##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWASHINGTON, D.C.
    20549
    FORM 10-K
  For the
    fiscal year ended December 31, 2009
  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.
    regulation S-T.




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##### 



TABLE OF
    CONTENTS
   
 PagePART IITEM 1.

Business


1ITEM 1A.

Risk Factors


17ITEM 1B.

Unresolved Staff Comments


23ITEM 2.

Properties


23ITEM 3.

Legal Proceedings


24ITEM 4.

Submission of Matters to a Vote of Security
    Holders


25ITEM 4A.

Executive Officers and Board Committees


25PART IIITEM 5.

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


27ITEM 6.

Selected Consolidated Historical Financial
    Data


29ITEM 7.

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


30ITEM 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


108ITEM 11.

Executive Compensation


108ITEM 12.

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


108ITEM 13.

Certain Relationships, Related Transactions, and
    Director Independence


108ITEM 14.

Principal Accountant Fees and Services


108PART IVITEM 15.

Exhibits and Financial Statement Schedules


109Signatures


114EX-21EX-23EX-24EX-31.1EX-31.2EX-32.1EX-32.2   i




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##### Table of Contents



PART I  Item 1.
    Business    General
  (678) 473-2000. Form 10-K.
  Glossary
    of Terms
    Acronym

TerminologyAdVOD

Linear and Demand Oriented AdvertisingARPU

Average Revenue Per UserCable VoIP

Cable Voice over Internet ProtocolCAM

Cable Access ModuleCBR

Constant Bit RateCLEC

Competitive Local Exchange CarrierCMTS

Cable Modem Termination SystemCPE

Customer Premises EquipmentCWDM

Coarse Wave Division MultiplexingDBS

Digital Broadcast SatelliteDOCSIS®

Data Over Cable Service Interface SpecificationDPI

Digital Program InsertionDSG

DOCSIS Set-Top GatewayDSL

Digital Subscriber LineDVR

Digital Video RecorderDWDM

Dense Wave Division MultiplexingEBIF

Enhanced Binary Interface FormatEMTA

Embedded Multimedia Terminal AdaptereQAM

Edge Quadrature Amplitude ModulatorFMC

Fixed Mobile ConvergenceFPGA

Field Programmable Gate ArraysFTTH

Fiber to the HomeFTTP

Fiber to the PremisesGAAP

Generally Accepted Accounting PrinciplesGHZ

GigahertzGPA

General Purchase AgreementsHDTV

High Definition TelevisionHFC

Hybrid Fiber-Coaxial 1




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##### Table of Contents



Acronym

TerminologyIFRS

International Financial Reporting StandardsILEC

Incumbent Local Exchange CarrierIP

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 UnitOLT

Optical Line TerminationONU

Optical Network UnitPCS

Post Contract SupportPCT

Patent Convention TreatyPON

Passive Optical NetworkPSTN

Public-Switched Telephone NetworkPVR

Personal Video RecorderQAM

Quadrature Amplitude ModulationQoS

Quality of ServiceRF

Radio FrequencyRGU

Revenue Generating UnitSCTE

Society of Cable Telecommunication EngineersSDV

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
  tm IP-enabled
  Our
    Strategy
    
    Maintain a strong capital structure, mindful of our debt
    maturity (which could potentially be repaid in 2013), share
    repurchase opportunities and other capital needs including
    mergers and acquisitions.
    Grow our current business into a more complete portfolio
    including a strong video product suite.
    Continue to invest in the evolution toward enabling true network
    convergence onto an all IP platform.
    Continue to expand our product/service portfolio through
    internal developments, partnerships and acquisitions.
    Expand our international business and begin to consider
    opportunities in markets other than cable.
    Continue to invest in and evolve the ARRIS talent pool to
    implement the above strategies.   4




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##### Table of Contents



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. IP-based (C-COR).
  Our
    Principal Products
    
    Headend.  The headend is a central point in the
    cable system where signals are received via satellite and other
    sources. High capacity routers connect the Internet and public
    switched telephone networks to the local cable access network in
    the headend. The headend organizes, processes and retransmits
    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 5




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throughout the cable system to optical nodes and ultimately the
    subscriber premises. The distribution network also collects
    requests and transmissions from subscribers and transports them
    back to the headend for processing and transmission.  
    Subscriber Premises.  Cable drops extend from
    multi taps to subscribers homes and connect to a
    subscribers television set, set-top box, telephony network
    interface device or high speed cable modem.    Broadband Communications Systems (BCS):
  
    VoIP and High Speed Data products  
    CMTS Edge Router
    2-Line Residential EMTA
    Multi-line EMTA for Residential and Commercial Services
    Wireless Gateway EMTA
    High speed data Cable Modems  
    Video / IP products  
    CMTS Edge Router
    Universal EdgeQAM
    Whole Home DVR  
    Video Processing products  
    Digital Video Encoders and Multiplexers
    Transcoders, Transraters, and Statistical Multiplexers  Access,
    Transport & Supplies (ATS):
  
    HFC plant equipment products  
    Headend and Hub products
    Optical Transmitters
    Optical Amplifiers
    Optical Repeaters
    Optical Nodes
    ePON Optical Network Units
    ePON Optical Line Terminals
    RF over Glass (RFOG) Optical Network Units
    Radio Frequency products  
    Infrastructure products for fiber optic or coaxial networks
    built under or above ground  
    Cable and strand
    Vaults
    Conduit
    Drop materials
    Tools 6




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##### Table of Contents




    Connectors
    Test equipment  Media &
    Communications Systems (MCS):
  
    Content and Operations management systems  
    Video on Demand
    Ad Insertion
    Digital Advertising  
    Operations management systems  
    Service Assurance
    Service Fulfillment
    Mobile Workforce Management  
    Fixed Mobile Convergence Network  
    Mobility Application Server (MAS) for continuity of
    services across wireless and
    PacketCabletm

    Networks


    Voice Call Continuity (VCC) Application Server for
    continuity of services in IP Multimedia Subsystem
    (IMS) Networks  Broadband
    Communications Systems
  Voice
    over IP and Data Products
  Headend ® tm
    Subscribe Premises ® ® tm ® ® tm ® ®
    ® ® ®
 7




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##### Table of Contents



and/or
  Video/IP
    Products
  Headend tm tm tm ® tm
  Video
    Processing
  Headend ® ® ® ® IP-based
  Access,
    Transport & Supplies
    Headend
    and Hubs
  tm
  Optical
    Transmission
  ®
 8




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##### Table of Contents



Optical
    Nodes
      ePON
    Solutions
    RFoG
    Solutions
    Radio
    Frequency Products
    Supplies
  ® ® ®
 9




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just-in-time
  Media &
    Communications Systems
    On Demand
    and Ad Insertion
    ConvergeMedia tm  Video
    On Demand Management and Distribution
    tm
  ConvergeMedia tm Digital Advertising
    ®
 10




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Operations
    Management Systems
  ®
  Service
    Assurance
  tm
  Service
    Fulfillment
    Mobile
    Workforce Management
    Fixed
    Mobile Convergence (FMC)
    Sales and
    Marketing
     11




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##### Table of Contents



Customers
    Years ended December 31,2009


2008


2007(in thousands)Comcast and affiliates

$
353,658


$
300,934


$
366,894% of sales


31.9
%


26.3
%


37.0
%Time Warner Cable and affiliates

$
230,211


$
235,405


$
106,376% of sales


20.8
%


20.6
%


10.7
%     International
    Operations
   12




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Research
    and Development
  and/or best-in-class
  ® ®
  ® ® ® tm ® ® ® ® ® tm
    ®
    ®
 13




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Intellectual
    Property
    ®
    Product
    Sourcing and Distribution
    6-month 12-month 15-month
   14




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##### Table of Contents



® ®
  Backlog
        Competition
    
    Aurora Networks;
    BigBand Networks;
    Casa Systems, Inc.;
    Cisco Systems, Inc.;
    Commscope, Inc.;
    Concurrent Computer Corporation;
    Ericsson (TandbergTV);
    Harmonic, Inc.;
    Motorola, Inc.;
    SeaChange, Inc.;
    SMC Networks;
    Technicolor;
    TVC Communications, Inc., and;
    Ubee Interactive, Inc. 15




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CMTS and Edge QAM Hardware
    and Subscribers Quarterly Worldwide and Regional Market Share,
    Size, and Forecasts, Fourth Quarter 2009,
  Broadband CPE Quarterly Worldwide Market Share and Forecasts
    for Third Quarter 2009
          Employees
   16




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##### Table of Contents



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.
    
    Aurora Networks;
    BigBand Networks;
    Casa Systems, Inc.:
    Cisco Systems, Inc.;
    Commscope, Inc.;
    Concurrent Computer Corporation; 17




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##### Table of Contents




    Ericsson (TandbergTV);
    Harmonic, Inc.;
    Motorola, Inc.;
    SeaChange, Inc.;
    SMC Networks;
    Technicolor, Inc.;
    TVC Communications, Inc.:
    Ubee Interactive, Inc  start-up
    Consolidations
    in the telecommunications industry could result in delays or
    reductions in purchases of products, which would have a material
    adverse effect on our business.
      Our
    business is highly concentrated in the cable television portion
    of the telecommunications industry which is significantly
    impacted by technological change.
  3-D
 18




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We may
    pursue acquisitions and investments that could adversely affect
    our business.
    We
    have substantial goodwill.
    Our
    business comes primarily from a few key customers. The loss of
    one of these customers or a significant reduction in sales to
    one of these customers would have a material adverse effect on
    our business.
   19




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We may
    have difficulty in forecasting our sales.
    Fluctuations
    in our Media & Communications Systems sales result in
    greater volatility in our operating results.
    Products
    currently under development may fail to realize anticipated
    benefits.
    
    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.
   20




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We are
    substantially dependent on contract manufacturers, and an
    inability to obtain adequate and timely delivery of supplies
    could adversely affect our business.
    Our
    international operations may be adversely affected by any
    decline in the demand for broadband systems designs and
    equipment in international markets.
    Our
    international operations may be adversely affected by changes in
    the foreign laws in the countries in which we and our
    manufacturers and assemblers have plants.
      
    changes in international trade laws, such as the North American
    Free Trade Agreement and Prosec, affecting our import and export
    activities;
    changes in, or expiration of, the Mexican governments
    IMMEX (Manufacturing Industry Maquiladora and Export Services)
    program, which provides economic benefits to us;
    changes in labor laws and regulations affecting our ability to
    hire and retain employees;
    fluctuations of foreign currency and exchange controls;
    potential political instability and changes in the Mexican
    government;
    potential regulatory changes; and
    general economic conditions in Mexico.  We
    depend on channel partners to sell our products in certain
    regions and are subject to risks associated with these
    arrangements.
   21




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##### Table of Contents




    ability of our selected channel partners to effectively sell our
    products to end customers;
    our ability to continue channel partner arrangements into the
    future since most are for a limited term and subject to mutual
    agreement to extend;
    a reduction in gross margins realized on sale of our
    products; and
    a diminution of contact with end customers which, over time,
    could adversely impact our ability to develop new products that
    meet customers evolving requirements.  Our
    stock price has been and may continue to be
    volatile.
    
    future announcements concerning us, key customers or competitors;
    quarterly variations in operating results;
    changes in financial estimates and recommendations by securities
    analysts;
    developments with respect to technology or litigation;
    the operating and stock price performance of our
    competitors; and
    acquisitions and financings    We may
    face higher costs associated with protecting our intellectual
    property or obtaining access necessary to intellectual property
    of others.
    We do
    not intend to pay cash dividends in the foreseeable
    future.
   22




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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


March 1, 2011

(2)Wallingford, Connecticut

Office space


82,155


December 31, 2014

(2)Beaverton, Oregon

Office space/
    Manufacturing


60,389


January 31, 2011

(3)Ontario, California

Warehouse


59,269


March 31, 2014

AllLisle, Illinois

Office space


56,008


November 1, 2013

(1)Waltham, Massachusetts

Office space


21,033


February 15, 2011

(3)Kirkland, Washington

Office space


38,554


January 30, 2011

(1)Englewood, Colorado

Office space


32,240


March 31, 2011

AllOntario, California

Warehouse


26,565


September 30, 2014

AllCork, Ireland

Office space


11,135


October 28, 2020

(1)Shenzhen, China

Office space


20,095


December 05, 2012

All     Location

Description

Area (sq. ft.)


SegmentCary, North Carolina

Warehouse


151,500


AllState College, Pennsylvania

Office space


133,000


(2)(3)Chicago, Illinois

Warehouse/Office space


18,000


(2)      (1)
    
    Broadband Communications Systems(2)
    
    Access, Transport & Supplies(3)
    
    Media & Communications Systems   23




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Item 3.
    Legal
    Proceedings        and/or
  video-on-demand and/or
       24




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

Age

PositionRobert J. Stanzione


62


Chief Executive Officer, Chairman of the BoardLawrence A. Margolis


62


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


52


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


52


President, Access, Transport & SuppliesRonald M. Coppock


55


President, Worldwide Sales & MarketingBryant K. Isaacs


50


President, Media & Communications SystemsJames D. Lakin


66


President, Advanced Technology & ServicesBruce W. McClelland


43


President, Broadband Communications SystemsMarc S. Geraci


56


Vice President, Treasurer   Robert J. Stanzione
  Lawrence A. Margolis
 25




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##### Table of Contents



David B. Potts
  John O. Caezza
  Ronald M. Coppock
  Bryant K. Isaacs
  James D. Lakin
  Bruce W. McClelland
  Marc S. Geraci
  Board
    Committees
   26




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##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    2008

High


LowFirst Quarter

$
10.03


$
4.96Second Quarter


10.39



5.84Third Quarter


10.02



6.67Fourth Quarter


8.05



4.472009First Quarter

$
8.28


$
5.81Second Quarter


12.91



7.21Third Quarter


13.75



10.87Fourth Quarter


12.97



9.82      27




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##### Table of Contents



Stock
    Performance Graph
  3600-3699),
  
  12/04


12/05


12/06


12/07


12/08


12/09ARRIS Group Inc.



100.00




134.52




177.70




141.76




112.93




162.36S&P 500



100.00




104.91




121.48




128.16




80.74




102.11SIC Codes 3600  3699



100.00




106.35




103.31




110.14




59.85




91.39Copyright©

    2010 Standard & Poors, a division of The
    McGraw-Hill Companies Inc. All rights reserved.(www.researchdatagroup.com/S&P.htm)   Form 10-K,
 28




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##### Table of Contents



Item 6.
    Selected
    Consolidated Historical Financial Data    2009


2008


2007


2006


2005Consolidated Operating Data:Net sales

$
1,107,806


$
1,144,565


$
992,194


$
891,551


$
680,417Cost of sales


645,043



751,436



718,312



639,473



489,703Gross margin


462,763



393,129



273,882



252,078



190,714Selling, general, and administrative expenses


148,403



143,997



99,879



87,203



74,308Research and development expenses


124,550



112,542



71,233



66,040



60,135Impairment of goodwill






209,297











Acquired in-process research and development charge










6,120







Amortization of intangible assets


37,361



44,195



2,278



632



1,212Restructuring charges


3,702



1,211



460



2,210



1,331Operating income (loss)


148,747



(118,113
)


93,912



95,993



53,728Interest expense


17,670



17,123



16,188



3,294



2,101Loss (gain) on debt retirement


(4,152
)














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










(22,835
)






Interest income


(1,409
)


(7,224
)


(24,776
)


(11,174
)


(3,100
)Other expense (income), net


2,731



(1,465
)


418



(1,092
)


421Loss (gain) on investments and notes receivable


(711
)


717



(4,596
)


29



146Income (loss) from continuing operations before income taxes


134,618



(127,264
)


129,513



104,936



51,788Income tax expense (benefit)


43,849



2,375



37,370



(35,682
)


513Net income (loss) from continuing operations


90,769



(129,639
)


92,143



140,618



51,275Discontinued Operations:Income from discontinued operations, net of tax










204



221



208Net income (loss)

$
90,769


$
(129,639
)

$
92,347


$
140,839


$
51,483 29




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##### Table of Contents



2009


2008


2007


2006


2005Net income (loss) per common share:Basic:Income (loss) from continuing operations

$
0.73


$
(1.04
)

$
0.83


$
1.31


$
0.53Income from discontinued operations


















Net income (loss)

$
0.73


$
(1.04
)

$
0.83


$
1.31


$
0.53Diluted:Income (loss) from continuing operations

$
0.71


$
(1.04
)

$
0.82


$
1.28


$
0.52Income from discontinued operations


















Net income (loss)

$
0.71


$
(1.04
)

$
0.82


$
1.28


$
0.52Selected Balance Sheet Data:Total assets

$
1,475,616


$
1,350,321


$
1,557,193


$
1,012,040


$
529,403Long-term obligations

$
295,696


$
297,238


$
300,469


$
243,555


$
18,230   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
      ® ®
 30




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Industry
    Conditions
  Competition
    Between Cable Operators and Telephone Companies is
    Increasing.
    Competition
    Between Cable Operators and Direct Broadcast Satellite Services
    is Increasing.
    Personalized
    Programming is Becoming More Readily Available Across Multiple
    Platforms .
   31




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Emerging
    Competition Between Cable Operators and Internet-based Services
    is a Major Market
    Disruption .
    Advertisers
    are moving to an interactive model siphoning advertising dollars
    away from linear
    programming .
    Macroeconomic
    factors are Expected to Affect our Industry.
    Growth in
    Enhanced Broadband Services Requires Continued Upgrades and
    Maintenance by Domestic and International Cable
    Operators.
  last-mile,
  Growing
    Demand for Bundled Services  Video, Voice, and
    Data.
   32




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##### Table of Contents



Cable Operators are Demanding Advanced Network Technologies
    and Software Solutions.
  Digital
    Video Recorders are Impacting the Advertising
    Business.
    Cable
    Operators are Developing Strategies to Offer Business
    Services.
    Volatile
    Capital Market Conditions for Many Large Cable
    Operators.
    Consolidation
    of Vendors Has Occurred and May Continue.
   33




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##### Table of Contents



Our
    Strategy and Key Highlights
    
    Maintain a strong capital structure, mindful of our 2013 debt
    maturity, share repurchase opportunities and other capital needs
    including mergers and acquisitions.
    Grow our current business into a more complete portfolio
    including a strong video product suite.
    Continue to invest in the evolution toward enabling true network
    convergence onto an all IP platform.
    Continue to expand our product/service portfolio through
    internal developments, partnerships and acquisitions.
    Expand our international business and begin to consider
    opportunities in markets other than cable.
    Continue to invest in and evolve the ARRIS talent pool to
    implement the above strategies.      Financial
    Highlights
  
    Sales in 2009 were $1.108 billion, down only 3% or
    $37 million from 2008 despite the depressed global economy.
    Notably, sales of our market leading CMTS were up while sales of
    our ATS products and EMTAs were down.
    Adjusted (non GAAP) earnings per diluted share in 2009 were
    $1.01, up $0.24 or 31% from 2008 as a result of the success of
    our CMTS edge router. GAAP earnings per diluted was $0.71 in
    2009 and compare to a loss of $(1.04) in 2008, which included a
    goodwill impairment. See a reconciliation and discussion of non
    GAAP measures below.
    Gross margin percentage was 41.8% in 2009, up
    7.5 percentage points from 2008 reflecting higher sales of
    our higher margin CMTS product line coupled with lower sales of
    lower margin EMTA and ATS products.
    We increased our expenditures on research and development in
    2009, particularly in the area of video over IP. Research and
    development spending was $124.5 million in 2009, up 11%
    from 2008.
    We ended 2009 with $625.6 million of cash resources which
    compares to $427.3 million at the end of 2008. We generated
    approximately $241.0 million of cash from operating
    activities in 2009 as compared to $189.1 million in 2008.
    We used $10.6 million of cash in the first quarter of 2009
    to retire $15.0 million of the principal amount of our
    convertible debt, which represented a 29% discount. We also used
    $22.7 million of cash in 2009 for the acquisitions of Digeo
    and EGT.
    We ended 2009 with an order backlog of approximately
    $144.4 million and a book-to-bill ratio of 0.92 for the
    fourth quarter of 2009, which compares to $114.8 million
    and 0.90 for the same period in 2008. 34




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##### Table of Contents



Product
    Line Highlights
  
    Broadband Communications Systems
  Expanded
    Video Capability
    
    The purchase of the assets, including the video processing
    intellectual property, of EG Technologies (EGT)
    which includes a portfolio of encoding, transcoding and
    multiplexing products.
    The purchase of the assets, including the intellectual property,
    of Digeo, Inc. The assets include an extensive patent portfolio
    in digital video recording, home networking,
    e-commerce
    and multimedia technologies, as well as the
    Moxi®

    line of home video delivery products.    CMTS
  
    Downstream port shipments reached a record level of 135 thousand
    in 2009, as compared to 77 thousand in 2008
    Operators continue to focus on deploying DOCSIS 3.0 technology
    in order to increase overall capacity as well as compete
    aggressively with higher speed service tiers. The ARRIS solution
    has been adopted broadly across the industry, with strong
    domestic shipments and increased business internationally in
    Central and Latin America, Asia, and Europe.
    Achieved improvement in gross margins resulting from both
    customer and product mix (increased CMTS shipments).
    Ended 2009 with the #1 market share (source: Infonetics)  CPE
  
    Shipped approximately 4.7 million EMTAs in 2009 as compared
    to 5.9 million in 2008. Sales of EMTAs in 2009 were
    impacted by the global economy and the leveling off of MSO
    deployments.
    Ended 2009 with the #1 market share for EMTAs; the
    18th consecutive quarter we held the leading share.
    Increased shipments of Multi-line and Wireless Gateways in 2009.
    DOCSIS 3.0 CPE shipments increased substantially in 2009. We
    expect a continuing transition from deployment of DOCSIS 2.0 to
    DOCSIS 3.0 CPE.  
    Access, Transport & Supplies
  
    Business in 2009 was impacted by macro economic factors, which
    resulted in lower sales year over year.
    MSOs engaged in fewer upgrade projects in 2009 as a result of
    lower housing starts and the introduction of DOCSIS 3.0, which
    provides bandwidth efficiency improvements, allowing network
    investments to be delayed.
    CORWave multi-wavelength optical transport platforms gained
    traction with both domestic and international customers. These
    platforms will allow operators to multiply network capacity in
    support of narrowcast services at a fraction of traditional
    infrastructure upgrade costs. We expect these platforms to
    become more widely adopted as bandwidth demands continue to
    increase.
    Engaged in multiple field trials for RFoG and EPON in 2009. We
    expect these to continue to expand in quantity and scope. 35




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##### Table of Contents




    Product mix and lower volumes negatively impacted margins in
    2009.  
    Media & Communications Systems  
    Successful deployments of WorkAssureTM for several MSOs.
    Launched new line of video servers:  XMS.
    Launched ConvergeMedia Backoffice:  CMM.
    Conducted production field trial of FMC at a major North America
    MSO.  Non
    GAAP Measures
    For the Year Ended December 31, 2009Gross


Operating


Operating


Other (Income)


Income Tax


Net IncomeMargin


Expense


Income


Expense


Expense


(Loss)(in thousands)GAAP


462,763



314,016



148,747



14,129



43,849



90,769Stock compensation expense


1,446



(14,475
)


15,921











15,921Acquisition costs, restructuring, and integration costs






(3,977
)


3,977











3,977Amortization of intangible assets






(37,361
)


37,361











37,361Non-cash interest expense














(11,136
)






11,136Gain on repurchase of debt














4,152







(4,152
)Tax related to items above


















22,305



(22,305
)Adjustments of income tax valuation allowances, R&D
    credits, and other discrete tax items


















3,133



(3,133
)Non-GAAP


464,209



258,203



206,006



7,145



69,287



129,574GAAP net income (loss) per share  diluted





















$
0.71Non-GAAP net income (loss) per share  diluted





















$
1.01GAAP weighted average common shares  diluted






















128,085Non-GAAP weighted average common shares  diluted






















128,085   36




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##### Table of Contents



For the Year Ended December 31, 2008Gross


Operating


Operating


Other (Income)


Income Tax


Net IncomeMargin


Expense


Income


Expense


Expense


(Loss)(in thousands)GAAP


393,129



511,242



(118,113
)


9,151



2,375



(129,639
)Stock compensation expense


979



(10,298
)


11,277











11,277Acquisition costs, restructuring, and integration costs






(1,638
)


1,638











1,638Amortization of intangible assets






(44,195
)


44,195











44,195Goodwill impairment






(209,297
)


209,297











209,297Non-cash interest expense














(10,735
)






10,735Tax related to items above


















24,078



(24,078
)Adjustments of tax related to goodwill impairment and certain
    provision to return adjustments


















26,255



(26,255
)Non-GAAP


394,108



245,814



148,294



(1,584
)


52,708



97,170GAAP net income (loss) per share  diluted





















$
(1.04
)Non-GAAP net income (loss) per share  diluted





















$
0.77GAAP weighted average common shares  diluted






















124,878
(1)Non-GAAP weighted average common shares  diluted






















126,277
(2)   (1)
    
    GAAP net income for 2008 is a loss
    and, therefore, inclusion of options would be antidilutive.(2)
    
    Non-GAAP net income for 2008 is
    positive and, therefore, the diluted shares used in this
    calculation include the effect of options.  For the Year Ended December 31, 2007Gross


Operating


Operating


Other (Income)


Income Tax


Net IncomeMargin


Expense


Income


Expense


Expense


(Loss)(in thousands)GAAP


273,882



179,970



93,912



(35,805
)


37,370



92,347Write-off of discontinued inventory


1,046







1,046











1,046Stock compensation expense


785



(10,118
)


10,903











10,903Gains related to previously written-off accts receivable






377



(377
)


330







(707
)Write-off of IPR&D






(6,120
)


6,120











6,120Acquisition costs, restructuring, and integration costs






(1,836
)


1,836











1,836Amortization of intangible assets






(2,278
)


2,278











2,278Non-cash interest expense














(9,925
)






9,925Gain related to terminated acquisition, net of expenses














22,835







(22,835
)Gain on investments














4,864







(4,864
)Tax related to items above


















(1,422
)


1,422Adjustments of income tax valuation allowances, R&D
    credits, and other discrete tax items


















7,959



(7,959
)Non-GAAP


275,713



159,995



115,718



(17,701
)


43,907



89,512GAAP net income (loss) per share  diluted





















$
0.82Non-GAAP net income (loss) per share  diluted





















$
0.79GAAP weighted average common shares  diluted






















113,027Non-GAAP weighted average common shares  diluted






















113,027    37




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##### Table of Contents




    Write-off of discontinued inventory  related to
    inventory of a product line that management decided to
    discontinue in 2007.
    Stock compensation expense  ARRIS records non-cash
    compensation expense related to grants of options and restricted
    stock. Depending upon the size, timing and the terms of the
    grants, this non-cash compensation expense may vary
    significantly.
    Write off of IPR&D  Due to the acquisition of
    C-COR, Inc., we acquired in process research and development of
    $6.2 million which was written off during the fourth
    quarter 2007.
    The acquisition costs, restructuring, and integration costs
    reflect that, although they or similar items might recur, are of
    a nature and magnitude that identifying them separately provides
    investors with a greater ability to project ARRIS future
    performance.
    Amortization of intangibles  non-cash amortization of
    the intangibles related to our acquisitions.
    Non-cash interest expense  ARRIS records non-cash
    interest expense related to the 2013 convertible debt.
    Disclosing the non-cash piece provides investors with the
    information regarding interest that will not be paid out in cash.
    Gain on retirement of debt  during the first quarter
    of 2009, ARRIS repurchased a portion of their convertible debt
    and recognized a gain of approximately $4.2 million.
    Gain related to terminated acquisition  in early
    2007, ARRIS entered into a transaction agreement with TANDBERG
    Television ASA, in which ARRIS was to buy all the outstanding
    shares of TANDBERG. ARRIS was subsequently outbid by another
    buyer and the transaction agreement was terminated during the
    first quarter 2007. ARRIS recorded gains, net before tax, of
    $22.8 million related to the termination of the transaction.
    Impairment of goodwill  during the fourth quarter
    2008, ARRIS recorded a non-cash impairment on goodwill of
    $209.3 million.
    Adjustments of income taxes valuation allowances, R&D
    credits, and other discrete tax items  In 2009, a tax
    expense of approximately $1.3 million was recorded for
    state valuation allowances, research and development tax credits
    and provision to return differences resulting from filing of the
    2008 tax return. Also in 2009, a tax benefit of approximately
    $4.6 million was recorded for changes to foreign valuation
    allowances relating to historic net operating losses in the
    various jurisdictions.      Results
    of Operations
  Overview
   38




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##### Table of Contents



Key
    Operating Data (as a percentage of net sales)
  Years Ended December 31,2009


2008


2007Net sales


100.0
%


100.0
%


100.0
%Cost of sales


58.2



65.7



72.4Gross margin


41.8



34.3



27.6Operating expenses:Selling, general, and administrative expenses


13.4



12.5



10.1Research and development expenses


11.3



9.8



7.2Impairment of goodwill






18.3



Acquired in-process research and development charge










0.6Amortization of intangible assets


3.4



3.9



0.2Restructuring charges


0.3



0.1



Operating income (loss)


13.4



(10.3
)


9.5Other expense (income):Interest expense


1.6



1.5



1.6Gain on terminated acquisition, net of expenses










(2.3
)Gain on debt retirement


(0.4
)






Loss (gain) on investments and notes receivable


(0.1
)


0.1



(0.5
)Loss (gain) on foreign currency


0.3



(0.1
)


Interest income


(0.1
)


(0.6
)


(2.5
)Other expense (income), net


(0.1
)


(0.1
)


0.1Income (loss) before income taxes


12.2



(11.1
)


13.1Income tax expense


4.0



0.2



3.8Net income (loss)


8.2
%


(11.3
)%


9.3
%   Comparison
    of Operations for the Three Years Ended December 31,
    2009
  Net
    Sales
  Form 10-K
  Net Sales


Increase (Decrease)For the Years Ended


Between PeriodsDecember 31,


2009 vs. 2008


2008 vs. 20072009


2008


2007


$


%


$


%Segment:BCS

$
852,852


$
822,816


$
859,164


$
30,036



3.7
%

$
(36,348
)


(4.2
)%ATS


176,306



262,478



130,644



(86,172
)


(32.8
)%


131,834



100.9
%MCS


78,648



59,271



2,386



19,377



32.7
%


56,885



2,384.1
%Total

$
1,107,806


$
1,144,565


$
992,194


$
(36,759
)


(3.2
)%

$
152,371



15.4
%  39




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##### Table of Contents



Net Sales


Increase (Decrease) Between PeriodsFor the Years Ended December 31,


2009 vs. 2008


2008 vs. 20072009


2008


2007


$


%


$


%Domestic

$
814,357


$
811,823


$
724,065


$
2,534



0.3
%

$
87,758



12.1
%International:Asia Pacific


56,091



50,435



41,997



5,656



11.2



8,438



20.1Europe


93,078



127,102



98,575



(34,024
)


(26.8
)


28,527



28.9Latin America


81,608



97,798



71,507



(16,190
)


(16.6
)


26,291



36.8Canada


62,672



57,407



56,050



5,265



9.2



1,357



2.4Total international


293,449



332,742



268,129



(39,293
)


(11.8
)%


64,613



24.1
%Total

$
1,107,806


$
1,144,565


$
992,194


$
(36,759
)


(3.2
)%

$
152,371



15.4
%   Broadband
    Communications Systems Net Sales 2009 vs. 2008
    
    Higher sales to multiple customers of our CMTS products, in
    particular Comcast, who accelerated its implementation of
    DOCSIS3.0 CMTS in 2009. Continued increased demand for bandwidth
    has driven increased demand for our CMTS products from our
    customers.
    The increase in our CMTS product sales was partially offset by
    an expected decrease in sales of EMTAs in 2009 as many of our
    customers have passed through the initial launch stage of
    telephony. In 2009, we shipped 4.7 million units as
    compared to 5.9 million units in 2008.
    We anticipate Comcast will purchase fewer CMTS in 2010, while
    other operators accelerate DOCSIS3.0 deployments.  Access, Transport & Supplies Net Sales 2009 vs.
    2008
    
    The decrease was primarily the result of the reduced spending by
    cable operators as a result of the slowdown of the US economy,
    and in particular new housing construction that drives capital
    equipment spending for plant upgrades and rebuilds by cable
    operators.
    Operators were also able to delay node segmentations by taking
    advantage of bandwidth efficiency improvements brought about by
    the implementation of DOCSIS 3.0.  Media & Communications Systems Net Sales 2009
    vs. 2008
    
    The increase in sales primarily reflects the recognition
    throughout 2008 of deferred revenue. The deferred revenue
    acquired from the C-COR acquisition in late 2007 was marked to
    fair value at the date of the acquisition and rebuilt throughout
    2008, resulting in a lower level of recognition in 2008. 40




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##### Table of Contents



Broadband Communications Systems Net Sales 2008 vs.
    2007
    
    Sales of our EMTA product decreased as many of our customers
    have passed through the initial launch stage of telephony. In
    2008, we shipped 5.9 million units as compared to
    7.1 million units in 2007. The majority of the decrease is
    due to lower EMTA sales to Comcast. This decrease was a result
    of Comcast awarding market share to one of our competitors in
    the fourth quarter of 2007. As a strategy, most of our customers
    utilize multiple vendors.
    Sales of our CMTS product increased reflecting higher sales to
    Time Warner Cable, and Kabel Deutschland. Sales to Comcast,
    Liberty Media International and other customers also increased
    in conjunction with the launch of our DOCSIS 3.0 product in the
    third quarter of 2008. Continued increased demand for bandwidth
    coupled with the launch of telephony has driven increased demand
    for our CMTS products from our customers.  Access, Transport & Supplies Net Sales 2008 vs.
    2007
    
    The increase was the result of the acquisition of C-COR. In
    2007, we estimate that C-COR, prior to being acquired, recorded
    sales associated within this segment of approximately
    $216.3 million. The estimated combined sales of ARRIS and
    C-COR in 2007 for this segment were $347.0 million which
    compares to $262.5 million in 2008. The decline on a
    combined basis is the result of the slowdown of the US economy,
    and in particular new housing construction.
    Sales in 2007 for this segment consisted of sales of our
    Supplies products. Sales of our supply products decreased year
    over year as a result of lower purchases by MSOs for new plant
    and extension equipment reflecting the decline in new home
    construction in the U.S.  Media & Communications Systems Net Sales 2008
    vs. 2007
    
    The increase was the result of the acquisition of C-COR. In
    2007, we estimate that C-COR, prior to being acquired, recorded
    sales associated within this segment of approximately
    $65.4 million. Sales of our Media &
    Communications Systems products as compared to the same sales by
    C-COR in the prior year is not directly comparable because we
    revalued C-CORs deferred revenue in connection with
    recording the acquisition.  Gross
    Margin
    Gross Margin $


Increase (Decrease)For the Years Ended


Between PeriodsDecember 31,


2009 vs. 2008


2008 vs. 20072009


2008


2007


$


%


$


%Business Segment:BCS

$
379,248


$
285,136


$
251,416


$
94,112



33.0
%

$
33,720



13.4
%ATS


40,055



76,387



22,930



(36,332
)


(47.6
)%


53,457



233.1
%MCS


43,460



31,606



(464
)


11,854



37.5
%


32,070



6911.6
%Total

$
462,763


$
393,129


$
273,882


$
69,634



17.7
%

$
119,247



43.5
%  41




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##### Table of Contents



Gross Margin%


Percentage Point IncreaseFor the Years Ended December 31,


(Decrease) Between Periods2009


2008


2007


2009 vs. 2008


2008 vs. 2007Business Segment:BCS


44.5
%


34.7
%


29.3
%


9.8



5.4ATS


22.7
%


29.1
%


17.6
%


(6.4
)


11.5MCS


55.3
%


53.3
%


(19.4
)%


2.0



72.7Total


41.8
%


34.3
%


27.6
%


7.5



6.7     Broadband Communications Systems Gross Margin 2009
    vs. 2008
    
    The increase in gross margin dollars was primarily the result of
    higher sales of our higher margin CMTS products.
    The increase in gross margin percentage primarily reflects
    product mix, as we sold more CMTS products and fewer EMTA
    products during 2009 as compared to 2008. CMTS products carry
    higher gross margin percentage than the EMTA products.  Access, Transport & Supplies Gross Margin 2009
    vs. 2008
    
    The decrease in gross margin dollars was the result of a
    decrease in sales in 2009 as compared to 2008.
    The decrease in gross margin percentage was primarily the result
    of both a change in product mix and a decrease in sales. In
    2009, Access and Transport sales decreased proportionally more
    than the Supplies sales decreased. In addition, our gross margin
    was negatively impacted by the decline in the overall volume
    resulting in a higher manufacturing cost per unit due to the
    allocation of fixed factory overhead costs as well as lower
    gross margin on certain headend optics gear.  Media & Communications Systems Gross Margin 2009
    vs. 2008
    
    Higher year-over-year sales resulted in the increase in both
    gross margin dollars and percentage.
    Performance in this segment is variable as revenue recognition
    is significantly tied to customer acceptances associated with
    multiple month and quarter projects, and non linear orders for
    licenses and hardware.  Broadband Communications Systems Gross Margin 2008
    vs. 2007
    
    Increases due to sales variations in product mix and increases
    achieved due to cost reductions. In particular, as compared to
    2007 we sold more CMTS products and fewer EMTA products. CMTS
    products carry a higher gross margin percentage than the EMTA
    products. 42




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##### Table of Contents



Access,
    Transport & Supplies Gross Margin 2008 vs.
    2007
    
    As a result of the C-COR acquisition, revenues and gross margin
    dollars increased significantly year over year. The increase in
    gross margin percentage was a result of the addition of
    C-CORs higher margin Access and Transport products.
    The increase due to the C-COR acquisition was partially offset
    by a decrease in the Supplies gross margin dollars as a result
    of lower sales.  Media & Communications Systems Gross Margin 2008
    vs. 2007
    
    The increase is attributable to the higher margin VOD and OSS
    products we added to our portfolio as a result of the C-COR
    acquisition.  Operating
    Expenses
    Increase (Decrease)Operating Expenses


Between PeriodsFor the Years Ended December 31,


2009 vs. 2008


2008 vs. 20072009


2008


2007


$


%


$


%Selling, general, & administrative

$
148,403


$
143,997


$
99,879


$
4,406



3.1
%

$
44,118



44.2
%Research & development


124,550



112,542



71,233



12,008



10.7
%


41,309



58.0
%Impairment of goodwill






209,297







(209,297
)


(100.0
)%


209,297



100.0
%Acquired in-processresearch &development










6,120











(6,120
)


(100.0
)%Amortization ofintangible assets


37,361



44,195



2,278



(6,834
)


(15.5
)%


41,917



1,840.1
%Restructuring


3,702



1,211



460



2,491



205.7
%


751



163.3
%Total

$
314,016


$
511,242


$
179,970


$
(197,226
)


(38.6
)%

$
331,272



184.1
%   Selling,
    General, and Administrative, or SG&A, Expenses
  2009 vs. 2008
    
    An increase in stock compensation expense of $2.9 million
    as a result of the most recent annual grants covering a higher
    number of employees due to acquisitions.
    Higher variable compensation costs, in particular sales
    commissions and incentive accruals.
    Higher compensation costs associated with an increase in sales
    and marketing employees.
    An increase in legal expenses of $1.6 million as a result
    of increased costs associated with various patent and other
    litigation matters (see Legal Proceedings).
    The above increases were partially offset by decreases in bad
    debt expense, travel & entertainment, and professional
    fees. 43




---



##### Table of Contents



2008 vs. 2007
    
    The inclusion of expenses associated with the former C-COR.
    The year-over-year SG&A expenses declined when comparing
    2008 to the combined expenses of ARRIS and the former C-COR for
    2007, reflecting synergies achieved as a result of the
    combination of the two companies.
    Legal expenses increased by approximately $6.0 million year
    over year as a result of increased costs associated with various
    litigation matters, specifically patent related (see Legal
    Proceedings).  Research &
    Development, or R&D, Expenses
    2009 vs. 2008
    
    One quarter of incremental R&D expenses, approximately
    $4.5 million, associated with Digeo Inc and EG Technology
    Inc, which were acquired in the fourth quarter of 2009.
    Higher compensation costs related to an increase in employees
    primarily focused on video development.
    Higher variable compensation costs, in particular incentive
    accruals.
    We anticipate that our 2010 R&D expenditures will be
    similar to our fourth quarter 2009 run rate.  2008 vs. 2007
    
    The inclusion of expenses associated with the former C-COR.
    As planned, we increased our R&D spending as a combined
    company, particularly on Video on Demand and OSS products.  Acquired
    In-Process Research and Development Charge
    Restructuring
    Charges
    Impairment
    of Goodwill
   44




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##### Table of Contents



Amortization
    of Intangibles
    Other
    Expense (Income)
    Other Expense (Income)For the Years Ended


Increase (Decrease)December 31,


Between Periods2009


2008


2007


2009 vs. 2008


2008 vs. 2007Interest expense

$
17,670


$
17,123


$
16,188


$
547


$
935Gain related to terminated acquisition, net of expenses










(22,835
)






22,835Gain on debt retirement


(4,152
)










(4,152
)


Loss (gain) on investments


(711
)


717



(4,596
)


(1,428
)


5,313Loss (gain) on foreign currency


3,445



(422
)


48



3,867



(470
)Interest income


(1,409
)


(7,224
)


(24,776
)


5,815



17,552Other expense (income)


(714
)


(1,043
)


370



329



(1,413
)Total expense (income)

$
14,129


$
9,151


$
(35,601
)

$
4,978


$
44,752   Interest
    Expense
    Gain
    Related to Terminated Acquisition of Tandberg Television
    ASA
  break-up
  Gain on
    Debt Retirement
   45




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##### Table of Contents



Loss
    (Gain) on Investments
    Loss
    (Gain) on Foreign Currency
    Interest
    Income
      Income
    Tax Expense
         46




---



##### Table of Contents



Discontinued
    Operations
    Financial
    Liquidity and Capital Resources
  Overview
    Liquidity &
    Capital Resources Data
  Year Ended December 31,2009


2008


2007(In thousands, except DSO and Turns)Key Working Capital ItemsCash provided by operating activities

$
240,977


$
189,073


$
63,424Cash, cash equivalents, and short-term investments

$
625,596


$
427,265


$
391,808Accounts Receivable, net

$
143,708


$
159,443


$
166,953- Days Sales Outstanding


50



52



48
*Inventory, net

$
95,851


$
129,752


$
131,792- Turns


5.7



5.7



7.2
*Key Debt Items  Convertible notes

$
261,050


$
276,000


$
276,000C-COR convertible notes

$



$



$
35,000Key Shareholder Equity Items  Share Repurchases

$



$
75,960


$
Shares Issued for acquisitions

$



$



$
281,011Capital Expenditures

$
18,663


$
21,352


$
15,072   *
    
    Full year excluding C-COR    
    Liquidity  ensure that we have sufficient cash
    resources or other short term liquidity to manage day to day
    operations
    Growth  implement a plan to ensure that we have
    adequate capital resources, or access thereto, fund internal
    growth and execute acquisitions while retiring our notes in a
    timely fashion. 47




---



##### Table of Contents



Accounts
    Receivable & Inventory
        2009 Debt
    Redemption
    Summary
    of Current Liquidity Position and Potential for Future Capital
    Raising
    Contractual
    Obligations
    Payments due by periodContractual Obligations

Less than 1 Year


1-3 Years


3-5 Years


More than 5 Years


Total(In thousands)Debt(4)

$
124


$



$
261,050


$



$
261,174Operating leases, net of sublease income(1)


8,011



9,494



3,540



1,956



23,001Purchase obligations(2)


103,072















103,072Total contractual obligations(3)

$
111,207


$
9,494


$
264,590


$
1,956


$
387,247   (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 $17.0 million of uncertain tax position 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.(4)
    
    The Company may redeem the notes at any time on or after
    November 15, 2013, subject to certain conditions. In
    addition, the holders may require the Company to purchase all or
    a portion of their convertible notes on or after
    November 15, 2013. 48




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
  Regulation S-K.
  Cash
    Flow
    2009


2008


2007Net cash provided by operating activities

$
240,977


$
189,073


$
63,424Net cash provided by (used in) investing


(153,403
)


9,778



(221,667
)Net cash provided by (used in) financing


3,097



(112,754
)


20,422Net increase (decrease) in cash and cash equivalents

$
90,671


$
86,097


$
(137,821
)   Operating
    Activities:
    2009


2008


2007Net income (loss)

$
90,769


$
(129,639
)

$
92,347Adjustments to reconcile net income (loss) to cash provided by
    operating activities


85,283



281,912



4,951Net income including adjustments


176,052



152,273



97,298(Increase)/decrease in accounts receivable


21,704



8,579



(17,498
)(Increase)/decrease in inventory


38,906



4,023



(9,502
)Increase/(decrease) in accounts payable and accrued liabilities


3,588



38,800



(9,906
)Other, net


727



(14,602
)


3,032Net cash provided by operating activities

$
240,977


$
189,073


$
63,424         build-up
   49




---



##### Table of Contents



Investing
    Activities:
    2009


2008


2007Capital expenditures

$
(18,663
)

$
(21,352
)

$
(15,072
)Acquisitions/other


(22,734
)


(10,500
)


(285,284
)Purchases of short-term investments


(216,704
)


(113,734
)


(356,366
)Sales of short-term investments


104,488



155,114



412,217Cash proceeds from sale of property, plant and equipment


210



250



3Proceeds from termination of TandbergTV acquisition, net of
    payments










22,835Net cash provided by (used in) investing activities

$
(153,403
)

$
9,778


$
(221,667
)             Financing
    Activities:
    2009


2008


2007Repurchase of shares to satisfy employee tax withholdings

$
(2,180
)

$
(1,035
)

$
(3,093
)Payment of debt and capital lease obligations


(10,714
)


(35,864
)


(19
)Repurchase of common stock






(75,960
)


Fees and proceeds from issuance of common stock, net


12,984



49



14,377Excess tax benefits from stock-based compensation plans


3,007



56



9,157Net cash provided by (used in) financing activities

$
3,097


$
(112,754
)

$
20,422        50




---



##### Table of Contents



Income
    Taxes
    Interest
    Rates
    Foreign
    Currency
      Financial
    Instruments
  and/or
   51




---



##### Table of Contents



Cash,
    Cash Equivalents, and Investments
  available-for-sale,
  available-for-sale.
            Capital
    Expenditures
    Deferred
    Income Tax Assets  Including Net Operating Loss
    Carryforwards and Research and Development Credit Carryforwards,
    and Valuation Allowances
   52




---



##### Table of Contents



10-year
        Defined
    Benefit Pension Plans
       53




---



##### Table of Contents



2009


2008


2007Assumed discount rate for non-qualified plan participants


5.75
%


6.25
%


6.25
%Assumed discount rate for qualified plan participants


5.75
%


6.25
%


6.25
%Rate of compensation increase


3.75
%


3.75
%


3.75
%     2009


2008


2007Assumed discount rate for non-qualified plan participants


6.25
%


6.25
%


5.75
%Assumed discount rate for qualified plan participants


6.25
%


6.25
%


5.75
%Rate of compensation increase


3.75
%


3.75
%


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


7.50
%


7.50
%


8.00
%       Other
    Benefit Plans
          Critical
    Accounting Policies
   54




---



##### Table of Contents



a)
    Revenue
    Recognition      
    When persuasive evidence of an arrangement
    exists.  Contracts and customer purchase orders
    are used to determine the existence of an arrangement.
    Delivery has occurred.  Shipping documents,
    proof of delivery and customer acceptance (when applicable) are
    used to verify delivery.
    The fee is fixed or determinable.Pricing is
    considered fixed and determinable at the execution of a customer
    arrangement, based on specific products and quantities to be
    delivered at specific prices. This determination includes a
    review of the payment terms associated with the transaction and
    whether the sales price is subject to refund or adjustment or
    future discounts.
    Collectability is reasonably assured.  We
    assess the ability to collect from our customers based on a
    number of factors that include information supplied by credit
    agencies, analyzing customer accounts, reviewing payment history
    and consulting bank references. Should we have a circumstance
    arise where a customer is deemed not creditworthy, all revenue
    related to the transaction will be deferred until such time that
    payment is received and all other criteria to allow us to
    recognize revenue have been met.    
    When undelivered products or services that are essential to the
    functionality of the delivered product exist, revenue is
    deferred until such undelivered products or services are
    delivered as the customer would not have full use of the
    delivered elements.
    When required acceptance has not occurred.
    When trade-in rights are granted at the time of sale, that
    portion of the sale is deferred until the trade-in right is
    exercised or the right expires. In determining the deferral
    amount, management estimates the expected trade-in rate and
    future value of the product upon trade-in. These factors are
    periodically reviewed and updated by management, and the updates
    may result in either an increase or decrease in the deferral.  Equipment 
  Software 
 55




---



##### Table of Contents



Services  on-site on-site
  Incentives 
  Multiple Element Arrangements 
    percentage-of-completion
 56




---



##### Table of Contents



b)
    Goodwill
    and Intangible Assets  Goodwill
       57




---



##### Table of Contents



Intangible
    Assets
        c)
    Allowance
    for Doubtful Accounts and Sales Returns   58




---



##### Table of Contents



d)
    Inventory
    Valuation  first-in,
      e)
    Warranty   59




---



##### Table of Contents



f)
    Stock-Based
    Compensation    Forward-Looking
    Statements
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    available-for-sale
 60




---



##### Table of Contents



Item 8.
    Consolidated
    Financial Statements and Supplementary Data    Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    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   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




---



##### 



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


65Consolidated Balance Sheets at December 31,
    2009 and 2008


66Consolidated Statements of Operations for the
    years ended December 31, 2009, 2008 and 2007


67Consolidated Statements of Cash Flows for the
    years ended December 31, 2009, 2008 and 2007


68Consolidated Statements of Stockholders
    Equity for the years ended December 31, 2009, 2008 and
    2007


70Notes to the Consolidated Financial Statements


71   64




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm          Accounting for Uncertainty in Income
    Taxes  an interpretation of FASB Statement
    No. 109, Accounting for Income Taxes 14-1, Accounting for Convertible Debt Instruments That May Be
    Settled in Cash upon Conversion 470-20, Debt with Conversion and Other Options
  Internal Control-Integrated Framework
  Ernst &
    Young LLP
  Atlanta,
    Georgia
    February 26, 2010
 65




---



##### Table of Contents



ARRIS
    GROUP, INC.
 CONSOLIDATED
    BALANCE SHEETS  December 31,2009


2008(in thousands except share and per share data)ASSETSCurrent assets:Cash and cash equivalents

$
500,565


$
409,894Short-term investments, at fair value


125,031



17,371Total cash, cash equivalents and short-term investments


625,596



427,265Restricted cash


4,475



5,673Accounts receivable (net of allowances for doubtful accounts of
    $2,168 in 2009 and $3,988 in 2008)


143,708



159,443Other receivables


6,113



4,749Inventories (net of reserves of $22,151 in 2009 and $18,811 in
    2008)


95,851



129,752Prepaids


11,675



8,004Current deferred income tax assets


35,994



44,004Other current assets


18,896



19,782Total current assets


942,308



798,672Property, plant and equipment (net of accumulated depreciation
    of $106,744 in 2009 and $100,313 in 2008)


57,195



59,204Goodwill


235,388



231,684Intangible assets (net of accumulated amortization of $190,722
    in 2009 and $153,362 in 2008)


204,572



227,348Investments


20,618



14,681Noncurrent deferred income tax assets


6,759



12,157Other assets


8,776



6,575$
1,475,616


$
1,350,321LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
53,979


$
75,863Accrued compensation, benefits and related taxes


36,936



27,024Accrued warranty


4,265



5,652Deferred revenue


47,044



44,461Current portion of long-term debt


124



146Current deferred income tax liabilities






1,059Other accrued liabilities


46,203



25,410Total current liabilities


188,551



179,615Long-term debt, net of current portion


211,248



211,870Accrued pension


16,408



18,820Noncurrent income taxes payable


14,815



9,607Noncurrent deferred income tax liabilities


37,204



41,598Other noncurrent liabilities


16,021



15,343Total liabilities


484,247



476,853Stockholders 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; 125.6 million and 123.1 million
    shares issued and outstanding in 2009 and 2008, respectively


1,388



1,362Capital in excess of par value


1,183,872



1,159,097Treasury stock at cost, 13 million shares in 2009 and 2008


(75,960
)


(75,960
)Accumulated deficit


(111,734
)


(202,503
)Unrealized gain (loss) on marketable securities


28



(274
)Unfunded pension liability, including income tax impact of$1,169 and $2,778 in 2009 and 2008, respectively


(6,041
)


(8,070
)Cumulative translation adjustments


(184
)


(184
)Total stockholders equity


991,369



873,468$
1,475,616


$
1,350,321    66




---



##### Table of Contents



ARRIS
    GROUP, INC.
 CONSOLIDATED
    STATEMENTS OF OPERATIONS  For the Years Ended December 31,2009


2008


2007(in thousands, except per share data)Net sales:Products

$
998,734


$
1,064,837


$
950,013Services


109,072



79,728



42,181Total net sales


1,107,806



1,144,565


$
992,194Cost of sales:Products


594,133



709,657



695,119Services


50,910



41,779



23,193Total cost of sales


645,043



751,436



718,312Gross margin


462,763



393,129



273,882Gross margin%


41.8
%


34.3
%


27.6
%Operating expenses:Selling, general, and administrative expenses


148,403



143,997



99,879Research and development expenses


124,550



112,542



71,233Impairment of goodwill






209,297



Acquired in-process research and development charge










6,120Amortization of intangible assets


37,361



44,195



2,278Restructuring charges


3,702



1,211



460Total operating expenses


314,016



511,242



179,970Operating income (loss)


148,747



(118,113
)


93,912Other expense (income):Interest expense


17,670



17,123



16,188Gain on terminated acquisition, net of expenses










(22,835
)Gain on debt retirement


(4,152
)






Loss (gain) on investments and notes receivable


(711
)


717



(4,596
)Loss (gain) on foreign currency


3,445



(422
)


48Interest income


(1,409
)


(7,224
)


(24,776
)Other expense (income), net


(714
)


(1,043
)


370Income (loss) from continuing operations before income taxes


134,618



(127,264
)


129,513Income tax expense


43,849



2,375



37,370Net income (loss) from continuing operations


90,769



(129,639
)


92,143Income from discontinued operations










204Net income (loss)

$
90,769


$
(129,639
)

$
92,347Net income (loss) per common share  basic:Income (loss) from continuing operations

$
0.73


$
(1.04
)

$
0.83Income (loss) from discontinued operations










Net income (loss)

$
0.73


$
(1.04
)

$
0.83Net income (loss) per common share  diluted:Income (loss) from continuing operations

$
0.71


$
(1.04
)

$
0.82Income (loss) from discontinued operations










Net income (loss)

$
0.71


$
(1.04
)

$
0.82Weighted average common shares  basic


124,716



124,878



110,843Weighted average common shares  diluted


128,085



124,878



113,027    67




---



##### Table of Contents



ARRIS
    GROUP, INC.
  CONSOLIDATED STATEMENTS OF CASH
    FLOWS
  Years Ended December 31,2009


2008


2007(in thousands)Operating activities:Net income (loss)

$
90,769


$
(129,639
)

$
92,347Depreciation


20,862



20,915



10,852Amortization of intangible assets


37,361



44,195



2,278Amortization of deferred finance fees


728



760



764Goodwill impairment






209,297



Deferred income tax provision


13,052



7,963



825Deferred income tax related to goodwill impairment






(24,725
)


Stock compensation expense


15,921



11,277



10,903Provision for doubtful accounts


(1,280
)


819



279Gain related to previously written off receivables










(377
)Gain on debt retirement


(4,152
)






Non cash interest expense


11,136



10,736



9,925Loss on disposal of fixed assets


428



14



182Loss (gain) on investments and notes receivable


(711
)


717



(4,604
)Income from discontinued operations










(204
)Gain related to terminated acquisition, net of expenses










(22,835
)Acquired in-process research and development charge










6,120Excess income tax benefits from stock-based compensation plans


(3,007
)


(56
)


(9,157
)Changes in operating assets and liabilities, net of effect of
    acquisitions and dispositions:Accounts receivable


21,704



8,579



(17,498
)Other receivables


(2,383
)


(471
)


(1,774
)Inventories


38,906



4,023



(9,502
)Accounts payable and accrued liabilities


4,707



38,800



(9,906
)Other, net


(3,064
)


(14,131
)


4,806Net cash provided by operating activities


240,977



189,073



63,424Investing activities:Purchases of short-term investments


(216,704
)


(113,734
)


(356,366
)Sales of short-term investments


104,488



155,114



412,217Purchases of property, plant and equipment


(18,663
)


(21,352
)


(15,072
)Cash proceeds from sale of property, plant, and equipment


210



250



3Cash paid for acquisition, net of cash acquired


(22,734
)


(10,500
)


(285,284
)Cash paid for hedge related to terminated acquisition










(26,469
)Cash proceeds from hedge related to terminated acquisition










38,750Cash received related to terminated acquisition, net of payments










10,554Net cash provided by (used in) investing activities


(153,403
)


9,778



(221,667
)    68




---



##### Table of Contents



ARRIS
    GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS  (Continued)
  Years Ended December 31,2009


2008


2007(in thousands)Financing activities:Proceeds from issuance of common stock

$
12,984


$
49


$
14,377Repurchase of common stock






(75,960
)


Payment of debt and capital lease obligations


(10,714
)


(35,864
)


(19
)Excess income tax benefits from stock-based compensation plans


3,007



56



9,157Repurchase of shares to satisfy employee tax withholdings


(2,180
)


(1,035
)


(3,093
)Net cash provided by (used in) financing activities


3,097



(112,754
)


20,422Net increase (decrease) in cash and cash equivalents


90,671



86,097



(137,821
)Cash and cash equivalents at beginning of year


409,894



323,797



461,618Cash and cash equivalents at end of year

$
500,565


$
409,894


$
323,797Supplemental investing activity information:Net tangible assets acquired, excluding cash

$
2,383


$
23,108


$
11,645Intangible assets acquired, including goodwill and adjustments


20,351



(12,608
)


582,847Prior investment in acquired company










(5,973
)Equity issued for acquisition, including fair value of assumed
    stock options










(303,235
)Cash paid for acquisition, net of cash acquired

$
22,734


$
10,500


$
285,284Landlord funded leasehold improvements

$
50


$



$
85Supplemental cash flow information:Interest paid during the year

$
5,483


$
5,800


$
6,182Income taxes paid during the year

$
30,878


$
19,834


$
22,687    69




---



##### Table of Contents



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





UnrealizedCapital in








(Loss) Gain on


Unfunded


Gain


CumulativeCommon


Excess of


Treasury


Accumulated


Marketable


Pension


(Loss) on


TranslationStock


Par Value


Stock


Deficit


Securities


Liability


Derivatives


Adjustments


Total(In thousands)Balance, January 1, 2007

$
1,089


$
814,599


$



$
(164,716
)

$
1,297


$
(4,462
)

$
(551
)

$
(184
)

$
647,072Comprehensive income:Net income














92,347



















92,347Unrealized loss on marketable securities


















(1,277
)














(1,277
)Unrealized gain on derivative instruments


























551







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






















1,104











1,104Comprehensive income


































92,725Compensation 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



1,146,597



(572
)


(72,434
)


20



(3,358
)






(184
)


1,071,425Comprehensive income (loss):Net loss














(129,639
)


















(129,639
)Unrealized loss on marketable securities


















(294
)














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






















(4,712
)










(4,712
)Comprehensive loss


































(134.645
)Service cost, interest cost, and expected return on plan assets
    for Oct 1  Dec 31, 2008














(310
)


















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














(120
)


















(120
)Compensation under stock award plans






11,277



























11,277Issuance of common stock and other


6



1,692



572























2,270Repurchase of common stock










(75,960
)






















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






(469
)


























(469
)Balance, December 31, 2008


1,362



1,159,097



(75,960
)


(202,503
)


(274
)


(8,070
)






(184
)


873,468Comprehensive income (loss):Net income














90,769



















90,769Unrealized gain on marketable securities


















302















302Change in unfunded pension liability, net of $1,169 of income
    tax impact






















2,029











2,029Comprehensive income


































93,100Compensation under stock award plans






15,921



























15,921Issuance of common stock and other


26



10,827



























10,853Impact of debt redemption, net of deferred taxes






(2,127
)


























(2,127
)Income tax benefit related to exercise of stock options






154



























154Balance, December 31, 2009

$
1,388


$
1,183,872


$
(75,960
)

$
(111,734
)

$
28


$
(6,041
)

$



$
(184
)

$
991,369    70




---



##### 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)
    Cash,
    Cash Equivalents, and Investments  available-for-sale,
  available-for-sale available-for-sale available-for-sale
   71




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (d)
    Inventories  first-in, work-in-process
  (e)
    Revenue
    recognition      
    When persuasive evidence of an arrangement
    exists.  Contracts and customer purchase orders
    are used to determine the existence of an arrangement.
    Delivery has occurred.  Shipping documents,
    proof of delivery and customer acceptance (when applicable) are
    used to verify delivery.
    The fee is fixed or determinable.  Pricing is
    considered fixed and determinable at the execution of a customer
    arrangement, based on specific products and quantities to be
    delivered at specific prices. This determination includes a
    review of the payment terms associated with the transaction and
    whether the sales price is subject to refund or adjustment or
    future discounts.
    Collectability is reasonably assured.  We
    assess the ability to collect from our customers based on a
    number of factors that include information supplied by credit
    agencies, analyzing customer accounts, reviewing payment history
    and consulting bank references. Should we have a circumstance
    arise where a customer is deemed not creditworthy, all revenue
    related to the transaction will be deferred until such time that
    payment is received and all other criteria to allow us to
    recognize revenue have been met.    
    When undelivered products or services that are essential to the
    functionality of the delivered product exist, revenue is
    deferred until such undelivered products or services are
    delivered as the customer would not have full use of the
    delivered elements.
    When required acceptance has not occurred.
    When trade-in rights are granted at the time of sale, that
    portion of the sale is deferred until the trade-in right is
    exercised or the right expires. In determining the deferral
    amount, management estimates the expected trade-in rate and
    future value of the product upon trade-in. These factors are
    periodically reviewed and updated by management, and the updates
    may result in either an increase or decrease in the deferral.  Equipment 
 72




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Software 
  Services  on-site on-site
  Incentives 
  Multiple Element Arrangements 
   73




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    percentage-of-completion
      (f)
    Shipping
    and Handling Fees    (g)
    Depreciation
    of Property, Plant and Equipment    (h)
    Goodwill
    and Long-Lived Assets   74




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        not-to-compete,
  Purchased technology

4 - 10 yearsCustomer relationships

2 - 8 yearsNon-compete agreements

2 yearsTrademarks

2 yearsOrder backlog

1/2 year      75




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (i)
    Advertising
    and Sales Promotion    (j)
    Research
    and Development    (k)
    Warranty    (l)
    Income
    Taxes    (m)
    Foreign
    Currency Translation     76




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    ARRIS ceased using hedge accounting in March
    2007.
  (n)
    Stock-Based
    Compensation    (o)
    Concentrations
    of Credit Risk      
    Cash, cash equivalents, and short-term
    investments:  The carrying amounts reported in the
    consolidated balance sheets for cash, cash equivalents, and
    short-term investments approximate their fair values.
    Accounts receivable and accounts payable:  The
    carrying amounts reported in the balance sheet for accounts
    receivable and accounts payable approximate their fair values.
    The Company establishes a reserve for doubtful accounts based
    upon its historical experience in collecting accounts receivable.
    Marketable securities:  The fair values for
    trading and
    available-for-sale
    equity securities are based on quoted market prices.
    Non-marketable securities:  Non-marketable
    equity securities are subject to a periodic impairment review;
    however, there are no open-market valuations, and the impairment
    analysis requires significant judgment. This analysis includes
    assessment of the investees financial condition, the
    business outlook for its products and technology, its projected
    results and cash flow, recent rounds of financing, and the
    likelihood of obtaining subsequent rounds of financing.
    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 $176.6 million at December 31,
    2009 and 2008, 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 77




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  formulas by using current assumptions. As of December 31,
    2009, the company had option collars outstanding with notional
    amounts totaling 6.0 million euros, which mature through
    2010. As of December 31, 2009, the Company had forward
    contracts outstanding with notional amounts totaling
    9.0 million euros, which mature through 2010. The fair
    value of option contracts as of December 31, 2009 and 2008
    resulted in losses (gains) of approximately $0.5 million
    and ($0.4) million.  (p)
    Computer
    Software  and/or
    (q) Comprehensive Income (Loss)
  available-for-sale
  Note 3.
    Impact of
    Recently Issued Accounting Standards     78




---



##### Table of Contents



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


As of December 31,2009


2008Current Assets:Trading securities

$
4,970


$
Available-for-sale
    securities


120,061



17,371125,031



17,371Noncurrent Assets:Trading securities






4,909Available-for-sale
    securities


16,618



5,772Cost method investments


4,000



4,000Total classified as non-current assets


20,618



14,681Total

$
145,649


$
32,052   available-for-sale. held-to-maturity available-for-sale available-for-sale
  other-than-temporary other-than-temporary
  available-for-sales
  Note 5.
    Fair
    Value Measurements    Level 1:
  Level 2:
 79




---



##### Table of Contents



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


Level 2


Level 3


TotalCurrent investments

$
60,001


$
60,060


$



$
120,061Noncurrent investments


336



16,282







16,618Auction rate securities










4,970



4,970Foreign currency contracts


178











178Total

$
60,515


$
76,342


$
4,970


$
141,827       Level 3Estimated fair value January 1, 2009

$
4,9092009 change in fair value


61Estimated fair value December 31, 2009

$
4,970      80




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 6.
    Derivative
    Instruments and Hedging Activities      Asset Derivatives


Liability DerivativesBalance Sheet Location


Fair Value


Balance Sheet Location


Fair ValueDerivatives Not Designated as Hedging Instruments:Foreign exchange contracts


Other current assets


$
178



Other accrued liabilities


$
727       Years Ended December 31,Statement of Operations Location

2009


2008


2007Derivatives Not Designated as Hedging Instruments:Foreign exchange contracts

Loss (gain) on foreign currency

$
3,016


$
(1,608
)

$
(10,946
)(1)   (1)
    
    Includes a gain of approximately $12.3 million related to
    foreign exchange contracts purchased to hedge against a
    potential acquisition, which later was terminated.  Note 7.
    Guarantees  Warranty
   81




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2009


2008January 1,

$
10,184


$
14,370Accruals related to warranties (including changes in estimates)


1,532



5,445Settlements made (in cash or in kind)


(4,037
)


(8,769
)C-COR warranty reserves acquired, including purchase price
    adjustments






(862
)Balance at December 31,

$
7,679


$
10,184   Note 8.
    Business
    Acquisitions  Acquisition
    of Digeo, Inc. and Vulcan Ventures, Inc.
  IP-based
  Acquisition
    of EG Technology, Inc.
    Acquisition
    of Auspice Corporation
    Acquisition
    of C-COR Incorporated
   82




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 9.
    Segment
    Information    Broadband Communications Systems
  Access, Transport & Supplies
  Media & Communications Systems
    Broadband


Access,


Media &Communications


Transport &


CommunicationsSystems


Supplies


Systems


TotalDecember 31, 2009Net sales

$
852,852


$
176,306


$
78,648


$
1,107,806Gross margin


379,248



40,055



43,460



462,763Amortization of intangible assets


415



22,550



14,396



37,361December 31, 2008Net sales

$
822,816


$
262,478


$
59,271


$
1,144,565Gross margin


285,136



76,387



31,606



393,129Amortization of intangible assets






24,772



19,423



44,195Impairment of goodwill






128,884



80,413



209,297December 31, 2007Net sales

$
859,164


$
130,644


$
2,386


$
992,194Gross margin


251,416



22,930



(464
)


273,882Amortization of intangible assets






1,086



1,192



2,278Impairment of intangible assets










58



58Write-off of in-process research and development






1,320



4,800



6,120  83




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Broadband


Access,


Media &Communications


Transport &


CommunicationsSystems


Supplies


Systems


TotalDecember 31, 2009Goodwill

$
156,335


$
37,074


$
41,979


$
235,388Intangible assets, net


14,170



115,833



74,569



204,572December 31, 2008Goodwill

$
150,569


$
38,366


$
42,749


$
231,684Intangible assets, net






138,384



88,964



227,348     Years ended December 31,2009


2008


2007Comcast and affiliates

$
353,658


$
300,934


$
366,894% of sales


31.9
%


26.3
%


37.0
%Time Warner Cable and affiliates

$
230,211


$
235,405


$
106,376% of sales


20.8
%


20.6
%


10.7
%     Years Ended December 31,2009


2008


2007Asia Pacific

$
56,091


$
50,435


$
41,997Europe


93,078



127,103



98,575Latin America


81,608



97,798



71,507Canada


62,672



57,406



56,050Total

$
293,449


$
332,742


$
268,129  84




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    As of December 31,2009


2008Asia Pacific

$
991


$
1,222Europe


1,630



1,884Latin America Latin America


249



169Canada


3



3Total

$
2,873


$
3,278   Note 10.  Restructuring Charges
    (In thousands)Balance as of December 31, 2008

$
5452009 payments


(672
)2009 adjustments to accrual


127Balance as of December 31, 2009

$
     (in thousands)Balance as of December 31, 2008

$
2112009 payments


(218
)2009 adjustments to accrual


7Balance as of December 31, 2009

$
   C-COR 2010-2014
  85




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (in thousands)Balance as of December 31, 2008

$
4942009 payments


(372
)2009 adjustments to accrual


1,768Balance as December 31, 2009

$
1,890     (in thousands)Second quarter 2009 charge

$
2122009 payments


(168
)2009 adjustments to accrual


9Balance as of December 31, 2009

$
53     (in thousands)Fourth quarter 2009 charge

$
1,3412009 payments


(523
)2009 adjustments to accrual


17Balance as of December 31, 2009

$
835   Note 11.
    Inventories  first-in,
  December 31,2009


2008Raw material

$
14,665


$
19,247Work in process


3,480



4,814Finished goods


77,706



105,691Total inventories

$
95,851


$
129,752  86




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 12.
    Property,
    Plant and Equipment    December 31,2009


2008Land

$
2,612


$
2,612Buildings and leasehold improvements


22,304



20,048Machinery and equipment


139,023



136,857163,939



159,517Less: Accumulated depreciation


(106,744
)


(100,313
)Total property, plant and equipment, net

$
57,195


$
59,204   Note 13.
    Goodwill
    and Intangible Assets  Goodwill
        2008
    Impairment Analysis 
   87




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2009
    Impairment Analysis 
      BCS


ATS


MCS


TotalBalance as of December 31, 2007

$
150,569


$
179,827


$
124,956


$
455,352Purchase accounting adjustments  C-COR acquisition






(12,577
)


(5,123
)


(17,700
)Acquisition of Auspice Corporation










3,329



3,329Impairment






(128,884
)


(80,413
)


(209,297
)Balance as of December 31, 2008


150,569



38,366



42,749



231,684Acquisition of EG Technology, Inc.


3,745











3,745Acquisition of Digeo, Inc.


2,021











2,021Adjustment to deferred tax assets  C-COR acquisition






(1,292
)


(770
)


(2,062
)Balance as of December 31, 2009

$
156,335


$
37,074


$
41,979


$
235,388   Intangibles
       88




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      December 31, 2009


December 31, 2008Weighted











WeightedAverage











AverageRemaining











RemainingGross


Accumulated


Net Book


Life


Gross


Accumulated


Net Book


LifeAmount


Amortization


Value


(Years)


Amount


Amortization


Value


(Years)Customer relationships

$
328,359


$
163,129


$
165,230



5.9


$
327,459


$
135,253


$
192,206



6.9Developed technology


53,568



14,470



39,098



5.8



40,141



7,496



32,645



4.9Trademarks & patents


317



73



244



1.7



60



12



48



1.6Order backlog


7,940



7,940











7,940



7,940







Non-compete agreements


5,110



5,110











5,110



2,661



2,449



0.9Total

$
395,294


$
190,722


$
204,572






$
380,710


$
153,362


$
227,348     2010

$
35,9572011


35,7552012


35,5862013


35,3242014


28,923   Note 14.
    Long-Term
    Obligations    December 31,


December 31,2009


20082.00% convertible senior notes (net of discount of $49,802 in
    2009 and $64,267 in 2008)

$
211,248


$
211,7332.00% Pennsylvania Industrial Development Authority debt, net of
    current portion






137Total long-term debt


211,248



211.870Other long-term liabilities:Deferred compensation


5,673



4,896Accrued warranty


3,413



4,532Deferred revenue


2,969



2,671Landlord funded leasehold improvements


900



1,308Other long-term liabilities


3,066



1,936Total other long-term liabilities


16,021



15,343Total long-term obligations

$
227,269


$
227,213  89




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       90




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    For the year Ended


For the year EndedDecember 31, 2007


December 31, 2008As








AsOriginally


As


Increase


Originally


As


IncreaseReported


Adjusted


(Decrease)


Reported


Adjusted


(Decrease)Statement of Operations:Interest expense

$
6,614


$
16,188


$
9,574


$
6,740


$
17,123


$
10,383Income (loss) from continuing operations before income taxes


139,087



129,513



(9,574
)


(116,881
)


(127,264
)


(10,383
)Income tax expense


40,951



37,370



(3,581
)


6,258



2,375



(3,883
)Net income (loss)


98,340



92,347



(5,993
)


(123,139
)


(129,639
)


(6,500
)Basic net income (loss) per share:Income (loss) from continuing operations before income taxes

$
1.25


$
1.17


$
(0.08
)

$
(0.94
)

$
(1.02
)

$
(0.08
)Basic net income (loss) per share

$
0.89


$
0.83


$
(0.06
)

$
(0.99
)

$
(1.04
)

$
(0.05
)Diluted net income per (loss) share:Income (loss) from continuing operations before income taxes

$
1.23


$
1.15


$
(0.08
)

$
(0.94
)

$
(1.02
)

$
(0.08
)Diluted net income (loss) per share

$
0.87


$
0.82


$
(0.05
)

$
(0.99
)

$
(1.04
)

$
(0.05
)   As of December 31, 2008As Originally


As


IncreaseReported


Adjusted


(Decrease)Balance Sheet:Noncurrent deferred income tax assets

$
11,514


$
12,157


$
643Other assets


8,294



6,575



(1,719
)Long-term debt, net of current portion


276,137



211,870



(64,267
)Noncurrent deferred income tax liabilities


17,565



41,598



24,033Capital in excess of par value


1,105,998



1,159,097



53,099Accumulated deficit


(188,562
)


(202,503
)


(13,941
)      91




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 15.
    Earnings
    Per Share    For the Years Ended December 31,2009


2008


2007Basic:Income (loss) from continuing operations

$
90,769


$
(129,639
)

$
92,143Income from discontinued operations










204Net income (loss)

$
90,769


$
(129,639
)

$
92,347Weighted average shares outstanding


124,716



124,878



110,843Basic earnings (loss) per share

$
0.73


$
(1.04
)

$
0.83Diluted:Income (loss) from continuing operations

$
90,769


$
(129,639
)

$
92,143Income from discontinued operations










204Net income (loss)

$
90,769


$
(129,639
)

$
92,347Weighted average shares outstanding


124,716



124,878



110,843Net effect of dilutive shares


3,369







2,184Total


128,085



124,878



113,027Diluted earnings (loss) per share

$
0.71


$
(1.04
)

$
0.82      92




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 16.
    Income
    Taxes    Years Ended December 31,2009


2008


2007Current  Federal

$
26,586


$
13,492


$
31,044State


3,867



5,903



5,269Foreign


344



(258
)


23330,797



19,137



36,546Deferred  Federal


11,856



(12,007
)


4,744State


4,450



(798
)


463Foreign


(3,254
)


(74
)


(802
)13,052



(12,879
)


4,405$
43,849


$
6,258


$
40,951     Years Ended December 31,2009


2008


2007Statutory federal income tax expense (benefit)


35.0
%


(35.0
)%


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


5.2
%


4.4
%


2.8
%Differences between U.S. and foreign income tax rates


0.5
%


(1.0
)%


(0.7
)%Impairment of goodwill






43.3
%


Domestic manufacturing deduction


(2.0
)%


(1.7
)%


Decrease in valuation allowance


(3.6
)%


(0.1
)%


(3.8
)%Federal tax exempt interest


(0.1
)%


(0.3
)%


(2.1
)%Acquired in-process research and development










1.6
%Research and development tax credits


(3.5
)%


(4.0
)%


(4.3
)%Other, net


1.1
%


(0.2
)%


1.0
%32.6
%


5.4
%


29.5
%  93




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2009


2008Current deferred income tax assets:Inventory costs

$
11,124


$
10,504Federal research and development credits


679



3,000Federal/state net operating loss carryforwards


7,457



11,703Foreign net operating loss carryforwards


100



69Warranty reserve


804



2,840Deferred revenue


12,945



11,844Other, principally operating expenses


6,926



5,995Total current deferred income tax assets


40,035



45,955Noncurrent deferred income tax assets:Federal/state net operating loss carryforwards


8,870



15,464Federal capital loss carryforwards


124



163Foreign net operating loss carryforwards


10,015



13,242Federal alternative minimum tax (AMT) credit


2,224



2,224Federal research and development credits


7,719



16,649Pension and deferred compensation


7,272



8,372Equity compensation


8,943



6,728Warranty reserve


852



Other, principally operating expenses


5,314



2,932Total noncurrent deferred income tax assets


51,333



65,774Total deferred income tax assets


91,368



111,729Current deferred income tax liabilities:Other, principally operating expenses


(954
)


(1,059
)Total current deferred income tax liabilities


(954
)


(1,059
)Non-current deferred income tax liabilities:Property, plant and equipment, depreciation and basis differences


(1,623
)


(833
)Other noncurrent liabilities


(1,730
)


(512
)Convertible debt


(18,704
)


(24,036
)Goodwill and Intangibles


(45,828
)


(56,103
)Total noncurrent deferred income tax liabilities


(67,885
)


(81,484
)Total deferred income tax liabilities


(68,839
)


(82,543
)Net deferred income tax assets


22,529



29,186Valuation allowance


(16,979
)


(15,718
)Net deferred income tax assets

$
5,550


$
13,468    94




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      C-COR
     95




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Tabular
    Reconciliation of Unrecognized Tax Benefits (in
    thousands):
  December 31,2009


2008Beginning balance

$
16,620


$
9,873Gross increases  tax positions in prior period


24



8Gross decreases  tax positions in prior period


(2,235
)


Gross increases  current-period tax positions


2,867



5,206Increases from acquired businesses






1,888Decreases relating to settlements with taxing authorities






(355
)Ending balance

$
17,276


$
16,620   non-U.S. income
    Note 17.
    Commitments    Operating Leases2010

$
8,1542011


5,8602012


3,6582013


2,4452014


1,096Thereafter


1,955Less sublease income


(167
)Total minimum lease payments

$
23,001    96




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 18.
    Stock-Based
    Compensation             97




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Stock
    Options
   98




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    WeightedAverage


AggregateWeighted


Remaining


IntrinsicAverage


Contractual Term


ValueOptions


Exercise Price


(in years)


(in thousands)Beginning balance, January 1, 2009


10,245,338


$
10.21Grants


10,000



5.95Exercised


(1,704,211
)


6.47Forfeited


(17,757
)


13.07Expired


(618,861
)


22.67Ending balance, December 31, 2009


7,914,509



10.03



2.84


$
27,705Exercisable at December 31, 2009


7,086,744



9.68



3.14


$
19,151     Restricted
    Stock (Non-Performance) and Stock Units
      Weighted AverageGrant DateShares


Fair ValueUnvested at January 1, 2009


2,550,491


$
6.66Granted


2,854,247



7.66Vested


(731,507
)


7.32Forfeited


(85,419
)


7.02Unvested at December 31, 2009


4,587,812



7.17   Restricted
    Shares  Subject to Performance Targets
   99




---



##### Table of Contents



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


Fair ValueUnvested at January 1, 2009


438,204


$
9.63Granted






Vested


(143,985
)


10.48Forfeited






Unvested at December 31, 2009


294,219



9.21   Restricted
    Shares  Subject to Comparative Market
    Performance
      Weighted AverageGrant DateShares


Fair ValueUnvested at January 1, 2009





$
Granted(1)


190,429


$
7.69Vested





$
Forfeited





$
Unvested at December 31, 2009


190,429


$
7.69   (1)
    
    The final payout of these restricted shares will not be
    determined until December 31, 2011. Based on our current
    expectation, we are estimating a payout of 135% of the target
    award.    Employee
    Stock Purchase Plan (ESPP)
   100




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Unrecognized
    Compensation Cost
    Treasury
    Stock
    Note 19.
    Employee
    Benefit Plans        Weighted Average AllocationTarget


Actual2009


2009


2008Equity securities


60
%


56
%


49
%Debt securities


30
%


39
%


42
%Cash and cash equivalents


10
%


5
%


9
%100
%


100
%


100
%  101




---



##### Table of Contents



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


Level 2


Level 3


TotalCash and cash equivalents(1)

$
923


$



$



$
923Equity securities:(2)U.S. large cap






5,249







5,249U.S. mid cap






2,745







2,745U.S. small cap






2,160







2,160International






1,423







1,423Fixed income securities:U.S. government bonds(3)






8,172







8,172Total

$
923


$
19,749


$



$
20,672   (1)
    
    Cash and cash equivalents, which are used to pay benefits and
    administrative expenses, are held in a money market fund.(2)
    
    Equity securities consist of common and preferred stock, mutual
    funds, and common trust funds. Investments in common and
    preferred stocks are valued using quoted market prices
    multiplied by the number of shares owned. Investments in mutual
    funds and common trust funds are valued at the net asset value
    per share multiplied by the number of shares held.(3)
    
    Fixed income securities consist of U.S. government securities in
    mutual funds, and are valued at the net asset value per share
    multiplied by the number of shares held.   102




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2009


2008(in thousands)Change in Projected Benefit Obligation:Projected benefit obligation at beginning of year

$
34,337


$
29,687Service cost


981



1,027Interest cost


2,119



2,316Actuarial loss


570



2,199Benefit payments


(752
)


(892
)Projected benefit obligation at end of year

$
37,255


$
34,337Change in Plan Assets:Fair value of plan assets at beginning of year

$
15,351


$
19,188Actual return on plan assets


3,955



(4,096
)Company contributions


2,118



1,151Expenses and benefits paid from plan assets


(752
)


(892
)Fair value of plan assets at end of year(1)

$
20,672


$
15,351Funded Status:Funded status of plan

$
(16,583
)

$
(18,986
)Unrecognized actuarial loss


6,725



9,461Unamortized prior service cost


261



722Net amount recognized

$
(9,597
)

$
(8,803
)   (1)
    
    In addition to the pension plan assets, ARRIS has established
    two rabbi trusts to further fund the pension obligations of the
    Chief Executive Officer and certain other executives. The
    balance of these assets as of December 31, 2009 was
    approximately $9.7 million and are included in Investments
    on the Consolidated Balance Sheets.    Years Ended December 31,2009


2008(in thousands)Current liabilities

$
(175
)

$
(166
)Noncurrent liabilities


(16,407
)


(18,820
)Accumulated other comprehensive income(1)


6,985



10,183Total

$
(9,597
)

$
(8,803
)   (1)
    
    The total unfunded pension liability on the Consolidated Balance
    Sheets as of December 31, 2009 and 2008 included a related
    income tax effect of $(0.9) million and
    $(2.1) million, respectively. 103




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Years Ended December 31,2009


2008(in thousands)Net (gain) loss

$
(2,259
)

$
8,088Amortization of net loss


(477
)


Amortization of prior service cost


(462
)


(598
)Total recognized in other comprehensive income (loss)

$
(3,198
)

$
7,490     Amortization of net loss

$
280Amortization of prior service cost


260     December 31,2009


2008(in thousands)Accumulated benefit obligation

$
36,489


$
33,125Projected benefit obligation

$
37,255


$
34,337Plan assets

$
20,672


$
15,351     2009


2008


2007Service cost

$
981


$
1,027


$
558Interest cost


2,119



2,316



1,648Return on assets (expected)


(1,126
)


(1,792
)


(1,277
)Amortization of net actuarial loss


477







102Amortization of prior service cost(1)


462



597



477Net periodic pension cost(2)

$
2,913


$
2,148


$
1,508   (1)
    
    Prior service cost is amortized on a straight-line basis over
    the average remaining service period of employees expected to
    receive benefits under the plan.(2)
    
    For 2008, this represents 15 months of expense as a result
    of changing the measurement date from September 30 to
    December 31. Of the total net periodic pension cost of
    $2,148 thousand, approximately $1,718 thousand was included in
    pension expense in the Consolidated Statements of Operations and
    $430 thousand was reflected as an adjustment to retained
    earnings in the Consolidated Balance Sheet.    2009


2008


2007Assumed discount rate for non-qualified plan participants


5.75
%


6.25
%


6.25
%Assumed discount rate for qualified plan participants


5.75
%


6.25
%


6.25
%Rate of compensation increase


3.75
%


3.75
%


3.75
%  104




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2009


2008


2007Assumed discount rate for non-qualified plan participants


6.25
%


6.25
%


5.75
%Assumed discount rate for qualified plan participants


6.25
%


6.25
%


5.75
%Rate of compensation increase


3.75
%


3.75
%


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


7.50
%


7.50
%


8.00
%         2010

$
9772011


9722012


1,0962013


13,5552014


1,3992015  2019


7,896   Other
    Benefit Plans
         105




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 20.
    Summary
    Quarterly Consolidated Financial Information
    (unaudited)    Quarters in 2009 EndedMarch 31,


June 30,


September 30,


December 31,Net sales

$
253,518


$
278,521


$
275,772


$
299,995Gross margin(1)


95,510



117,280



115,473



134,500Operating income(2)


22,389



38,154



38,899



49,305Income from continuing operations


12,882



22,909



21,699



33,279Net income(3)(4)

$
12,882


$
22,909


$
21,699


$
33,279Net income per basic share:Income from continuing operations

$
0.10


$
0.18


$
0.17


$
0.26Net income

$
0.10


$
0.18


$
0.17


$
0.26Net income per diluted share:Income from continuing operations

$
0.10


$
0.18


$
0.17


$
0.26Net income

$
0.10


$
0.18


$
0.17


$
0.26   Quarters in 2008 EndedMarch 31,


June 30,


September 30,


December 31,Net sales

$
273,506


$
281,110


$
297,551


$
292,398Gross margin(1)


85,248



92,884



106,134



108,863Operating income (loss)(2)


6,485



15,547



36,301



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


3,829



7,829



22,434



(163,731
)Net income (loss)(3)(4)

$
3,829


$
7,829


$
22,434


$
(163,731
)Net income (loss) per basic share:Income (loss) from continuing operations

$
0.03


$
0.06


$
0.18


$
(1.33
)Net income (loss)

$
0.03


$
0.06


$
0.18


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

$
0.03


$
0.06


$
0.18


$
(1.33
)Net income (loss)

$
0.03


$
0.06


$
0.18


$
(1.33
)   (1)
    
    During each quarter in 2009 and 2008, the Company recognized
    stock compensation expense of approximately $0.3 million
    and $0.2 million respectively in cost of goods sold which
    impacted gross margins.(2)
    
    In addition to (1) above, the following items impacted
    operating income (loss):  
    During the first, second, third and fourth quarters of 2009, the
    Company recognized stock compensation expense (included in
    operating expenses) of approximately $3.1 million,
    $3.7 million, $3.9 million and $3.8 million,
    respectively. During the first, second, third and fourth
    quarters of 2008, the Company recognized stock compensation
    expense (included in operating expenses) of approximately
    $2.4 million, $2.6 million, $2.6 million and
    $2.7 million, respectively.
    During the first, second, third and fourth quarters of 2009, the
    Company recorded restructuring reserve adjustments of
    $0.1 million, $0.6 million, $0.1 million, and
    $2.9 million, respectively. During the first, second, third
    and fourth quarters of 2008, the Company recorded restructuring
    reserve adjustments of $0.4 million, $0.2 million,
    $0.2 million, and $0.4 million, respectively. The
    adjustments predominantly related to changes in estimates
    related to real estate leases. 106




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    During the first quarter of 2008, the Company recorded expenses
    of approximately $0.4 million related to the integration of
    C-COR into ARRIS following the December 2007 acquisition.
    During the first, second, third and fourth quarters of 2009, the
    Company recognized amortization of intangible assets of
    approximately $9.3 million, $9.3 million,
    $9.3 million and $9.5 million, respectively. During
    the first, second, third and fourth quarters of 2008, the
    Company recognized amortization of intangible assets of
    approximately $13.3 million, $12.5 million,
    $9.1 million and $9.3 million, respectively.
    During the fourth quarter 2008, ARRIS recorded goodwill
    impairment charges of $209.3 million with respect to the
    goodwill testing.  (3)
    
    During each quarter in 2009 and 2008, the Company recognized non
    cash interest expense of approximately $2.8 million and
    $2.7 million respectively in other income / expense.During the first quarter of 2009, the Company recorded a gain of
    $4.2 million related to the repurchase of a portion of the
    convertible debt.(4)
    
    During the first and third quarter of 2009, the Company recorded
    an income tax expense of $1.3 million for state valuation
    allowances, research & development tax credits and
    provision to return differences resulting from filing of the
    2008 tax return.During the fourth quarter of 2009, the Company recorded a tax
    benefit of $4.6 million for changes to foreign valuation
    allowances relating to historic net operating losses in the
    various jurisdictions.During the third quarter of 2008, the Company recorded an income
    tax benefit of $1.5 million related to certain provision to
    return adjustments.During the fourth quarter of 2008, ARRIS recorded an income tax
    adjustment of approximately $24.7 million related to the
    deferred tax impacts associated with the goodwill impairment.  Note 21.
    Subsequent
    Events   107




---



##### Table of Contents



PART III Item 10.
    Directors,
    Executive Officers, and Corporate Governance        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   108




---



##### 



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


63Consolidated Balance Sheets at December 31,
    2009 and 2008


64Consolidated Statements of Operations for the
    years ended December 31, 2009, 2008 and 2007


65Consolidated Statements of Cash Flows for the
    years ended December 31, 2009, 2008 and 2007


66Consolidated Statements of Stockholders
    Equity for the years ended December 31, 2009, 2008 and
    2007


68Notes to the Consolidated Financial Statements


70   109




---



##### Table of Contents



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








Balance atBeginning


Charge to





End ofDescription

of Period


Expenses(1)


Deductions(2)


Period(In thousands)YEAR ENDED DECEMBER 31, 2009Reserves and allowance deducted fromasset accounts:Allowance for doubtful accounts

$
3,988


$
(1,836
)

$
(16
)

$
2,168Reserve for obsolete and excess inventory(3)

$
18,811


$
11,413


$
8,073


$
22,151Income tax valuation allowance(4)

$
15,718


$
7,178


$
5,917


$
16,979YEAR ENDED DECEMBER 31, 2008Reserves and allowance deducted fromasset accounts:Allowance for doubtful accounts

$
2,826


$
1,151


$
(11
)

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

$
12,848


$
12,815


$
6,852


$
18,811Income tax valuation allowance(4)

$
23,494


$



$
7,776


$
15,718YEAR ENDED DECEMBER 31, 2007Reserves and allowance deducted fromasset 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


$
23,494   (1)
    
    In the year ended December 31, 2009, the charge to expense
    for the allowance for doubtful accounts primarily represents an
    adjustment for a change in estimate related to uncollectible
    accounts. In the year ended December 31, 2007, the charge
    to expense for income tax valuation allowances primarily
    represents an adjustment to goodwill for the acquired 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. 110




---



##### Table of Contents



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



Broadband Parent, Inc.) filingsNumber

Description of Exhibit

unless otherwise noted3
.1

Amended and Restated Certificate of Incorporation

Registration Statement #333-61524, Exhibit 3.13
.2

Certificate of Amendment to Amended and Restated Certificate of
    Incorporation

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

By-laws

April 15, 2009
    Form 8-K,
    Exhibit 3.14
.1

Form of Certificate for Common Stock

Registration Statement #333-61524, Exhibit 4.14
.2

Rights Agreement dated October 3, 2002

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

Indenture dated November 13, 2006

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

December 12, 2006
    Form 8-K,
    Exhibit 10.410
.3(b)*

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

November 28, 2008
    Form 8-K,
    Exhibit 10.6 111




---



##### Table of Contents



The filings referenced forincorporation by reference areARRIS (formerly known asExhibit



Broadband Parent, Inc.) filingsNumber

Description of Exhibit

unless otherwise noted10
.4(a)*

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

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

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

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

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

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

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

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

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

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

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

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

Employment Agreement with Bruce McClelland, dated
    November 26, 2008

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

Employment Agreement with John Caezza, dated November 26,
    2008

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

Management Incentive Plan

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

2001 Stock Incentive Plan

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

2004 Stock Incentive Plan

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

2007 Stock Incentive Plan

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

2008 Stock Incentive Plan

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

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

March 31, 2005
    Form 10-Q,
    Exhibit 10.2010
.15*

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

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

Form of Incentive Stock Option Agreement

September 30, 2007,
    Form 10-Q
    Exhibit 10.1 112




---



##### Table of Contents



The filings referenced forincorporation by reference areARRIS (formerly known asExhibit



Broadband Parent, Inc.) filingsNumber

Description of Exhibit

unless otherwise noted10
.17*

Form of Nonqualified Stock Option Agreement

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

Form of Restricted Stock Award Agreement

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

Form of Nonqualified Stock Options Agreement

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

Form of Restricted Stock Grant

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

Form of Restricted Stock Unit Grant

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

Solectron Manufacturing Agreement and Addendum

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

Mitsumi Agreement

December 31, 2001
    Form 10-K,
    Exhibit 10.1610
.24*

Form of Restricted Stock Agreement

March 31, 2009,
    Form 10-Q,
    Exhibit 10.2410
.25*

Form of Restricted Stock Unit

March 31, 2009,
    Form 10-Q,
    Exhibit 10.2421


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.  113




---



##### 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 26, 2010/s/  DAVID
    B. POTTSDavid
    B. Potts

Executive Vice President,
    Chief Financial Officer and
    Chief Accounting Officer

February 26, 2010/s/  ALEX
    B. BEST*Alex
    B. Best

Director

February 26, 2010/s/  HARRY
    L. BOSCO*Harry
    L. Bosco

Director

February 26, 2010/s/  JOHN
    A. CRAIG*John
    A. Craig

Director

February 26, 2010/s/  MATTHEW
    B. KEARNEY*Matthew
    B. Kearney

Director

February 26, 2010/s/  WILLIAM
    H. LAMBERT*William
    H. Lambert

Director

February 26, 2010/s/  JOHN
    R. PETTY*John
    R. Petty

Director

February 26, 2010/s/  DAVID
    A. WOODLE*David
    A. Woodle

Director

February 26, 2010/s/  JAMES
    A. CHIDDIX*James
    A. Chiddix

Director

February 26, 2010*By:

/s/  LAWRENCE
    A. MARGOLISLawrence
    A. Margolis(as attorney in fact
    for each person indicated)  114