##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 For the quarter ended March 31, 2008
 of
 ARRIS GROUP, INC.
 
 3871 Lakefield Drive
Suwanee, GA 30024
(678) 473-2000




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##### 



ARRIS GROUP, INC.
FORM 10-Q
For the Three Months Ended March 31, 2008
 INDEX
 PagePart I. Financial InformationItem 1. Financial Statementsa) Consolidated Balance Sheets
as of March 31, 2008 and December 31, 2007
    
    
    2b) Consolidated Statements of Operations for the
Three Months Ended March 31, 2008 and 2007
    
    
    3c) Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2008 and 2007
    
    
    4d) Notes to the Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures on Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    31Part II. Other InformationItem 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    34Item 2C. Stock Repurchase
    
    
    41Item 6. Exhibits
    
    
    41Signatures
    
    
    42EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 ARRIS GROUP, INC.
 
 CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 March 31,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    243,515
    
    
    $
    323,797Short-term investments, at fair value
    
    
    49,513
    
    
    
    68,011Total cash, cash equivalents and short-term investments
    
    
    293,028
    
    
    
    391,808Restricted cash
    
    
    7,186
    
    
    
    6,977Accounts receivable (net of allowances for doubtful
accounts of $3,124 in 2008 and $2,826 in 2007)
    
    
    159,881
    
    
    
    166,953Other receivables
    
    
    6,074
    
    
    
    4,330Inventories
    
    
    125,105
    
    
    
    131,792Prepaids
    
    
    5,680
    
    
    
    5,856Current deferred income tax assets
    
    
    47,051
    
    
    
    44,939Other current assets
    
    
    8,209
    
    
    
    4,841Total current assets
    
    
    652,214
    
    
    
    757,496Property, plant and equipment (net of accumulated
depreciation of $88,615 in 2008 and $83,644 in 2007)
    
    
    60,747
    
    
    
    59,156Goodwill
    
    
    453,454
    
    
    
    455,352Intangible
assets (net of accumulated amortization of $122,421 in
2008 and $109,167 in 2007)
    
    
    257,029
    
    
    
    269,893Investments, at fair value
    
    
    10,200
    
    
    
    6,412Noncurrent deferred income tax assets
    
    
    3,688
    
    
    
    3,459Other assets
    
    
    12,624
    
    
    
    10,181$
    1,449,956
    
    
    $
    1,561,949LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    60,490
    
    
    $
    58,852Accrued compensation, benefits and related taxes
    
    
    14,397
    
    
    
    26,177Accrued warranty
    
    
    13,365
    
    
    
    14,370Deferred revenue
    
    
    19,901
    
    
    
    8,474Current portion of long-term debt
    
    
    310
    
    
    
    35,305Other accrued liabilities
    
    
    27,980
    
    
    
    42,121Total current liabilities
    
    
    136,443
    
    
    
    185,299Long-term debt, net of current portion
    
    
    276,686
    
    
    
    276,765Accrued pension
    
    
    10,905
    
    
    
    10,455Noncurrent income taxes payable
    
    
    6,487
    
    
    
    6,322Noncurrent deferred income tax liabilities
    
    
    47,090
    
    
    
    45,255Other long-term liabilities
    
    
    14,258
    
    
    
    12,086Total liabilities
    
    
    491,869
    
    
    
    536,182Stockholders equity:Preferred stock, par value $1.00 per share, 5.0 million
shares authorized; none issued and outstanding
    
    
    
    
    
    
    Common stock, par value $0.01 per share, 320.0 million
shares authorized; 122.4 million and 132.4 million
shares issued and outstanding in 2008 and 2007,
respectively
    
    
    1,357
    
    
    
    1,356Capital in excess of par value
    
    
    1,095,716
    
    
    
    1,093,498Treasury stock at cost, 13 million shares in 2008 and
51 thousand shares in 2007
    
    
    (76,007
    )
    
    
    (572
    )Accumulated deficit
    
    
    (59,588
    )
    
    
    (64,993
    )Unrealized gain on marketable securities
    
    
    151
    
    
    
    20Unfunded pension losses
    
    
    (3,358
    )
    
    
    (3,358
    )Cumulative translation adjustments
    
    
    (184
    )
    
    
    (184
    )Total stockholders equity
    
    
    958,087
    
    
    
    1,025,767$
    1,449,956
    
    
    $
    1,561,949
  2




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ARRIS GROUP, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited (in thousands, except per share data and percentages)
 Three Months EndedMarch 31,2008
    
    
    2007Net sales
    
    $
    273,506
    
    
    $
    235,253Cost of sales
    
    
    188,258
    
    
    
    166,506Gross margin
    
    
    85,248
    
    
    
    68,747Gross margin %
    
    
    31.2
    %
    
    
    29.2
    %Operating expenses:Selling, general, and administrative expenses
    
    
    36,982
    
    
    
    24,175Research and development expenses
    
    
    28,122
    
    
    
    18,096Restructuring and impairment charges
    
    
    405
    
    
    
    421Amortization
of intangible assets
    
    
    13,254
    
    
    
    58Total operating expenses
    
    
    78,763
    
    
    
    42,750Operating income
    
    
    6,485
    
    
    
    25,997Other expense (income):Interest expense
    
    
    1,504
    
    
    
    1,668Loss on investments
    
    
    2
    
    
    
    19Loss (gain) on foreign currency
    
    
    (990
    )
    
    
    322Interest income
    
    
    (2,685
    )
    
    
    (6,483
    )Gain related to terminated acquisition, net of expenses
    
    
    
    
    
    
    (22,835
    )Other expense (income), net
    
    
    (36
    )
    
    
    65Income from continuing operations before income taxes
    
    
    8,690
    
    
    
    53,241Income tax expense
    
    
    3,285
    
    
    
    15,597Net income
    
    $
    5,405
    
    
    $
    37,644Net income per common share:Basic
    
    $
    0.04
    
    
    $
    0.35Diluted
    
    $
    0.04
    
    
    $
    0.34Weighted average common shares:Basic
    
    
    130,763
    
    
    
    108,467Diluted
    
    
    131,981
    
    
    
    110,988
  3




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ARRIS GROUP, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited (in thousands)
 Three Months EndedMarch 31,2008
    
    
    2007Operating activities:Net income
    
    $
    5,405
    
    
    $
    37,644Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Depreciation
    
    
    4,963
    
    
    
    2,497Amortization of intangibles
    
    
    13,254
    
    
    
    58Stock compensation expense
    
    
    2,551
    
    
    
    2,656Deferred income tax provision (benefit)
    
    
    (506
    )
    
    
    4,702Amortization of deferred finance fees
    
    
    279
    
    
    
    279Provision for doubtful accounts
    
    
    205
    
    
    
    371Gain related to previously written off receivables
    
    
    
    
    
    
    (377
    )Loss on investments
    
    
    2
    
    
    
    19Gain related to terminated acquisition, net of expenses
    
    
    
    
    
    
    (22,835
    )Changes in operating assets and liabilities, net of effect
of acquisitions and dispositions:Accounts receivable
    
    
    7,502
    
    
    
    (10,823
    )Other receivables
    
    
    (1,744
    )
    
    
    (7,332
    )Inventory
    
    
    7,501
    
    
    
    16,040Income taxes payable
    
    
    81
    
    
    
    1,293Accounts payable and accrued liabilities
    
    
    (10,294
    )
    
    
    (24,842
    )Excess tax benefits from stock-based compensation plans
    
    
    
    
    
    
    (4,855
    )Prepaids and other, net
    
    
    1,316
    
    
    
    1,470Net cash provided by (used in) operating activities
    
    
    30,515
    
    
    
    (4,035
    )Investing activities:Purchases of property, plant and equipment
    
    
    (6,429
    )
    
    
    (2,287
    )Cash paid for acquisition, net of cash acquired
    
    
    (4,192
    )
    
    
    Cash proceeds from sale of property, plant & equipment
    
    
    224
    
    
    
    Cash received related to terminated acquisition, net of
expenses paid
    
    
    
    
    
    
    10,881Cash paid for hedge related to terminated acquisition
    
    
    
    
    
    
    (26,469
    )Cash proceeds from hedge related to terminated acquisition
    
    
    
    
    
    
    38,750Purchases of short-term investments
    
    
    (16,887
    )
    
    
    (128,135
    )Disposals of short-term investments
    
    
    30,500
    
    
    
    81,100Net cash provided by (used in) investing activities
    
    
    3,216
    
    
    
    (26,160
    )Financing activities:Payment of debt and capital lease obligations
    
    
    (35,097
    )
    
    
    Repurchase of common stock
    
    
    (75,960
    )
    
    
    Excess tax benefits from stock-based compensation plans
    
    
    
    
    
    
    4,855Employer repurchase of shares to satisfy minimum tax
withholdings
    
    
    (239
    )
    
    
    Fees and proceeds from issuance of common stock, net
    
    
    (2,717
    )
    
    
    5,039Net cash provided by (used in) financing activities
    
    
    (114,013
    )
    
    
    9,894Net decrease in cash and cash equivalents
    
    
    (80,282
    )
    
    
    (20,301
    )Cash and cash equivalents at beginning of period
    
    
    323,797
    
    
    
    461,618Cash and cash equivalents at end of period
    
    $
    243,515
    
    
    $
    441,317
 4




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##### Table of Contents



Noncash investing and financing activities:Three Months EndedMarch 31,2008
    
    
    2007Net tangible assets acquired, excluding cash
    
    
    5,700
    
    
    
    Intangible assets acquired, including goodwill
    
    
    (1,508
    )
    
    
    Prior investment in acquired company
    
    
    
    
    
    
    Equity issued for acquisition, including fair value of assumed stock options
    
    
    
    
    
    
    Cash paid for acquisition, net of cash acquired
    
    
    4,192
    
    
    
    
  5




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ARRIS GROUP, INC.
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited
 Note 1. Organization and Basis of Presentation
   Note 2. Impact of Recently Issued Accounting Standards
 Disclosures about Derivative Instruments and Hedging
Activitiesan amendment of FASB Statement No. 133.
 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans.
 Fair Value Measurements
 6




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Proposed Accounting Standards
 Convertible Bonds with Issuer Option to Settle for Cash upon Conversion. Accounting Changes and Error Corrections
 Note 3. Investments
  Fair ValueAs of March 31,
    
    
    As of December 31,2008
    
    
    2007(unaudited)Commercial paper
    
    $
    3,982
    
    
    $
    11,833Auction rate securities
    
    
    22,145
    
    
    
    30,270Certificates of deposit
    
    
    7,310
    
    
    
    9,807
 7




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Fair ValueAs of March 31,
    
    
    As of December 31,2008
    
    
    2007(unaudited)U.S. Government agency bonds
    
    
    9,588
    
    
    
    9,574International Government agency bonds
    
    
    12
    
    
    
    Corporate obligations
    
    
    3,479
    
    
    
    3,447Asset-backed securities
    
    
    2,995
    
    
    
    2,974Equity securities
    
    
    2
    
    
    
    106Total classified as current assets
    
    $
    49,513
    
    
    $
    68,011Cash surrender value of company owned life insurance
    
    $
    2,977
    
    
    $
    3,075Auction rate securities
    
    
    5,000
    
    
    
    Mutual funds
    
    
    2,185
    
    
    
    3,230Money market funds
    
    
    2
    
    
    
    70Corporate obligations
    
    
    36
    
    
    
    37Total classified as non-current assets
    
    $
    10,200
    
    
    $
    6,412Total
    
    $
    59,713
    
    
    $
    74,423
   Fair Value Measurement
  March 31, 2008(unaudited)Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalCommercial paper
    
    $
    3,982
    
    
    $
    
    
    
    $
    
    
    
    $
    3,982Certificates of deposit
    
    
    
    
    
    
    7,310
    
    
    
    
    
    
    
    7,310U.S. government agency bonds
    
    
    9,588
    
    
    
    
    
    
    
    
    
    
    
    9,588International government
agency bonds
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    12Corporate obligations
    
    
    
    
    
    
    3,515
    
    
    
    
    
    
    
    3,515Asset-backed securities
    
    
    
    
    
    
    2,995
    
    
    
    
    
    
    
    2,995Equity securities
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Auction rate securities
    
    
    
    
    
    
    22,145
    
    
    
    5,000
    
    
    
    27,145Cash surrender value of
company owned life
insurance
    
    
    
    
    
    
    2,977
    
    
    
    
    
    
    
    2,977Mutual funds
    
    
    2,185
    
    
    
    
    
    
    
    
    
    
    
    2,185Money market funds
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Total
    
    $
    15,771
    
    
    $
    38,942
    
    
    $
    5,000
    
    
    $
    59,713
 8




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Accounting for Certain
Investments in Debt and Equity Securities
 Note 4. Pension Benefits
 Components of Net Periodic Pension Cost
 Three Months Ended March 31,2008
    
    
    2007(in thousands)(unaudited)Service cost
    
    $
    190
    
    
    $
    140Interest cost
    
    
    470
    
    
    
    412Expected return on plan assets
    
    
    (355
    )
    
    
    (319
    )Amortization of prior service cost
    
    
    119
    
    
    
    119Amortization of net loss
    
    
    
    
    
    
    25Net periodic pension cost
    
    $
    424
    
    
    $
    377
 Employer Contributions
  Note 5. Guarantees
 Warranty
    Balance at December 31, 2007
    
    $
    14,370Accruals related to warranties (including changes in estimates)
    
    
    1,628Settlements made (in cash or in kind)
    
    
    (2,633
    )Balance at March 31, 2008 (unaudited)
    
    $
    13,365
 9




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##### Table of Contents



Note 6. Business Acquisitions
 Acquisition of C-COR Incorporated
   Supplemental Pro Forma Information
(in millions, except per share data)
 Three
Months EndedMarch 31, 2007(unaudited)Net sales
    
    
    
    
    
    $
    308.3Net income from continuing operations
    
    
    
    
    
    $
    32.6Income from continuing operations per common share:Basic
    
    
    
    
    
    $
    0.24Diluted
    
    
    
    
    
    $
    0.23
 Preliminary Purchase Price Allocation
  Total purchase consideration  cash and equity
    
    $
    646.6Prior investment in acquired company
    
    
    6.0Fair value of assumed stock options
    
    
    22.8Acquisition-related transaction costs
    
    
    5.5Total preliminary purchase price
    
    $
    680.9Net tangible assets
    
    $
    99.6Identifiable intangible assets:Acquired technology
    
    
    38.8Order backlog
    
    
    7.9Customer relationships
    
    
    220.5Non-compete agreements
    
    
    5.1Acquired in-process research and development
    
    
    6.1Goodwill
    
    
    302.9Allocation of preliminary purchase price
    
    $
    680.9
 Fair Value of Assets and Liabilities
  10




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Note 7. Restructuring and Impairment Charges
  (in thousands)Balance as of December 31, 2007
    
    $
    2,121Q1 2008 payments
    
    
    (396
    )Q1 2008 adjustments to accrual
    
    
    159Balance as of March 31, 2008 (unaudited)
    
    $
    1,884
  (in thousands)Balance as of December 31, 2007
    
    $
    8,622Q1 2008 payments
    
    
    (6,663
    )Q1 2008 adjustments to accrual
    
    
    (44
    )Balance as of March 31, 2008 (unaudited)
    
    $
    1,915
  (in thousands)Balance as of December 31, 2007
    
    $
    642Q1 2008 payments
    
    
    (32
    )Balance as of March 31, 2008 (unaudited)
    
    $
    610
 Note 8. Inventories
  March 31,
    
    
    December 31,2008
    
    
    2007(unaudited)Raw material
    
    $
    20,010
    
    
    $
    20,004Work in process
    
    
    1,720
    
    
    
    2,533Finished goods
    
    
    103,375
    
    
    
    109,255Total net inventories
    
    $
    125,105
    
    
    $
    131,792
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Note 9. Property, Plant and Equipment
  March 31,
    
    
    December 31,2008
    
    
    2007(unaudited)Land
    
    $
    2,612
    
    
    $
    2,612Building and leasehold improvements
    
    
    19,531
    
    
    
    19,432Machinery and equipment
    
    
    127,219
    
    
    
    120,756149,362
    
    
    
    142,800Less: Accumulated depreciation
    
    
    (88,615
    )
    
    
    (83,644
    )Total property, plant and equipment, net
    
    $
    60,747
    
    
    $
    59,156
 Note 10. Long-Term Obligations
  March 31,
    
    
    December 31,2008
    
    
    2007(unaudited)2.00% convertible senior notes due 2026
    
    $
    276,000
    
    
    $
    276,0002.00% Pennsylvania Industrial Development Authority debt, net of current portion
    
    
    234
    
    
    
    2719.26% equipment financing obligations, net of current portion
    
    
    452
    
    
    
    494Other long-term liabilities
    
    
    14,258
    
    
    
    12,086Total long term debt and other long-term liabilities
    
    $
    290,944
    
    
    $
    288,851
    12




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Note 11. Comprehensive Income
  Three Months Ended March 31,(unaudited)2008
    
    2007Net income
    
    $
    5,405
    
    
    $
    37,644Changes in the following equity accounts:Unrealized gain on marketable securities
    
    
    131
    
    
    
    48Unrealized gain on derivative instruments
    
    
    
    
    
    
    551Comprehensive income
    
    $
    5,536
    
    
    $
    38,243
 Note 12. Segment Information
 Disclosures About Segments of an Enterprise
and Related Information
  Broadband Communications Systems
 Access, Transport & Supplies
 Media & Communications Systems
 13




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##### Table of Contents



BCS
    
    ATS
    
    MCS
    
    TotalQuarter Ended March 31, 2008Net sales
    
    $
    189,637
    
    
    $
    72,894
    
    
    $
    10,975
    
    
    $
    273,506Gross margin
    
    
    57,991
    
    
    
    21,876
    
    
    
    5,381
    
    
    
    85,248Amortization of intangible assets
    
    
    
    
    
    
    6,852
    
    
    
    6,402
    
    
    
    13,254Quarter Ended March 31, 2007Net sales
    
    $
    199,000
    
    
    $
    36,006
    
    
    $
    247
    
    
    $
    235,253Gross margin
    
    
    62,451
    
    
    
    6,426
    
    
    
    (130
    )
    
    
    68,747Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    58
   Three Months EndedMarch 31,(unaudited)2008
    
    2007Charter
    
    $
    29,018
    
    
    $
    16,676% of sales
    
    
    10.6
    %
    
    
    7.1
    %Comcast
    
    $
    34,224
    
    
    $
    82,514% of sales
    
    
    12.5
    %
    
    
    35.1
    %Time Warner Cable
    
    $
    70,961
    
    
    $
    22,380% of sales
    
    
    25.9
    %
    
    
    9.5
    %
   14




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Note 13. Earnings Per Share
  Three Months EndedMarch 31,(unaudited)2008
    
    
    2007Basic:Net income
    
    $
    5,405
    
    
    $
    37,644Weighted average shares outstanding
    
    
    130,763
    
    
    
    108,467Basic earnings per share
    
    $
    0.04
    
    
    $
    0.35Diluted:Net income
    
    $
    5,405
    
    
    $
    37,644Weighted average shares outstanding
    
    
    130,763
    
    
    
    108,467Net effect of dilutive equity awards
    
    
    1,218
    
    
    
    2,521Total
    
    
    131,981
    
    
    
    110,988Diluted earnings per share
    
    $
    0.04
    
    
    $
    0.34
  Note 14. Income Taxes
  Three Months Ended March 31,2008
    
    2007(unaudited)
    
    (unaudited)Income
    
    
    
    
    
    
    
    
    
    IncomeTax
    
    Effective
    
    Income
    
    Tax
    
    EffectiveIncome Before Tax
    
    Expense
    
    Tax Rate
    
    Before Tax
    
    Expense
    
    Tax RateNon-Discrete Items
    
    $
    8.7
    
    
    $
    3.3
    
    
    
    37.8
    %
    
    $
    30.4
    
    
    $
    10.1
    
    
    
    33.3
    %Discrete Accounting Events
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.8
    
    
    
    8.7
    
    
    
    38.0
    %Discrete Tax Events -
Valuation Allowances /
FIN 48 Reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.2
    )Total
    
    $
    8.7
    
    
    $
    3.3
    
    
    
    37.8
    %
    
    $
    53.2
    
    
    $
    15.6
    
    
    
    29.3
    %
 
    
    In the first quarter of 2008, income tax expense was recorded at the applicable federal
rate and state rates. There were no discrete tax or accounting events during this
quarter.
    
    In the first quarter of 2007, the Company considered the net gain related to the
termination of the TANDBERG Television acquisition to be discrete in nature in accordance
with the guidance of APB Opinion 28, Interim Financial Reportingand FIN 18, Accounting for
Income Taxes in Interim Periods. As a result, income tax expense was recorded at a
discrete rate of 38.0%.
    
    The termination fee, less expenses, associated with the terminated TANDBERG Television
acquisition was considered capital in nature. As a result, the Company reversed a net of
$4.0 million of valuation allowances associated with deferred tax assets related to net
capital loss carryforwards. Prior to the capital gain created by the terminated
acquisition, the Company considered it more-likely-than-not that capital loss carryforwards
would not be realizable. Additionally, we recorded an additional $0.8 million of discrete
income tax expense related to the TANDBERG transaction.
  Note 15. Termination of Proposed Acquisition
  15




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##### Table of Contents



Note 16. Contingencies
   ®
 ® ® ®
   16




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17




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##### Table of Contents



Note 17. Purchases of Common Stock
  Total Number of
    
    
    ApproximateTotal
    
    
    Average
    
    
    Shares Purchased
    
    
    Dollar Value ofNumber of
    
    
    Price
    
    
    as Part of Publicly
    
    
    Shares That MayShares
    
    
    Paid per
    
    
    Announced
    
    
    Yet Be PurchasedPeriod
    
    Purchased(1)
    
    
    Share
    
    
    Plan(2)
    
    
    Under the PlanFebruary 1 - 29,
2008
    
    
    8,053,883
    
    
    $
    5.93
    
    
    
    8,053,883March 1 - 31, 2008
    
    
    4,948,341
    
    
    $
    5.70
    
    
    
    4,948,341Total
    
    
    13,002,224
    
    
    $
    5.84
    
    
    
    13,002,224
    
    
    $
    24,000,000
 (1)
    
    The total number of shares purchased pursuant to the 2008 Plan as described in footnote
2 below.(2)
    
    On February 19, 2008, ARRIS publicly announced that its Board of Directors had
authorized a plan (the 2008 Plan) for the Company to purchase up to $100 million of the
Companys common stock.  18




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##### Table of Contents



Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
  Our Strategy and Key Highlights
  
    
    Transition to IP with an Everything IP, Everywhere philosophy and build on current
market successes;
    
    Leverage our current voice, video, and data businesses;
    
    Expand our existing product/services portfolio through internal developments,
partnerships and acquisitions; and
    
    Maintain and improve an already strong capital and expense structure.
   Everything IP, Everywhere is taking hold as MSOs globally have embraced VoIP and are now rapidly
deploying this key new service.
 
    
    We have successfully leveraged our existing market position and industry experience to
continue to generate robust demand for both EMTA and CMTS products. Further, we have
leveraged the market position we acquired as a result of the purchase of C-COR in December
2007 to increase sales of new products, notably Video on Demand, Operations Support
Software, Access, and Transport.
    
    As expected, sales to Comcast for all products were down significantly in the first
quarter. We expect sales to Comcast to increase in future quarters.
    
    We experienced increased sales to other customers, notably Time Warner, Charter and
certain international customers.
    
    We expect strong demand for CMTS products to continue in future periods as new services
and competition between our customers and their competitors intensifies the need to provide
ever faster download speeds requiring added CMTS capacity and features. In the second half
of 2008, a new generation of CMTS products based upon the DOCSIS 3.0 standard is expected
to be introduced. It is possible that customers may reduce their short term purchases of
DOCSIS 2.0 CMTS products in anticipation of the new product.
    
    We introduced our Universal EdgeQAM D5 late in 2007. Our expectation, based on customer
input, was that demand for this product would be robust in the first quarter of 2008 driven
by Switched Digital Video (SDV) requirements. However, customers, in particular Comcast,
have since delayed purchasing decisions. We have expanded our marketing and development
efforts to include other applications including Modular CMTS, Broadcast and Video on
Demand. We expect that sales of this new product will ramp up through 2008 but at a slower
rate than initially expected. Initial margins on this product will be low until cost reductions can be implemented later in 2008
 19




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##### Table of Contents




    
    We expect demand for EMTAs to remain robust; however, we do not anticipate the growth in
aggregate sales we have enjoyed for the past few years. Many of our customers have now
passed through the initial launch stage, and are at steady state deployment rates and may
not continue to incrementally increase the rate of their purchases. While most of our
customers have a multi-vendor strategy, we enjoyed 100% market share with many customers
well into 2007. In late 2007, several of our customers awarded a portion of their business
to our competitors, which we expect will continue. Our ultimate level of sales of EMTAs
will be affected by, but not limited to, such factors as the success our customers have
marketing IP telephony to their subscribers, and the success our customers have retaining
their IP telephony subscribers as well as our ability to limit the impact of the
implementation of a multi-vendor strategy by our customers. We also anticipate ongoing
competition for EMTAs in the future. The deployment of higher speed data service tiers
will require new DOCSIS 3.0 capable EMTAs and modems, providing opportunity for sales of a
new generation of CPE devices starting in the second half of 2008.
    
    Through our acquisition of C-COR in late 2007 we expanded our portfolio to include
several key new products that leverage the IP spending of our customers. The Access and
Transport products are expected to benefit from the plant upgrades MSOs will undertake to
expand the capacity they will require to offer new services to their subscribers. The
operations support system (OSS) and On-Demand products also are well positioned to
provide value added services and operational improvements to the MSOs.
 We continue to invest significantly in research and development.
 
    
    We have made significant investments through our research and development efforts in new
products and expansion of our existing products. Our primary focus has been on products
and services that will enable MSOs to build and operate high-availability, fault-tolerant
networks, which allow them to generate greater revenue by offering high-speed data, IP
telephony and digital video. This success-based capital expenditure is becoming an
increasing portion of the cable operators total capital spending. In addition, some MSOs
have expressed interest in offering bundled wireless telephony as part of their product
offering. This product, known as Fixed Mobile Convergence (FMC), will allow cable
subscribers to use mobile phones in their homes, connecting to the MSOs VoIP network in
the home, and to roam from the home VoIP network to the cellular network outside of the
home and back seamlessly. We are developing products to support this new offering. With
our late 2007 acquisition of C-COR, our research and development was significantly expanded
to include Access and Transport, Video on Demand, Ad Insertion and OSS products. In the
first quarter of 2008, we spent approximately $28.1 million on research and development, or
10.2% of revenue, which compares to $18.1 million or 7.7% of revenue in the same period
last year. We expect to continue to spend similar or slightly higher amounts on research
and development in the future. We anticipate we may modestly increase our development
efforts on Video on Demand and OSS products.
    
    Key research and development accomplishments in the first quarter 2008 included:
 o
    
    Initial lab trials of DOCSIS 3.0 C4 CMTS and TM702 EMTA with lead customers.o
    
    EMTA and Data Modem submitted to Cablelabs for DOCSIS 3.0 certification.o
    
    Added support to the D5 Universal EdgeQAM for multiple additional
switched digital video (SDV) and Video on Demand (VOD) network. architectures,
as well as development of M-CMTS features.o
    
    Transition to lower cost 600-series EMTA.o
    
    Release of CORWave multi-wavelength optics platform which provides
increased network capacity over existing infrastructure for residential and
business applications.o
    
    Release of first of its kind, segmentable optical node design
specifically for the European market.o
    
    Release of upgrade kit to allow conversion of existing amplifier
deployments to optical nodes in support of fiber deep push and targeted service
areas.o
    
    Product enhancements for our Assurance/OSS product line.o
    
    Product enhancements for our nABLE video backoffice platform.
 20




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##### Table of Contents



At the end of the first quarter, we had cash, cash equivalents and short term investments of
approximately $293 million. In the quarter we repurchased 13 million shares, and redeemed $35
million of convertible debt.
 
    
    In the first quarter 2008 we announced a share buyback program of up to $100 million.
In the quarter we repurchased 13 million shares at an average price of $5.84 per share for
an aggregate consideration of approximately $76 million.
    
    As anticipated, in the first quarter 2008 we redeemed, at par, $35 million of
convertible notes we assumed as part of the C-COR acquisition.
    
    We generated $30.5 million of cash from operating activities in the first quarter 2008.
    
    Through a combination of our cash resources, anticipated cash generation from operating
activities and our ability to access capital markets, we continue to be well positioned to
execute on strategic opportunities.
 Our income statement reflects several significant items year-over- year
 
    
    As a result of the acquisition of C-COR in late 2007, sales, gross margin and operating
expenses significantly increased. Below is a table which compares first quarter 2008
results to ARRIS and C-COR results for the first quarter 2007:
 Results for ARRIS and C-COR   (unaudited)
 Three Months Ended March 31,ARRIS
    
    ARRIS
    
    C-COR2008
    
    2007
    
    2007 (1) (2)Sales
    
    
    273.5
    
    
    
    235.3
    
    
    
    73.0Gross margin
- $
    
    
    85.2
    
    
    
    68.7
    
    
    
    32.7Gross margin
- %
    
    
    31.2
    %
    
    
    29.2
    %
    
    
    44.8
    %SG&A
    
    
    37.0
    
    
    
    24.2
    
    
    
    14.9R&D
    
    
    28.1
    
    
    
    18.1
    
    
    
    8.7Restructuring & impairment
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.2Amortization of intangibles
    
    
    13.2
    
    
    
    
    
    
    
    0.8Operating income
    
    
    6.5
    
    
    
    26.0
    
    
    
    8.1
 
 (1)
    
    See C-COR Form 8-K filed with the Securities and Exchange Commission on
8/27/2007.(2)
    
    C-COR gross margin and SG&A have been adjusted to conform to ARRIS
accounting policies with respect to freight billed to customers. 
    
    In the first quarter of 2007 we recorded a net gain of $22.8 million related to the
termination of the proposed TANDBERG acquisition. We did not experience a similar event in
2008. In the first quarter of 2007 we recorded a tax expense of $15.6 million, which
equates to an effective tax rate of 29.3%. Included in the tax expense are discrete items,
per the guidance of Accounting Principles Board (APB) Opinion 28, Interim Financial
Reporting, related to the terminated TANDBERG transaction. The foreign exchange gain,
break-up fee and deal expenses were considered discrete items and were recorded at a
marginal tax rate of 38.0%. The break-up fee and expenses are considered to be capital in
nature versus ordinary income. As a result, we reversed a net $3.2 million of deferred tax
valuation allowances as we viewed it as more likely than not that we would be able to
utilize the capital gain NOLs to offset the capital gain recorded as a result of the
TANDBERG break-up fee net of expenses. In the first quarter of 2008, we recorded a tax
expense of $3.3 million which equates to an effective tax rate of 37.8%. We did not have
any discrete items in the first quarter of 2008. We anticipate that our average tax rate
for 2008 will be approximately 35%. Achieving this rate is dependent on Congress passing
legislation associated with the continuation of Qualified Research Expenditures. If such
legislation is not passed or is not retroactively applied, we believe the effective tax
rate will be approximately 38%.
 Our outstanding share count has increased year over year reflecting several factors:
 
    
    We issued approximately 25 million shares as partial consideration for the purchase of
C-COR in 2007.
    
    We repurchased approximately 13 million shares as part of our share buyback program in
the first quarter of 2008.
 21




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##### Table of Contents



Significant Customers
  Three Months EndedMarch 31,(unaudited)2008
    
    2007Charter
    
    $
    29,018
    
    
    $
    16,676% of sales
    
    
    10.6
    %
    
    
    7.1
    %Comcast
    
    $
    34,224
    
    
    $
    82,514% of sales
    
    
    12.5
    %
    
    
    35.1
    %Time Warner Cable
    
    $
    70,961
    
    
    $
    22,380% of sales
    
    
    25.9
    %
    
    
    9.5
    %
 Comparison of Operations for the Three Months Ended March 31, 2008 and 2007
  Net Sales
  Net SalesThree Months Ended
    
    
    Increase (decrease) March 31, (unaudited)
    
    
    2008 vs. 20072008
    
    
    2007
    
    
    $
    
    
    %Business Segment:Broadband Communications Systems
    
    $
    189.6
    
    
    $
    199.0
    
    
    $
    (9.4
    )
    
    
    (4.7
    )%Access, Transport & Supplies
    
    
    72.9
    
    
    
    36.0
    
    
    
    36.9
    
    
    
    102.5
    %Media & Communications Systems
    
    
    11.0
    
    
    
    0.3
    
    
    
    10.7
    
    
    
    3566.7
    %Total sales
    
    $
    273.5
    
    
    $
    235.3
    
    
    $
    38.2
    
    
    
    16.2
    %
  Net SalesThree Months Ended
    
    
    Increase March 31, (unaudited)
    
    
    2008 vs. 20072008
    
    
    2007
    
    
    $
    
    
    %Domestic sales
    
    $
    188.7
    
    
    $
    174.8
    
    
    $
    13.9
    
    
    
    8.0
    %International sales
    
    
    84.8
    
    
    
    60.5
    
    
    
    24.3
    
    
    
    40.2
    %Total sales
    
    $
    273.5
    
    
    $
    235.3
    
    
    $
    38.2
    
    
    
    16.2
    %
 22




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##### Table of Contents



Broadband Communication Systems Net Sales 2008 vs. 2007
  
    
    As expected, we had lower sales to Comcast of both CMTS and EMTAs. Sales to Comcast of
EMTAs are expected to increase in the second quarter of 2008. Sales of CMTS to Comcast are
expected to increase in conjunction with the launch of our DOCSIS 3.0 product in the third
quarter 2008.
    
    The declines associated with Comcast were partially offset with gains at several
customers, notably Time Warner, Charter and certain international customers.
 Access, Transport and Supplies Net Sales 2008 vs. 2007
  
    
    The increase was the result of the acquisition of C-COR. In 2007 we estimate that C-COR
recorded sales of approximately $57 million associated with this segment.
    
    2007 sales in this segment represent sales of our Supplies products. Year over year
sales of these products modestly declined primarily as a result of lower purchases by
Comcast.
 Media & Communication Systems Net Sales 2008 vs. 2007
  Gross Margin
  Gross Margin $Three Months Ended
    
    
    Increase (decrease)March 31, (unaudited)
    
    
    2008 vs. 20072008
    
    
    2007
    
    
    $
    
    
    %Business Segment:Broadband Communications Systems
    
    $
    58.0
    
    
    $
    62.4
    
    
    $
    (4.4
    )
    
    
    (7.1
    )%Access, Transport and Supplies
    
    
    21.9
    
    
    
    6.4
    
    
    
    15.5
    
    
    
    242.2
    %Media & Communications Systems
    
    
    5.4
    
    
    
    (0.1
    )
    
    
    5.5
    
    
    
    5500.0
    %Total
    
    $
    85.3
    
    
    $
    68.7
    
    
    $
    16.6
    
    
    
    24.2
    %
  Gross Margin %Three Months Ended
    
    Percentage PointMarch 31, (unaudited)
    
    Increase (Decrease)2008
    
    2007
    
    2008 vs. 2007Business Segment:Broadband Communications Systems
    
    
    30.6
    %
    
    
    31.4
    %
    
    
    (0.8
    )Access, Transport and Supplies
    
    
    30.0
    %
    
    
    17.8
    %
    
    
    12.2Media & Communications Systems
    
    
    49.0
    %
    
    
    (52.6
    )%
    
    
    101.6Total
    
    
    31.2
    %
    
    
    29.2
    %
    
    
    2.0
 23




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##### Table of Contents



Broadband Communications Systems Gross Margin 2008 vs. 2007
  
    
    The reduction in gross margin dollars was the result of lower sales.
    
    The reduction in gross margin percentage reflects product mix.
 Access, Transport and Supplies Gross Margin 2008 vs. 2007
  
    
    The increase in revenues year-over-year significantly impacted gross margin dollars.
    
    The increase in gross margin percentage was the result of the addition of higher margin
Access and Transport products which we added to our portfolio as part of the C-COR
acquisition.
 Media & Communications Systems Gross Margin 2008 vs. 2007
  
    
    The increases are attributable to the Video on Demand and OSS products we added to our
portfolio as a result of the C-COR acquisition.
 Operating Expenses
  Operating ExpensesThree Months Ended March 31,
    
    
    Increase (Decrease) 2008 vs. 20072008
    
    
    2007
    
    
    $
    
    
    %Selling general and
administrative
    
    $
    37.0
    
    
    $
    24.2
    
    
    $
    12.8
    
    
    
    52.9
    %Research and development
    
    
    28.1
    
    
    
    18.1
    
    
    
    10.0
    
    
    
    55.2
    %Restructuring & impairment
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.0
    
    
    
    0.0
    %Amortization of intangibles
    
    
    13.3
    
    
    
    0.1
    
    
    
    13.2
    
    
    
    13200.0
    %Total
    
    $
    78.8
    
    
    $
    42.8
    
    
    $
    36.0
    
    
    
    84.1
    %
 Selling, General, and Administrative, or SG&A, Expenses
  
    
    The inclusion of expenses associated with the former C-COR. In the first quarter of
2007, we estimate that C-COR spent approximately $14.9 million for SG&A expenses.
    
    We estimate that we have achieved approximately $2 million of SG&A synergies associated
with the C-COR acquisition in the first quarter.
 Research & Development Expenses
  
    
    The inclusion of expenses associated with the former C-COR. In the first quarter 2007
we estimate that C-COR spent approximately $8.7 million for R&D expenses.
    
    We anticipate that we may modestly increase our R&D spending as a combined company,
particularly on Video on Demand and OSS products.
 24




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##### Table of Contents



Restructuring and Impairment Charges
  Amortization of Intangibles
  Other Expense (Income)
 Interest Expense
  Loss (Gain) in Foreign Currency
  Interest Income
  Gains Related to Terminated Acquisition, Net of Expenses
  Other Expense (Income)
  25




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##### Table of Contents



Income Taxes
  Three Months Ended March 31,2008
    
    2007(unaudited)
    
    (unaudited)Income
    
    Income
    
    Effective
    
    Income
    
    Income
    
    EffectiveBefore
    
    Tax
    
    Tax
    
    Before
    
    Tax
    
    TaxTax
    
    Expense
    
    Rate
    
    Tax
    
    Expense
    
    RateNon-Discrete Items
    
    $
    8.7
    
    
    $
    3.3
    
    
    
    37.8
    %
    
    $
    30.4
    
    
    $
    10.1
    
    
    
    33.3
    %Discrete Accounting Events
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.8
    
    
    
    8.7
    
    
    
    38.0
    %Discrete Tax Events -
Valuation Allowances /
FIN 48 Reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.2
    )Total
    
    $
    8.7
    
    
    $
    3.3
    
    
    
    37.8
    %
    
    $
    53.2
    
    
    $
    15.6
    
    
    
    29.3
    %
 
    
    In the first quarter of 2007, we considered the net gain related to the termination of
the proposed TANDBERG Television acquisition to be discrete in nature in accordance with
the guidance of APB Opinion 28 and FIN 18 Accounting for Income Taxes in Interim Periods.
As a result, income tax expense was recorded at a discrete rate of 38.0%.
    
    The termination fee, less expenses, associated with the terminated TANDBERG Television
acquisition was considered capital in nature. As a result, we reversed a net of $4.0
million of valuation allowances associated with deferred tax assets related to net capital
loss carryforwards. Prior to the capital gain created by the terminated acquisition, we
considered it more-likely-than-not that capital loss carryforwards would not be realizable.
Additionally, we recorded an additional $0.8 million of discrete income tax expense
related to the TANDBERG transaction.
  Financial Liquidity and Capital Resources
 Overview
  Liquidity & Capital Resources Data
 Three Months Ended March 31,(unaudited)2008
    
    2007(in millions, except DSO and turns)Key Working Capital ItemsCash provided by (used in) operating activities
    
    $
    30.5
    
    
    $
    (4.0
    )Cash, cash equivalents, and short-term investments
    
    $
    293.0
    
    
    $
    575.9Accounts receivable, net
    
    $
    159.9
    
    
    $
    125.8Days Sales Outstanding (DSOs)
    
    
    55
    
    
    
    47Inventory
    
    $
    125.1
    
    
    $
    78.2Inventory turns
    
    
    5.9
    
    
    
    7.7
 Inventory & Accounts Receivable
  26




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##### Table of Contents



Summary of Current Liquidity Position and Potential for Future Capital Raising
  Commitments
  Cash Flow
  For the Three Months EndedMarch 31, (unaudited)2008
    
    2007Cash provided by (used in) operating activities
    
    $
    30.5
    
    
    $
    (4.0
    )Cash provided by (used in) investing activities
    
    
    3.2
    
    
    
    (26.2
    )Cash provided by (used in) financing activities
    
    
    (114.0
    )
    
    
    9.9Net decrease in cash
    
    $
    (80.3
    )
    
    $
    (20.3
    )
 Operating Activities:
  For the Three Months EndedMarch 31, (unaudited)2008
    
    2007Net income
    
    $
    5.4
    
    
    $
    37.6Adjustments to reconcile net income to cash
provided by (used in ) operating activities
    
    
    20.8
    
    
    
    (17.4
    )Net income including adjustments
    
    
    26.2
    
    
    
    20.2Decrease/(Increase) in accounts receivable
    
    
    7.5
    
    
    
    (10.8
    )Decrease in inventory
    
    
    7.5
    
    
    
    16.0Increase in accounts payable and accrued liabilities
    
    
    (10.3
    )
    
    
    (24.8
    )All other  net
    
    
    (0.4
    )
    
    
    (4.6
    )Cash provided by (used in) operating activities
    
    $
    30.5
    
    
    $
    (4.0
    )
  27




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##### Table of Contents



Investing Activities:
  Three Months EndedMarch 31, (unaudited)2008
    
    2007Capital expenditures
    
    $
    (6.4
    )
    
    $
    (2.3
    )Proceeds from termination of TANDBERGTV acquisition,
net of payments
    
    
    
    
    
    
    23.1Cash paid for acquisition
    
    
    (4.2
    )
    
    
    Cash proceeds from sale of property, plant & equipment
    
    
    0.2
    
    
    
    Purchases of short-term investments
    
    
    (16.9
    )
    
    
    (128.1
    )Disposals of short-term investments
    
    
    30.5
    
    
    
    81.1Cash provided by (used in) investing activities
    
    $
    3.2
    
    
    $
    (26.2
    )
 Capital Expenditures 
  Proceeds from Termination of TANDBERGTV Acquisition, Net of Payments 
  Cash Paid for Acquisition 
  Purchases and Disposals of Short-Term Investments 
  Financing Activities:
  For the Three Months EndedMarch 31, (unaudited)2008
    
    2007Payment of debt and capital lease obligations
    
    $
    (35.1
    )
    
    $
    Repurchase of common stock
    
    
    (76.0
    )
    
    
    Excess tax benefits from stock-based compensation plans
    
    
    
    
    
    
    4.9Employer repurchase of shares to satisfy minimum tax witholdings
    
    
    (0.2
    )
    
    
    Fees and proceeds from issuance of common stock, net
    
    
    (2.7
    )
    
    
    5.0Cash
provided by (used in) financing activities
    
    $
    (114.0
    )
    
    $
    9.9
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Payment of Debt and Capital Lease Obligation 
  Repurchase of Common Stock 
  Excess Tax Benefits from Stock-Based Compensation Plans
  Employer
Repurchase of Shares to Satisfy Minimum Tax Withholding
  Fees and Proceeds from Issuance of Common Stock, Net
  Interest Rates
  Foreign Currency
   Financial Instruments
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Cash, Short-Term Investments and Available-For-Sale Investments
   Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust
and Invested
 Capital Expenditures
  Critical Accounting Estimates
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Forward-Looking Statements
  
 Item 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      
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Item 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control over Financial Reporting
 
 PART II. OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
   ®
 ® ® ®
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Item 1A. RISK FACTORS
 Our business is dependent on customers capital spending on broadband communication systems, and
reductions by customers in capital spending adversely affect our business.
  
    
    general economic conditions;
    
    customer specific financial or stock market conditions;
    
    availability and cost of capital;
    
    governmental regulation;
    
    demands for network services;
    
    competition from other providers of broadband and high speed services;
    
    acceptance of new services offered by our customers; and
    
    real or perceived trends or uncertainties in these factors.
  The markets in which we operate are intensely competitive, and competitive pressures may adversely
affect our results of operations.
  
    
    Ambit Microsystems;
 
    
    Aurora Networks;
 
    
    Big Band Networks;
    
    Cisco Systems, Inc.;
    
    Commscope, Inc;
    
    Concurrent Computer Corporation;
    
    Ericsson (TandbergTV);
    
    Harmonic, Inc.;
    
    Motorola, Inc.;
    
    SeaChange, Inc.;
    
    Thomson; and
    
    TVC Communications, Inc.
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Consolidations in the telecommunications industry could result in delays or reductions in purchases
of products, which would have a material adverse effect on our business.
   We may pursue acquisitions and investments that could adversely affect our business.
  We may fail to realize the anticipated revenue and earnings growth and other benefits expected from
our recently completed acquisition of C-COR, which could adversely affect the value of our shares.
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Purchase accounting adjustments required under GAAP with respect to our acquisition of C-COR will
have a significant impact on our GAAP earnings, which could impact the trading price of our common
stock.
  Our results of operations after the proposed C-COR acquisition could be adversely affected as a
result of goodwill impairment.
 Accounting for Business Combinations, Goodwill and Other Intangible Assets,
 Our business has primarily come from several key customers. The loss of one of these customers or
a significant reduction in sales to one of these customers would have a material adverse effect on
our business.
  We may have difficulty in forecasting our sales.
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The broadband products that we develop and sell are subject to technological change and a trend
toward open standards, which may impact our future sales and margins.
  Failure to increase our Media & Communications Systems revenue would adversely affect our financial
results.
  
    
    our customers may decide to continue to manage their networks by focusing on limited,
individual elements of the network rather than managing their entire network integrity and
service delivery processes using a suite of software application modules such as those we
offer;
    
    our software products may not perform as expected;
    
    new and better products may be developed by competitors;
    
    others may claim that our products infringe on their intellectual property;
    
    our customers may decide to use internally developed software tools to manage their
networks rather than license software from us;
    
    the software business is volatile and we may not be able to effectively utilize our
resources and meet the needs of our customers if we are unable to forecast the future
demands of such customers;
    
    if our customers increase the amount of spending on automated network, service, and
content and operations management tools, new suppliers of these tools may enter the market
and successfully capture market share; and
    
    we may be unable to hire and retain enough qualified technical and management personnel
to support our growth plans.
 Fluctuations in our Media & Communications Systems sales result in greater volatility in our
operating results.
  Products currently under development may fail to realize anticipated benefits.
  
    
    are not cost-effective;
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
    
    are not brought to market in a timely manner;
    
    fail to achieve market acceptance; or
    
    fail to meet industry certification standards.
  Our success depends in large part on our ability to attract and retain qualified personnel in all
facets of our operations.
  We are substantially dependent on contract manufacturers, and an inability to obtain adequate and
timely delivery of supplies could adversely affect our business.
  Our international operations may be adversely affected by any decline in the demand for broadband
systems designs and equipment in international markets.
  Our international operations may be adversely affected by changes in the foreign laws in the
countries in which we and our manufacturers and assemblers have plants.
   
    
    changes in international trade laws, such as the North American Free Trade Agreement,
affecting our import and export activities;
    
    changes in, or expiration of, the Mexican governments Maquiladora program, which
provides economic benefits to us;
 
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
    
    changes in labor laws and regulations affecting our ability to hire and retain
employees;
    
    fluctuations of foreign currency and exchange controls;
    
    potential political instability and changes in the Mexican government;
    
    potential regulatory changes; and
    
    general economic conditions in Mexico.
  We face risks relating to currency fluctuations and currency exchange.
   We depend on channel partners to sell our products in certain regions and are subject to risks
associated with these arrangements.
  
    
    ability of our selected channel partners to effectively sell our products to end
customers;
    
    our ability to continue channel partner arrangements into the future since most are for
a limited term and subject to mutual agreement to extend;
    
    a reduction in gross margins realized on sale of our products; and
    
    diminution of contact with end customers which, over time, could adversely impact our
ability to develop new products that meet customers evolving requirements.
 Our profitability has been, and may continue to be, volatile, which could adversely affect the
price of our stock.
  We may face higher costs associated with protecting our intellectual property or obtaining access
necessary to intellectual property of others.
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Changes in accounting pronouncements can impact our business.
  We do not intend to pay cash dividends in the foreseeable future.
  We have anti-takeover defenses that could delay or prevent an acquisition of our company.
  W e hav e th e abilit y t o issu e preferre d share s withou t stockholde r approval .
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Item 2(c). Stock Repurchase
  ApproximateTotal
    
    
    Average
    
    
    Total Number of
    
    
    Dollar Value ofNumber of
    
    
    Price
    
    
    Shares Purchased
    
    
    Shares That MayShares
    
    
    Paid per
    
    
    as Part of Publicly
    
    
    Yet Be PurchasedPeriod
    
    Purchased(1)
    
    
    Share
    
    
    Announced Plan(2)
    
    
    Under the PlanFebruary 19 - 29,
2008
    
    
    8,053,883
    
    
    $
    5.93
    
    
    
    8,053,883March 1 - 11, 2008
    
    
    4,948,341
    
    
    $
    5.70
    
    
    
    4,948,341Total
    
    
    13,002,224
    
    
    $
    5.84
    
    
    
    13,002,224
    
    
    $
    24,000,000
 (1)
    
    The total number of shares purchased pursuant to the 2008 Plan as described in footnote
2 below.(2)
    
    On February 19, 2008, we publicly announced that our Board of Directors had authorized
a plan (the 2008 Plan) for the Company to purchase up to $100 million of the Companys
common stock. 
 Item 6. EXHIBITS
 Exhibit No.
    
    Description of Exhibit31.1
    
    
    Section 302 Certification of Chief Executive Officer, filed herewith31.2
    
    
    Section 302 Certification of Chief Financial Officer, filed herewith32.1
    
    
    Section 906 Certification of Chief Executive Officer, filed herewith32.2
    
    
    Section 906 Certification of Chief Financial Officer, filed herewith
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SIGNATURES
  ARRIS GROUP, INC./s/ David B. PottsDavid B. PottsExecutive Vice President, Chief Financial Officer, Chief Accounting Officer, and Chief Information Officer  42