<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
--------------
Date of Report (Date of earliest event reported): July 31, 1998
General Instrument Corporation
(Exact name of registrant as specified in its charter)
Delaware 001-12925 36-4134221
(State of incorporation) (Commission File Number) (IRS Employer
Identification No.)
101 Tournament Drive, Horsham, Pennsylvania 19044
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 323-1000
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
Previously reported in Item 5 of Form 10-Q for the quarter ended
June 30, 1998 (File No. 001-12925).
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
Hits Access and Control Division Combined Financial Statements
as of and for the years ended December 31,1997 and 1996 and as
of and for the six months ended June 30, 1998 and 1997
(b) Pro Forma Financial Information.
Unaudited Pro Forma Consolidated Financial Statements of
General Instrument Corporation to reflect the acquisition of
certain assets of the Hits Access and Control Division
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors:
TCI Communications, Inc:
We have audited the accompanying combined balance sheets of the Hits Access and
Control Division (as defined in Note 1 to the combined financial statements) as
of December 31, 1997 and 1996, and the related combined statements of operations
and parent's investment, and cash flows for each of the years in the three-year
period ended December 31, 1997. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Hits Access and
Control Division as of December 31, 1997 and 1996 and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
--------------------
KPMG LLP
Denver, Colorado
March 26, 1999
<PAGE>
HITS ACCESS AND CONTROL DIVISION
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
ASSETS 1998 1997 1996
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Trade and other receivables, net $ 242,208 14,483 --
Property and equipment, at cost:
Capitalized software costs 9,571,474 8,001,983 4,339,050
Support equipment 6,152,084 5,473,323 2,839,267
Less accumulated depreciation
and amortization (4,951,944) (2,896,805) (1,030,987)
------------ ----------- ----------
10,771,614 10,578,501 6,147,330
------------ ----------- ----------
Deferred income taxes (note 3) 107,758 140,752 --
------------ ----------- ----------
$ 11,121,580 10,733,736 6,147,330
============ =========== ==========
LIABILITIES AND PARENT'S INVESTMENT
Accounts payable and accrued expenses $ 94,751 451,975 210,085
Deferred revenue 416,669 916,667 --
Deferred income taxes (note 3) -- -- 245,823
------------ ----------- ----------
Total liabilities 511,420 1,368,642 455,908
Parent's investment (note 4) 10,610,160 9,365,094 5,691,422
------------ ----------- ----------
Commitments and contingency (notes 4 and 5)
$ 11,121,580 10,733,736 6,147,330
============ =========== ==========
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE>
HITS ACCESS AND CONTROL DIVISION
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF OPERATIONS AND PARENT'S INVESTMENT
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
---------------------------- ------------------------------------------
1998 1997 1997 1996 1995
------------ ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Related party (note 4) $ 1,165,515 815,745 1,674,912 1,877,648 1,877,052
Other 781,689 4,641 426,334 -- --
------------ ---------- ---------- ---------- ----------
1,947,204 820,386 2,101,246 1,877,648 1,877,052
Operating costs and expenses:
Operating (note 4) 4,442,422 1,837,691 4,706,860 1,855,265 1,126,436
Selling, general and administrative (note 4) 1,990,105 1,717,260 4,398,401 3,279,423 2,597,158
Depreciation 590,684 418,699 837,399 482,637 377,260
Amortization 1,464,455 514,210 1,028,419 -- --
------------ ---------- ---------- ---------- ----------
Operating loss (6,540,462) (3,667,474) (8,869,833) (3,739,677) (2,223,802)
Other expenses -- -- -- (2,966) (10,196)
------------ ---------- ---------- ---------- ----------
Loss before income taxes (6,540,462) (3,667,474) (8,869,833) (3,742,643) (2,233,998)
Income tax benefit (note 3) 2,285,366 1,278,873 3,148,915 1,305,085 774,477
------------ ---------- ---------- ---------- ----------
Net loss (4,255,096) (2,388,601) (5,720,918) (2,437,558) (1,459,521)
Parent's investment:
Beginning of period 9,365,094 5,691,422 5,691,422 2,497,253 1,594,249
Change in due to Tele-Communications,
Inc. ("TCI") 5,500,162 4,697,295 9,394,590 5,631,727 2,362,525
------------ ---------- ---------- ---------- ----------
End of period $ 10,610,160 8,000,116 9,365,094 5,691,422 2,497,253
============ ========== ========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
3
<PAGE>
HITS ACCESS AND CONTROL DIVISION
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
---------------------------- ------------------------------------------
1998 1997 1997 1996 1995
------------ ----------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(4,255,096) (2,388,601) (5,720,918) (2,437,558) (1,459,521)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 2,055,139 932,909 1,865,818 482,637 377,260
Deferred income tax expense (benefit) 32,994 (193,287) (386,575) 42,070 118,735
Changes in operating assets and liabilities:
Change in receivables, net (227,725) (7,082) (14,483) -- --
Changes in other current assets -- -- -- -- 5,805
Change in accounts payable and accrued expenses (357,224) 48,816 241,890 81,885 128,200
Changes in deferred revenue (499,998) -- 916,667 -- --
----------- ---------- ---------- ---------- ----------
Net cash used by operating activities (3,251,910) (1,607,245) (3,097,601) (1,830,966) (829,521)
----------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Capital expended for support equipment (678,761) (1,185,325) (2,634,056) (612,678) (298,930)
Capitalized software costs (1,569,491) (1,904,725) (3,662,933) (3,104,976) (1,234,074)
----------- ---------- ---------- ---------- ----------
Net cash used in investing activities (2,248,252) (3,090,050) (6,296,989) (3,717,654) (1,533,004)
----------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Change in due to TCI 5,500,162 4,697,295 9,394,590 5,631,727 2,362,525
Proceeds from debt -- -- -- -- --
Repayments of debt -- -- -- (83,107) --
----------- ---------- ---------- ---------- ----------
Net cash used in financing activities 5,500,162 4,697,295 9,394,590 5,548,620 2,362,525
----------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash -- -- -- -- --
Cash:
Beginning of period -- -- -- -- --
----------- ---------- ---------- ---------- ----------
End of period $ -- -- -- -- --
=========== ========== ========== ========== ==========
Supplemental disclosure of cash flow information:
Equipment under capital lease $ -- -- -- -- 83,107
=========== ========== ========== ========== ==========
Obligation under capital lease -- -- -- -- 83,107
=========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE>
HITS ACCESS AND CONTROL DIVISION
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(1) BASIS OF PRESENTATION
The combined financial statements include the accounts of the Hits Access
and Control Division ("The Company") of the National Digital Television
Center, Inc. ("NDTC"), which is an indirectly wholly-owned subsidiary of
Tele-Communications, Inc. ("TCI"). All significant inter-entity accounts
and transactions have been eliminated in combination. The combined net
assets of the Company are referred to as "Parent's Investment."
The Company provides cable operators and other television service
providers with securely encrypted messages to control viewer access all
the way to the subscriber set-top box from a single national location,
thereby reducing the need for local staffing and headend equipment.
Effective July 17, 1998, NDTC and General Instrument Corporation ("GI")
executed an Asset Purchase Agreement, whereby NDTC exchanged certain
operating assets of the Company and other consideration for 21,356,000
shares of GI common stock (the "Purchase Transaction").
The accompanying interim combined financial statements are unaudited but,
in the opinion of management, reflect all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the
results of such periods. The results of operations for any interim period
are not necessarily indicative of the results of operations for the full
year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) RECEIVABLES
Receivables are reflected net of an allowance for doubtful
accounts. Such allowance at December 31, 1997 and 1996 was
not significant.
(B) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is
computed on a straight-line basis using estimated useful lives
of 3 to 7 years for distribution systems.
(C) CAPITALIZED SOFTWARE COSTS
Pursuant to SFAS No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED, the Company
capitalizes certain software development and production costs
once technological feasibility has been achieved. The cost of
purchased software is capitalized when related to a product which
has achieved technological feasibility or that has an alternative
future use. Software development costs incurred prior to achieving
technological feasibility are charged to expense as incurred.
Capitalization of software costs ceases when services are made
available to customers. The costs related to modifications of
software which provide additional enhancements or functionality
are also capitalized.
5
<PAGE>
HITS ACCESS AND CONTROL DIVISION
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Capitalized software development and purchased software costs are
reported at the lower of unamortized cost or net realizable value.
As of June 30, 1998, December 31, 1997 and 1996, unamortized
deferred software costs were $7,078,600, $6,973,564 and
$4,339,050, respectively. Commencing at initial product release,
these costs are amortized based on the straight-line method over
an estimated life of three years. During the year ended December
31, 1997, the year of initial product release and the six-months
ended June 30, 1998, the Company recorded $1,028,419 and
$1,464,455 of amortization of deferred software costs,
respectively.
(D) IMPAIRMENT OF LONG-LIVED ASSETS
Management periodically reviews the carrying amounts of property,
plant and equipment and its intangible assets to determine whether
current events or circumstances warrant adjustments to such
carrying amounts. If an impairment adjustment is deemed necessary,
such loss is measured by the amount that the carrying value of
such assets exceeds their fair value. Considerable management
judgment is necessary to estimate the fair value of assets,
accordingly, actual results could vary significantly from such
estimates. Assets to be disposed of are carried at the lower of
their financial statement carrying amount or fair value less costs
to sell.
(E) REVENUE RECOGNITION
Authorization revenue is recognized in the period that services are
delivered.
(F) STATEMENTS OF CASH FLOWS
Transactions effected through the intercompany account with TCI
have been considered constructive cash receipts and payments for
purposes of the statements of cash flows.
(G) ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(3) INCOME TAXES
The Company's operations were included in the consolidated federal income
tax return of TCI. Income tax expense for the Company is based on those
items in the consolidated calculation applicable to the Company.
Intercompany tax allocation represents an apportionment of tax expense or
benefit (other than deferred taxes) among subsidiaries of TCI in relation
to their respective amounts of taxable earnings or losses. The payable or
receivable arising from the intercompany tax
6
<PAGE>
HITS ACCESS AND CONTROL DIVISION
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
allocation is recorded as an increase or decrease in amounts due to TCI.
Deferred income taxes are based on the book and tax basis differences of
the assets and liabilities within the Company.
Net deferred income taxes are provided for temporary differences between
the financial statement carrying amount of the existing assets and
liabilities and their respective tax basis. These temporary differences
are comprised of deferred revenue, certain capitalized expenses and
property and equipment.
Income tax (expense) benefit for the years ended December 31, 1997, 1996
and 1995 consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- ---------- ----------
<S> <C> <C> <C>
Year ended December 31, 1997:
Intercompany allocation $ 2,762,340 -- 2,762,340
Federal -- 318,154 318,154
State and local -- 68,421 68,421
----------- ---------- ----------
$ 2,762,340 386,575 3,148,915
=========== ========== ==========
Year ended December 31, 1996:
Intercompany allocation $ 1,347,155 -- 1,347,155
Federal -- (34,624) (34,624)
State and local -- (7,446) (7,446)
----------- ---------- ----------
$ 1,347,155 (42,070) 1,305,085
=========== ========== ==========
Year ended December 31, 1995:
Intercompany allocation $ 893,212 -- 893,212
Federal -- (97,720) (97,720)
State and local -- (21,015) (21,015)
----------- ---------- ----------
$ 893,212 (118,735) 774,477
=========== ========== ==========
</TABLE>
7
<PAGE>
HITS ACCESS AND CONTROL DIVISION
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Income tax (expense) benefit differs from the amounts computed by
applying the federal income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Computed "expected" tax benefit $3,104,441 1,309,925 781,899
State and local income taxes, net of federal
income tax (expense) benefit 44,474 (4,840) (7,422)
---------- ---------- --------
$3,148,915 1,305,085 774,477
========== ========== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liabilities at
December 31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
--------- --------
<S> <C> <C>
Deferred tax assets:
Revenue deferred for book purposes $ 362,542 --
Capitalized software, principally due
to differences in amortization 90,261 --
--------- --------
Total gross deferred tax assets 452,803 --
Deferred tax liabilities, property and equipment,
principally due to differences in depreciation (312,051) (245,823)
--------- --------
Net deferred tax asset (liability) $ 140,752 (245,823)
========= ========
</TABLE>
(4) RELATED PARTY TRANSACTIONS
The Company provided encryption and authorization services to TCI,
pursuant to an intercompany arrangement, which totaled $1,674,912,
$1,877,648 and $1,877,052 for years ended December 31, 1997, 1996 and
1995 and $1,165,515 and $815,745 for the six-months ended June 30, 1998
and 1997, respectively.
The Company was allocated total rent expense of $114,248, $93,544 and
$90,834 for the years ended December 31, 1997, 1996 and 1995 and $62,661
and $57,124 for the six-months ended June 30, 1998 and 1997,
respectively.
The Company was allocated corporate overhead expense of $952,845,
$473,850 and $408,153 for the years ended December 31, 1997, 1996 and
1995 and $399,927 and $236,925 for the six-months ended June 30, 1998 and
1997, respectively.
8
<PAGE>
HITS ACCESS AND CONTROL DIVISION
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(5) YEAR 2000
TCI formed a Year 2000 Program Management Office (the "PMO") to organize
and manage its Year 2000 remediation efforts. The PMO is responsible for
overseeing, coordinating and reporting on TCI's Year 2000 remediation
efforts, including the Year 2000 remediation efforts of the Company prior
to the Purchase Transaction. Subsequent to the date of the Purchase
Transaction, the Year 2000 remediation efforts of the Company are no
longer the responsibility of TCI, NDTC or the PMO.
The failure to correct a material Year 2000 problem could result in an
interruption or failure of certain important business operations. There
can be no assurance that the Company's systems or the systems of other
companies on which the Company relies will be converted in time or that
any such failure to convert by the Company or other companies will not
have a material adverse effect on its financial position, results of
operations or cash flows.
9
<PAGE>
GENERAL INSTRUMENT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements (the
"Pro Forma Financial Statements") are based on General Instrument Corporation's
(the "Company") audited consolidated financial statements for the year ended
December 31, 1997 and the unaudited consolidated financial statements as of and
for the six months ended June 30, 1998, adjusted to give effect to the
acquisition of certain HITS Access and Control Division ("HITS") assets by the
Company in connection with the Asset Purchase Agreement, dated June 17, 1998,
between the Company and two affiliates of TCI, TCIVG-GIC, Inc. and NDTC
Technology, Inc., collectively, TCI (the "Asset Purchase Agreement").
The Pro Forma Consolidated Balance Sheet gives effect to the acquisition
as if it had occurred as of June 30, 1998. The Pro Forma Consolidated Statements
of Operations for the year ended December 31, 1997 and the six months ended June
30, 1998 include the results of the HITS business prior to the acquisition by
the Company of certain HITS assets ("Historical HITS") as if such acquisition
had occurred as of the beginning of the earliest period presented. The
adjustments are described in the accompanying notes and are based upon available
information and certain assumptions that management believes are reasonable. The
Pro Forma Financial Statements do not purport to represent what the Company's
results of operations or financial condition would actually have been had the
acquisition in fact occurred on such dates or to project the Company's results
of operations for any future period or financial condition at any future date.
The Pro Forma Financial Statements should be read in conjunction with the
Company's 1997 annual report on Form 10-K, as amended, and the Company's Form
10-Q, as amended, for the period ended June 30, 1998.
<PAGE>
GENERAL INSTRUMENT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
JUNE 30, PRO FORMA JUNE 30,
1998 ADJUSTMENTS (1) 1998
----------- --------------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 82,854 $ 82,854
Short-term investments 25,659 25,659
Accounts receivable 323,000 323,000
Inventories 261,031 261,031
Deferred income taxes 121,494 121,494
Other current assets 14,112 14,112
----------- ----------- -----------
Total current assets 828,150 -- 828,150
Property, plant and equipment, net 226,918 2,000 228,918
Intangibles 76,171 427,532 503,703
Excess of cost over fair value of net assets acquired 457,418 457,418
Deferred income taxes 19,889 19,889
Investments and other assets 84,723 84,723
----------- ----------- -----------
TOTAL ASSETS $ 1,693,269 $ 429,532 $ 2,122,801
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 203,780 203,780
Other accrued liabilities 170,993 170,993
----------- ----------- -----------
Total current liabilities 374,773 -- 374,773
Deferred income taxes 5,663 29,716 35,379
Other non-current liabilities 62,525 62,525
----------- ----------- -----------
Total liabilities 442,961 29,716 472,677
----------- ----------- -----------
Commitments and contingencies
Stockholders' Equity:
Preferred Stock -- --
Common Stock 1,517 213 1,730
Additional paid-in capital 1,282,428 442,923 1,725,351
Note receivable from stockholder -- (43,320) (43,320)
Accumulated deficit (49,165) (49,165)
Accumulated other comprehensive income 15,530 15,530
----------- ----------- -----------
1,250,310 399,816 1,650,126
Less - Treasury Stock, at cost (2) (2)
----------- ----------- -----------
Total stockholders' equity 1,250,308 399,816 1,650,124
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,693,269 $ 429,532 $ 2,122,801
=========== =========== ===========
</TABLE>
(1) Reflects the allocation of purchase price paid related to the fair value
of certain assets acquired in connection with the Asset Purchase
Agreement. In exchange for 21.4 million restricted shares of Company
Common Stock, the Company received fixed assets valued at $2 million, a
license to certain intellectual property from TCI valued at $428 million
and a $50 million note receivable payable over a five year period. With
respect to this acquisition, a deferred tax liability was recorded to
reflect a basis difference in the assets acquired, primarily the license.
The present value of the $50 million note receivable ($43 million) was
recorded as a reduction of stockholders' equity. The purchase price was
computed by multiplying the number of Company common shares by the per
share trading price of the shares on the transaction date, reduced by a
10% discount to reflect the restrictions associated with the shares,
adjusted for the $50 million reduction in purchase price related to the
note receivable discussed above.
<PAGE>
GENERAL INSTRUMENT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
COMPANY HITS ADJUSTMENTS COMPANY
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 1,764,088 $ 2,101 $ 1,766,189
Cost of sales 1,336,482 6,573 (469)(1) 1,342,586
----------- --------- ----------- -----------
GROSS PROFIT 427,606 (4,472) 469 423,603
OPERATING EXPENSES:
Selling, general and administrative 215,404 4,398 219,802
Research and development 207,826 207,826
Amortization of excess of cost over fair value
of net assets acquired 14,571 14,571
----------- --------- ----------- -----------
Total operating expenses 437,801 4,398 -- 442,199
OPERATING INCOME (LOSS) (10,195) (8,870) 469 (18,596)
Other income - net 5,766 5,766
Interest expense - net (5,210) (5,210)
----------- --------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (9,639) (8,870) 469 (18,040)
(Provision) benefit for income taxes (6,474) 3,149 43(2) (3,282)
----------- --------- ----------- -----------
NET INCOME (LOSS) $ (16,113) $ (5,721) $ 512 $ (21,322)
=========== ========= =========== ===========
PRO FORMA LOSS PER SHARE - BASIC AND DILUTED $ (0.11) $ (0.13)
=========== ===========
PRO FORMA WEIGHTED-AVERAGE SHARES OUTSTANDING 147,523 168,879 (3)
</TABLE>
(1) Adjustment includes a reduction of depreciation expense of approximately
$.2 million since the Company acquired only certain HITS fixed assets.
Adjustments also reflect the elimination of amortization of capitalized
software costs of $1 million and the recording of amortization expense of
$.7 million related to the license acquired by the Company. The cost of
the license is being amortized by the Company over its 20-year term based
on the expected revenue stream. The revenue earned from the license is
solely dependent on the Company's deployment of digital terminals. Such
deployment is expected to rise significantly during the 20-year term. The
Company expects revenues to rise from its current levels to approximately
$44 million by 2002 to approximately $70 million by 2007 to approximately
$80 million per annum during the last seven years of the 20-year license
term. The Company believes the expected revenue stream is a reliable
measure of the future benefit of the license both in the aggregate and in
terms of the periods to which such benefit will be realized. Accordingly,
the Company believes this method of amortization is a more appropriate
method than straight-line. At each reporting date, the Company's method of
amortization requires the determination of a fraction, the numerator of
which is the actual revenues for the period and the denominator of which
is the expected revenues from the license during its 20-year term. This
method results in any variation from original estimates being recognized
in the current period in a manner consistent with a units-of-production
method of depreciation.
(2) Represents the tax adjustment necessary to reflect the HITS results, as
adjusted, at 38%, the Company's combined tax rate.
(3) Pro forma weighted-average shares have been adjusted to reflect the 21.4
million shares issued in connection with the Asset Purchase Agreement.
<PAGE>
GENERAL INSTRUMENT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,1998
-------------------------------------------------------------
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
COMPANY HITS ADJUSTMENTS COMPANY
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 905,425 $ 1,947 $ 907,372
Cost of sales 671,316 6,497 (1,046)(1) 676,767
--------- --------- --------- ---------
GROSS PROFIT 234,109 (4,550) 1,046 230,605
OPERATING EXPENSES:
Selling, general and administrative 101,768 1,990 103,758
Research and development 158,169 158,169
Amortization of excess of cost over fair value
of net assets acquired 7,123 7,123
--------- --------- --------- ---------
Total operating expenses 267,060 1,990 -- 269,050
OPERATING INCOME (LOSS) (32,951) (6,540) 1,046 (38,445)
Other income - net (9,804) (9,804)
Interest expense - net (1,264) (1,264)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (44,019) (6,540) 1,046 (49,513)
(Provision) benefit for income taxes 14,090 2,285 (197)(2) 16,178
--------- --------- --------- ---------
NET INCOME (LOSS) $ (29,929) $ (4,255) $ 849 $ (33,335)
========= ========= ========= =========
LOSS PER SHARE - BASIC AND DILUTED $ (0.20)
=========
WEIGHTED-AVERAGE SHARES OUTSTANDING 150,450
PRO FORMA LOSS PER SHARE - BASIC AND DILUTED $ (0.19)
=========
PRO FORMA WEIGHTED-AVERAGE SHARES OUTSTANDING 171,806 (3)
</TABLE>
(1) Adjustment includes a reduction of depreciation expense of approximately
$.3 million since the Company acquired only certain HITS fixed assets.
Adjustments also reflect the elimination of amortization of capitalized
software costs of $1.5 million and the recording of amortization expense
of $.7 million related to the license acquired by the Company. The cost of
the license is being amortized by the Company over its 20-year term based
on the expected revenue stream. The revenue earned from the license is
solely dependent on the Company's deployment of digital terminals. Such
deployment is expected to rise significantly during the 20-year term. The
Company expects revenues to rise from its current levels to approximately
$44 million by 2002 to approximately $70 million by 2007 to approximately
$80 million per annum during the last seven years of the 20-year license
term. The Company believes the expected revenue stream is a reliable
measure of the future benefit of the license both in the aggregate and in
terms of the periods to which such benefit will be realized. Accordingly,
the Company believes this method of amortization is a more appropriate
method than straight-line. At each reporting date, the Company's method of
amortization requires the determination of a fraction, the numerator of
which is the actual revenues for the period and the denominator of which
is the expected revenues from the license during its 20-year term. This
method results in any variation from original estimates being recognized
in the current period in a manner consistent with a units-of-production
method of depreciation.
(2) Represents the tax adjustment necessary to reflect the HITS results, as
adjusted, at 38%, the Company's combined tax rate.
(3) Pro forma weighted-average shares have been adjusted to reflect the 21.4
million shares issued in connection with the Asset Purchase Agreement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GENERAL INSTRUMENT CORPORATION
(Registrant)
By: /s/ Robert A. Scott
-------------------------------
Robert A. Scott
Senior Vice President,
General Counsel and Secretary
Date: April 2, 1999