,019
)


(1,208
)Deferred financing costs paid






(7,760
)


Net cash provided by financing activities


20,422



287,932



9,689Net increase (decrease) in cash and cash equivalents


(137,821
)


386,332



50,214Cash and cash equivalents at beginning of year


461,618



75,286



25,072Cash and cash equivalents at end of year

$
323,797


$
461,618


$
75,286Noncash investing and financing activities:Net tangible assets acquired, excluding cash

$
11,645


$



$
723Intangible assets acquired, including goodwill


582,847







691Prior investment in acquired company


(5,973
)






(1,325
)Equity issued for acquisition, including fair value of assumed
    stock options


(303,235
)






Cash paid for acquisition, net of cash acquired

$
285,284


$



$
89Landlord funded leasehold improvements

$
85


$
242


$
Equity issued in exchange for
    41/2%
    convertible subordinated notes due 2008

$



$



$
75,000Equity issued for make-whole interest payment 
    41/2%
    convertible subordinated notes due 2008

$



$



$
2,372Supplemental cash flow information:Interest paid during the year

$
6,182


$
87


$
2,766Income taxes paid during the year

$
22,687


$
2,482


$
859    69




---



##### Table of Contents



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








UnrealizedCapital in








(Loss) Gain on





Unfunded


Gain


CumulativeCommon


Excess of


Accumulated


Treasury


Marketable


Unearned


Pension


(Loss) on


TranslationStock


Par Value


Deficit


Stock


Securities


Compensation


Liability


Derivatives


Adjustments


Total(in thousands)Balance, January 1, 2005

$
889


$
644,838


$
(357,038
)

$



$
706


$
(4,566
)

$
(3,345
)





$
(183
)

$
281,301Comprehensive income (loss):Net income










51,483



























51,483Unrealized gain on marketable securities


















371



















371Unrealized gain on derivative instruments






























1,523







1,523Minimum liability on unfunded pension adjustment


























(1,273
)










(1,273
)Translation adjustment


































(1
)


(1
)Comprehensive income (loss)






































52,103Shares granted under stock award plan


7



4,822















(4,829
)














Compensation under stock award plans






4,928















1,987















6,915Forfeiture of restricted stock






(174
)














174















Issuance of common stock in conversion of
    41/2% notes
    due 2008, net of write-off of associated deferred finance fees


153



75,561































75,714Issuance of common stock and other


20



10,542















(878
)














9,684Adoption of SFAS No. 123R






(8,112
)














8,112















Balance, December 31, 2005

$
1,069


$
732,405


$
(305,555
)

$



$
1,077


$



$
(4,618
)

$
1,523


$
(184
)

$
425,717Balance, December 31, 2005

$
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 (loss)






































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    70




---



##### Table of Contents



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








UnrealizedCapital in








Gain on





Unfunded


Gain


CumulativeCommon


Excess of


Accumulated


Treasury


Marketable


Unearned


Pension


(Loss) on


TranslationStock


Par Value


Deficit


Stock


Securities


Compensation


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 (loss):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, including $665 of income
    tax impact


























1,104











1,104Comprehensive income (loss)






































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


$
(64,993
)

$
(572
)

$
20


$



$
(3,358
)

$



$
(184
)

$
1,025,767    71




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##### 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,
    Short-Term Investments and Available-For-Sale
    Investments     72




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  No. 97-14, Accounting for Deferred Compensation Arrangements Where
    Amounts Earned Are Held in a Rabbi Trust and Invested
  (e)
    Inventories  first-in, work-in-process
  (f)
    Revenue
    Recognition  Revenue
    Recognition in Financial Statements Revenue Recognition No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21), No. 97-2, Software Revenue Recognition
    (SOP 97-2), No. 98-9, Software Revenue Recognition, With Respect to Certain
    Transactions (SOP 98-9), Bulletin 90-1, Accounting for Separately Priced Extended Warranty and
    Product Maintenance Contracts, No. 00-24, Revenue Recognition: Sales Agreements that Include Specified
    Price Trade-In Rights No. 01-9, Accounting for Consideration Given by a Vendor to a Customer
    (Including a Reseller of the Vendors Products) Research and Development Arrangements Long-Term
    Construction-Type Contracts , 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts (SOP 81-1) , Guarantors
    Accounting and Disclosure Requirements for Guarantees, Including
    Indirect Guarantees of Indebtedness to Others, an interpretation
    of FASB Statements No. 5, 57, and 107 and a rescission of
    FASB Interpretation No. 34.
    SOP 97-2, SOP No. 98-9.
     73




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    1.
    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.2.
    When final acceptance of the product is specified by the
    customer, revenue is deferred until the acceptance criteria have
    been met.3.
    When trade-in rights are granted at the time of sale, a portion
    of the sale is treated as a guarantee and 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.  SOP 97-2: SOP 97-2,
  SOP 97-2 EITF 00-21,
  SOP 81-1. percentage-of-completion
    Increase /2007


2006


(Decrease)Deferred revenue

$
8,588


$
5,498


$
3,090Deferred cost


1,542



1,467



75  74




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (g)
    Shipping
    and Handling Fees    (h)
    Depreciation
    of Property, Plant and Equipment    (i)
    Goodwill
    and Long-Lived Assets      Purchased technology


6 yearsCustomer relationships


8 yearsNon-compete agreements


2 yearsOrder backlog


1/2 year     (j)
    Advertising
    and Sales Promotion    (k)
    Research
    and Development   75




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (l)
    Warranty    (m)
    Income
    Taxes    (n)
    Foreign
    Currency Translation         76




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (o)
    Stock-Based
    Compensation  Share-Based Payment Accounting for Stock Issued to Employees
  (p)
    Concentrations
    of Credit Risk        
    Cash, cash equivalents, and short-term investments: The carrying
    amount reported in the consolidated balance sheets for cash,
    cash equivalents, and short-term investments approximates 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. 77




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  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 $258.1 million and
    $295.3 million at December 31, 2007 and 2006,
    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. At the
    end of December 31, 2007 ARRIS had 18.5 million euros
    in option collars outstanding. The fair value of these option
    collars was a liability/loss of $0.6 million. ARRIS had
    23.6 million euros in option collars outstanding as of
    December 31, 2006. The fair value of these option collars
    was a liability/loss of $0.6 million.  (q)
    Computer
    Software  SOP 98-1, (SOP 98-1), and/or
  (r)
    Comprehensive
    Income (Loss)    (s)
    Taxes
    Assessed by a Government Authority on Revenue-Producing
    Transactions  No. 06-03, (EITF 06-03). EITF 06-03
 78




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 3.
    Impact of
    Recently Issued Accounting Standards  Noncontrolling
    Interests in Consolidated Financial Statements  an
    amendment of ARB No. 51.
  Business Combinations
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities  Including an amendment of FASB Statement
    No. 115.
  Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans.
  Fair Value Measurements
  Accounting for Uncertainty in Income
    Taxes  an interpretation of FASB Statement
    No. 109, Accounting for Income Taxes,
 79




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##### Table of Contents



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


As of December 31,2007


2006Available-for-sale:Commercial paper

$
11,833


$
Auction rate securities


30,270



87,575Certificates of deposit


9,807



U.S. Government agency bonds


9,574



Corporate obligations


3,447



Asset-backed securities


2,974



Equity securities


106



Total classified as current assets

$
68,011


$
87,575Available-for-sale:Cash surrender value of company owned life insurance

$
3,075


$
3,498Mutual funds


3,230



Money market funds


70



22Corporate obligations


37



Total classified as non-current assets

$
6,412


$
3,520Total

$
74,423


$
91,095     other-than-temporary
 80




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31, 2007Due in one year or less

$
41,140Due in one to five years


Due in five to ten years


Due after ten years


33,283Total

$
74,423   available-for-sale Accounting for Certain
    Investments in Debt and Equity Securities
  Note 5.
    Guarantees  Warranty
        2007


2006January 1,

$
8,234


$
8,479Accruals related to warranties (including changes in estimates)


4,961



4,026Settlements made (in cash or in kind)


(4,675
)


(4,271
)C-COR warranty reserve at acquisition on December 14, 2007


5,850



Balance at December 31,

$
14,370


$
8,234  81




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 6.
    Business
    Acquisitions  Acquisition
    of C-COR Incorporated
  C-COR
      
    Enhanced customer diversification, in particular with Time
    Warner;
    It significantly expands ARRIS product line, giving ARRIS
    the ability to deploy and manage multiple technologies and
    provide customers with end-to-end solutions;
    It strengthens ARRIS position as the leading pure play
    cable solutions provider;
    It enlarges ARRIS addressable market and accelerates its
    video growth strategy;
    It provides an expanded portfolio that differentiates ARRIS from
    smaller niche players;
    It provides expanded product offerings which strengthen
    ARRIS relationships with significant customers such as
    Comcast, and TimeWarner; and
    It improves ARRIS ability to compete with larger
    competitors, improves its positioning as an industry
    consolidator and diversifies its core multiple system operator
    relationships.   82




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Unaudited
    Supplemental Pro Forma Information
    For the years ended December 31
    (in millions, except per share data)
  2007


2006Net sales

$
1,273.9


$
1,128.4Net income from continuing operations


75.2



114.3Income from continuing operations per common share:Basic

$
0.58


$
0.87Diluted

$
0.56


$
0.83   Preliminary
    Purchase Price Allocation
    Total purchase consideration  cash and equity

$
646.6Prior investment in acquired company


6.0Fair value of assumed stock options


22.8Acquisition-related transaction costs


5.0Total preliminary purchase price

$
680.4Net tangible assets

$
97.6Identifiable intangible assets:Acquired technology


38.9Order backlog


7.2Customer relationships


220.7Non-compete agreements


5.1Acquired in-process research and development


6.1Goodwill


304.8Allocation of preliminary purchase price

$
680.4   Fair
    Value of Assets and Liabilities
   83




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair


EstimatedValue


Useful Life(in millions)Acquired technology

$
38.9



6 yearsCustomer relationships


220.7



8 yearsNon-compete agreements


5.1



2 yearsOrder backlog


7.2



1/2 yearAcquired in-process research and development


6.1



N/ATotal

$
278.0   Acquired
    Technology
    Customer
    Relationships
    
    The cable industry in general is dominated by several large
    multiple systems operators (MSOs), resulting in
    customer concentration. In particular, C-COR had a significant
    portion of its sales to Time Warner (approximately 31% in
    C-CORs fiscal year 2007). C-CORs position with Time
    Warner is complementary to ARRIS, creating synergistic value.
    The Access, Transport and Supplies segment is fairly sensitive
    to its installed base. As MSOs upgrade their networks, for
    example to 1 GHZ, the incumbent vendors have a significant
    advantage. As a result, the existing relationships have a
    proportionately higher value and larger useful life  Acquired
    In-Process Research and Development
    
    Access and Transport:This category included a number of
    projects related to the development of 1 GHz Amplifiers,
    Nodes, Headend optics for the CHP product line. These new
    products provide customers with the ability to cost effectively
    obtain more capacity out of the networks they already have
    today. The new Amplifiers are designed to reduce the number of
    active components required in the network which lowers
    maintenance costs and improves reliability. These Amplifiers are
    a drop-in replacement for lower capacity versions minimizing
    network interruption and offer multiple return options to
    provide more symmetrical bandwidth, vital for business data
    service applications. The Node projects enhance the segmentation
    capabilities and redundancy features of the products providing
    customers with cost effective, resilient 84




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  solutions for meeting the demands for voice, video and data
    services. We continued to add new modules to the CHP platform
    that provide multi-wave length technology that expands network
    capacity and protects the existing fiber infrastructure without
    the addition of costly new fiber deployment projects. At the
    time of acquisition, C-COR was developing a 24 channel, low cost
    EdgeQAM based on the CHP platform. The CHP based EdgeQAM was
    based on design requirements of a Tier 1 MSO and had
    achieved full RF qualification prior to the acquisition. The
    Amplifiers, Nodes and Head end optics are now part of
    ARRISs Access, Transport and Supplies portfolio and the
    above mentioned enhancements will be marketed under existing
    brand names for these product categories.  
    Media and Communications Systems:Projects included
    various projects for Video on Demand delivery, Advertisement
    Insertion and Switched Digital Video. Specifically the projects
    involved Video on Demand server and Advertisement Insertion
    platform enhancements, and software and application development
    for Switched Digital Video on the nABLE platform. The platform
    extensions and enhancements will be marketed under their
    existing brand names, nVS, nABLE and SkyVision. The VOD projects
    typically consisted of adaptations of the software products to
    third party software and middleware, enhance management of a
    variety of video content, or enhancements to functionality and
    performance of the base platform. Advertisement Insertion and
    Switched Digital Video projects focused on providing the
    advanced features related to allowing customers to reclaim
    analog bandwidth and have unlimited control over the their
    broadcast and narrow cast spectrums. These new technologies
    provide operators with innovative solutions that will expand
    regionalized content and the ability to offer personalized
    advertising the in the future. The projects typically included
    customized features for single domestic or international
    operators that were leveraged across the entire software
    platform for larger market penetration.    Fair Value at

Estimated

ExpectedDate of

Percentage of

Cost to

Expected Date

DiscountProject

Valuation

Completion

Complete

to Complete

RateAccess and Transport

$
1.3



5%  90%


$
6.0



March 2008



15.5
%Media and Communications Systems

$
4.8



50%


$
5.8



March 2008



15.5
%   Valuation
    of in-process research and development
    Product-specific
 85




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Goodwill
    Note 7.
    Segment
    Information  Disclosures About Segments of an
    Enterprise and Related Information
  Form 10-K
  Broadband Communications Systems
  Access, Transport and Supplies
  Media & Communications Systems
 86




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Broadband


Access,


MediaCommunications


Transport and


CommunicationsSystems


Supplies


Systems


TotalDecember 31, 2007Net sales

$
859,164


$
130,644


$
2,386


$
992,194Gross margin


251,416



22,930



(464
)


273,882Amortization of intangible assets






1,086



1,191



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



632December 31, 2005Net sales

$
561,036


$
118,083


$
1,298


$
680,417Gross margin


170,672



20,160



(118
)


190,714Amortization of intangible assets


1,039







173



1,212     Broadband


Access,


MediaCommunications


Transport and


CommunicationsSystems


Supplies


Systems


TotalDecember 31, 2007Goodwill

$
150,569


$
179,827


$
124,956


$
455,352Intangible assets, net






163,253



106,640



269,893December 31, 2006Goodwill

$
150,569











150,569Intangible assets, net










288



288     Years Ended December 31,2007


2006


2005Comcast and affiliates

$
395,203


$
345,769


$
163,255% of sales


39.8
%


38.8
%


24.0
%Time Warner Cable and affiliates

$
106,430


$
82,829


$
72,346% of sales


10.7
%


9.3
%


10.6
%    87




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Years Ended December 31,2007


2006


2005Asia Pacific

$
41,996


$
52,859


$
51,139Europe


98,575



74,991



67,374Latin America


71,507



41,730



24,979Canada


56,050



53,877



41,100Total

$
268,128


$
223,457


$
184,592     As of December 31,2007


2006Asia Pacific

$
1,166


$
47Europe


1,919



823Latin America


3,120



Total

$
6,205


$
870   Note 8.
    Restructuring
    and Impairment Charges  Accounting for Costs Associated with Exit or
    Disposal Activities.
     88




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  C-COR
  Note 9.
    Inventories  first-in,
  December 31,2007


2006Raw material

$
20,004


$
341Work in process


2,533



Finished goods


109,255



93,885Total inventories

$
131,792


$
94,226   Note 10.
    Property,
    Plant and Equipment    December 31,2007


2006Land

$
2,612


$
1,822Buildings and leasehold improvements


19,432



11,470Machinery and equipment


120,756



92,306142,800



105,598Less: Accumulated depreciation


(83,644
)


(77,311
)Total property, plant and equipment, net

$
59,156


$
28,287   Note 11.
    Goodwill
    and Intangible Assets     89




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31, 2007


December 31, 2006Gross


Accumulated


Net Book


Gross


Accumulated


Net BookAmount


Amortization


Value


Amount


Amortization


ValueIntangible assets acquired:Arris Interactive L.L.C.

$
51,500


$
(51,500
)

$



$
51,500


$
(51,500
)

$
Cadant, Inc.


53,000



(53,000
)






53,000



(53,000
)


Com21


1,929



(1,929
)






1,929



(1,929
)


cXm Broadband


691



(691
)






691



(403
)


288C-COR Incorporated


271,940



(2,047
)


269,893











Total

$
379,060


$
(109,167
)

$
269,893


$
107,120


$
(106,832
)

$
288     2008

$
43,2922009

$
36,5272010

$
34,0782011

$
34,0782012

$
34,078   Note 12.
    Long-Term
    Obligations    December 31,2007


20062.0% convertible senior notes due 2026

$
276,000


$
276,0002.0% Pennsylvania Industrial Development Authority debt, net of
    current portion


271



9.26% equipment financing obligations, net of current portion


494



Other long-term liabilities


12,086



5,621Total long term debt and other long-term liabilities

$
288,851


$
281,621    90




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
             91




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 13.
    Earnings
    Per Share    For the Years Ended December 31,2007


2006


2005Basic:Income from continuing operations

$
98,136


$
142,066


$
51,275Income from discontinued operations


204



221



208Net income

$
98,340


$
142,287


$
51,483Weighted average shares outstanding


110,843



107,268



96,581Basic earnings per share

$
0.89


$
1.33


$
0.53Diluted:Income from continuing operations

$
98,136


$
142,066


$
51,275Income from discontinued operations


204



221



208Net income

$
98,340


$
142,287


$
51,483Weighted average shares outstanding


110,843



107,268



96,581Net effect of dilutive stock options


2,184



2,222



1,683Total


113,027



109,490



98,264Diluted earnings per share

$
0.87


$
1.30


$
0.52      92




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 14.
    Income
    Taxes    Years Ended December 31,2007


2006


2005Current  Federal

$
31,044


$
2,235


$
885State


5,269



1,077



(163
)Foreign


233



366



(209
)36,546



3,678



513Deferred  Federal


4,744



(32,785
)


State


463



(3,429
)


Foreign


(802
)


(2,276
)


4,405



(38,490
)


$
40,951


$
(34,812
)

$
513     Years Ended December 31,2007


2006


2005Statutory federal income tax expense (benefit)


35.0
%


35.0
%


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


2.8
%


1.7
%


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


(0.7
)%


(0.1
)%


(0.3
)%Meals and entertainment


0.2
%


0.2
%


0.4
%Decrease in valuation allowance


(3.8
)%


(62.3
)%


(36.3
)%Federal tax exempt interest


(2.1
)%






Acquired in-process research and development


1.6
%






Research and development tax credits


(4.3
)%


(7.2
)%


Other, net


0.8
%


0.3
%


0.5
%29.5
%


(32.4
)%


1.0
%     December 31,2007


2006Current deferred income tax assets:Inventory costs

$
8,626


$
5,141Federal alternative minimum tax (AMT) credit


850



850Federal research and development credits


8,755



13,817Federal/state net operating loss carryforwards


5,216



Warranty reserve


3,527



1,880Deferred revenue


5,091



1,143Other, principally operating expenses


12,874



11,536Total current deferred income tax assets


44,939



34,367 93




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31,2007


2006Noncurrent deferred income tax assets:Federal/state net operating loss carryforwards


39,044



1,199Federal capital loss carryforwards






5,311Foreign net operating loss carryforwards


16,739



2,720Federal alternative minimum tax credit


1,374



Federal research and development credits


2,983



Pension and deferred compensation


6,618



5,662Equity compensation


4,488



3,090Goodwill






813Other, principally operating expenses


3,487



4,141Property, plant and equipment, depreciation and basis differences






2,364Total noncurrent deferred income tax assets


74,733



25,300Total deferred income tax assets


119,672



59,667Non-current deferred income tax liabilities:Property, plant and equipment, depreciation and basis differences


(708
)


Other noncurrent liabilities


(226
)


Goodwill


(1,111
)Intangibles


(90,990
)


(115
)Total noncurrent deferred income tax liabilities


(93,035
)


(115
)Net deferred income tax assets


26,637



59,552Valuation allowance


(23,494
)


(9,393
)Net deferred income tax assets

$
3,143


$
50,159      94




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           95




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Unrecognized Tax Benefits  as of January 1, 2007

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


943Gross decreases  tax positions in prior period


(1
)Gross increases  current-period tax positions


1,481Increases (decreases) from acquired businesses


3,991Unrecognized Tax Benefits  as of December 31,
    2007

$
9,873   Accounting for Uncertainty in Income
    Taxes  an Interpretation of SFAS No. 109,
    Accounting for Income Taxes Accounting for Income Taxes
    non-U.S. income
   96




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 15.
    Commitments    Operating Leases2008

$
5,8802009


4,3392010


3,2712011


3,0202012


1,789Thereafter


3,586Less sublease income


(110
)Total minimum lease payments

$
21,775       Note 16.
    Stock-Based
    Compensation       97




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Accounting for Stock Issued to Employees
  Accounting
    for Stock Issued to Employees
 98




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2005Net income, as reported

$
51,483Add: Stock-based compensation included in reported net income,
    net of taxes


6,915Deduct: Total stock-based employee compensation expense
    determined under fair value based methods for all awards


(16,812
)*Net income, pro forma

$
41,586Net income per common share:Basic  as reported

$
0.53Basic  pro forma

$
0.43Diluted  as reported

$
0.52Diluted  pro forma

$
0.42     *
    
    Includes approximately $5.7 million of expense related to
    the acceleration of out-of-the-money options in the
    second quarter of 2005.  Stock
    Options
    Share-Based Payment,
 99




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted


AggregateWeighted


Average


IntrinsicAverage


Remaining


ValueOptions


Exercise Price


Contractual Term


(in thousands)Beginning balance, January 1, 2007


7,439,631


$
10.52Grants


1,189,766


$
13.45C-COR stock options converted to ARRIS


4,710,015


$
9.33Exercised


(1,701,406
)

$
8.18Forfeited


(145,954
)

$
7.50Expired


(108,502
)

$
22.03Ending balance, December 31, 2007


11,383,550


$
10.57



4.58


$
19,281Exercisable at December 31, 2007


9,076,946


$
10.21



4.34


$
17,705     Restricted
    Stock (Non-Performance) and Stock Units      Weighted AverageGrant DateShares


Fair ValueUnvested at January 1, 2007


783,895


$
8.09Granted


330,516


$
13.67Vested


(495,962
)

$
6.89Forfeited


(35,263
)

$
11.00Unvested at December 31, 2007


583,186


$
12.10   Performance-Related
    Restricted Shares   100




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##### Table of Contents



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


Fair ValueUnvested at January 1, 2007


382,015


$
9.68Granted


180,216



13.45Vested


(145,822
)


8.56Forfeited






Unvested at December 31, 2007


416,409



11.70     Employee
    Stock Purchase Plan (ESPP)  Accounting for Stock Issued to Employees,
  Unrecognized
    Compensation Cost   101




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Treasury
    Stock    Note 17.
    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
    recognize changes in the funded status of a defined benefit plan
    in comprehensive earnings in the year in which the changes occur.   102




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years EndedDecember 31,2007


2006(in thousands)Change in Projected Benefit Obligation:Projected benefit obligation at beginning of year

$
28,367


$
25,930Service cost


558



519Interest cost


1,648



1,478Actuarial loss (gain)


(294
)


938Benefit payments


(592
)


(498
)Projected benefit obligation at end of year

$
29,687


$
28,367Change in Plan Assets:Fair value of plan assets at beginning of year

$
16,204


$
13,769Actual return on plan assets


2,174



1,227Company contributions


1,402



1,706Expenses and benefits paid from plan assets


(592
)


(498
)Fair value of plan assets at end of year

$
19,188


$
16,204Funded Status:Funded status of plan

$
(10,500
)

$
(12,162
)Unrecognized actuarial loss


1,374



2,665Unamortized prior service cost


1,320



1,797Employer contributions, 9/30  12/31


29



19Net amount recognized

$
(7,777
)

$
(7,681
)     Years EndedDecember 31,2007


2006(in thousands)Noncurrent assets

$
290


$
Current liabilities


(119
)


(82
)Noncurrent liabilities


(10,642
)


(12,061
)Accumulated other comprehensive income(1)


2,694



4,462Total

$
(7,777
)

$
(7,681
)   (1)
    
    As of December 31, 2007, the accumulated other
    comprehensive income included $1,374 related to the net loss,
    and $1,320 related to prior service cost. The total unfunded
    pension liability on the Consolidated Balance Sheet as of
    December 31, 2007 included income tax impact of $665. 103




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Years Ended December 31,2007


2006(in thousands)Net (gain) loss

$
(1,190
)

$
(1,945
)Amortization of net (loss) gain


(102
)


(8
)Prior service cost (credit)






2,274Amortization of prior service cost


(477
)


(477
)Total recognized in other comprehensive income

$
(1,769
)

$
(156
)       December 31,2007(1)


2006(in thousands)Accumulated benefit obligation

$
9,396


$
26,496Projected benefit obligation

$
10,790


$
28,367Plan assets

$



$
16,204   (1)
    
    At December 31, 2007 the plan assets of the Companys
    qualified plan exceeded its accumulated benefit obligation and
    therefore is excluded.    2007


2006


2005Service cost

$
558


$
519


$
458Interest cost


1,648



1,478



1,413Return on assets (expected)


(1,277
)


(1,125
)


(1,045
)Recognized net actuarial (gain) loss


102



8



(18
)Amortization of prior service cost(1)


477



477



477Net periodic pension cost

$
1,508


$
1,357


$
1,285   (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.    2007


2006


2005Assumed 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
%  104




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Assumed discount rate for non-qualified plan participants


5.75
%


5.50
%


6.00
%Assumed discount rate for qualified plan participants


5.75
%


5.75
%


6.00
%Rates of compensation increase


3.75
%


3.75
%


5.94
%Expected long-term rate of return on plan assets


8.00
%


8.00
%


8.00
%         2008

$
8122009


8522010


1,4282011


1,4202012


1,5782013  2017


10,411     Benefit
    Plans Assumed in the C-COR Acquisition     105




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 18.
    Summary
    Quarterly Consolidated Financial Information
    (unaudited)    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   Quarters in 2006 EndedMarch 31,


June 30,


September 30,


December 31,Net sales

$
208,344


$
219,990


$
228,646


$
234,571Gross margin(1)


56,507



63,740



63,179



68,652Operating income(2)


19,609



22,465



25,447



28,472Income from continuing operations


20,702



24,662



26,547



70,155Income from discontinued operations


21



88



15



97Net income(4)

$
20,723


$
24,750


$
26,562


$
70,252Net income per basic share:Income from continuing operations

$
0.20


$
0.23


$
0.25


$
0.65Income from discontinued operations

$



$



$



$
Net income

$
0.20


$
0.23


$
0.25


$
0.65Net income per diluted share:Income from continuing operations

$
0.19


$
0.23


$
0.24


$
0.64Income from discontinued operations

$



$



$



$
Net income

$
0.19


$
0.23


$
0.24


$
0.64   (1)
    
    During each quarter in 2007 and 2006, the Company recognized
    stock compensation expense of approximately $0.2 million
    and $0.1 million, respectively, in cost of goods sold which
    effected 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. Also during the fourth quarter the Company
    recorded a $1.3 million charge related to an isolated
    product warranty issue.(2)
    
    In addition to (1) above, the following items impacted
    operating income:  
    During the first, second, third and fourth quarters of 2007, the
    Company recognized stock compensation expense of approximately
    $2.5 million, $3.1 million, $2.5 million and
    $2.0 million, respectively, is included 106




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##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  in operating expenses. During the first, second, third and
    fourth quarters of 2006, the Company recognized stock
    compensation expense of approximately $2.1 million,
    $2.3 million, $2.3 million and $2.2 million,
    respectively, is included in operating expenses.  
    During the first quarter of 2007, the Company recorded
    restructuring reserve adjustment of approximately
    $0.4 million. During the first and fourth quarters of 2006,
    the Company recorded restructuring reserve adjustments of
    $0.3 million and $1.9 million, respectively. 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.
    During the first and second quarters of 2006, ARRIS recorded
    gains of approximately $0.5 million and $1.1 million,
    respectively, related to previously written off receivables.
    These gains resulted in a reduction in bad debt expense for
    those quarters.
    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 its prior intangibles.  (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.  break-up
  (4)
    
    During the fourth quarter of 2006, ARRIS reduced valuation
    allowances related to deferred income tax assets, based on the
    current judgment that the benefits will be realized, and also
    recorded a tax benefit related to research and development
    credits for the period from 2001 -2006. The net result of these
    items was a tax benefit of approximately $38.8 million
    during the quarter. In 2007, unlike 2006, ARRIS recorded income
    tax expense at full rates.  Note 19.
    Contingencies    No. 2:05-CV-436 No. 03-54533MM, No. 06-5098MM
 107




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        video-on-demand
         108




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  and/or
  Note 20.
    Subsequent
    Events  Payoff
    of Acquired
    Repurchase
    of ARRIS Common Stock
    Auction
    Rate Securities
   109




---



##### 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   110




---



##### Table of Contents



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


65Consolidated Balance Sheets at December 31,
    2007 and 2006


66Consolidated Statements of Operations for the
    years ended December 31, 2007, 2006 and 2005


67Consolidated Statements of Cash Flows for the
    years ended December 31, 2007, 2006 and 2005


68Consolidated Statements of Stockholders
    Equity for the years ended December 31, 2007, 2006 and
    2005


70Notes to the Consolidated Financial Statements


72  111




---



##### Table of Contents



(a)
    (2) Financial Statement Schedules
        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, 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


$
9,393YEAR ENDED DECEMBER 31, 2005Reserves and allowance deducted from asset accounts:Allowance for doubtful accounts

$
3,829


$
(438
)

$
(338
)

$
3,729Reserve for obsolete and excess inventory(3)

$
18,832


$
4,902


$
8,583


$
15,151Income tax valuation allowance(4)

$
101,933


$



$
14,731


$
87,202   (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. 112




---



##### 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 3.1.3
.2

Certificate of Amendment to Amended and Restated Certificate of
    Incorporation

August 3, 2001 Form 8-A, Exhibit 3.2.3
.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 4.1.4
.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 4.5.4
.4

Agreement and Plan of Merger with C-COR, Inc. dated September
    23, 2007

September 23, 2007 Form 8-K, Exhibit 2.110
.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 10.7.10
.2*

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
    Corporation.10
.1(c)*

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

December 12, 2006 Form 8-K, Exhibit 10.6.10
.3*

2001 Stock Incentive Plan

July 2, 2001 Appendix III of Proxy Statement filed as part
    of, Registration Statement #333-61524, filed by Broadband Parent
    Corporation.10
.4*

Management Incentive Plan

July 2, 2001 Appendix IV of Proxy Statement filed as part
    of Registration Statement #333-61524, filed by Broadband Parent
    Corporation.10
.5

Solectron Manufacturing Agreement and Addendum

December 31, 2001 Form 10-K, Exhibit 10.15. 113




---



##### Table of Contents



The filings referenced forincorporation by reference areARRIS (formerly known asExhibit



Broadband Parent, Inc.) filingsNumber

Description of Exhibit

unless otherwise noted10
.6

Mitsumi Agreement

December 31, 2001 Form 10-K, Exhibit 10.16.10
.7*

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

December 12, 2006 Form 8-K, Exhibit 10.1.10
.8*

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

December 12, 2006 Form 8-K, Exhibit 10.2.10
.9*

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

December 12, 2006 Form 8-K, Exhibit 10.4.10
.10*

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

December 12, 2006 Form 8-K, Exhibit 10.3.10
.10*

Employment Agreement with Robert Puccini, dated December 8,
    2006

December 12, 2006 Form 8-K, Exhibit 10.5.10
.11*

2004 Stock Incentive Plan

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

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

December 12, 2006 Form 8-K, Exhibit 10.4.10
.13*

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

March 31, 2005 Form 10-Q, Exhibit 10.20.10
.14*

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

March 31, 2005 Form 10-Q, Exhibit 10.21.10
.15*

2007 Stock Incentive Plan

June 30, 2007, Form 10-Q Exhibit 10.1510
.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 10.321


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.  114




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##### Table of Contents



SIGNATURES      David
    B. Potts
   Executive Vice President,
 Chief Financial Officer and
 Chief Accounting Officer
      /s/  R J
    StanzioneRobert
    J. Stanzione

Chief Executive Officer and
    Chairman of the Board of  Directors

February 29, 2008/s/  David
    B. PottsDavid
    B. Potts

Executive Vice President, Chief Financial Officer and Chief
    Accounting Officer

February 29, 2008/s/  Alex
    B. Best*Alex
    B. Best

Director

February 29, 2008Harry
    L. Bosco

Director/s/  John
    A. Craig*John
    Anderson Craig

Director

February 29, 2008Matthew
    B. Kearney

Director/s/  William
    H. Lambert*William
    H. Lambert

Director

February 29, 2008/s/  John
    Petty*John
    R. Petty

Director

February 29, 2008/s/  David
    A. WoodleDavid
    A. Woodle

Director

February 29, 2008*By:

/s/  Lawrence
    A. MargolisLawrence
    A. Margolis(as attorney in fact
    for each person indicated)  115