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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the fiscal year ended December 31, 2003

of

ARRIS GROUP, INC.

11450 Technology Circle

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

      ARRIS Group (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.

      ARRIS is unaware of any delinquent filers pursuant to Item 405 of Regulation S-K.

      ARRIS Group, Inc. is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

      The aggregate market value of ARRIS Group’s Common Stock held by non-affiliates as of June 30, 2003 was approximately $301.3 million (computed on the basis of the last reported sales price per share of such stock of $4.96 on the Nasdaq National Market System). As of March 9, 2004, 86,695,957 shares of the registrant’s Common Stock were outstanding. For these purposes, directors, officers and 10% shareholders have been assumed to be affiliates.

      Portions of ARRIS Group’s Proxy Statement for its 2004 Annual Meeting of Stockholders are incorporated by reference into Part III.

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PART I

      As used in this Annual Report, “we,” “our,” “us,” “the Company,” and “ARRIS” refer to Arris Group, Inc. and our consolidated subsidiaries without limitation, including Arris International, Inc. (formerly ANTEC Corporation) and Arris Interactive L.L.C, unless the context otherwise requires.

General

      Our principal executive offices are located at 11450 Technology Circle, Duluth, Georgia 30097, and our telephone number is (678) 473-2000. We also have a worldwide website at http://www.arrisi.com. On our website we provide hyperlinks to copies of the annual, quarterly and current reports we file with the Securities and Exchange Commission, any amendments to those reports, and all press releases. We also maintain the following documents on our website:

	•	Code of Ethics (applicable to all employees), and our Financial Code of Ethics (applicable to our CEO, senior financial officers, and all finance, accounting, and legal managers). The website also will disclose whether there have been any amendments or waivers to the Code of Ethics and Financial Code of Ethics.
	•	Audit Committee Charter
	•	Compensation Committee Charter
	•	Nominating and Corporate Governance Committee Charter

      We will provide copies of these documents in electronic or paper form upon request to Investor Relations, free of charge.

Industry Overview

      We develop and supply equipment and technology for cable system operators and other broadband service providers which allow them to deliver a full range of integrated voice, video and data services to their subscribers. Further, we are a leading supplier of infrastructure products used by cable system operators in the build-out and maintenance of hybrid fiber-coaxial, or HFC, networks. We provide our products and equipment principally to the cable television market and, more specifically, to operators of multiple cable systems, or MSOs. In recent years, the technology used in cable systems has evolved significantly. Historically, cable systems offered only one-way video service. Due to technological advancements and large investments in infrastructure upgrades, these systems have evolved to become two-way broadband systems featuring high-speed, high-volume, interactive services. MSOs have aggressively upgraded their networks to cost-effectively support and deliver enhanced video, voice and data services. As a result, cable operators have been able to use broadband systems to increase their revenues by offering enhanced interactive subscriber services, such as high-speed data, telephony, digital video and video on demand, and to effectively compete against other broadband communications technologies, such as digital subscriber line, local multiport distribution service, direct broadcast satellite, fiber to the home, and fixed wireless. Delivery of enhanced services also has helped MSOs offset slowing basic video subscriber growth, reduce their subscriber churn and compete against alternative providers, in particular, digital broadcast satellite, or DBS.

      A key factor supporting the growth of broadband systems is the powerful growth of the internet. Rapid growth in the number of internet users and the demand for high-speed, high-volume interactive services has created demand for high-speed internet access at home. Another key factor supporting the growth of broadband systems is the evolution of video services being offered to consumers. Video on demand and high definition television are two key video services expanding the use of MSOs’ broadband systems. The increase in volume and complexity of the signals transmitted through the network has continually pushed broadband system operators to deploy new technologies as they evolve. Further, system operators are looking for products and technology that are flexible, cost effective, easily deployable and scalable to meet future demand and mix

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      Capital spending by MSOs on their networks has shifted in the past several years. The table below illustrates the shifting mix of capital spending by US MSOs:

MSO Capital Expenditure Forecast 2000-2006E ($B)

      As can be seen from the above table:

	•	Spending on HFC rebuilds and upgrades has declined and is expected to decline further.
	•	Spending on maintenance and extension is expected to increase, particularly as the newly built plant ages.
	•	Spending on new services (digital video, telephony, high-speed data) has and is expected to increase.

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      Two of the fastest growing services are cable telephony and high-speed data. The data below is taken from both external sources and internal estimates and illustrates the expected growth in subscribers for these two services:

Worldwide Cable Telephony Subscribers

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Cable Modem Unit Sales — Worldwide

      Cable telephony allows cable operators to offer their customers local and long distance residential telephone service. It is presently offered to cable operators using two distinct technologies: constant bit rate, or CBR, technology and Internet Protocol, or IP, technology. CBR technology utilizes the switched-circuit technology currently used in traditional phone networks. This is a proven carrier-class telephony solution that enables operators to directly compete with incumbent telephone carriers with voice services and class-features, which include caller ID, call-waiting and three-party conferencing. At the end of 2003, our Cornerstone® CBR cable telephone products served over 4 million subscriber lines deployed by 56 operators in 102 cities in thirteen countries. IP technology, also known as Voice over IP, or VoIP, permits cable operators to provide toll-quality cable telephony at costs below those associated with CBR technology. VoIP technology has been deployed by several system operators throughout the world and is being tested in trials being conducted by other system operators. We offer telephony products using both of these technologies.

      Data and VoIP services are governed by a set of technical standards promulgated by CableLabs® in North America and tComLabs in Europe, two industry standard-setting bodies. While the standards set by these two bodies necessarily differ in a few details to accommodate the differences in HFC network architectures between North America and Europe, they have a great deal in common. The primary data standard specification for cable operators in North America is entitled “Data Over Cable Service Interface Specification”, or DOCSIS®. Release 1.1 of this specification has been the governing standard for data services in North America. The Euro-DOCSIS standard Release 1.1 is the same for Europe. A new version of the standard, DOCSIS 2.0, was released in 2001, and suppliers began delivering products compliant to this new standard in 2003 and will be offering more in 2004. DOCSIS 2.0 builds upon the capabilities of DOCSIS 1.1 and adds additional throughput in the upstream portion of the cable plant — from the consumer out to the Internet. In addition to the DOCSIS standards which govern data transmission, CableLabs has defined the PacketCable® standard for VoIP. This standard defines the interfaces among network elements such as cable modem termination systems, or CMTS, multi-media terminal adapters, or MTA, gateways and call management servers to provide high quality IP telephony service over the HFC network.

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      A broadband system consists of three principal components:

	•	Headend. The headend is a central point in the cable system where signals are received via satellite and other sources and interfaces are located that connect the Internet and public switched telephony networks. The headend facility organizes, processes and retransmits those signals through the distribution network to subscribers.
	•	Distribution Network. The distribution network consists of fiber optic and coaxial cables and associated optical and electronic equipment that allocates the combined signals from the headend and transmits them throughout the cable system to nodes.
	•	Subscriber Premises. Cable drops extend from nodes to subscribers’ homes and connect to a subscriber’s television set, converter box, telephony network interface device or computer modem.

Our Principal Products

      We provide cable system operators with a comprehensive product offering that meets their end-to-end needs, from headend to subscriber premises. We divide our product offerings into two categories:

      Headend — The heart of a voice over IP headend is a cable modem termination system, or CMTS. A CMTS, along with a call agent, a gateway, and provisioning systems provide the ability to integrate the public-switched telephone network and high-speed data services over an HFC network. The CMTS provides the software and hardware to allow the IP traffic from the Internet or that used in VoIP telephony to be converted for use on HFC networks. It is also responsible for initializing and monitoring all cable modems connected to the HFC network. We provide three products that are used in the cable operator’s headend to provide VoIP and high-speed data services to residential or business subscribers. These are the Cornerstone Data CMTS 1500, the Cadant® C4 CMTS, and the Cadant C3 CMTS:

	•	The Cadant C4 CMTS is a high density, chassis-based product that provides the industry’s most flexible built-in redundancy to ensure carrier-grade performance. It is PacketCable 1.0, DOCSIS 1.1 and Euro-DOCSIS 1.1 qualified and will support recently released DOCSIS 2.0 and Euro-DOCSIS 2.0 standards. Each chassis supports up to 32 downstream channels and 128 upstream channels making it one of the highest density scaleable headend products currently available. It can provide high-speed data and VoIP services in headends that service thousands to hundreds of thousands of subscribers.
	•	The Cadant C3 CMTS is a rack mounted, single downstream-based product that provides high performance packet handling in an extremely compact package. It is DOCSIS 1.1 and Euro-DOCSIS 1.1 qualified and will support recently released DOCSIS 2.0 and PacketCable standards.

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		Each unit supports one downstream channel and up to 6 upstream channels with a selectable choice of modulation schemes. The C3 supports markets worldwide with DOCSIS, Euro-DOCSIS and Japanese DOCSIS parameters that are selectable via software.
	•	The Cornerstone CMTS 1500 is a DOCSIS 1.1 and Euro-DOCSIS 1.1 qualified CMTS. It is a scalable headend solution, providing high-speed data and voice service in headends that service several thousand to 50,000 subscribers.

      Subscriber Premises — Subscriber premises equipment includes DOCSIS 1.0, 1.1, and 2.0 Certified cable modems for high-speed data applications as well as Euro-DOCSIS certified versions and PacketCable Certified E-MTAs for VoIP applications in both DOCSIS and Euro-DOCSIS networks. The PacketCable solution builds on DOCSIS 1.1 and its quality of service enhancements to support lifeline telephony deployed over HFC networks. The Touchstone^TM product line provides carrier-grade performance to enable operators to provide all data, telephony and video services on the same network using common equipment. The Touchstone product line consists of the Touchstone 300-series and 450-series of cable modems, the Touchstone 202-series and 402 series of telephony modems for indoor applications and the Touchstone Telephony Port 204 — for outdoor deployments.

	•	The Touchstone CM300A Cable Modem is DOCSIS 1.1 certified enabling it to be deployed in networks where advanced high-speed data features such as tiered data services are planned. The Touchstone 300B Cable Modem provides the same features as the CM300A but is Euro-DOCSIS certified for use in European and similar systems. The Touchstone CM450A Cable Modem is DOCSIS 2.0 certified which gives operators the potential to offer much higher upstream data rates. DOCSIS 2.0 is backward compatible with DOCSIS 1.0 and 1.1 headend systems. The Touchstone 450B Cable Modem provides the same features as the CM450A but is Euro-DOCSIS certified. ARRIS also manufactures cable modems that have been homologated in other countries, including Chile, Argentina, Israel, Australia, Hong Kong, and Korea.
	•	The Touchstone TM202A E-MTA is a PacketCable and DOCSIS 1.1 indoor E-MTA that supports enhanced services of high-speed data and up to two lines of IP telephony in a single unit. The TM202A’s innovative, compact design provides for easy installation. This product is also available in a Euro-DOCSIS design, the Touchstone TM202B, as well as one designed specifically for the unique frequency plan of Japanese cable systems, the Touchstone TM202C. The Touchstone TM202P is a PacketCable and DOCSIS 1.1 certified E-MTA that provides all of the features of the TM202A with the added benefit of an integrated battery back-up system enabling the service provider to guarantee service even in the event of a power outage. This allows them to compete directly with the incumbent local exchange carrier, or ILEC. This is also available in a Euro-DOCSIS version, the Touchstone Telephony Modem 202Q.
	•	The Touchstone Telephony Modem 402 series is our DOCSIS 2.0 and Euro-DOCSIS 2.0 family of E-MTAs. This line also is the first to incorporate Lithium-Ion battery technology. The resulting product, the Touchstone TM402P, provides extended battery back-up time. Additional versions are available offering less or no battery back-up capabilities, DOCSIS and Euro-DOCSIS variants, and country specific powering options.
	•	The Touchstone Telephony Port 204A is a rugged, environmentally hardened outdoor E-MTA that provides high-speed data access and up to four lines of carrier-grade VoIP for service providers wishing to maintain the demarcation point on the outside of the residence. This allows them to more closely parallel the deployment model used by ILECs, which makes service and maintenance easier over the long-term.

      Headend — We market our headend equipment under the brand name Cornerstone Voice. Cornerstone Voice products for the headend include host digital terminals, or HDTs. An HDT is the device that provides the interfaces, controls and communications channels between public-switched networks and the HFC

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      Subscriber Premises — The key equipment at subscriber premises is an NIU. We market our NIUs under the brand name Cornerstone Voice Port®. The Cornerstone Voice Port is the most widely deployed CBR NIU. Voice Port units operate in conjunction with the Cornerstone HDT to provide cable telephony while also maintaining a subscriber’s existing video services. Operators who are also deploying high-speed data services, such as our Cornerstone, Cadant and Touchstone brands, may deploy cable modems inside the home or work premises and multiplex the data service signals onto the same HFC network as the Cornerstone Voice application. This combination of solutions provides subscribers with voice and high-speed data functionality from the same operator. The Voice Port portfolio includes a two-line single-family residence Voice Port NIU, a two-line indoor Voice Port NIU with an integrated backup battery, a four-line Voice Port NIU, and a twenty-four-line modular Voice Port NIU for multiple dwelling unit applications.

      In March 2003, ARRIS acquired Fremont, California-based Atoga Systems. The Atoga Systems product portfolio includes the Optical Application Router, or OAR, family of hardware products and the AppDirector^TM Element Management System. Together, they offer cable operators and carriers a converged multi-service transport platform to carry IP, Ethernet and time-division multiplexing, or TDM, traffic over metro synchronous optical networks, or SONET, or dense wavelength division multiplexing, or DWDM, networks at a fraction of today’s costs.

      The Atoga solution, when matched with the ARRIS C4 next generation CMTS, presents a complete solution for operators seeking to simplify their network designs along with offering advanced voice and data services to residential and business customers.

      Operational support systems, or OSS, are a group of networked software suites that enable operators to automate many of the functions required to install, provision, manage and grow a subscriber base while managing, maintaining and upgrading the network for the multiple services offered. Without OSS automation, operators cannot manage subscriber growth and network operations effectively.

      We are partnering with leading suppliers in the industry to provide operators with the ability to automatically provision headend and subscriber premises equipment to reflect subscribers’ parameters, provide key data for third-party billing software, and complete maintenance operations. We are an authorized value added reseller of Alopa’s MetaServ^TM, which provides automated provisioning software for control of the call management server, gateways, CMTS and cable modems. MetaServ works with various billing and middleware software programs. We have strategic relationships with other equipment vendors to integrate existing Cornerstone software for CMTS and cable modem OSS functions. Operators are able to perform OSS functions across Cornerstone Voice and Cornerstone Data employing the Cadant CMTS and Touchstone product lines using a common OSS solution. The Cadant G2 IMS software supports configuration performance and fault management of the Cadant C4 CMTS through easy to use graphical user interfaces. A single Cadant G2 IM Server can support up to 100 Cadant C4 CMTS chassis and 20 simultaneous client applications.

      We are a full service system integrator for converged services over HFC networks. We historically have been a pioneer in the voice and data over HFC business and have the experience and infrastructure in place to help operators launch these services. System integration offers the service provider a fully integrated solution

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      We offer a variety of products that are used by MSOs to build and maintain their cable plants. Our products are complemented by our extensive channel-to-market infrastructure, which is focused on providing efficient delivery of products from stocking or drop-ship locations.

      We believe that a core strength of our products is our broad selection of trusted name-brand products and strategic proprietary lines and our experience in distribution. Our name-brand products are manufactured to our specifications by manufacturing partners. These products include: taps, line passives, house passives and premises installation equipment marketed under our Regal brand name; MONARCH^TM aerial and underground plant construction products and enclosures; Digicon premium F-connectors; and FiberTel fiber optic connectivity devices and accessories. Through our product selection, we are able to address substantially all broadband infrastructure applications, including fiber optics, outside plant construction, drop and premises installation, and signal acquisition and distribution.

      We also resell products from hundreds of strategic supplier-partners, which include widely recognized brands to small specialty manufacturers. Through our strategic supplier-partners, we also supply ancillary products like tools and safety equipment, testing devices and specialty electronics.

      Our inventory management and logistics capabilities, which are critical to our efficient and successful operation, are often leveraged to offer value-added services to our customers. These services range from just-in-time delivery, product “kitting,” specialized electronic interfaces, and customized reporting, to more complex and comprehensive supply chain management solutions. These services complement our products offerings with advanced channel-to-market and logistics capabilities, extensive product bundling opportunities, and an ability to deliver carrier-grade infrastructure solutions in the passive transmission portions of the network. The depth and breadth of our inventory and service capabilities enable us to provide our customers with single supplier flexibility.

Sales and Marketing

      We are positioned to service customers worldwide with a sales force and supporting sales engineering resources in both domestic and international markets. The sales organization itself is divided in such a way as to allocate resources to the top MSOs worldwide while others are committed to addressing the general supplies requirements that are common across all customers. We maintain sales offices in Duluth, Georgia; Denver, Colorado; Philadelphia, Pennsylvania; San Jose, California; Ireland; Chile; Japan; Spain; and the Netherlands. Additionally, we have partnership agreements in a variety of countries and regions with value-added resellers, or VARs, which extend our sales presence in markets without established sales offices.

      Additionally, we maintain an inside sales group that is responsible for regular phone contact, prompt order entry, timely and accurate delivery and effective sales administration for the many changes frequently required in any substantial rebuild or upgrade activity. In addition, the sales structure includes sales engineers and technicians that can assist customers in system design and specification and can promptly be on site to “trouble shoot” any problems as they arise during a project.

      We also have marketing and product management teams that focus on each of the various product categories and work with our engineers and various technology partners on new products and product improvements. These teams are responsible for inventory levels and pricing, delivery requirements, market demand and product positioning and advertising.

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      We are committed to providing superior levels of customer service by incorporating innovative customer-centric strategies and processes supported by business systems designed to deliver differentiating product support and value-added services. We have implemented advanced customer relationship management programs to bring additional value to our customers and provide significant value to our operations management. Through these information systems, we can provide our customers with product information ranging from operational manuals to the latest in order processing information. Through on-going development and refinement, these programs will help to improve our productivity and enable us to further improve our customer-focused services.

Customers

      The majority of our sales are to cable system operators or MSOs. We also sell products to traditional telephone companies, local exchange carriers, and competitive local exchange carriers. Our broadband products can be deployed not only by cable system operators, but also by traditional telephone companies, electric utilities and others. In 2003, as the US cable industry continued a trend toward consolidation, the six largest MSOs controlled over 90% of the US cable market, thereby making our sales to those MSOs critical to our success. Internationally, the market is dominated by approximately ten cable system operators, comprised of US-based MSOs, government entities, and foreign-based multi-media owners. This group controls approximately 60% of the total international “addressable” market.

      Our sales are substantially dependent upon a system operator’s selection of our equipment, demand for increased broadband services by subscribers, and general capital expenditure levels by system operators.

      Our two largest customers are Comcast (including AT&T Broadband, which was acquired by Comcast during 2002) and Cox Communications. Sales to these two customers for 2003, 2002, and 2001 are set forth below:

Jupiter Telecom accounted for approximately 7.9% and 7.6% of total sales in 2003 and 2002, respectively. In 2002, Cabovisao accounted for approximately 6% of total sales for the year. In 2001, Insight and Adelphia accounted for approximately 5.0% and 8.6%, respectively, of total sales for the year. No other customers provided more than 5% of total sales for the years ended December 31, 2003, 2002, or 2001.

      Although with some of our customers we do have general purchase agreements, the vast majority of our sales, to both those that have agreements and to our remaining customers, result from purchase orders or other short-term commitments. A summary of the key terms of the general purchase agreements with Comcast and Cox Communications is as follows:

Comcast. We have non-exclusive agreements with Comcast to supply C4 CMTS units and parts and to sell cable television supplies for two-year terms expiring in March 2005. Commercial terms include a requirement to supply product based on Comcast forecasts (updated quarterly), most favorable pricing as compared to similarly-situated companies, and specific delivery lead times with penalties for late delivery and warranty terms ranging from one to five years depending on the product. Included in one of these purchase agreements is a service level agreement structured to provide Comcast service assurance by providing credits for any delinquent response to service needs with special escalation guidelines for the C4 CMTS. To date, no penalties have been incurred. Comcast is not obligated to make any purchases.

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Cox Communications. We have an exclusive agreement with Cox Communications to supply Cornerstone Voice and Touchstone Telephony products and services at favorable pricing based on volume commitments. The agreement has a five-year term ending on July 31, 2007. Commercial terms include payment and delivery terms, a five-year warranty, penalties for delivery shortfall and delinquent performance guarantees. To date, no penalties have been incurred. Cox is not obligated to make any minimum purchase commitments.

      Adelphia and Cabovisao, historically two of our larger customers, have uncertainties surrounding our future transactions with them, and the level of our transactions. Sales to these two customers for 2003, 2002 and 2001 are set forth below:

      Sales to Adelphia decreased during the second quarter of 2002 as a result of Adelphia’s financial troubles, which ultimately resulted in a bankruptcy filing in June 2002. As a result, in June 2002, we established a bad debt reserve of $20.2 million in connection with our accounts receivable from Adelphia. In the third quarter of 2002, we sold a portion of our Adelphia accounts receivable to an unrelated third party, resulting in a net gain of approximately $4.3 million. Sales in 2003 to Adelphia have decreased from 2002 as a result of their bankruptcy. The company has taken initial steps to restructure itself through its bankruptcy proceedings, including obtaining debtor in possession financing. We have extended commercially reasonable credit terms to Adelphia in 2003 and they have consistently paid us within those terms. At the end of 2003, Adelphia owed us approximately $0.6 million. We are uncertain whether Adelphia will be successful with its financial restructuring and what impact, if any, this may have on our future relationship with them.

      Cabovisao, a Portugal-based MSO, accounted for approximately 6% of our total sales in 2002. As of November 18, 2003, Cabovisao owed us approximately $20.6 million in accounts receivable, all of which was past due. Cabovisao and its parent company, Csii, are in the process of restructuring their financing. On June 30, 2003, Csii filed for court-supervised restructuring and recapitalization in Canada. In 2003 and 2002, we reserved $8.7 million and $3.6 million, respectively, for our Cabovisao receivable. On November 18, 2003 we sold our accounts receivable due from Cabovisao to an unrelated party for $10.1 million, and as a result, recorded a gain with respect to our reserves for doubtful accounts of $1.5 million in the fourth quarter of 2003. CSii is continuing its restructuring efforts. We have and will continue to sell product to Cabovisao on “cash with order” terms. We are uncertain what effect these developments will have on our future relationship with them.

Research and Development

      We are committed to the development of new technology and rapid innovation in the evolving broadband market. New products are developed in our research and development laboratories in Suwanee, Georgia, Cork, Ireland, San Jose, California and Lisle, Illinois. We form strategic alliances with world-class producers and suppliers of complementary technology to provide “best-in-class” solutions focused on “time-to-revenue.”

      Research and development expenses in 2003, 2002, and 2001 were approximately $62.9 million, $72.5 million, and $29.8 million respectively. These costs include allocated common costs associated with information technologies and facilities. The increase in 2002 was directly attributable to the inclusion of the research and development activities of Arris Interactive L.L.C. beginning with our acquisition of Arris Interactive L.L.C. on August 3, 2001, and the development of new technology following our acquisition of Cadant, Inc. on January 8, 2002. The decrease in 2003 is attributable to the closure of our development center in Andover, Massachusetts and other cost containment actions described elsewhere.

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      We believe that our future success depends on rapid adoption and implementation of broadband local access industry specifications, as well as rapid innovation and introduction of technologies that provide service and performance differentiation. To that end, the Cadant C4 CMTS product line continues to lead the industry in areas such as fault tolerance, wire-speed throughput and routing, and density. The Cadant C3 is designed for small to mid-size operators who are looking for a CMTS that delivers superior RF performance while only occupying one rack unit of space for delivering high-speed data services. The Touchstone^TM product line offers a wide-range of DOCSIS, Euro-DOCSIS and PacketCable certified products, including Touchstone Cable Modems, Touchstone Telephony Modems and Touchstone Telephony Ports. These products are continuously being improved to include innovations that improve the subscriber’s experience and help to control operations expense.

      The following trends impact our current product development activities:

	•	Continued development and acceptance of open standards for delivering voice, video and data;
	•	Most US-based MSOs have announced plans to roll-out VoIP in 2004 (from limited markets to full market deployments);
	•	Continued increase in peer-to-peer services are accelerating demand for new services requiring intensive, high-touch processing and sophisticated management techniques;
	•	Innovations in video encode/decode technology are making possible very low bit rate, high quality video streaming; and
	•	Continued silicon integration and chip fabrication technology innovations are making possible very low cost, multi-functional broadband consumer devices, integrating not only telephony but wireless and video decompression and digital rights management functionality.

      As a result, our product development activities are primarily directed at the following areas:

	•	Rapid development and delivery of Cadant C4 and C3 CMTS features, including DOCSIS 2.0, DOCSIS Set-top Gateway (DSG) and PacketCable Multimedia support, Layer 3 routing enhancements, packet inspection and filtering features, security enhancements, and increased downstream/upstream density;
	•	Expanding the range of next-generation, Lithium-Ion-based, Touchstone Telephony Modem E-MTAs to include formats to meet country and MSO specific performance, powering and cost requirements; and
	•	Development of network and client technologies to address the emerging worldwide market opportunities in next generation video and multimedia delivery (video over IP, PacketCable multimedia, and alternative metro transport systems).

Intellectual Property

      We have an aggressive program for protecting our intellectual property. The program consists of maintaining our portfolio of 69 issued patents (both US and foreign) and pursuing patent protection on new inventions (currently more than 150 patent applications and provisional patent applications are pending). In our effort to pursue new patents, we have created a process whereby employees may submit ideas of inventions for review by management. The review process evaluates each submission for novelty, detectability, and commercial value, and patent applications are filed on the inventions that meet the criteria.

      Our patents and patent applications generally are in the areas of telecommunications hardware and software, and related technologies. Our recent research and development has led to a number of patent applications in technology related to DOCSIS. Our January 2002 purchase of the assets of Cadant resulted in the acquisition of 19 US patent applications, 7 Patent Convention Treaty (PCT) applications, 5 trademark applications, 1 U.S. registered trademark and 5 registered copyrights. The Cadant patents are in the area of cable modem termination systems. Our March 2003 purchase of the assets of Atoga Systems resulted in the acquisition of 5 U.S. patent applications, which also have been filed as PCT applications. Our Atoga patents

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      For technology that is not owned by us, we have a program for obtaining appropriate licenses with the industry leaders to ensure that the strongest possible patents support the licensed technology. In addition, we have formed strategic relationships with leading technology companies that will provide us with early access to technology and will help keep us at the forefront of our industry. The key technology not owned by us includes:

      Broadcom provides several DOCSIS components in our cable modem termination system, or CMTS, product line. This DOCSIS technology is licensed under the terms of an early access program agreement. The early access program agreement provides access to this technology for one year from product release and also provides most favored nation pricing for similar volumes and terms. Several of our competitors have similar agreements with Broadcom for these components.

      Texas Instruments provides components used in some of our customer premise equipment, or CPE, products (that is, embedded VoIP media terminal adapters, E-MTA, cable modems). Our agreements with Texas Instruments include technology licensing and component purchases. Several of our competitors have similar agreements with Texas Instruments for these components.

      In addition, we purchase software for operating network and security systems or sub-systems, and a variety of routing protocols from different suppliers under standard commercial terms, including source code buy-out arrangements.

      Although alternate supply and technology arrangements similar to the above are available or could be arranged, an interruption with any of the above companies could have a material impact on our business.

      We have a program for protecting and developing trademarks. The program consists of procedures for the use of current trademarks and for the development of new trademarks. This program is designed to ensure that our employees properly use those trademarks and any new trademarks that will develop strong brand loyalty and name recognition. This is intended to protect our trademarks from dilution or cancellation.

Product Sourcing and Distribution

      Our product sourcing strategy centers on the use of contract manufacturers to subcontract production. Our largest contract manufacturers are Solectron, Mitsumi, and AG Communications located in the United States, Japan, and the United States, respectively. The facilities owned and operated by these contract manufacturers for the production of our products are located in the United States, Mexico and the Philippines. Below is a summary of the key elements of our agreements with each of these companies:

      Solectron. We provide Solectron with a 12-month rolling, non-binding forecast. We typically have a minimum of 60 days of purchase orders placed with Solectron for product. Purchase orders for delivery within 60 days are not cancelable. Purchase orders with delivery past 60 days may be cancelled with penalties of 75% for deliveries between 60 and 90 days, and 50% for deliveries between 90 and 120 days. Purchase orders with deliveries past 120 days may be cancelled without penalty. No minimum volume requirements exist. Solectron provides us with an 18-month warranty. ARRIS and Solectron entered into a supply agreement in 1998. The agreement automatically renews annually. The agreement may be terminated by either party with 120 days notice.

      Mitsumi. We provide Mitsumi with a 12-month rolling, non-binding forecast. We typically have a minimum of 60 days worth of purchase orders placed with Mitsumi for product. Purchase orders for delivery within 60 days are not cancelable. Purchase orders with delivery past 60 days and up to 120 days may be

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      AG Communications. We provide AG Communications with a 6-month rolling, non-binding forecast. We typically have a minimum of 60 days worth of purchase orders placed with AG Communications for product. Purchase orders for delivery within 60 days are not cancelable. No minimum volume requirements exist. AG Communications provides us with an 18-month warranty. We have not yet entered into a formal supply agreement with AG Communications.

      We distribute a substantial number of products that are not designed or trademarked by us in order to provide our customers with a comprehensive product offering. For instance, we distribute hardware and installation products. These products are distributed through regional warehouses in North Carolina, California and Rotterdam, Netherlands and through drop shipments from our contract manufacturers located throughout the world.

      Prior to 2002, we manufactured or assembled a substantial portion of our products related to our Actives, Keptel and Power product lines. Manufacturing operations ranged from electro-mechanical, labor-intensive assembly to sophisticated electronic surface mount automated assembly lines. We operated five major manufacturing facilities related to these product lines. During the third quarter of 2001, we made the decision to outsource most of our manufacturing and have since closed four facilities located in El Paso, Texas and Juarez, Mexico. The remaining factory in Rock Falls, Illinois, was closed in conjunction with the sale of the Keptel product line in April 2002.

Backlog

      Our backlog consists of unfilled customer orders believed to be firm and long-term contracts that have not been completed. With respect to long-term contracts, we include in our backlog only amounts representing orders currently released for production or, in specific instances, the amount we expect to be released in the succeeding 12 months. The amount contained in backlog for any contract or order may not be the total amount of the contract or order. The amount of our backlog at any given time does not reflect expected revenues for any fiscal period. Our backlog at December 31, 2003 was approximately $53.0 million, at December 31, 2002 was approximately $43.8 million and at December 31, 2001 was approximately $119.2 million.

      We believe that substantially all of the backlog existing at December 31, 2003 will be shipped in 2004.

International Opportunities

      We sell our products primarily in North America. Our international revenue is generated from Asia Pacific, Europe, Latin America and Canada. The Asia Pacific market primarily includes China, Hong Kong, Japan, Korea, Singapore, and Taiwan. The European market primarily includes Austria, Belgium, France, Germany, Netherlands, Poland, Portugal, Spain, and Switzerland. The Latin American market primarily includes Argentina, the Bahamas, Chile, Colombia, Mexico, and Puerto Rico. Sales to international customers

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      We believe that international opportunities exist and continue to strategically invest in worldwide marketing efforts, which have yielded some promising results in several regions. During 2001, our international group was actively engaged in replacing the Nortel Networks sales and support infrastructure that was in place with Arris Interactive L.L.C. We have made significant operational and geographical changes in the international marketplace. We consolidated our international offices and warehouses to the Netherlands (to service northern Europe) and Spain (to service southern Europe). In 2002, we consolidated our international presence in the Far East by opening a sales and warehouse facility in Japan. We currently maintain international sales offices in Japan, Spain and the Netherlands.

Competition

      All aspects of our business are highly competitive. The broadband communications industry itself is dynamic, requiring companies to react quickly and capitalize on change. We must retain skilled and experienced personnel as well as deploy substantial resources to meet the changing demands of the industry. We compete with national, regional and local manufacturers, distributors and wholesalers including some companies larger than us. Our major competitors include:

	•	ADC Telecommunications, Inc.;
	•	Cisco Systems, Inc.;
	•	Motorola, Inc.;
	•	Scientific-Atlanta, Inc.;
	•	Tellabs, Inc.;
	•	Terayon Communications Systems, Inc.; and
	•	TVC Communications, Inc.

      Various manufacturers who are suppliers to us sell directly, as well as through distributors, into the cable marketplace. In addition, because of the convergence of the cable, telecommunications and computer industries and rapid technological development, new competitors may enter the cable market.

      Since the introduction in 1996 of our Cornerstone® Voice product line, our customers have deployed over 4 million lines, giving us approximately two-thirds of the overall CBR cable telephony market. We continue to grow this business with our established customer base and attempt to add new, usually smaller, accounts. Remaining competitors in this market are Tellabs and ADC. Both continue to service their existing installed base with upgrades and extensions.

      One of the principal growth markets for ARRIS is cable modem termination systems, or CMTS, which are the headend product for data and VoIP services. The largest provider of CMTS products is Cisco, which took an early lead in the initial deployment of data-only CMTS products. Cisco is expected to defend its position via both upgrades to existing products and the introduction of new products. At present Cisco continues to be a major player in data-only CMTS markets. Cisco had not previously developed a carrier-

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      The customer premises business consists of cable modems and voice over IP enabled modems. In the cable modem and E-MTA business, the dynamics are very different. Cable modem sales are primarily driven by price and supply chain issues while E-MTAs are focused primarily on performance. Motorola is the market leader in cable modems. This position provides them with volume advantages in manufacturing, distribution and marketing expense. Motorola also was successful in gaining an early leader status in E-MTA sales at MSOs that were the first to deploy VoIP. However, as this market accelerates, ARRIS has been gaining share with several of these customers. We compete on product throughput and our telephony experience and integration capabilities. Terayon has had some success in the cable modem business, especially in international markets. Scientific-Atlanta also has had some success in the cable modem market. ARRIS is a relatively small competitor in the cable modem market, but has a larger share of the E-MTA market. Both Scientific-Atlanta and Terayon also have E-MTA products and compete in this market. At present the E-MTA market is small but will grow as VoIP deployments ramp-up.

      In the supplies distribution business we compete with national distributors, like TVC Communications, Inc., and with several local and regional distributors. Product breadth, price, availability and service are the principal competitive advantages in the supply business.

      Some of our competitors, notably Cisco, Motorola and Scientific-Atlanta, are larger companies with greater financial resources and product breadth than us. This may enable them to bundle products or market and price products more aggressively than us.

      Our products are marketed with emphasis on quality and are competitively priced. Product reliability and performance, superior and responsive technical and administrative support, and breadth of product offerings are key criteria for competition. Technological innovations and speed to market are additional competitive factors.

Employees

      As of January 31, 2004, we had 791 full-time employees. We believe that we have maintained an excellent relationship with our employees. Our future success depends, in part, on our ability to attract and retain key executive, marketing, engineering and sales personnel. Competition for qualified personnel in the cable industry is intense, and the loss of certain key personnel could have a material adverse effect on us. We have entered into employment contracts with our key executive officers and have confidentiality agreements with substantially all of our employees. We also have a stock option program that is intended to provide substantial incentives for our key employees to remain with us.

Background and History

      ARRIS is the successor to ANTEC Corporation. From its inception until its initial public offering in 1993, ANTEC was primarily a distributor of cable television equipment and was owned and operated by Anixter, Inc. Subsequently ANTEC completed several important strategic transactions and formed joint ventures designed to expand significantly its product offerings. Most recently, ANTEC formed a new holding company, ARRIS, and acquired Nortel Networks’ interest in Arris Interactive L.L.C., which previously had been a joint venture between ANTEC and Nortel Networks.

      A synopsis of ARRIS’ evolution:

	•	1969 — Anixter entered the cable industry.
	•	1987 — Anixter acquired TeleWire Supply.

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	•	1988 — Anixter and AT&T developed the first analog video laser transmitter for the cable industry (Laser Link I).
	•	1991 — ANTEC was established.
	•	1993 — ANTEC’s initial public offering.
	•	1994 — ANTEC completed the acquisition of the following companies, which significantly expanded its product development and manufacturing capabilities:

	•	Electronic System Products, Inc., or ESP, an engineering consulting firm with core capabilities in digital design, RF design and application specific integrated circuit development for the broadband communications industry.
	•	Power Guard, Inc., a manufacturer of power supplies and high security enclosures for broadband communications networks.
	•	Keptel, Inc., a designer, manufacturer and marketer of outside plant telecommunications and transmission equipment for both residential and commercial use, primarily by telephone companies.

	•	1995 — ANTEC and Nortel Networks formed Arris Interactive L.L.C., focused on the development, manufacture and sale of products that enable the provision of a broad range of telephone and data services over HFC architectures; ANTEC initially owned 25% and Nortel Networks owned 75% of the Arris Interactive L.L.C. joint venture.
	•	1997 — ANTEC acquired TSX Corporation, which provided electronic manufacturing capabilities and expanded the Company’s product lines to include amplifiers and line extenders and enhanced laser transmitters and receivers and optical node product lines.
	•	1998 — ANTEC introduced the industry’s first 1550 nm narrowcast transmitter and dense wavelength division multiplexing, or DWDM, optical transmission system.
	•	1999 — ANTEC completed the combination of the Broadband Technology Division of Nortel Networks, which is known as LANcity, with Arris Interactive L.L.C., resulting in an increase in Nortel Networks’ interest in the joint venture to 81.25% while ANTEC’s interest was reduced to 18.75%.

ANTEC introduced the industry’s first 18-band block converter and combined that with the DWDM allowing 144 bands on a single fiber.

	•	2001 — ARRIS acquired all of Nortel Networks’ ownership interest in Arris Interactive L.L.C. in exchange for approximately 49% of the common stock of a newly formed holding company, ARRIS, and a Class B membership interest in Arris Interactive L.L.C.

ARRIS sold substantially all of its power product lines. During 2000, sales in those product lines were approximately $18.0 million, and during 2001 (through the date of the sale), sales were approximately $8.1 million. ARRIS continues as an authorized distributor and representative for these power product lines.

	•	2002 — ARRIS acquired substantially all of the assets of Cadant, Inc., a privately held designer and manufacturer of next- generation cable modem termination systems.

ARRIS sold its Keptel product line. During 2001, sales in this product line to telecommunications companies were approximately $44.8 million, and during 2002 (through the date of the sale), sales were approximately $7.5 million.

ARRIS sold its Actives product line. During 2001, sales in this product line were approximately $68.2 million, and during 2002 (through the date of the sale), sales were approximately $58.8 million.

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ARRIS closed its office in Andover, Massachusetts, which was primarily a product development and repair facility.

Nortel Networks sold 15 million shares of ARRIS through a public offering reducing their position to 22 million shares

ARRIS redeemed, for cash and stock, $91.1 million of its convertible notes due May 2003.

	•	2003 — ARRIS acquired certain assets of Atoga Systems, a Fremont, California-based developer of optical transport systems for metropolitan area networks.

ARRIS completed the redemption of its convertible notes due May 2003.

ARRIS raised $125 million through a private placement of convertible notes due 2008.

ARRIS retired, at a discount, the Class B membership interest due to Nortel Networks for $88.4 million.

ARRIS repurchased and retired 8 million shares from Nortel Networks for an aggregate purchase price of $30 million (taking into account the return of $2 million forgiven on the Class B membership interest), reducing Nortel’s position to 14 million shares.

ARRIS sold ESP, its engineering services product line.

ARRIS purchased certain assets of Com21 (including the stock of its Irish subsidiary), a designer and manufacturer of next generation cable modem termination systems.

Nortel Networks sold 9 million shares of ARRIS through a public offering reducing their position to 5 million shares.

ARRIS terminated its asset-based revolving bank credit facility.

	•	2004 — ARRIS converted on March 8, 2004 $50 million of its convertible notes due 2008. In connection with the redemption, ARRIS made a make-whole interest payment that included the issuance of approximately 467 thousand common shares.

      We currently conduct our operations from 12 different locations; two of which we own, while the remaining 10 are leased. These facilities consist of sales and administrative offices and warehouses totaling approximately 700,000 square feet. Our long-term leases expire at various dates through 2023. We believe that our current properties are adequate for our operations. A summary of our principal leased properties that are currently in use is as follows: