UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended December
31, 1995
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
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Commission file number 1-5442
GENERAL INSTRUMENT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3575653
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8770 West Bryn Mawr Avenue
Chicago, Illinois 60631
(Address of principal executive offices) (Zip Code)
(312) 695-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------------------------------------- --------------------
Common Stock, par value $.01 per share New York Stock Exchange
5% Convertible Junior Subordinated Notes due 2000 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $2.6 billion as of March 15, 1996 (based on the
closing price of the stock on the New York Stock Exchange on that date). For
purposes of this computation, shares held by affiliates and by directors and
officers of the registrant have been excluded. Such exclusion of shares held by
directors and officers is not intended, nor shall it be deemed, to be an
admission that such persons are affiliates of the registrant.
Number of shares of Common Stock, par value $.01 per share, outstanding
as of March 15, 1996: 126,054,985.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to Stockholders for the fiscal
year ended December 31, 1995 are incorporated by reference in Parts I, II and
IV. Portions of the Company's definitive Proxy Statement filed with the
Securities and Exchange Commission are incorporated by reference in Part III.
<PAGE>
PART l
Item 1. BUSINESS
Unless the context otherwise requires, references to the "Company" or "GI"
include General Instrument Corporation and its direct or indirect subsidiaries,
including General Instrument Corporation of Delaware ("GI Delaware"), the
Company's principal operating subsidiary.
General
General Instrument Corporation (the "Company" or "GI") is a world leader
in developing technology, systems and product solutions for the interactive
delivery of video, voice and data, as well as the development of discrete
semiconductors. The Company's Broadband Communications segment, which is
comprised of the GI Communications, CommScope and Next Level Communications
divisions, represented 83% of the Company's consolidated sales for the year
ended December 31, 1995. Broadband Communications offers a variety of products
and services for the cable and satellite television industries, including active
and passive electronics, subscriber terminals, coaxial and fiber optic cable and
encryption/decryption equipment for the scrambling and descrambling of satellite
television programming. The Company's 1995 acquisition of Next Level
Communications marks GI's entry into the telephone local loop access market. The
Power Semiconductor Division represented 17% of the Company's consolidated sales
for the year ended December 31, 1995, and is a world leader in the sale of power
rectifiers and related transient voltage suppression components used in
telecommunications, automotive and consumer electronic products. The Company was
organized in 1990 in connection with the acquisition of General Instrument
Corporation, then a publicly traded company, by affiliates of Forstmann Little &
Co., a private investment firm. Additional information regarding the Company's
industry segments appear in note 13 to the Company's consolidated financial
statements included in the Annual Report to Stockholders for the year ended
December 31, 1995 (the "1995 Annual Report"), incorporated herein by reference.
The Company's Broadband Communications Strategy
The Company's strategy is to enhance its market leadership position as a
provider of broadband systems and equipment by emphasizing the following
factors:
o Technological Leadership and New Product Development. GI is a world
leader in the development and implementation of new "enabling"
technologies for advanced television signal transmission. GI has
continually developed technological "firsts," including digital
high-definition television, advanced network development and
management techniques, videoware, digital processing and
transmission and signal security measures.
o Technologically Varied Products Across a Broad Cross Section of
Markets. GI offers a complete end-to-end solution from the
programming source, through a wireless or wired distribution
network into consumers' homes. Using either analog or digital
technologies, GI can deliver information and entertainment to
consumers' homes via direct-to-home satellite, wireless cable and
traditional cable using hybrid fiber/coaxial architectures and
fiber-to-the-curb architectures. With telecommunications reform
legislation enacted in 1996, the Company believes its end-to-end
product lines give it significant competitive advantages in
developing new broadband technologies for cable television
operators, local telephone companies, long distance companies and
other telecommunications concerns.
o Increasing the Installed Base. The Company believes that it has
supplied the majority of the addressable systems in use by cable
television operators in the United States and abroad. GI's strategy
has been to expand the number of installed systems which utilize
its hardware and software to control network security, services and
programming access and to increase its product content in these
systems.
o Rapid International Expansion. The Company believes that the
development of international markets is an important factor in its
future growth due to low cable television penetration, paired with
growing demand for programming. The Company believes it is poised
to capture these opportunities with solutions as simple or as
complex as these markets require (See "International Markets"
below).
o Strategic Alliances. GI has formed strategic partnerships that
enable GI to remain a single-sourced equipment partner for
companies competing in numerous markets: wired and wireless, analog
and digital, and high-end and low-end systems.
Broadband Communications
The Company's Broadband Communications segment, which represented 83%,
84% and 81% of the Company's consolidated sales for the years ended December 31,
1995, 1994 and 1993, respectively, consists of the GI Communications, CommScope
and Next Level Communications divisions. The GI Communications Division is
the world's leading provider of addressable systems and subscriber terminals
for the cable television industry. It is also a market leader in satellite
television encryption and broadband digital compression technologies, as well
as a leading manufacturer in radio frequency and fiber optic distribution
electronics. CommScope, which represented 20%, 22% and 25% of the Company's
consolidated sales for the years ended December 31, 1995, 1994 and 1993,
respectively, is a leading supplier of both coaxial and fiber optic cable to the
cable television industry. Next Level Communications is designing and
developing products to permit the cost-effective delivery of a suite of standard
telephony and advanced services such as work-at-home, distance learning,
video-on-demand and video-telephony to the home from a single access platform.
GI Communications Division
Analog Terrestrial Products. The Company's principal analog terrestrial
products include subscriber and distribution hardware and software. Analog
terrestrial subscriber products represented 26%, 27% and 24% of the Company's
consolidated sales in the years ended December 31, 1995, 1994 and 1993,
respectively. Subscriber products include primarily addressable systems which
permit control, through a set-top terminal, of a subscriber's cable television
services from a central headend computer without requiring access to the
subscriber's premises. Addressable systems also enable a cable television
operator to more easily provide pay-per-view programming services and multiple
tiers of programming packages. Analog terrestrial distribution products
represented 11%, 13% and 11% of the Company's consolidated sales in the years
ended December 31, 1995, 1994 and 1993, respectively. Distribution products
include headend signal processing equipment, distribution amplifiers, fiber
optic transmission equipment and passive components for wired television
distribution systems.
Beginning in mid-1992 and continuing through 1995, GI has experienced
significant increases in purchase orders for its analog products both from
domestic and international customers. GI's sales of analog addressable systems
reached their highest levels to date in 1995 when the Company shipped more than
5.2 million analog addressable set-top terminals, an 11% increase over 1994
shipments and a 92% increase over 1993 shipments. In the U.S., GI is the market
share leader in the addressable market, with more than 50% of that market. The
Company believes that cable operators have sought to improve the quality,
capacity and capabilities of their networks during this period by increasing
their capital spending for addressable systems and distribution infrastructure
upgrades. GI expects cable operators in the U.S. and abroad to continue to
upgrade their basic networks and invest in new system construction primarily to
compete with other television programming sources, such as direct broadcast
satellite ("DBS") and cable networks planned by some telephone companies, and to
develop, using U.S. architecture and systems, international markets where cable
penetration is low and demand for entertainment programming is growing. See
"Sales and Distribution" below. Beginning in the second quarter of 1995, the
Company began shipping its CFT 2200 advanced analog terminal, which increased
the functionality and features of its prior analog addressable subscriber
terminals, with more than 475,000 terminals shipped in 1995. The CFT 2200
incorporates a user feature platform that allows cable operators to write
applications for new services, including electronic program guides,
supplementary sports and entertainment information and play-along game shows,
and can be modularly upgraded to deliver digital audio, providing CD-quality
simulcasts of premium services. The CFT 2200 can also be upgraded to DigiCipher
II/MPEG-2, the Company's second generation end-to-end digital television system
which incorporates the Motion Picture Experts Group 2 ("MPEG-2") international
standard for digital compression and transport. To date, GI has received
commitments and letters of intent for approximately 3.5 million CFT 2200
terminals.
Digital Terrestrial Products. The Company believes that the
commercialization of advanced digital broadband systems and equipment, which
provide for greatly expanded channel capacity and programming options, improved
quality and security of signal transmission and the capability of delivering
enhanced features and services, will be an important market for GI. The Company
believes that its potential position in this developing market is significantly
enhanced by GI's leadership in a key enabling technology, digital compression,
which allows the broadcast of multiple digital channels in the same bandwidth
occupied by one uncompressed video channel. The Company has developed a digital
television system, DigiCipher, that enables satellite programmers and cable
television operators to deliver over their existing networks four to ten times
as much information as is possible with existing analog technology. GI's
DigiCipher system was the first digital video compression system to demonstrate
capabilities over cable and satellite television networks, and GI began shipping
its first-generation DigiCipher I digital encoders and decoders for satellite
programmers and cable television commercial headend operators in 1993 (See also
"Analog and Digital Satellite Products" below).
The Company expects that cable, satellite and other broadband network
operators will begin to deploy digital terminals in their customers' homes in
order to take advantage of the enhanced capabilities of the digital networks.
The rate of deployment will depend largely on consumer demand for new services
made available through the digital network and the relative cost of the more
advanced digital terminals. To date, GI has obtained commitments and letters of
intent for approximately 3 million of its DigiCable(TM) digital subscriber
terminals from major North American cable system operators and GTE Corporation.
GI has entered into an agreement to supply network equipment, featuring CFT 2200
and DigiCable digital terminals, for the first three sites of GTE Corporation's
planned hybrid fiber/coaxial cable network. GI is working with AT&T Network
Systems to bring advanced services to GTE's customers in these new video
dial-tone networks.
GI's DigiCable terminals incorporate the Motion Picture Experts Group 2
international standard, and DigiCipher II/MPEG-2 has the capacity to carry
various video, audio and data elements through a complex information
infrastructure that will have an improved capability to interact with other
consumer devices using MPEG-2 compression. The development of DigiCipher
II/MPEG-2 took longer than anticipated as a result of several factors, including
increased system complexity, evolving international MPEG-2 standards and other
system design issues. As a result, volume shipments of these advanced digital
cable terminals are not expected to begin until the second half of 1996,
although there can be no assurance that additional delays will not occur. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - New Technologies" incorporated herein by reference from the 1995
Annual Report.
Analog and Digital Satellite Products. GI Communications markets analog
and digital uplink and downlink products for commercial and consumer use. Using
DigiCipher technology, GI enables commercial customers to compress their video,
audio and data transmissions resulting in significant cost savings over
traditional analog transmission. GI also offers state of the art Network
Management and Access Control products and services allowing program packagers
to efficiently and cost effectively manage customer transactions and securely
transmit their content to only authorized end-users. For consumers, GI provides
"user friendly" graphical user interfaces, excellent video quality and high-end
audio reception. Satellite products represented 26%, 23% and 22% of the
Company's consolidated sales for the years ended December 31, 1995, 1994 and
1993, respectively. GI is the largest manufacturer of access control and
scrambling and descrambling equipment used by television programmers for the
satellite distribution of proprietary programming.
The Company's analog satellite products are the exclusive systems for the
distribution of encrypted C-Band satellite-delivered programming to cable
television operators and large-diameter backyard satellite dish owners. The
system consists primarily of scramblers, which are installed at the point where
the programming originates, and descramblers, which are installed at the
commercial headends of cable television systems or purchased by consumers for
use with their backyard C-Band satellite dishes. As a result of a number of
factors, including significant black-market economic incentives, the Company's
first generation system, VideoCipher(TM) II, was illegally modified ("pirated"),
beginning in the mid-1980s, by approximately 1.3 million consumers who received
programming for free. In 1989, GI introduced VideoCipher II Plus(TM), a
second-generation product which, to GI's knowledge, has not been "pirated." In
1991, in recognition of the need to provide ongoing security enhancements, GI
introduced VideoCipher RS(TM), whereby security can be upgraded by inserting a
credit-card-like TVPass Card(TM) into the module instead of replacing the
module. In 1993, the Company completed a two-part security upgrade program where
GI replaced the VideoCipher II units of the customers of several providers of
premium programming with VideoCipher RS units, and those programmers ceased
transmission of the VideoCipher II programming signals. The Company believes
this program restored security of the backyard C-Band satellite dish market to
acceptable levels. In addition, the Company believes the security upgrade
resulted in the one-time sale of more than 800,000 VideoCipher RS units between
the second-quarter of 1992 and the second-quarter of 1994 to former "pirate"
consumers who wanted to restore their access to scrambled programming. In 1995,
sales of the VideoCipher RS modules were at lower levels as expected, with
approximately 250,000 fewer modules shipped in 1995 as compared to 1994.
GI Communication's digital satellite products include primarily the
DigiCipher I system, the world's first digital compression, access control and
encryption transport system, designed for the delivery of video entertainment
signals. Comparable to the analog satellite system, the digital system relies on
encoders located at the point where programming originates, and decoders,
located at either commercial headends or at consumers' homes for use with their
satellite dishes. The Company supplies DigiCipher I digital consumer receivers
to PRIMESTAR Partners, a consortium of cable television operators and GE
Americom, which offers a medium-power Ku-band direct-to-home satellite
television system. Under agreements with PRIMESTAR, GI will be PRIMESTAR's
exclusive provider of receivers through 1996. PRIMESTAR generally competes with
Hughes Electronic Corporation's DirecTV high-power Ku-band satellite television
system. GI began deployment of DigiCipher I consumer receivers to PRIMESTAR in
the second quarter of 1994, and through December 31, 1995, the Company had
delivered approximately 1.5 million DigiCipher I receivers to PRIMESTAR.
PRIMESTAR has informed the Company that it has deferred its transition to the
Company's DigiCipher II/MPEG-2 digital transmission system, and instead, plans
to expand its use of the Company's DigiCipher I digital consumer satellite
receivers in 1996, expecting to purchase more than 1 million additional
DigiCipher I digital consumer satellite receivers in 1996. The Company had
previously anticipated delivering DigiCipher II/MPEG-2 upgrade modules for
existing receivers in use by PRIMESTAR customers in 1996. All of the DigiCipher
consumer receivers that the Company supplies to PRIMESTAR are designed to accept
an upgrade module, which allow the receivers to be easily upgraded to the
Company's DigiCipher II/MPEG-2 system. The Company currently has a worldwide
installed base of 171 DigiCipher I digital satellite systems with the capacity
to deliver 501 channels of digital programming. In addition, through the
DigiCipher satellite system, GI has become a market leader in digital private
satellite television networks for business communications and distance learning.
The Company began shipment of its DigiCipher II/MPEG-2 system to satellite
television programmers in early 1996 and has obtained commitments to deliver 58
digital satellite encoders with the capacity to transmit 290 channels of digital
programming. The Company expects to begin delivery of DigiCipher II/MPEG-2
systems to cable television operators in the second half of 1996, although there
can be no assurance that additional delays will not occur. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations - New
Technologies" incorporated herein by reference from the 1995 Annual Report.
CommScope
CommScope is the largest manufacturer and supplier of coaxial cable for
cable television applications in the U.S. in terms of sales volume, with more
than a 50% market share. CommScope also manufactures fiber optic cable under a
non-exclusive license from AT&T Corporation for sale to cable television
customers in the United States. In addition, CommScope manufactures and sells
other electronic cable primarily for local area network applications in the
United States.
The Company believes that CommScope's competitive strength in the coaxial
cable market is due to its extensive coaxial cable product line and its
efficient, low-cost manufacturing and delivery capability. CommScope's
manufacturing facility in Catawba, North Carolina, is highly automated, operates
24 hours a day and is capable of producing approximately 400 miles of trunk and
distribution coaxial cable and over 5 million feet of dropwire per day. In 1995,
CommScope shipments of dropwire and distribution coaxial cable increased an
average of 3% over the levels shipped in 1994. In order to meet increased demand
for dropwire, in 1995 CommScope constructed a new manufacturing facility in
Scottsboro, Alabama, to be used primarily for the production of dropwire.
Growth in demand for coaxial cable has occurred over the past several
years despite the replacement of coaxial cable with fiber optic cable in the
trunk portion of many cable television networks since the vast majority of
coaxial cable used in a typical cable television network occurs beyond the
trunk, in the distribution portion of the network, and in the dropwire into the
home. The Company believes that broadband networks will have an ongoing need for
coaxial cable to maintain, expand and upgrade their facilities. The Company
believes that coaxial cable remains the most efficient means for the
transmission of broadband signals to the home over short distances because it is
less expensive to install in short lengths than fiber optic cable, has less
costly electronics and has the necessary capacity to handle upstream and
downstream signal transmission.
CommScope has received orders from U.S. telephone operating companies,
several of which have announced plans to install broadband networks for the
delivery of video, telephone and other services to some portion, or all, of
their telephone service areas. The broadband networks that are being proposed by
some of the telephone companies utilize hybrid fiber optic/coaxial cable
technologies similar to those being utilized by many cable television operators.
While there is no assurance that these proposed networks will be built, to the
extent they are implemented, they could represent a significant incremental
sales opportunity for CommScope beyond its traditional cable television customer
base.
Cable produced by CommScope for local area network applications also grew
significantly in 1995 with sales for these applications increasing by 46%.
CommScope expanded the capacity of its Claremont, North Carolina, facility by
approximately 60% in 1995 in order to meet the growing demand for local area
network and other electronic cable.
Next Level Communications
The Next Level Communications Division was created in September 1995 as a
result of the acquisition by the Company of Next Level Communications ("Next
Level"), which was formed to design, manufacture and market a next-generation
telecommunications broadband access system for the delivery of telephony, video,
and data from a telephone company central office or cable television headed to
the home. Next Level's product, NLevel3, is designed to permit the
cost-effective delivery of a suite of standard telephony and advanced services
such as work-at-home, distance learning, video-on-demand and video-telephony to
the home from a single access platform. NLevel3 is designed to work with and
enhance existing telephony and cable television networks. Next Level has
demonstrated NLevel3 for the seven regional bell operating companies (RBOCs),
and four of the RBOCs have announced their intention to employ fiber-to-the-curb
architectures using switched-digital video technology in their planned broadband
networks. In addition to the cost of the acquisition of Next Level, a
significant amount of research and development expenditures will be required to
successfully bring NLevel3 to market. The Company does not expect Next Level to
generate any revenue until at least 1997, and there can be no assurance that
NLevel3 will successfully be developed and marketed. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations - New
Technologies" incorporated herein by reference from the 1995 Annual Report.
International Markets
The Company believes that international markets represent a key growth
opportunity for its sales of broadband equipment. International sales of cable
television electronics and CommScope cables increased 24% for the year ended
December 31, 1995 as compared to 1994 and represented 32% of total cable
television electronics and CommScope cable sales in 1995 compared to 29% in
1994.
International markets employ broadband technology in three ways: through
broadband television systems similar to those in the United States; through
Multichannel Multipoint Distribution Systems ("MMDS") or wireless microwave
systems; and through direct broadcast satellite ("DBS") systems. MMDS is
typically used in areas where the cost of installing a cable television
distribution infrastructure is not justified due to the low density of homes, a
relatively small potential subscriber base or geographic constraints. DBS
systems with digital compression capabilities are expected to have significant
growth internationally as programmers and satellite operators seek to maximize
their limited satellite transponder capacity in order to reach geographically
dispersed subscribers.
In certain countries, like the United Kingdom, operators have been using
system architectures that rely on U.S. broadband designs partly because many of
these systems are being developed by affiliates of certain U.S. cable television
operators and telephone companies. The Company believes that international
markets present significant opportunities because cable, wireless and satellite
television penetration is low in these areas.
The Company believes that it enjoys significant competitive strengths in
the international markets because of its leadership in the United States market
for broadband communications equipment, its strong technology, its relationships
with the U.S. cable operators who are building many of the systems in
international markets and its ability to deliver complete systems due to its
fully-integrated product line. The Company believes that, to date, it has
supplied a majority of the addressable systems and equipment in use in
international markets. To enhance its presence in the international marketplace,
in 1995 GI entered into a letter of intent with India's largest information
technology company to manufacture and sell broadband communication equipment. In
addition, CommScope announced a joint venture to manufacture and distribute
coaxial cable in Australia and the Asia-Pacific region. GI also entered into
contracts in 1995 to supply cable and wireless television equipment in Saudi
Arabia, China and Australia. However, there can be no assurance that the
international markets will continue to expand and, because of the need to form
alliances in order to operate effectively in many international markets and the
larger number of competitors in international markets than in U.S. markets,
among other factors, there can be no assurance as to the Company's future
success to the extent international markets expand.
The Company's foreign operations are subject to the usual risks inherent in
situating operations abroad, including risks with respect to currency exchange
rates, economic and political destabilization, restrictive actions by foreign
governments, nationalization, the laws and policies of the United States
affecting trade, foreign investment and loans, and foreign tax laws. GI's
cost-competitive status relative to other competitors could be adversely
affected if the Mexican peso, the New Taiwan dollar or other relevant currencies
appreciate relative to the United States dollar.
Power Semiconductor Division
The Power Semiconductor Division (which represented 17%, 16% and 19% of
the Company's consolidated sales in the years ended December 31, 1995, 1994 and
1993, respectively) is a world leader in the design, manufacture and sale of
low-to-medium power rectifiers and transient voltage suppression components in
axial, bridge and surface mount and array packages. These products are used
throughout the electrical and electronics industries to condition current and
voltage and to protect electrical circuits from power surges. Applications
include components for circuits in consumer electronics, telecommunications,
lighting ballasts, home appliances, computers and automotive and industrial
products. The demand for increased electronic functions, global sourcing and
higher reliability within these markets is adding to the growth of the Power
Semiconductor Division worldwide business.
New products and technologies continue to play a significant role in the
Power Semiconductor Division's growth. The Division's patented PAR (Passivated
Anisotrophic Rectifier) process is serving to increase the reliability of many
automotive electronics applications. The Division has also developed a new line
of transient voltage protection and a new line of rectifiers for automotive
applications. The PowerBlock autorectifier addresses automotive applications not
previously served by Power Semiconductor Division product. The PowerBlock
provides necessary alternator rectification, and also provides transient voltage
protection for the sensitive integrated circuits now used in automotive
electronics.
The Company believes that the competitive strengths of the Power
Semiconductor Division are the quality of its products, its global sales and
distribution channels and the low cost and efficiency of its operations. The
Division is a leader in sales of low-to-medium power rectifiers and transient
voltage suppression components in North America, Southeast Asia and Europe, with
73% of its sales for the year ended December 31, 1995 generated from customers
outside of the United States.
The Power Semiconductor Division has undertaken a significant capacity
expansion in order to meet the increased demand for its products worldwide. The
Power Semiconductor Division began construction of a manufacturing facility in
the Peoples' Republic of China in 1995, with production scheduled to begin in
the third quarter of 1996, and plans to increase manufacturing capacity in
Ireland by 100% in 1996.
Technology and Licensing
The Company believes it is in the unique position of having produced, and
of currently producing, the majority of the world's analog addressable systems,
while also developing the digital technology that will eventually replace these
systems. As a result, GI has sought to build upon its core enabling
technologies, digital compression, encryption and conditional access and
control, in order to lead the transition of the market for broadband
communications networks from analog to digital systems. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations - New
Technologies" incorporated herein by reference from the 1995 Annual Report.
GI began shipment of its DigiCipher II/MPEG-2 system to satellite
television programmers in early 1996, and expects to begin delivery of
DigiCipher II/MPEG-2 systems to cable television operators in the second half of
1996, although there can be no assurance that delays will not occur. To allow
for broad deployment of the DigiCipher II/MPEG-2 system, a number of
semiconductor manufacturers have received licenses, including Motorola,
SGS-THOMPSON Microelectronics, LSI Logic, C-Cube Microsystems and Samsung
Electronics. To ensure the availability of interoperable equipment to cable
television operators and other digital providers, GI has licensed DigiCipher
II/MPEG-2 technology to Scientific-Atlanta, Hewlett-Packard and Zenith.
The Company has also entered into other license agreements, both as
licenser and licensee, covering certain products and processes with various
companies. Among those agreements, in 1993, GI granted an unaffiliated third
party a license under certain GI patents regarding addressable converters
pursuant to which GI will earn royalties of $1.5 million per year for five
years. The Company also holds a non-exclusive worldwide license under an
unaffiliated third party's patent regarding encryption and decryption of
satellite television signals. This license agreement requires the payment of
certain royalties which are not expected to be material to the Company's
consolidated financial statements.
Research and Development
The Company actively pursues the development of new technologies and
applications. Research and development expenditures for the year ended December
31, 1995 were $147 million and are expected to be approximately $200 million for
the year ending December 31, 1996, compared to $111 million and $74 million for
the years ended December 31, 1994 and 1993, respectively. Research and
development expenditures reflect continued development of the next generation of
cable set-top terminals, which incorporate digital compression and multimedia
capabilities, cable modems, telephone company access products, advanced digital
systems for cable and satellite television distribution, next-generation direct
broadcast satellite systems and product development through strategic alliances.
Emerging research and development activities include development of broadband
telephony products and interactive multimedia technologies for broadband
networks.
Sales and Distribution
The Company's Broadband Communications products and services are
marketed primarily to cable television operators, cable and satellite television
programmers and programming services, and telephone companies planning the
development of cable networks. Demand for the Company's products and services
depends primarily on capital spending by cable television operators for
constructing, rebuilding or upgrading their systems. The amount of this capital
spending and, therefore, a majority of GI's sales and profitability, are
affected by a variety of factors, including general economic conditions, access
by cable television operators to financing, regulation of cable television
operators and technological developments in the broadband communications
industry. Although GI believes that the constraining pressures on cable
television capital spending have eased and that cable television capital
spending has increased, there can be no assurance that such increases will
continue or that such increased level of cable television capital spending will
be maintained.
Broadband Communications systems are sold primarily through the efforts
of sales engineers or other sales personnel employed by the Company who are
skilled in the technology of the particular system. The Company markets
VideoCipher descrambling modules through an open distribution strategy, in which
the Company and its licensees sell descrambling modules to manufacturers of
integrated receiver/descramblers, distributors, dealers, consumers and others.
The Company's Power Semiconductor products are marketed to a wide variety of
industries in the U.S. and abroad. They are sold through distributors and sales
representatives as well as directly by the division's sales personnel.
Because a limited number of cable and satellite television operators
provide services to a large percentage of television households in the U.S., the
loss of some of these operators as customers could have a material adverse
effect on the Company's sales. Tele-Communications, Inc., including its
affiliates, accounted for 20% of GI's consolidated net sales for the year ended
December 31, 1995, and was the only customer of GI which accounted for 10% or
more of the Company's consolidated net sales during this period.
Patents
The Company's policy is to protect its proprietary position by, among
other methods, filing U.S. and foreign patent applications to protect
technology, inventions and improvements that the Company considers important to
the development of its business. Although the Company believes that its patents
provide a competitive advantage, the Company relies equally on its proprietary
knowledge and continuing technological innovation to develop and maintain its
competitive position.
Backlog
The backlog information set forth below includes only orders for products
scheduled to be shipped within six months. Orders may be revised or canceled,
either pursuant to their terms or as a result of negotiations; consequently, it
is impossible to predict accurately the amount of backlog orders that will
result in sales.
Backlog
(In millions)
December 31, December 31,
1995 1994
------------ -------------
Broadband Communications $531 $578
Power Semiconductor 248 122
---- ----
Total $779 $700
==== ====
Competition
The Company's products and services compete with those of a substantial
number of foreign and domestic companies, some with greater resources, financial
or otherwise, than the Company, and the rapid technological changes occurring in
the Company's markets are expected to lead to the entry of new competitors. The
Company's ability to anticipate such changes and introduce enhanced products on
a timely basis will be a significant factor in the Company's ability to expand
and remain competitive. Existing competitors' actions and new entrants may have
an adverse impact on the Company's operations. The Company believes that it
enjoys a strong competitive position due to its large installed cable television
equipment base, its strong relationships with the major cable television
operators, its technology market leadership and new product development
capabilities, and the likely need for compatibility of new technologies with
currently installed systems. There can be no assurance, however, that
competitors will not be able to develop systems compatible with, or that are
alternatives to, the Company's proprietary technology or systems.
Employees
At December 31, 1995, approximately 12,300 people were employed by GI. Of
these employees, approximately 5,100, 4,300 and 2,100 were located at GI's U.S.,
Taiwan and Mexico facilities, respectively, with the balance located in Puerto
Rico, Europe, Japan and China. GI believes its relations with its employees and,
where they are represented by unions, its relations with their unions, are good.
As of December 31, 1995, approximately 5,200 of GI's employees were covered by
collective bargaining agreements. Of these employees, approximately 4,300 were
located at GI's Taiwan facilities, approximately 500 were located at GI's Mexico
facilities and the balance were located at GI's Westbury, New York, and certain
European facilities.
Raw Materials
Raw materials are purchased from many sources in the U.S., as well as from
sources in the Far East, Canada and Europe. The Company's products include
certain components that are currently available only from single sources. The
Company has in effect inventory controls and other policies intended to minimize
the effect of any interruption in the supply of these components. There is no
single supplier, the loss of which would have a continuing material adverse
effect on GI's production.
Environment
The Company is subject to various federal, state, local and foreign laws
and regulations governing the use, discharge and disposal of hazardous
materials. The Company's manufacturing facilities are believed to be in
substantial compliance with current laws and regulations. Compliance with
current laws and regulations has not had, and is not expected to have, a
material adverse effect on the Company's financial condition. The Company is
also involved in remediation programs, principally with respect to former
manufacturing sites, which are proceeding in conjunction with federal and state
regulatory oversight. In addition, the Company is currently named as a
potentially responsible party with respect to the disposal of hazardous wastes
at three hazardous waste sites located in two states.
The Company engages independent consultants to assist management in
evaluating potential liabilities related to environmental matters. Management
assesses the input from these independent consultants along with other
information known to the Company in its effort to continually monitor these
potential liabilities. Management assesses its environmental exposure on a
site-by-site basis, including those sites where the Company has been named a
potentially responsible party. Such assessments include the Company's share of
remediation costs, information known to the Company concerning the size of the
hazardous waste sites, their years of operation and the number of past users and
their financial viability. Although the Company estimates, based on assessments
and evaluations made by management, that its exposure with respect to these
environmental matters could be as high as $54 million, the Company believes that
the reserve for environmental matters of $35 million at December 31, 1995 is
reasonable and adequate. However, there can be no assurance that the ultimate
resolution of these matters will approximate the amount reserved. Further
information regarding the Company's environmental matters appears in Note 8 to
the Company's consolidated financial statements included in the 1995 Annual
Report, incorporated herein by reference.
Capital Expenditures
Capital expenditures were $159, $136 and $67 million in the years ended
December 31, 1995, 1994 and 1993, respectively. Such expenditures were primarily
in support of capacity expansion across all businesses to meet increased current
and future demands for analog and digital products, coaxial cable and power
rectifiers. In 1996, the Company expects to continue to expand its capacity to
meet current and future demands, with capital expenditures for the year ending
December 31, 1996 expected to approximate $250 million.
--------------------------------
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Form 10-K, the Company's Annual
Report to Shareholders, any Form 10-Q or any Form 8-K of the Company or any
other written or oral statements made by or on behalf of the Company may include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to certain uncertainties and other factors that could
cause actual results to differ materially from such statements. These
uncertainties and other factors include, but are not limited to, uncertainties
relating to economic conditions, uncertainties relating to government and
regulatory policies, uncertainties relating to customer plans and commitments,
the Company's dependence on the cable television industry and cable television
spending, signal security, the pricing and availability of equipment, materials
and inventories, technological developments, the competitive environment in
which the Company operates, changes in the financial markets relating to the
Company's capital structure and cost of capital, the uncertainties inherent in
international operations and foreign currency fluctuations. The words "believe,"
"expect," "anticipate," "project" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date the statement
was made. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
--------------------------------
Item 2. PROPERTIES
GI has manufacturing, warehouse, sales, research and development and
administrative facilities worldwide which have an aggregate floor space of
approximately 3.6 million square feet. Of these facilities, aggregate floor
space of approximately 1.1 million square feet is leased, and the remainder is
owned by GI. Leases expire on various dates through the year 2020. GI operates
manufacturing facilities in 11 locations worldwide containing floor space of
approximately 1.9 million square feet. The Power Semiconductor Division utilizes
three manufacturing facilities with an aggregate floor space of approximately .4
million square feet. GI does not believe there is any material long-term excess
capacity in its facilities, although utilization is subject to change based on
customer demand. GI believes that its facilities and equipment generally are
well maintained, in good operating condition and suitable for GI's purposes and
adequate for its present operations.
<PAGE>
Item 3. LEGAL PROCEEDINGS
Between October 10 and October 27, 1995, five purported class action
complaints were filed in the United States District Court for the Eastern
District of Pennsylvania and seven purported class action complaints were filed
in the United States Court for the Northern District of Illinois. These
complaints name as defendants the Company, certain officers and directors of the
Company and, in some cases, Forstmann Little & Co. Plaintiffs allege that the
defendants violated federal securities laws by, among other things, making
misrepresentations and omitting material facts in statements to the public,
thereby allegedly causing the Company's stock price to be artificially inflated.
Plaintiffs seek, among other things, unspecified monetary damages and attorneys'
fees and costs, on behalf of all shareholders who purchased shares during
various periods generally extending from March 21, 1995 through October 18,
1995.
On October 24, 1995, a purported derivative complaint on behalf of the
Company was filed in the United States District Court for the Eastern District
of Pennsylvania by Seymour Lazar against each of the Company's current
directors, a former executive officer, Forstmann Little & Co., Forstmann Little
& Co. Subordinated Debt and Equity Management Buyout Partnership-IV ("MBO-IV")
and Instrument Partners. The conduct complained of generally related to the same
matters alleged in the class actions described above and to the sale by
directors Daniel F. Akerson, John Seely Brown, J. Tracy O'Rourke and Robert S.
Strauss, as well as by MBO-IV, Instrument Partners and a former officer of the
Company, of shares of the Company's stock while they were allegedly in
possession of material non-public information. Plaintiff seeks, among other
things, unspecified monetary damages and attorneys' fees and costs.
On February 20, 1996, an order was issued by the Judicial Panel on
Multidistrict Litigation transferring the class and derivative actions described
above to the United States Court for the Northern District of Illinois. These
actions are in an early stage, with only limited discovery having commenced.
On February 9, 1996, a complaint was filed in the United States Court
for the Northern District of California captioned BKP Partners, L.P. et al. v.
General Instrument Corporation, NLC Acquisition Corp. and Next Level
Communications, Inc. Plaintiffs, who are some of the former holders of preferred
stock of Next Level, allege, among other things, that the defendants violated
federal securities laws by making misrepresentations and omissions and breached
fiduciary duties to Next Level in connection with the acquisition by the Company
of Next Level Communications in September 1995. Plaintiffs seek, among other
things, unspecified compensatory and punitive damages and attorneys' fees and
costs. The Company has requested that this action be transferred to the United
States District Court for the Northern District of Illinois because of its
relationship to the other cases which have been transferred to that court.
The defendants intend to defend the above-described actions vigorously.
The ultimate disposition of these matters, in GI's opinion, will not have a
material adverse effect on the financial statements of the Company.
On April 10, 1995, prior to the Company's acquisition of Next Level on
September 27, 1995, DSC Communications Corporation and DSC Technologies
Corporation (collectively, "DSC") brought suit in Texas state court against Next
Level, Thomas R. Eames and Peter W. Keeler (the founders of Next Level and
current Next Level employees). Next Level and the individual defendants
subsequently removed the case to federal court. On March 28, 1996, a jury
verdict was reached in the case, entitled DSC Communications Corporation and DSC
Technologies Corporation v. Next Level Communication, Thomas R. Eames and Peter
W. Keeler, Case No. 4:95cv96 in the United States District Court for the Eastern
District of Texas, Sherman Division. The verdict states that Messrs. Eames and
Keeler breached certain employee agreements with DSC, failed to disclose and
diverted a corporate opportunity of DSC, misappropriated DSC trade secrets and
conspired to take certain of the foregoing actions, and that Next Level used or
benefited from the diversion of corporate opportunity and misappropriation of
trade secrets. The verdict would award to DSC compensatory damages against the
defendants in amounts ranging between $24 million and $120 million with respect
to the respective causes of action as to which the jury found liability.
Although DSC has taken the position in a press release that the aggregate amount
of all compensatory damages awarded is $359 million, the Company believes that
the cumulation of all the amounts awarded would be improper because it would
lead to multiple recoveries for the same damages. The verdict would also award
punitive damages in the amount of $10 million against Next Level and $100,000
against each of Messrs. Eames and Keeler. DSC has also indicated that it intends
to apply to the court for injunctive relief. Judgment has not yet been entered
in the case, and the defendants intend to file a motion to set aside the
verdict. The time for defendants to appeal any judgment will not begin to run
until such judgment has been entered by the court. In connection with the
acquisition of Next Level, the Company entered into agreements to indemnify
Messrs. Eames and Keeler for any judgment that may be awarded against them in
this matter, to the extent permitted by applicable law. The nature of any
judgment is not reasonably determinable at this time and there is no assurance
that such amount will not have a material adverse effect on the Company's
financial statements. The Company believes that the verdict is not legally
sustainable and intends to seek to have the verdict set aside.
GI is involved in various other litigation matters, none of which are
expected to have a material adverse effect on the Company's financial
statements.
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the three months ended December 31, 1995.
Additional Item. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the executive officers of the Company as of March 15,
1996. In connection with the Company's initial public offering, on April 6,
1992, each executive officer of GI Delaware as of that date, was appointed to
serve as an executive officer of the Company. Certain executive officers of the
Company also serve as president of the various divisions and subsidiaries of GI
Delaware. Officers serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
Name Age Position(s) with the Company
- ----------------------- --- --------------------------------------
<S> <C> <C>
Richard S. Friedland 45 Chairman and Chief Executive Officer
Richard D. Badler 45 Vice President, Corporate Communications
Paul J. Berzenski 43 Vice President and Controller
Charles T. Dickson 41 Vice President and Chief Financial Officer
Thomas A. Dumit 53 Vice President, General Counsel and Chief Administrative Officer
Susan M. Meyer 52 Vice President, Secretary and Deputy General Counsel
Richard C. Smith 51 Vice President, Taxes and Treasurer
Clark E. Tucker 46 Vice President, Human Resources
Edward D. Breen 40 Vice President and President, Communications Division, Eastern
Operations
Frank M. Drendel 51 President and Chief Executive Officer, CommScope, Inc.,
a subsidiary of GI Delaware
Ronald A. Ostertag 55 Vice President and President, Power Semiconductor Division
</TABLE>
The principal occupations and positions for the past several years of
each of the executive officers of the Company are as follows:
Richard S. Friedland has been a director of the Company since October
1993. He became President and Chief Operating Officer of the Company in October
1993, Chief Executive Officer of the Company in August 1995 and Chairman of the
Board of Directors the Company in December 1995. He was Chief Financial Officer
of the Company and GI Delaware from March 1992 to January 1994 and Vice
President, Finance of the Company from May 1991 to October 1993. He was Vice
President-Finance and Assistant Secretary of GI Delaware from October 1990 to
October 1993 and Vice President and Controller of GI Delaware from November 1988
to January 1994. He is a director of Department 56, Inc.
Richard D. Badler became Vice President-Corporate Communications in
February 1996. He was an Executive Vice President and Account Director for
Golin/Harris Communications in Chicago from September 1993 to February 1996 and
Director of Public Affairs for Kraft General Foods from May 1990 to September
1993. From September 1988 to May 1990, he was Director of Public Affairs for
Kraft General Foods International
Paul J. Berzenski became Controller of the Company in January 1994 and
Vice President of the Company in November 1994. He was Assistant Controller of
GI Delaware from January 1991 to January 1994, and a Controller in the Company's
former Jerrold Communications Division from January 1988 to January 1991.
Charles T. Dickson became Vice President and Chief Financial Officer of
the Company in January 1994. He was Vice President-Finance and Administration of
several divisions of MCI Communications Corporation from 1988 to 1993.
Thomas A. Dumit became Vice President, General Counsel of GI Delaware in
January 1991 and Chief Administrative Officer in December 1995. From January
1988 through 1990, Mr. Dumit was Senior Vice President and General Counsel of
Whitman Corporation, a diversified company. From 1986 to 1987, he was Senior
Vice President and General Counsel of Household Financial Services, a consumer
finance division of Household International, Inc., and from 1984 to 1985, he was
Vice President and General Counsel of American Hospital Supply Corporation.
Susan M. Meyer became Vice President and Secretary of the Company in
December 1995, and has been Deputy General Counsel of the Company since February
1991. Ms. Meyer was Assistant Secretary of GI Delaware from June 1992 to
December 1995. Prior to joining the Company, she held several positions with
Beatrice Companies, Inc. and G.D. Searle & Co. She also practiced law at
Kirkland & Ellis in Chicago and Shearman & Sterling in New York.
Richard C. Smith has been Vice President of GI Delaware since March 1989
and Treasurer of the Company since September 1991. Mr. Smith has been Vice
President and Assistant Secretary of the Company since May 1991 and has been
Treasurer of the Company since March 1992. He was Assistant Treasurer of GI
Delaware from June 1986 to June 1987 and from February 1991 to September 1991.
From June 1986 to November 1994, he was Director of Taxes for GI Delaware and
from May 1991 to November 1994, he was Director of Taxes of the Company. From
June 1987 to March 1989, he was also Director-Risk Management and Customs of GI
Delaware.
Clark E. Tucker has been Vice President-Human Resources of GI since May
1995. From August 1992 until November 1994, Mr. Tucker was Vice President-Human
Resources for Witco Corporation; from April 1990 until August 1992, he served as
a management consultant with Towers, Perrin, Forster & Crosby; from August 1989
until April 1990 he was Director, Personnel for Lederle Laboratories (a
subsidiary of American Cyanamid Company); and from January 1987 until August
1989 he was Director, Compensation and Benefits for American Cyanamid Company.
Edward D. Breen became President of GI's Communications Division,
Eastern Operations, in February 1996 and Vice President of GI in November 1994.
He was Executive Vice President, Terrestrial Systems, from October 1994 to
January 1996 and Senior Vice President of Sales from June 1988 to October 1994.
Frank M. Drendel served as a director of GI Delaware and its predecessors
from 1987 to March 1992, when he was elected to serve as a director of the
Company. He has served as Chairman and President of CommScope since 1986 and has
served as Chief Executive Officer of CommScope since 1976. Mr. Drendel was
Executive Vice President of the predecessor to the Company from September 1986
to November 1988. From February 1981 to September 1986, Mr. Drendel was
Executive Vice President and, from July 1982 to September 1986, he was Vice
Chairman of the Board of M/A-COM, Inc.
Ronald A. Ostertag has been Vice President of GI Delaware since
February 1989, and President, Power Semiconductor Division since September 1990.
From April 1989 to September 1990, he was Senior Vice President-Operations for
the former VideoCipher division, and from August 1984 to April 1989, was Vice
President and General Manager of the Computer Products division of GI Delaware.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information required by this Item is contained in Notes 7, 11
and 14 to the consolidated financial statements included in the 1995
Annual Report, incorporated herein by reference.
As of March 15, 1996, the approximate number of registered
stockholders of record of the Company's Common Stock was 914.
Item 6. SELECTED FINANCIAL DATA
Information required by this Item is contained in the Five
Year Summary included in the 1995 Annual Report, incorporated herein by
reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Information required by this Item is contained in Management's
Discussion and Analysis of Financial Condition and Results of
Operations included in the 1995 Annual Report, incorporated herein by
reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this Item is contained in the
consolidated financial statements of the Company as of December 31,
1995 and 1994 and for each of the years ended December 31, 1995, 1994
and 1993, the notes to the consolidated financial statements, and the
independent auditors' report thereon, and in the Company's unaudited
quarterly financial data for the two year period ended December 31,
1995, filed as a part of Item 8.
Subsequent Footnote Disclosure (Unaudited)
-------------------------------------------
Subsequent to the issuance of the financial statements, which are
incorporated by reference to the Company's 1995 Annual Report herein,
the following event occurred.
On April 10, 1995, prior to the Company's acquisition of Next
Level on September 27, 1995, DSC Communications Corporation and DSC
Technologies Corporation (collectively, "DSC") brought suit in Texas
state court against Next Level, Thomas R. Eames and Peter W. Keeler
(the founders of Next Level and current Next Level employees). Next
Level and the individual defendants subsequently removed the case to
federal court. On March 28, 1996, a jury verdict was reached in the
case, entitled DSC Communications Corporation and DSC Technologies
Corporation v. Next Level Communication, Thomas R. Eames and Peter W.
Keeler, Case No. 4:95cv96 in the United States District Court for the
Eastern District of Texas, Sherman Division. The verdict states that
Messrs. Eames and Keeler breached certain employee agreements with DSC,
failed to disclose and diverted a corporate opportunity of DSC,
misappropriated DSC trade secrets and conspired to take certain of the
foregoing actions, and that Next Level used or benefited from the
diversion of corporate opportunity and misappropriation of trade
secrets. The verdict would award to DSC compensatory damages against
the defendants in amounts ranging between $24 million and $120 million
with respect to the respective causes of action as to which the jury
found liability. Although DSC has taken the position in a press release
that the aggregate amount of all compensatory damages awarded is $359
million, the Company believes that the cumulation of all the amounts
awarded would be improper because it would lead to multiple recoveries
for the same damages. The verdict would also award punitive damages in
the amount of $10 million against Next Level and $100,000 against each
of Messrs. Eames and Keeler. DSC has also indicated that it intends
to apply to the court for injunctive relief. Judgment has not yet been
entered in the case, and the defendants intend to file a motion to set
aside the verdict. The time for defendants to appeal any judgment will
not begin to run until such judgment has been entered by the court. In
connection with the acquisition of Next Level, the Company entered into
agreements to indemnify Messrs. Eames and Keeler for any judgment that
may be awarded against them in this matter, to the extent permitted by
applicable law. The nature of any judgment is not reasonably
determinable at this time and there is no assurance that such amount
will not have a material adverse effect on the Company's financial
statements. The Company believes that the verdict is not legally
sustainable and intends to seek to have the verdict set aside.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item concerning directors of the
Company is included in the Company's definitive Proxy Statement for the
1996 Annual Meeting of Stockholders, filed with the Securities and
Exchange Commission (the "1996 Proxy Statement") in the section
captioned "Election of Directors," and such information is incorporated
herein by reference. Information required by this item concerning the
executive officers of the Company is included in Part I of this Annual
Report on Form 10-K under the section captioned "Additional Item.
Executive Officers of the Registrant," as permitted by General
Instruction G(3). Information required by this Item concerning
compliance with Section 16(a) of the Securities Exchange Act of 1934 is
included in the 1996 Proxy Statement under the caption "Compliance with
Section 16(a) of the Exchange Act," and such information is
incorporated herein by reference. Theodore J. Forstmann and Nicholas C.
Forstmann, both of whom are directors of the Company, are brothers.
Item 11. EXECUTIVE COMPENSATION
Information required by this Item is included in the 1996
Proxy Statement in the section captioned "Further Information
Concerning the Board of Directors and Committees" under the subsections
captioned "-Compensation Committee Interlocks and Insider
Participation" and "-Director Compensation" and in the section
captioned "Compensation of Executive Officers," and such information is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this Item is included in the 1996
Proxy Statement in the section captioned "Security Ownership of Certain
Beneficial Owners and Management," and such information is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is included in the 1996
Proxy Statement in the section captioned "Other Related Party
Transactions," and such information is incorporated herein by
reference.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) 1. Financial Statements
Consolidated Balance Sheets at December 31, 1995 and 1994
For the years ended December 31, 1995, 1994 and 1993:
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors' Report
2. Financial Statement Schedules
Independent Auditors' Report
I. Condensed financial information - Parent Company only
II. Valuation and qualifying accounts
All other schedules have been omitted because they are not
applicable, not required or the information required is
included in the consolidated financial statements or notes
thereto.
3. Exhibits
The exhibits are listed in the accompanying Index to
Exhibits.
(b) Reports on Form 8-K
None.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
General Instrument Corporation:
We have audited the consolidated financial statements of General
Instrument Corporation (the "Company") as of December 31, 1995 and
1994, and for each of the three years in the period ended December 31,
1995, and have issued our report thereon dated February 2, 1996; such
consolidated financial statements and report are included in your 1995
Annual Report to Stockholders and are incorporated herein by reference.
Our audits also included the financial statement schedules of General
Instrument Corporation, listed in Item 14(a) 2. These financial
statement schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set
forth therein.
/s/Deloitte & Touche LLP
-------------------------
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 2, 1996
<PAGE>
<TABLE>
GENERAL INSTRUMENT CORPORATION
(PARENT COMPANY ONLY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
(In thousands except share data)
<CAPTION>
December 31,
------------------------------
ASSETS 1995 1994
----------- ------------
<S> <C> <C>
Investment in subsidiaries ................................................................... $ 877,638 $ 656,876
Note receivable from subsidiary .............................................................. 500,000 500,000
Receivable from subsidiary ................................................................... 25,872 10,331
Deferred financing fees, less accumulated amortization of $5,081
and $3,067, respectively ................................................................. 8,999 11,013
----------- -----------
Total assets ................................................................................. $ 1,412,509 $ 1,178,220
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued interest payable ................................................................... $ 1,030 $ 1,042
Accrued liabilities ........................................................................ 1,751 --
----------- -----------
Total current liabilities .................................................................... 2,781 1,042
----------- -----------
Convertible Junior Subordinated Notes ........................................................ 494,385 500,000
----------- -----------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; 20,000,000 shares authorized; no shares
issued .................................................................................. -- --
Common Stock, $.01 par value; 400,000,000 shares authorized; 126,034,911
and 122,231,348 shares issued at December 31, 1995 and 1994, respectively ............... 1,260 1,222
Additional paid-in capital ................................................................ 666,190 543,728
Retained earnings ......................................................................... 256,416 132,634
----------- -----------
923,866 677,584
Less - Treasury stock, at cost, 229,011 and 11,259 shares of Common Stock at
December 31, 1995 and 1994, respectively ........................................... (7,246) (17)
- Unearned compensation .............................................................. (1,277) (389)
----------- -----------
Total stockholders' equity ............................................................ 915,343 677,178
----------- -----------
Total liabilities and stockholders' equity ................................................... $ 1,412,509 $ 1,178,220
=========== ===========
- --------------------------------------------------------------------------------
Note: Investment in subsidiaries is accounted for under the equity method of
accounting.
See notes to consolidated financial statements included in the 1995 Annual
Report, incorporated herein by reference.
</TABLE>
<PAGE>
<TABLE>
GENERAL INSTRUMENT CORPORATION
(PARENT COMPANY ONLY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
STATEMENTS OF INCOME
(In thousands)
<CAPTION>
Year Ended December 31,
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Interest Income ......................................... $ 47,500 $ 47,500 $ 52,224
Interest Expense ........................................ (26,868) (27,011) (41,474)
--------- --------- ---------
Interest Income - net ................................ 20,632 20,489 10,750
Income Taxes ............................................ (7,221) (7,171) (3,763)
--------- --------- ---------
Net Income - Parent Company ............................. 13,411 13,318 6,987
Net Income of Subsidiaries .............................. 110,371 233,217 83,596
--------- --------- ---------
Net Income .............................................. $ 123,782 $ 246,535 $ 90,583
========= ========= =========
</TABLE>
Note 1: The parent company files a consolidated income tax return with
its subsidiaries. The consolidated income tax provisions were
$38,566, $9,714 and $23,526 for the years ended December 31, 1995,
1994 and 1993, respectively.
Note 2: Statements of cash flows are not required since the parent
company did not have any cash flows from operations. Interest
income - net for the years ended December 31, 1995, 1994 and 1993
relates to intercompany transactions.
See notes to consolidated financial statements included in the 1995 Annual
Report, incorporated herein by reference.
<PAGE>
<TABLE>
GENERAL INSTRUMENT CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<CAPTION>
Balance at Balance at
beginning end
of period Additions Deductions (1) Other of period
---------- ----------- -------------- -------- -----------
Allowance For Doubtful Accounts:
<S> <C> <C> <C> <C>
Year ended December 31, 1995 ....................... $ 7,582 $ 7,946 ($1,207) - $14,321
======= ======= ======= ======== =======
Year ended December 31, 1994 ....................... $ 7,012 $ 1,967 ($1,397) - $ 7,582
======= ======= ======= ======== =======
Year ended December 31, 1993 ....................... $ 8,246 $ 2,262 ($3,496) - $ 7,012
======= ======= ======= ======== =======
(1) Accounts receivable written off - net of recoveries
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
General Instrument Corporation
By: /s/Richard S. Friedland
--------------------------
Richard S. Friedland
Date: April 1, 1996 Chairman of the Board and Chief Executive Officer
---------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/Richard S. Friedland Chairman and Chief Executive Officer April 1, 1996
- ------------------------ and Director (Principal Executive Officer)
Richard S. Friedland
/s/Charles T. Dickson Vice President and Chief Financial Officer April 1, 1996
- ------------------------ (Principal Financial Officer)
Charles T. Dickson
/s/Paul J. Berzenski Vice President and Controller April 1, 1996
- ------------------------ (Principal Accounting Officer)
Paul J. Berzenski
/s/Daniel F. Akerson Director April 1, 1996
- ------------------------
Daniel F. Akerson
/s/John Seely Brown Director April 1, 1996
- ------------------------
John Seely Brown
/s/Frank M. Drendel Director April 1, 1996
- ------------------------
Frank M. Drendel
/s/Lynn Forester Director April 1, 1996
- ------------------------
Lynn Forester
/s/Nicholas C. Forstmann Director April 1, 1996
- ------------------------
Nicholas C. Forstmann
/s/Theodore J. Forstmann Director April 1, 1996
- ------------------------
Theodore J. Forstmann
/s/Steven B. Klinsky Director April 1, 1996
- ------------------------
Steven B. Klinsky
/s/Morton H. Meyerson Director April 1, 1996
- ------------------------
Morton H. Meyerson
/s/J. Tracy O'Rourke Director April 1, 1996
- ------------------------
J. Tracy O'Rourke
/s/Felix G. Rohatyn Director April 1, 1996
- ------------------------
Felix G. Rohatyn
/s/Paul G. Stern Director April 1, 1996
- ------------------------
Paul G. Stern
/s/Robert S. Strauss Director April 1, 1996
- ------------------------
Robert S. Strauss
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No.(s) 33-60498, 33-61820, 33-50911, 33-52189, 33-54923, 33-55595 and
33-57737 of General Instrument Corporation on Form(s) S-8 of our
reports dated February 2, 1996 appearing in and incorporated by
reference in this Annual Report on Form 10-K of General Instrument
Corporation for the year ended December 31, 1995.
/s/Deloitte & Touche LLP
-------------------------
DELOITTE & TOUCHE LLP
Chicago, Illinois
April 1, 1996
<PAGE>
GENERAL INSTRUMENT CORPORATION
INDEX TO EXHIBITS
(ITEM 14(c))
Exhibit Description
2.1 - Agreement and Plan of Merger, dated as of July 1, 1990, among
FLGI Acquisition Corp. and General Instrument Corporation.*
3.1 - Amended and Restated Certificate of Incorporation of the Company.
3.2 - Amended and Restated By-Laws of the Company.*****
4.1 - Specimen Form of Company's Common Stock Certificate. ***
4.2 - Indenture, dated as of June 15, 1993, between General Instrument
Corporation and Continental Bank.****
10.1 - Second Amended and Restated Credit Agreement, dated as of June
30, 1994, among General Instrument Corporation, the banks and
other financial institutions from time to time parties thereto,
Chemical Bank, as Administrative Agent for the Banks, and
Chemical Bank, Continental Bank N.A., Deutsche Bank AG, The
Nippon Credit Bank, Ltd., The Bank of Nova Scotia, The Toronto-
Dominion Bank, National Westminster Bank PLC, and the Bank of
Tokyo Trust Company, as Co-agents. *****
10.2 - Amended and Restated Guarantee, dated as of July 7, 1994, by the
Company in favor of Chemical Bank. *****
10.3 - Amended and Restated Guarantee, dated as of July 7, 1994 by
Cable/Home Communication Corporation and CommScope, Inc. in favor
of Chemical Bank. *****
10.4 - Form of Employee Subscription Agreement, dated as of December
1990, between the Company and certain Management Investors.*+
10.5 - Form of Employee Subscription Agreement, dated as of March 21,
1992, between the Company and certain Management Investors.*+
10.6 - Form of Waiver of Certain Company Rights under the agreement
referred to in 10.5.*+
10.7 - Form of Stock Option Agreement, dated as of August 15, 1990, in
connection with the purchase of CommScope (including form of
Stockholder's Agreement).*+
10.8 - Form of Outside Director Stock Option Agreement (including form
of Outside Director Stockholder's Agreement).*+
10.9 - Employment Agreement, dated as of November 28, 1988, between
CommScope and Frank M. Drendel.*+
10.10 - Form of Indemnification Agreement between the Company and its
directors and executive officers. *****
10.11 - Registration Rights Agreement between the Company, GI
Corporation, MBO-IV and Instrument Partners.*
10.12 - Form of Amendment to Outside Director Stock Option Agreement
(including form of Outside Director Stockholder's Agreement)
between the Company and each of James M. Denny, J.Tracy O'Rourke,
Derald H. Ruttenberg and William C. Lowe.*+
10.13 - The General Instrument Corporation 1993 Long-Term Incentive Plan
(including form of Stock Option Agreement).****+
10.14 - General Instrument Corporation Annual Incentive Plan*****+
10.15 - Amendment, dated May 20, 1993, to the Employment Agreement
referred to in 10.14.****+
10.16 - GI Deferred Compensation Plan. *****+
11. - Computation of Earnings Per Share.
13. - Annual Report to Stockholders for fiscal year ended December
31, 1995. (The Annual Report, except for those portions
thereof which are expressly incorporated by reference in this
Annual Report on Form 10-K, is being furnished for the
information of the Commission and is not to be deemed "filed"
as part of the Form 10-K.)
21. - Subsidiaries of the Company.
23. - Consent of Deloitte & Touche LLP (included on page 22).
27. - Financial Data Schedule (Filing only for the Electronic Data
Gathering, Analysis and Retrieval system of the U.S. Securities
and Exchange Commission.)
99 - Forward-looking information.
All other Exhibits are not applicable.
* Incorporated by reference from Registration Statement No. 33-46854.
** Incorporated by reference from Registration Statement No. 33-63152.
*** Incorporated by reference from Registration Statement No. 33-50215.
**** Incorporated by reference from Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
***** Incorporated by reference from Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
+ Management contract or compensatory plan
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF GENERAL INSTRUMENT CORPORATION
The undersigned, Thomas A. Dumit and Richard C. Smith, certify that
they are the Vice President and Assistant Secretary, respectively, of General
Instrument Corporation, a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), and do hereby further certify as
follows:
(1) The name of the corporation is General Instrument Corporation.
The Corporation was originally incorporated under the name
FLGI Holding Corp.
(2) The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of the State of Delaware
on June 28, 1990.
(3) A Certificate of Amendment was filed with the Secretary of State of
the State of Delaware on August 9, 1990, a Restated Certificate of Incorporation
was filed with the Secretary of State of the State of Delaware on November 13,
1990, a Certificate of Amendment was filed with the Secretary of State of the
State of Delaware on February 26, 1992, an Amended and Restated Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware on
March 30, 1992, an Amended and Restated Certificate of Incorporation was filed
with the Secretary of State of the State of Delaware on May 4, 1992, and a
Certificate of Correction was filed with the Secretary of State of the State of
Delaware on June 16, 1992.
(4) This Amended and Restated Certificate of Incorporation amends,
restates and integrates the provisions of the original Certificate of
Incorporation of the Corporation as heretofore amended or supplemented and has
been duly adopted in accordance with Sections 242 and 245 of the GCL.
(5) The text of the Amended and Restated Certificate of Incorporation
of the Corporation as further amended hereby is again restated to read in its
entirety as follows:
FIRST: The name of the Corporation is General Instrument
Corporation (hereinafter the "Corporation").
SECOND: The address of the Corporation's registered office
in the State of Delaware is Corporation Trust Center, 1209 Orange
Street in the City of Wilmington, County of New Castle, Delaware 19801.
The name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under
the General Corporation Law of Delaware (the "GCL") as set forth in
Title 8 of the Delaware Code.
FOURTH: The aggregate number of shares of all classes of
capital stock which the Corporation shall have the authority to issue
is (i) 175,000,000 shares of common stock, par value $.01 per share
("Common Stock"), and (ii) 20,000,000 shares of preferred stock, par
value $.01 per share ("Preferred Stock").
Shares of the Preferred Stock of the Corporation may be issued
from time to time in one or more classes or series, each of which class
or series shall have such distinctive designation or title as shall be
fixed by the Board of Directors of the Corporation (the "Board of
Directors") prior to the issuance of any shares thereof. Each such
class or series of Preferred Stock shall have such voting powers, full
or limited, or no voting powers, and such preferences and relative,
participating , optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be stated
in such resolution or resolutions providing for the issue of such class
or series of Preferred Stock as may be adopted from time to time by the
Board of Directors prior to the issuance of any shares thereof pursuant
to the authority hereby expressly vested in it, all in accordance with
the laws of the State of Delaware.
FIFTH: The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. The number
of directors of the Corporation shall be from time to time fixed by, or
in the manner provided in, the By-laws of the Corporation. The
directors shall be divided into three classes, designated Class I,
Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors constituting
the entire Board of Directors. The term of the initial Class I
directors shall terminate on the date of the 1993 annual meeting of
stockholders; the term of the initial Class II directors shall
terminate on the date of the 1994 annual meeting of stockholders; and
the term of the initial Class III directors shall terminate on the date
of the 1995 annual meeting of stockholders. At each annual meeting of
stockholders beginning in 1993, successors to the class of directors
whose term expires at that annual meeting shall be elected for a
three-year term. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as possible, and any
additional directors of any class elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall
coincide with the remaining term of that class, but in no case will a
decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the
year in which his term expires and until his successor shall be elected
and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. Any vacancy on the
Board of Directors, howsoever resulting, may be filled by a majority of
the directors then in office, even if less than a quorum, or by a sole
remaining director. Any director elected to fill a vacancy shall hold
office for a term that shall coincide with the term of the class to
which such director shall have been elected.
Notwithstanding the foregoing, whenever the holders of any one
or more classes or series of Preferred Stock issued by the Corporation
shall have the right, voting separately by class or series, to elect
directors at any annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of
such directorships shall be governed by the terms of this Amended and
Restated Certificate of Incorporation or the resolution or resolutions
adopted by the Board of Directors pursuant to Article FOURTH applicable
thereto, and such directors so elected shall not be divided into
classes pursuant to this Article FIFTH unless expressly provided by
such terms.
<PAGE>
SIXTH: Subject to the rights, if any, of the holders of shares
of Preferred Stock then outstanding, any or all of the directors of the
Corporation may be removed from office, with or without cause, at any
time by the affirmative vote of the holders of a majority of the
outstanding shares of the Corporation then entitled to vote generally
in the election of directors, considered for purposes of this Article
SIXTH as one class.
SEVENTH: A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director; provided, however, that the
foregoing shall not eliminate or limit the liability of a director (i)
for any breach of the director's duty of loyalty to the Corporation or
its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the GCL, or (iv) for any transaction from which
the director derived an improper personal benefit. If the GCL is
hereafter amended to permit further elimination or limitation of the
personal liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent
permitted by the GCL as so amended. Any repeal or modification of this
Article SEVENTH by the stockholders of the Corporation or otherwise
shall not apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or
repeal.
EIGHTH: The Corporation shall, the fullest extent permitted by
Delaware law, indemnify any person (the "Indemnitee") who is or was
involved in any manner (including, without limitation, as a party or a
witness) in any threatened, pending or completed investigation, claim,
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including, without limitation, any action, suit or
proceeding brought by or in the right of the Corporation to procure a
judgment in its favor) (a "Proceeding") by reason of the fact that the
Indemnitee is or was a director or officer of the Corporation, or is or
was serving another entity in such capacity at the request of the
Corporation, against all expenses and liabilities actually and
reasonably incurred by the Indemnitee in connection with the defense or
settlement of such Proceeding (including attorneys' fees).
NINTH: The Corporation reserves the right to rescind, amend,
alter, change, or repeal any provision contained in this Amended and
Restated Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
TENTH: In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to
adopt, repeal, alter, amend or rescind the By-laws of the Corporation.
In addition, the By-laws of the Corporation may be adopted, repealed,
altered, amended or rescinded by the affirmative vote of a majority of
the outstanding stock of the Corporation entitled to vote thereon.
<PAGE>
ELEVENTH: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them and/or
between this Corporation and its stockholders or any class of them, any
court of equitable jurisdiction within the State of Delaware may, on
the application in a summary way of this Corporation or of any creditor
or stockholder thereof or on the application of any receiver or
receivers appointed for this Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for
this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this
Corporation, as the case may be , to be summoned in such manner as the
said court directs. If a majority in number representing three-fourths
in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case
may be, agree to any compromise or arrangement and to any
reorganization of this Corporation as a consequence of such compromise
or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which said
application has been made, be binding on all the creditors or class of
creditors, and/or on all of the stockholders or class of stockholders,
of this Corporation, as the case may be, and also on this Corporation.
TWELFTH: Elections of directors need not be by written ballot
unless the By-laws of the Corporation shall otherwise provide.
IN WITNESS WHEREOF, General Instrument Corporation has caused its corporate seal
to be hereunto affixed and this Amended and Restated Certificate of
Incorporation to be signed by Thomas A. Dumit, its Vice President, and attested
to by Richard C. Smith, its Assistant Secretary, this 1st day of June, 1993.
GENERAL INSTRUMENT CORPORATION
By: /s/Thomas A. Dumit
-------------------------
Thomas A. Dumit,
Vice President
ATTEST:
By: /S/Richard C. Smith
--------------------------
Richard C. Smith,
Assistant Secretary
<PAGE>
AMENDMENT TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
GENERAL INSTRUMENT CORPORATION
------------------------------
General Instrument Corporation, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation") DOES HEREBY CERTIFY:
FIRST: That pursuant to Section 242(a) of the General Corporation Law
of the State of Delaware, the directors of the Corporation adopted a resolution
setting forth a proposed amendment to the Amended and Restated Certificate of
Incorporation of the Corporation, and declared said Amendment to be advisable.
The resolution setting forth the proposed amendment is as follows:
"FOURTH: The aggregate number of shares of all classes of
capital stock which the Corporation shall have the authority
to issue is (i) 400,000,000 shares of common stock, par value
$.01 per share ("Common Stock"), and (ii) 20,000,000 shares of
preferred stock, par value $.01 per share ("Preferred
Stock")."
SECOND: That the said amendment was duly adopted in accordance with
the provisions of Section 242(b)(1) of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, General Instrument Corporation has caused this
Certificate to be signed by Thomas A. Dumit, its Vice President and attested by
Richard C. Smith, its Assistant Secretary, this 28th day of April, 1995.
GENERAL INSTRUMENT CORPORATION
By: /s/Thomas A. Dumit
-------------------------------------
Thomas A. Dumit, Vice President
Attest:
By: /s/Richard C. Smith
-----------------------------
Richard C. Smith,
Assistant Secretary
<TABLE>
GENERAL INSTRUMENT CORPORATION
Exhibit 11 - Computation of Earnings Per Share
(In Thousands, Except Per Share Amounts)
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
PRIMARY:
Income before cumulative effect of changes in
accounting principles ....................................... $ 123,782 $ 248,452 $ 90,366
Cumulative effect of changes in accounting principles-net ....... -- (1,917) 217
--------- --------- ---------
Net Income ...................................................... $ 123,782 $ 246,535 $ 90,583
========= ========= =========
Weighted average common shares outstanding ........................... 123,483 120,937 119,069
Incremental shares under stock option plans ..................... 891 2,456 3,168
--------- --------- ---------
Weighted average common and common equivalent
shares outstanding ........................................... 124,374 123,393 122,237
========= ========= =========
Primary earnings per share:
Income before cumulative effect of changes in
accounting principles ....................................... $ 1.00 $ 2.01 $ .74
Cumulative effect of changes in accounting principles-net ....... -- (.01) --
--------- --------- ---------
Net income ...................................................... $ 1.00 $ 2.00 $ .74
========= ========= =========
FULLY DILUTED:
Income before cumulative effect of changes in accounting
principles .................................................. $ 123,782 $ 248,452 $ 90,366
Interest and amortization of debt issuance costs
related to the Convertible Junior Subordinated
Notes, net of income tax effects ............................ 16,383 25,877 13,720
--------- --------- ---------
Adjusted income before cumulative effect of changes
in accounting principles .................................. 140,165 274,329 104,086
Cumulative effect of changes in accounting principles-net ....... -- (1,917) 217
--------- --------- ---------
Adjusted net income ............................................. $ 140,165 $ 272,412 $ 104,303
========= ========= =========
Weighted average common shares outstanding ........................... 123,483 120,937 119,069
Incremental shares under stock option plans ..................... 904 2,607 3,628
Incremental shares attributable to Convertible
Junior Subordinated Notes .................................. 21,019 21,053 11,132
--------- --------- ---------
Adjusted weighted average shares outstanding ......................... 145,406 144,597 133,829
========= ========= =========
Fully diluted earnings per share:
Income before cumulative effect of changes in
accounting principles ....................................... $ .96 $ 1.89 $ .78 (1)
Cumulative effect of changes in accounting principles-net ....... -- (.01) --
--------- --------- ---------
Net income ...................................................... $ .96 $ 1.88 $ .78 (1)
========= ========= =========
Note: The computations of primary and fully diluted earnings per share assume
incremental shares under stock option plans using the treasury method.
(1) Differs from earnings per share as reported in the Consolidated Statements
of Income because the effect of the Convertible Junior Subordinated Notes
was anti-dilutive.
</TABLE>
<TABLE>
FIVE YEAR SUMMARY
<CAPTION>
Ten Months
Year Ended December 31, Ended
- ---------------------------------------------------------------------------------------------------------------------- December 31,
(In millions, except per share data) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales ............................................. $ 2,432 $ 2,036 $ 1,393 $ 1,075 $ 785
Cost of sales ......................................... 1,691 1,404 956 755 566
Selling, general and administrative ................... 224 180 149 137 103
Research and development .............................. 147 111 74 58 46
Purchased in-process technology ....................... 140 -- -- -- --
Operating income ...................................... 205(1) 316 188 98 48
Interest expense ...................................... (43) (54) (73) (112) (104)
Income (loss) before extraordinary item and
cumulative effect of changes in accounting
principles ........................................ 124(1) 248(2) 90 (41) (94)
Net income (loss) ..................................... $ 124(1) $ 247(2) $ 91(3) $ (53)(4) $ (94)
Weighted average shares
outstanding (5) ................................... 124 123 122 98 73
Primary earnings (loss) per share before
extraordinary item and cumulative effect
of changes in accounting principles (5) ........... $ 1.00(1) $ 2.01(2) $ .74 $ (.42) $ (1.29)
Fully diluted earnings (loss) per share before
extraordinary item and cumulative effect
of changes in accounting principles (5) ........... .96(1) 1.89(2) .74 (.42) (1.29)
- -----------------------------------------------------------------------------------------------------------------------------------
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data (at end of periods):
Working capital (negative) ............................ $ 362 $ 213 $ (16) $ (14) $ (150)
Property, plant and equipment, net .................... 437 344 262 266 286
Total assets .......................................... 2,301 2,109 1,776 1,727 1,783
Long-term debt, including current maturities .......... 743 797 840 989 1,254
Other non-current liabilities ......................... 162 178 209 138 171
Redeemable securities ................................. -- -- -- -- 4
Stockholders' equity .................................. 915 677 389 291 27
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Includes a one-time charge of $140 ($90 net of tax), or $.72 per primary
share and $.62 per fully diluted share, for purchased in-process technology
in connection with the Company's acquisition of Next Level Communications.
(2) Includes an income tax benefit of $30, or $.24 per primary share and $.20
per fully diluted share, as a result of a reduction in a valuation
allowance, as of December 31, 1994, related to domestic deferred income
tax assets.
(3) Includes a cumulative effect credit of $10 and a cumulative effect charge
of $10 to reflect the adoption of Financial Accounting Standards Board
Statements No. 109, Accounting for Income Taxes, and No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, respectively.
(4) Includes a $12 extraordinary charge for the write-off of deferred
financing costs in conjunction with the early extinguishment of debt.
(5) Share and per share data for all periods presented have been restated to
reflect the 1994 two-for-one stock split.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in millions)
- --------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Segment Information:
Net Sales
Broadband Communications $2,018 $1,720 $1,125
Power Semiconductor 414 316 268
- --------------------------------------------------------------------------------
Total $2,432 $2,036 $1,393
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Comparison of Results of Operations for the Year Ended December 31, 1995
with the Year Ended December 31, 1994
Net Sales. Net sales for the year ended December 31, 1995 were $2,432
compared to $2,036 for the year ended December 31, 1994, an increase of $396,
or 19%. This increase reflects continued higher sales volume in both the
Broadband Communications and Power Semiconductor segments.
Broadband Communications sales increased $298, or 17%, to $2,018 in 1995,
primarily as a result of increased sales volume of DigiCipher(TM) digital
television system products, CFT-2200 advanced analog addressable terminals
and CommScope cable products, partially offset by decreased sales of C-band
satellite systems. The higher sales volume primarily reflects
commercialization of digital broadband systems in the United States and
deployment of new cable television systems in international markets.
International sales of cable television electronics and CommScope cables
increased $86, or 24%, to $450 for the year ended December 31, 1995 in
comparison to 1994 and represented 32% of total cable television electronics
and CommScope cable sales in 1995 compared to 29% in 1994. The increased
DigiCipher(TM) digital television system product sales in 1995 consisted
primarily of sales of digital satellite consumer receivers to PRIMESTAR
Partners. Sales of DigiCipher(TM) products represented 20% of 1995 Broadband
Communications sales (See "New Technologies" below). In 1994, the Company had
significant sales of VideoCipher RS(TM) analog satellite receiver consumer
modules to persons who had been receiving without authorization (or
"pirating") the commercial satellite programming data signals. In 1995, sales
of these modules were at lower levels as expected.
Power Semiconductor sales increased $98, or 31%, to $414 in 1995 in
comparison to 1994. This increase reflects continued broad-based global
demand, primarily from automotive, computer, telecommunications and consumer
electronics customers, for power rectifiers and protection devices.
International sales increased $78, or 35%, to $302 for the year ended
December 31, 1995 in comparison to 1994 and represented 73% of total Power
Semiconductor net sales in 1995.
Gross Profit (Net sales less cost of sales). Gross profit increased $108,
or 17%, to $741 in 1995 from $633 in 1994 and was 30% of sales in 1995
compared to 31% in 1994.
Broadband Communications segment gross profit in 1995 increased 11% over
1994. Gross profit margin for Broadband Communications was 29% in 1995, down
from 31% in 1994, as a result of a shift in product mix from higher margin
VideoCipher RS(TM) analog satellite receiver consumer modules to CFT-2200
advanced analog and DigiCipher(TM) digital television system products, new
products which initially carry lower margins. The decrease resulting from a
shift in product mix was partially offset by higher margins earned on mature
products as a result of cost-reduction programs. Power Semiconductor gross
profit in 1995 increased 49% over 1994 and increased as a percentage of sales
to 38% in 1995 from 34% in 1994, primarily as a result of volume efficiencies
and favorable product mix.
In 1996, the Company expects to deliver significant volumes of new
products which will initially earn lower margins than the Company's mature
products. Based on current trends in cable operator spending, the Company
anticipates its product mix in 1996 to be more heavily weighted toward these
new products than in 1995. As a result, during this period of new product
introduction, the Company expects its consolidated gross margins to decline
from current levels. (See "New Technologies" below).
Selling, General and Administrative. Selling, general and administrative
("SG&A") expense was $224 in 1995 in comparison to $180 in 1994 and
represented 9% of sales in each period. SG&A expense in 1995, reflecting
higher sales volume, included: marketing and selling costs incurred by the
Company to increase its sales force; field support and marketing activities
to take advantage of increased growth opportunities in international cable
and satellite television and worldwide telecommunications markets; a national
advertising campaign to support sales of C-Band satellite systems; and a
one-time $7 restructuring charge for the direct costs associated with the
reorganization of the Company's Communications Division and the consolidation
of the Company's corporate headquarters into one location.
Research and Development. Research and development expense increased $36,
or 32%, to $147 in 1995 from $111 in 1994 and was 6% of sales in 1995
compared to 5% in 1994. Research and development expenditures reflect
continued development of the next generation of cable set-top terminals,
which incorporate digital compression and multimedia capabilities, cable
modems, telephone company access products, advanced digital systems for cable
and satellite television distribution, next-generation direct broadcast
satellite systems and product development through strategic alliances.
Emerging research and development activities include development of broadband
telephony products and interactive multimedia technologies for broadband
networks. The Company's research and development expenditures are expected to
approximate $200 for the year ending December 31, 1996.
Purchased In-Process Technology. In connection with the completion of the
acquisition of Next Level Communications in September 1995, the Company
recorded a pre-tax charge of $140 for purchased in-process technology which
had not yet reached technological feasibility and had no alternative future
use. Further development activities primarily consist of costs for design,
prototype development and lab and field testing. The Company estimates that
approximately $25 to $35 will be expended over the next 12 to 18 months to
complete the development of this technology.
Interest Expense. Interest expense decreased $11, to $43 in 1995 from $54
in 1994. The decrease resulted from lower weighted average borrowings in 1995
and a $7 benefit related to the settlement of certain tax matters, partially
offset by higher interest rates.
Income Taxes. Income tax expense was $39 in 1995 and $10 in 1994. Before
the settlement of certain tax matters in 1995 and the release of valuation
reserves in 1994, income tax expense was $51 and $117 for 1995 and 1994,
respectively. The Company's effective tax rate, excluding these events, was
31% in 1995 and 45% in 1994. The decrease in the effective rate in 1995
reflects the utilization of foreign tax credits and a decision to permanently
reinvest the undistributed earnings of certain foreign entities. See Note 6
to the consolidated financial statements.
Comparison of Results of Operations for the Year Ended December 31, 1994
with the Year Ended December 31, 1993
Net Sales. Net sales for the year ended December 31, 1994 were $2,036
compared to $1,393 for the year ended December 31, 1993, an increase of $643,
or 46%. This increase reflects continued higher sales volumes in both the
Broadband Communications and Power Semiconductor segments, partially offset
by a decline in selling prices of certain products.
Broadband Communications sales increased $595, or 53%, to $1,720 in 1994,
primarily as a result of increased sales volume of analog addressable
systems, distribution electronics and CommScope cable products. This higher
sales volume reflects increased investment in infrastructure by major cable
television operators in the United States as well as the deployment of new
cable television systems in international markets. International sales of
cable television electronics and CommScope cables increased 75% for the year
ended December 31, 1994 in comparison to 1993. In addition, sales of
DigiCipher(TM) digital television system products represented in excess of
30% of the Broadband Communications sales increase (see "New Technologies"
below). During 1994, the Company continued sales of VideoCipher RS(TM)
analog satellite receiver consumer modules to persons who had been receiving
without authorization (or "pirating") the commercial satellite programming
data signals. In 1994, these sales declined to minimal levels as expected.
However, shipments of VideoCipher RS(TM) analog satellite receiver consumer
modules for new owners of C-band satellite dishes increased in 1994 over
1993.
Power Semiconductor sales increased $48, or 18%, in 1994 in comparison to
1993. This increase reflects higher sales volumes to all major end-user
product markets in which Power Semiconductor products are incorporated,
partially offset by a decline in selling prices of certain products. The most
significant sales volume increases were in the sales of discrete power
rectifying and transient voltage suppression components to be incorporated in
computers, consumer electronics, automotive and telecommunications products.
International sales increased $35, or 18%, to $224 for the year ended
December 31, 1994 in comparison to 1993.
Gross Profit (Net sales less cost of sales). Gross profit increased $197,
or 45%, to $633 in 1994 from $436 in 1993 and was 31% of sales in each year.
Broadband Communications segment gross profit increased 49% over 1993 and was
31% of sales in each year. Broadband Communications gross profit and gross
profit margin were positively affected by the 53% increase in sales as
discussed above, reduced material costs because of higher volume purchasing
and improved per unit labor and overhead costs resulting from increased
production. These positive effects were partially offset by the shift in
product mix to DigiCipher(TM) digital television system products, which
initially carry lower margins. Power Semiconductor gross profit increased 28%
from 1993 to 1994 and increased as a percentage of sales to 34% in 1994 from
31% in 1993 primarily as a result of the 18% increase in sales discussed
above, and improved per unit labor and overhead costs resulting from
increased production volumes, partially offset by decreased selling prices of
certain products.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expense was $180 in 1994 in comparison to $149 in
1993. SG&A decreased as a percentage of sales to 9% in 1994 from 11% in 1993.
The increase in SG&A expense was principally attributable to increased
marketing and selling expenditures which contributed to the higher sales
volumes discussed above. The Company has been increasing its sales force,
field support and marketing activities to take advantage of increased growth
opportunities in international cable and satellite television and worldwide
telecommunications markets. SG&A expense in 1993 also included a charge of $6
to provide for costs to be incurred in conjunction with the combining of the
Company's former Jerrold Communications and VideoCipher divisions into the GI
Communications Division.
Research and Development. Research and development expense increased $37,
or 51%, to $111 in 1994 from $74 in 1993 and was 5% of sales in each year.
The Company's efforts are focused on continued development of the next
generation of cable terminals, which incorporate digital compression and
multimedia capabilities, development of enhanced addressable analog
terminals, development of advanced digital systems for cable and satellite
television distribution and product development through strategic alliances.
Emerging research and development activities include broadband telephony
products and interactive multimedia technologies for broadband networks.
Other Income (Expense). Other income (expense) for the year ended
December 31, 1994 consisted primarily of a charge related to the write-down
of non-operating real estate and a net loss of $3 which was principally
comprised of a $4 charge related to a settlement of certain legal matters
associated with a former divested business, partially offset by gains on the
sale of certain real estate holdings and other divested assets.
Other income (expense) for the year ended December 31, 1993 included a
net gain on the sale of a portion of a partnership interest in an affiliate
and equity in losses of this unconsolidated affiliate. Also included was a $7
charge related to the write-down of a facility which was principally offset
by a gain on the settlement of a lawsuit with regard to patent infringements.
Additionally, during the year ended December 31, 1993, the Company recognized
a net gain of $0.3 which was comprised of $4 in gains on the settlement of an
action related to the Company's divested Defense Systems business, offset by
charges related to changes in the estimated amount of divestiture liabilities
retained and carrying costs associated with the remaining divestiture assets
(principally real estate).
Interest Expense. Interest expense declined $19 to $54 in 1994 from $73
in 1993. The decline was due primarily to lower interest rates which were
principally attributable to the June 1993 debt restructuring and the July
1994 amendment and restatement of the senior bank credit agreement of General
Instrument Corporation of Delaware ("GI Delaware"), the Company's principal
operating subsidiary. See "Liquidity and Capital Resources" below.
Income Taxes. Income tax expense decreased $14 in 1994 from 1993 due
primarily to the recognition of an income tax benefit of $30 as a result of a
reduction in a valuation allowance, as of December 31, 1994, related to
domestic deferred income tax assets. This benefit was partially offset by
increased taxes on higher foreign-sourced income. See Note 6 to the
consolidated financial statements.
Cumulative Effect of Changes in Accounting Principle. Effective January 1,
1994, the Company adopted Financial Accounting Standards Board Statement No.
112, Employers' Accounting for Postemployment Benefits ("SFAS No. 112"). As
a result of adopting SFAS No. 112, the Company recorded a cumulative effect
charge to income of $2. The annual charge to operations as a result of
adopting SFAS No. 112 is not significant.
Liquidity and Capital Resources
Cash provided by operations for the year ended December 31, 1995 was $232
compared to $162 and $184 for 1994 and 1993, respectively. Cash provided by
operations increased $70 in 1995 compared to 1994 due primarily to lower
operating working capital increases in 1995 compared to 1994. Cash provided
by operations in 1994 decreased from 1993 due to increased working capital.
At December 31, 1995, working capital was $362 compared to $213 at
December 31, 1994 and a negative $16 at December 31, 1993. The working
capital increase in 1995 over 1994 and in 1994 over 1993 was due principally
to increased sales volume and corresponding increases in accounts receivable
and inventory build-up to support business growth and the introduction of new
products, partially offset by related increases in accounts payable. Based on
current levels of order input and backlog, as well as significant sales
agreements not yet reflected in order and backlog levels, the Company
believes that working capital levels are appropriate to support future
operations. There can be no assurance, however, that future industry specific
developments or general economic trends will not alter the Company's working
capital requirements. The increase in working capital at December 31, 1994
also reflects the recognition of net current deferred tax assets of $90 as a
result of reductions in a valuation allowance related to domestic deferred
income taxes, and the reclassification of $31 of debt outstanding at December
31, 1993 from short-term to long-term in connection with the 1994 amendment
and restatement of GI Delaware's senior bank credit agreement, as discussed
below.
During the year ended December 31, 1995, the Company invested $159 in
equipment and facilities compared with $136 and $67 in 1994 and 1993,
respectively. The higher levels of capital spending were attributable to
capacity expansion across all businesses to meet increased current and future
demands for analog and digital products, coaxial cable and power rectifiers.
In 1996, the Company expects to continue to expand its capacity to meet
increased current and future demands with capital expenditures for the year
ending December 31, 1996 expected to approximate $250.
The Company's research and development expenditures were $147 for the
year ended December 31, 1995 compared to $111 and $74 in 1994 and 1993,
respectively, and are expected to approximate $200 for the year ending
December 31, 1996. See "Comparison of Results of Operations for the Year
Ended December 31, 1995 with the Year Ended December 31, 1994-Research and
Development" above.
At December 31, 1995, the Company had $36 of cash and cash equivalents on
hand compared to $5 and $6 at December 31, 1994 and 1993, respectively. At
December 31, 1995, long-term debt (including current maturities) was $743,
compared to $797 and $840 at December 31, 1994 and 1993, respectively.
In January 1995, CommScope, Inc., an indirect wholly-owned subsidiary of
the Company, entered into an $11 loan agreement in connection with the
issuance of notes by the Alabama State Industrial Development Authority. See
Note 7 to the consolidated financial statements.
Effective July 7, 1994, the Company further amended and restated the
senior bank credit agreement of GI Delaware (as further amended and restated,
the "Credit Agreement") to lower its interest costs, increase available
credit commitments and obtain greater operating flexibility. The Credit
Agreement, which matures on December 31, 1999, provided a $500 unsecured
revolving credit facility. In accordance with its terms, on December 31,
1995, the revolving credit facility was reduced by $50 and will be reduced by
$50 annually thereafter on each December 31. Amounts outstanding as of
December 31, 1995 under this facility are classified as long-term based on
the Company's intent and ability to maintain these loans on a long-term
basis. The Company also has a $15 uncommitted borrowing facility pursuant to
which the aggregate amount of borrowings outstanding under this facility and
the revolving credit facility cannot exceed the total available credit
commitment under the Credit Agreement. At December 31, 1995, the Company had
borrowings of $183.
The Credit Agreement contains numerous financial and operating covenants,
including restrictions upon incurring indebtedness and liens, entering into
certain transactions to acquire or merge with any entity, making certain
other fundamental changes, selling property and paying dividends. At December
31, 1995, the Company was in compliance with all financial and operating
covenants.
The Company's principal source of liquidity both on a short-term and
long-term basis is cash flow provided by operations. Occasionally, however,
the Company may borrow against the Credit Agreement to supplement cash flow
from operations. The Company believes that based upon its analysis of its
consolidated financial position, its cash flow during the past 12 months and
the expected results of operations in the future, operating cash flow and
available funding under the Credit Agreement will be adequate to fund
operations, research and development expenditures, capital expenditures and
debt service for the next 12 months. The Company intends to repay its
remaining indebtedness primarily with cash flow from operations. There can be
no assurance, however, that future industry specific developments or general
economic trends will not adversely affect the Company's operations or its
ability to meet its cash requirements.
On a selective basis, the Company enters into interest rate cap or swap
agreements to reduce the potential negative impact of increases in interest
rates on its outstanding variable-rate debt. In the fourth quarter of 1994,
the Company entered into two interest rate cap agreements to hedge an
aggregate notional amount of $150 of outstanding variable-rate borrowings
under the Credit Agreement. The interest rate cap agreements expired on
January 3, 1996. The Company monitors its underlying interest rate exposures
on its variable-rate debt on an ongoing basis and believes that it can modify
or adapt its hedging strategies as needed. See Note 12 to the consolidated
financial statements for additional information on the Company's hedging
strategies.
New Technologies
The Company is entering a new competitive environment in which its
success will be dependent upon numerous factors, including its ability to
continue to develop appropriate technologies and successfully implement
applications based on those technologies. The Company believes that a key
step in the evolution of cable television system architecture and satellite
delivery of programming will be the implementation of digital video
compression, which converts television signals to a digital format and then
compresses the signals of several channels of television programming into the
bandwidth currently used by just one channel. The Company has developed a
digital television system, DigiCipher(TM), that enables satellite programmers
and cable television operators to deliver over their existing networks four
to ten times as much information as is possible with existing analog
technology.
The Company has been shipping its first-generation DigiCipher I digital
encoders and decoders for satellite programmers and cable television
commercial headend operators since 1993, and began deployment of DigiCipher I
consumer receivers to PRIMESTAR Partners for the medium-power Ku-band
direct-to-home satellite market in the second quarter of 1994. Through
December 31, 1995, the Company had delivered approximately 1.5 million
DigiCipher I receivers to PRIMESTAR. The Company currently has a worldwide
installed base of 171 DigiCipher I digital satellite systems with the
capacity to deliver 501 channels of digital programming.
DigiCipher II/MPEG-2 is the Company's second generation end-to-end
digital television system which incorporates the Motion Picture Experts Group
2 ("MPEG-2") international standard for digital compression and transport.
The development of DigiCipher II/MPEG-2 has taken longer than anticipated as
a result of several factors, including increased system complexity, evolving
international MPEG-2 standards and other system design issues. The Company
began shipment of its DigiCipher II/MPEG-2 system to satellite television
programmers in early 1996, and expects to begin delivery of DigiCipher
II/MPEG-2 systems to cable television operators in the second half of 1996,
although there can be no assurance that additional delays will not occur.
PRIMESTAR has informed the Company that it has deferred its transition to
the Company's DigiCipher II/MPEG-2 digital transmission system, and instead,
plans to expand its use of the Company's DigiCipher I technology, expecting
to purchase more than 1 million additional DigiCipher I digital consumer
satellite receivers in 1996. The Company had previously anticipated
delivering DigiCipher II/MPEG-2 upgrade modules for existing receivers in use
by PRIMESTAR customers in 1996. All of the DigiCipher I consumer receivers
that the Company supplies to PRIMESTAR are designed to accept an upgrade
module, allowing the receivers to be easily upgraded to the Company's
DigiCipher II/MPEG-2 system. To support its ongoing delivery plans, the
Company is continuing its DigiCipher II/MPEG-2 product development efforts at
current levels.
As a result of the high costs of initial production, DigiCipher I and
DigiCipher II/MPEG-2 products currently being shipped carry substantially
lower margins than the Company's mature analog products. As the Company
progresses through the initial stages of production of its DigiCipher
II/MPEG-2 products, the Company expects margins of its digital products to
improve.
In September 1995, the Company acquired Next Level Communications ("Next
Level"), which was formed to design, manufacture and market a next-generation
telecommunications broadband access system for the delivery of telephony,
video and data from a telephone company central office or cable television
headend to the home. Next Level's product, NLevel3, is designed to permit the
cost-effective delivery of a suite of standard telephony and advanced
services such as work-at-home, distance-learning, video-on-demand and
video-telephony to the home from a single access platform. NLevel3 is
designed to work with and enhance existing telephony and cable television
networks. Next Level has demonstrated NLevel3 for the seven regional bell
operating companies (RBOCs), and four of the RBOCs have announced their
intention to employ fiber-to-the-curb architectures using switched-digital
video technology in their planned broadband networks. In addition to the cost
of the acquisition of Next Level, a significant amount of research and
development expenditures will be required to successfully bring NLevel3 to
market. The Company does not expect Next Level to generate any revenue until
at least 1997, and there can be no assurance that NLevel3 will successfully
be developed and marketed.
In the fourth quarter, the Company announced the launch of its
SURFboard(TM) system for high-speed cable modems for personal computers in
homes and businesses. The system enables network operators to link
subscribers to interactive video and data services via the Company's
SURFboard(TM) modem, an advanced personal computer connectivity device that
is adaptable to cable, wireless cable and direct-to-home satellite television
systems. Additionally, the Company and FORE Systems announced plans to
jointly develop a high-speed, two-way, asynchronous transfer mode-based
telecommunications network system for hybrid-fiber-coaxial cable television
plants. The Company has not yet generated revenues from its SURFboard(TM)
product and, although sales are expected to begin in 1996, there can be no
assurance that such sales will occur or, if they do, in what amounts.
With these new technologies and applications under development, the
Company believes it is well positioned to take advantage of the opportunities
presented in the new competitive environment. There can be no assurance,
however, that these technologies and applications will be successfully
developed, or, if they are successfully developed, that they will be
implemented by the Company's traditional customers or that the Company will
otherwise be able to successfully exploit these technologies and
applications.
Foreign Exchange
A significant portion of the Company's products are manufactured or assembled
in countries outside the United States. In addition, as mentioned above, the
Company's sales of its equipment into international markets have grown. These
foreign operations are subject to risk with respect to currency exchange rate
fluctuations. The Company monitors its underlying exchange rate exposures on
an ongoing basis and continues to implement selective hedging strategies to
reduce the market risks from changes in exchange rates. See Note 12 to the
consolidated financial statements.
Effect of Inflation
The Company continually attempts to minimize any effect of inflation on
earnings by controlling its operating costs and selling prices. During the
past few years, the rate of inflation has been low and has not had a material
impact on the Company's results of operations.
- --------------------------------------------------------------------------------
<PAGE>
MANAGEMENT'S RESPONSIBILITY
- --------------------------------------------------------------------------------
Management is responsible for the preparation and accuracy of the
consolidated financial statements and other information included in this
report. The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles using, where
appropriate, management's best estimates and judgments.
In meeting its responsibility for the reliability of the consolidated
financial statements, management has developed and relies on the Company's
system of internal accounting control. The system is designed to provide
reasonable assurance that assets are safeguarded and that transactions are
executed as authorized and are properly recorded. The system is augmented by
written policies and procedures and an internal audit department.
The Board of Directors reviews the consolidated financial statements and
reporting practices of the Company through its Audit Committee, which is
composed entirely of directors who are not officers or employees of the
Company. The Committee meets with the independent auditors, internal auditors
and management to discuss audit scope and results and to consider internal
control and financial reporting matters. Both the independent and internal
auditors have direct unrestricted access to the Audit Committee. The entire
Board of Directors reviews the Company's financial performance and financial
plan.
/s/ Richard S. Friedland /s/ Charles T. Dickson
------------------------ -----------------------
Richard S. Friedland Charles T. Dickson
Chairman and Vice President and
Chief Executive Officer Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
General Instrument Corporation:
We have audited the consolidated balance sheets of General Instrument
Corporation and its subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995.
These 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 audit 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, such consolidated financial statements present fairly, in
all material respects, the financial position of General Instrument
Corporation and its subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Notes 6 and 10 to the consolidated financial statements,
effective January 1, 1994, the Company changed its method of accounting for
postemployment benefits and, effective January 1, 1993, changed its method of
accounting for income taxes and postretirement benefits other than pensions,
to conform with Statements of Financial Accounting Standards Nos. 112, 109
and 106, respectively.
/s/ Deloitte & Touche LLP
-------------------------
Deloitte & Touche LLP
Chicago, Illinois
February 2, 1996
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
(In thousands, except per share data) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales ........................................................ $ 2,432,024 $ 2,036,323 $ 1,392,522
----------- ----------- -----------
Operating Costs and Expenses:
Cost of sales ................................................ 1,690,639 1,403,585 956,154
Selling, general and administrative .......................... 224,269 179,631 149,362
Research and development ..................................... 147,253 111,462 73,741
Purchased in-process technology .............................. 139,860 -- --
Amortization of excess of cost over fair value of
net assets acquired ...................................... 24,702 25,574 25,722
----------- ----------- -----------
Total operating costs and expenses .................... 2,226,723 1,720,252 1,204,979
----------- ----------- -----------
Operating Income ................................................. 205,301 316,071 187,543
Other expense-net ................................................ (1,894) (5,154) (1,193)
Investment income ................................................ 1,535 823 913
Interest expense ................................................. (42,594) (53,574) (73,371)
----------- ----------- -----------
Income before Income Taxes and Cumulative Effect
of Changes in Accounting Principles .......................... 162,348 258,166 113,892
Provision for income taxes ....................................... (38,566) (9,714) (23,526)
----------- ----------- -----------
Income before Cumulative Effect of Changes
in Accounting Principles ..................................... 123,782 248,452 90,366
Cumulative Effect of Changes in Accounting Principles:
Accounting for postemployment benefits ....................... -- (1,917) --
Accounting for income taxes .................................. -- -- 10,331
Accounting for postretirement benefits
other than pensions ...................................... -- -- (10,114)
----------- ----------- -----------
Net Income ....................................................... $ 123,782 $ 246,535 $ 90,583
=========== =========== ===========
Weighted Average Shares Outstanding .............................. 124,374 123,393 122,237
Earnings Per Share:
Primary:
Income before cumulative effect of changes
in accounting principles ................................. $ 1.00 $ 2.01 $ .74
Cumulative effect of changes in accounting
principles-net ........................................... -- (.01) --
----------- ----------- -----------
Net income ................................................... $ 1.00 $ 2.00 $ .74
=========== =========== ===========
Fully Diluted:
Income before cumulative effect of changes
in accounting principles ................................. $ .96 $ 1.89 $ .74
Cumulative effect of changes in accounting
principles-net ........................................... -- (.01) --
----------- ----------- -----------
Net income ................................................... $ .96 $ 1.88 $ .74
=========== =========== ===========
- ------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Dollars in thousands, except share data) December 31, 1995 December 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ............................................................... $ 36,382 $ 5,128
Accounts receivable, less allowance for doubtful accounts of
$14,321 and $7,582, respectively ..................................................... 367,672 306,754
Inventories ............................................................................. 281,398 214,180
Prepaid expenses and other current assets ............................................... 26,992 22,256
Deferred income taxes, net of valuation allowance ....................................... 111,750 93,446
----------- -----------
Total current assets ................................................................. 824,194 641,764
Property, plant and equipment-net ....................................................... 437,194 343,868
Intangibles, less accumulated amortization of $94,654 and $78,460,
respectively ......................................................................... 146,646 161,410
Excess of cost over fair value of net assets acquired, less accumulated
amortization of $135,654 and $110,952, respectively .................................. 842,954 904,184
Investments and other assets ............................................................ 27,576 10,113
Deferred income taxes, net of valuation allowance ....................................... 8,885 29,238
Deferred financing costs, less accumulated amortization of $28,045
and $22,980, respectively ............................................................ 13,309 18,374
----------- -----------
Total Assets ............................................................................ $ 2,300,758 $ 2,108,951
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable ........................................................................ $ 215,761 $ 162,529
Accrued interest payable ................................................................ 3,571 2,737
Income taxes payable .................................................................... 33,904 52,670
Accrued liabilities ..................................................................... 204,874 208,383
Current portion of long-term debt ....................................................... 4,310 2,155
----------- -----------
Total current liabilities ............................................................ 462,420 428,474
----------- -----------
Deferred income taxes ................................................................... 22,221 30,332
----------- -----------
Long-term debt .......................................................................... 738,569 794,694
----------- -----------
Other non-current liabilities ........................................................... 162,205 178,273
----------- -----------
Commitments and contingencies (See Note 8)
Stockholders' Equity:
Preferred Stock, $.01 par value; 20,000,000
shares authorized; no shares issued .................................................. -- --
Common Stock, $.01 par value; 400,000,000 shares authorized; 126,034,911 and
122,231,348 shares issued at December 31, 1995 and
1994, respectively ................................................................... 1,260 1,222
Additional paid-in capital .............................................................. 666,190 543,728
Retained earnings ....................................................................... 256,416 132,634
----------- -----------
923,866 677,584
Less-Treasury Stock, at cost, 229,011 and 11,259 shares of Common
Stock at December 31, 1995 and 1994, respectively ............................. (7,246) (17)
Unearned compensation .............................................................. (1,277) (389)
----------- -----------
Total stockholders' equity ................................................. 915,343 677,178
----------- -----------
Total Liabilities and Stockholders' Equity .............................................. $ 2,300,758 $ 2,108,951
=========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Retained
Common Stock Additional Earnings Common
-------------------- Paid-In (Accumulated Stock In Unearned
(In thousands) Shares Amount Capital Deficit) Treasury Compensation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 ...................... 58,849 $ 589 $ 495,245 $(204,484) $ (18) $ --
Exercise of stock options ..................... 1,282 12 6,212 -- -- --
Costs associated with the sale
of Common Stock ........................... -- -- (2,743) -- -- --
Exchange of stock appreciation
rights for stock options .................. -- -- 3,703 -- -- --
Issuance of Treasury Stock .................... -- -- 6 -- -- --
Net income .................................... -- -- -- 90,583 -- --
------- --------- --------- --------- --------- ---------
Balance, December 31, 1993 .................... 60,131 601 502,423 (113,901) (18) --
Two-for-one stock split ....................... 60,131 601 (601) -- -- --
Exercise of stock options ..................... 1,954 20 9,076 -- -- --
Issuance of Treasury Stock .................... -- -- 15 -- 1 --
Issuance of restricted stock .................. 15 -- 480 -- -- (389)
Tax benefit from a reduction in a
valuation allowance for domestic
deferred tax assets ....................... -- -- 32,335 -- -- --
Net income .................................... -- -- -- 246,535 -- --
------- --------- --------- --------- --------- ---------
Balance, December 31, 1994 .................... 122,231 1,222 543,728 132,634 (17) (389)
Exercise of stock options ..................... 1,103 11 17,495 -- -- --
Tax benefit from exercise of
stock options ............................. -- -- 8,402 -- -- --
Stock issued for business
acquisition ............................... 2,465 25 92,052 -- (7,229) (1,394)
Cost associated with the sale/
issuance of Common Stock .................. -- -- (1,100) -- -- --
Amortization of unearned
compensation .............................. -- -- -- -- -- 506
Conversion of Convertible
Junior Subordinated Notes ................. 236 2 5,613 -- -- --
Net income .................................... -- -- -- 123,782 -- --
------- --------- --------- --------- --------- ---------
Balance, December 31, 1995 .................... 126,035 $ 1,260 $ 666,190 $ 256,416 $ (7,246) $ (1,277)
======= ========= ========= ========= ========= =========
- -----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31,
---------------------------------------------------
(In thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net income ....................................................... $ 123,782 $ 246,535 $ 90,583
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................ 110,140 97,350 97,458
Purchased in-process technology, net ..................... 90,000 -- --
(Gain) loss from divested businesses
and assets--net ....................................... -- 3,153 (323)
Write-down of facility held for sale ..................... -- -- 7,425
Changes in assets and liabilities:
Accounts receivable ................................... (54,918) (95,035) (61,683)
Inventories ........................................... (67,218) (105,229) (16,608)
Prepaid expenses and other
current assets ..................................... (5,308) (4,446) (3,010)
Deferred income taxes ................................. 13,531 (50,435) (485)
Accounts payable, income taxes payable
and other accrued liabilities ...................... 55,409 60,513 47,496
Other non-current liabilities ......................... (28,406) 4,605 23,953
Other .................................................... (5,185) 5,126 (1,145)
--------- --------- ---------
Cash provided by operating activities ............................ 231,827 162,137 183,661
--------- --------- ---------
Investment Activities:
Proceeds from sale of assets ..................................... 2,339 8,210 39,721
Additions to property, plant and equipment ....................... (159,441) (135,740) (67,060)
Investments in other assets ...................................... (8,796) -- (4,000)
Acquisition of Next Level Communications,
net of cash acquired of $3,800 (See Note 2) .................. (2,775) -- --
Net funding of divested businesses ............................... -- -- (5,902)
--------- --------- ---------
Cash used in investment activities ............................... (168,673) (127,530) (37,241)
--------- --------- ---------
Financing Activities:
Proceeds from issuance of Convertible Junior
Subordinated Notes ........................................... -- -- 500,000
Costs associated with the issuance of debt ....................... -- (357) (17,803)
Proceeds from the issuance of Flexible Term Notes ................ 10,800 -- --
Costs associated with the sale of Common Stock ................... (1,051) (447) (1,792)
Proceeds from stock options ...................................... 17,506 9,096 6,224
Net proceeds from (repayment of) revolving
credit facilities ............................................ (57,000) (26,645) 1,500
Repayment of debt ................................................ (2,155) (16,710) (648,050)
--------- --------- ---------
Cash used in financing activities ................................ (31,900) (35,063) (159,921)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents ................. 31,254 (456) (13,501)
Cash and cash equivalents, beginning of year ..................... 5,128 5,584 19,085
--------- --------- ---------
Cash and cash equivalents, end of year ........................... $ 36,382 $ 5,128 $ 5,584
========= ========= =========
Supplemental Cash Flow Information:
Income taxes paid ............................................ $ 36,973 $ 70,815 $ 19,957
========= ========= =========
Interest paid ................................................ $ 47,801 $ 45,594 $ 87,709
========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
(In thousands, unless otherwise noted)
1 Summary of Significant Accounting Policies
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of General Instrument Corporation (the
"Company" or "GI") and its wholly-owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
Revenue Recognition. The Company recognizes revenue when products are
shipped and services are performed.
Cash Equivalents. The Company considers all highly liquid debt
instruments with a maturity of three months or less at the date of purchase
to be cash equivalents.
Inventories. Inventories are stated at the lower of cost, determined on a
first-in, first-out (FIFO) basis, or market.
Property, Plant and Equipment. Property, plant and equipment are stated
at cost. Provisions for depreciation are based on estimated useful lives of
the assets using the straight-line method. Average useful lives are 5 to 35
years for buildings and improvements; economic useful life or lease term,
whichever is shorter, for leasehold improvements and 3 to 10 years for
machinery and equipment.
Deferred Financing Costs. Financing costs are capitalized and amortized
using the interest method over the term of the related financing.
Intangible Assets. Intangible assets consist primarily of patents which
are being amortized on a straight-line basis over a range of 5 to 17 years.
Excess of Cost Over Fair Value of Net Assets Acquired. The excess of cost
over fair value of net assets acquired is being amortized on a straight-line
basis over 40 years. Management continually reassesses the appropriateness of
both the carrying value and remaining life of the excess of cost over fair
value of net assets acquired by assessing recoverability based on forecasted
operating cash flows, on an undiscounted basis, and other factors. Management
believes that, as of December 31, 1995, the carrying value and remaining life
of the excess of cost over fair value of net assets acquired is appropriate.
Use of Estimates. The preparation of the accompanying consolidated
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 and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting periods. Actual
results could differ from those estimates.
Foreign Currency Translation. The Company has determined the U.S. dollar
to be the functional currency of all foreign subsidiaries. Accordingly, gains
and losses recognized as a result of translating foreign subsidiaries'
monetary assets and liabilities from local foreign currencies to U.S. dollars
are reflected in the accompanying consolidated statements of income. To hedge
foreign currency exposure on monetary assets and liabilities, the Company
enters into foreign currency forward contracts on a month-to-month basis.
Benefit Plans. Substantially all employees, including certain employees
of divested businesses, are covered by pension plans. The benefits under the
plans are based on years of service and compensation levels. Contributions to
pension funds are made when actuarial computations prescribe such funding.
Income Taxes. Deferred income taxes reflect the future tax consequences
of differences between the financial reporting and tax bases of assets and
liabilities. Deferred income taxes have been provided for the income tax
liability which would be incurred on the repatriation of undistributed
earnings of the Company's foreign subsidiaries, except for locations where
the Company has designated earnings to be permanently invested.
Earnings Per Share. Primary earnings per share is computed based on the
weighted average number of common and common equivalent shares outstanding
during the applicable periods.
Fully diluted earnings per share computations for all periods are based
on net income adjusted for interest and amortization of debt issuance costs
related to convertible debt and the weighted average number of common shares
outstanding adjusted for the dilutive effect of stock options and convertible
securities. The computations of primary and fully diluted earnings per share
assume the exercise of stock options using the treasury stock method, and to
the extent that stock options are anti-dilutive, they are excluded from the
computation.
Reclassifications. Certain prior year amounts have been reclassified to
conform to the current year presentation.
<PAGE>
2 Acquisition and Divestitures
In September 1995, the Company acquired all the outstanding shares of Next
Level Communications ("Next Level") not previously owned by the Company,
including shares issued upon conversion of all of Next Level's outstanding
options and warrants. The total purchase price of $91 million consisted of
2.2 million common shares of the Company valued at $75 million, Company stock
options valued at $10 million and $6 million in cash. Next Level is involved
with the development of a next generation broadband access system, NLevel3,
utilizing switched-digital video technology. NLevel3 is designed to provide
delivery of video, voice and data over "fiber-to-the-curb" networks.
The acquisition was accounted for as a purchase and, accordingly, the
acquired assets and liabilities were recorded at their estimated fair value
at the date of acquisition. The purchase price of $91 million, plus the $2
million of costs directly attributable to the completion of the acquisition,
have been allocated to the assets and liabilities acquired. Approximately $90
million of the total purchase price represented the value, net of deferred
income taxes, of Next Level's in-process technology. Since technological
feasibility had not yet been achieved and there was no alternative future use
for the technology being developed, the amounts allocated to the in-process
technology were expensed concurrent with the purchase. The non-recurring
net-of-tax charge of $90 million included $140 million associated with this
technology charged to operating income, offset by a non-cash tax benefit of
$50 million.
In 1993, the Company sold its Wagering Group for an amount that
approximated net book value. Gains or losses from divested assets reflected
in Other Expense-net were not significant during each of the three years in
the period ended December 31, 1995.
- --------------------------------------------------------------------------------
<TABLE>
3 Inventories
Inventories consist of:
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Raw materials ........................................................ $142,573 $ 81,987
Work in process ...................................................... 38,565 25,822
Finished goods ....................................................... 100,260 106,371
----------------- -----------------
$281,398 $214,180
================= =================
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
4 Property, Plant and Equipment-net
Property, plant and equipment-net consists of:
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1995 December 31, 1994
----------------- ------------------
<S> <C> <C>
Land and land improvements ........................................ $ 96,152 $ 93,983
Buildings, improvements and leasehold improvements ................ 77,438 65,824
Machinery and equipment ........................................... 561,856 439,452
----------------- ------------------
735,446 599,259
Less accumulated depreciation ..................................... (298,252) (255,391)
----------------- ------------------
$ 437,194 $ 343,868
================= ==================
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
5 Accrued Liabilities
Accrued liabilities consist of:
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Salaries and wages ................................................ $ 40,783 $ 39,018
Payroll, state and local taxes .................................... 7,622 9,965
Product and warranty reserves ..................................... 67,874 85,694
Other ............................................................. 88,595 73,706
----------------- -----------------
$ 204,874 $ 208,383
================= =================
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6 Income Taxes
The domestic and foreign components of income before income taxes and
cumulative effect of changes in accounting principles are as follows:
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Domestic .................................... $ 78,390(1) $194,112 $ 54,414
Foreign ..................................... 83,958 64,054 59,478
-------- -------- --------
Total ....................................... $162,348 $258,166 $113,892
-------- -------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Includes a one-time charge of $140 million for purchased in-process
technology in connection with the Company's acquisition of Next Level
Communications.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
The components of the provision for income tax are as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal ................................. $ 35,707 $ 26,153 $ 2,620
Foreign ................................. 20,586 19,680 11,098
State ................................... 14,367 7,614 3,398
--------- --------- ---------
70,660 53,447 17,116
--------- --------- ---------
Deferred:
Federal ................................. (30,864) 55,534 11,167
Foreign ................................. (901) 3,543 4,832
State ................................... 1,328 3,941 (6,148)
--------- --------- ---------
(30,437) 63,018 9,851
--------- --------- ---------
Net change in valuation allowance ........... (1,657) (106,751) (3,441)
--------- --------- ---------
Provision for income taxes .................. $ 38,566 $ 9,714 $ 23,526
========= ========= =========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
The differences between the U.S. statutory income tax rate
and the effective tax rate are summarized below:
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Statutory rate .............................. 35.0% 35.0% 35.0%
Valuation allowance benefit ................. (1.0) (41.3) (19.5)
State income taxes, net ..................... 6.3 2.9 (2.4)
Foreign operations .......................... (13.1) 2.9 0.3
Non-deductible purchase accounting items .... 5.3 3.5 7.9
Settlement of tax audits .................... (7.4) -- --
Other--net .................................. (1.3) 0.8 (0.6)
----- ----- -----
Effective rate .............................. 23.8% 3.8% 20.7%
===== ===== =====
- -----------------------------------------------------------------------------------------------------------------------------------
The foreign-tax rate differential in 1995 reflects the Company's ability to
recognize the benefit of foreign tax credits.
</TABLE>
<PAGE>
<TABLE>
Deferred income taxes as recorded in the accompanying consolidated balance
sheets were comprised of the following:
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1995 December 31, 1994
--------------------------------------- ---------------------------------------
Asset Liability Net Asset Liability Net
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Current Deferred Income Taxes:
Domestic net operating loss
carryforwards (expiring
through 2007) ................. $ 11,382 $ -- $ 11,382 $ 18,193 $ -- $ 18,193
Domestic capital loss
carryforwards (expiring
in 1996) ...................... 25,336 -- 25,336 -- -- --
Accounts receivable and
inventory reserves ............ 43,054 -- 43,054 24,883 -- 24,883
Product and warranty reserves ..... 15,376 -- 15,376 19,884 -- 19,884
Employee benefits ................. 13,870 -- 13,870 6,227 -- 6,227
Other current ..................... 28,068 -- 28,068 24,259 -- 24,259
--------- --------- --------- --------- --------- ---------
137,086 -- 137,086 93,446 -- 93,446
Valuation allowance ............... (25,336) -- (25,336) -- -- --
--------- --------- --------- --------- --------- ---------
$ 111,750 $ -- $ 111,750 $ 93,446 $ -- $ 93,446
========= ========= ========= ========= ========= =========
Non-Current Deferred Taxes:
Domestic capital loss
carryforwards ................. $ -- $ -- $ -- $ 32,118 $ -- $ 32,118
Tax credit carryforwards .......... 7,091 -- 7,091 5,787 -- 5,787
Fixed and intangible assets ....... (3,296) 50,348 (53,644) (48,057) -- (48,057)
Environmental liabilities ......... 1,503 (12,302) 13,805 17,787 -- 17,787
Employee benefits ................. 2,193 (18,448) 20,641 21,960 -- 21,960
Product and warranty reserves ..... 5,629 -- 5,629 10,567 -- 10,567
Investments and other assets ...... 409 (3,354) 3,763 12,397 -- 12,397
Other non-current ................. (1,935) 5,977 (7,912) 13,163 30,332 (17,169)
--------- --------- --------- --------- --------- ---------
11,594 22,221 (10,627) 65,722 30,332 35,390
Valuation allowance ............... (2,709) -- (2,709) (36,484) -- (36,484)
--------- --------- --------- --------- --------- ---------
$ 8,885 $ 22,221 $ (13,336) $ 29,238 $ 30,332 $ (1,094)
========= ========= ========= ========= ========= =========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, deferred taxes have not been provided on undistributed
earnings of $30 million as those earnings are considered to be permanently
reinvested. Determining the tax liability that would arise if these earnings
were remitted is not practicable.
Effective January 1, 1993, the Company adopted Financial Accounting
Standards Board Statement No. 109, Accounting for Income Taxes ("SFAS No.
109"). As a result of adopting SFAS No. 109, the Company recorded a
cumulative effect credit to income of $10 million and recorded deferred tax
assets of $182 million, deferred tax liabilities of $3 million and a
valuation allowance of $173 million to fully reserve its domestic deferred
tax assets. The realization of these domestic deferred income tax assets was
not considered to be more likely than not as a result of domestic tax losses
and capital losses incurred since the date affiliates of Forstmann Little
& Co. ("FL &Co."), a private investment firm, acquired the Company in August
1990 (the "Acquisition").
Subsequent to January 1, 1993, the valuation allowance had been
periodically reduced to the extent that the Company generated domestic
taxable income. During 1994, the Company reduced the valuation allowance by
$90 million as domestic taxable income was generated; $10 million of such
reduction adjusted goodwill since the benefits were attributable to the
pre-Acquisition period. In addition, based on operating trends, positive
industry and technological developments and management's assessment of
expected domestic taxable income included in the Company's planning process,
the Company recorded a further reduction to the valuation allowance, as of
December 31, 1994, of $63 million. Such reduction resulted in an income tax
benefit of $30 million, an increase in stockholders' equity of $32 million
($10 million of which arose in 1994 as a result of stock options exercised)
and a reduction in goodwill of $1 million. The valuation allowance which
existed at December 31, 1995 and 1994, relates principally to domestic
capital loss carryforwards which can only be utilized to the extent the
Company can generate domestic capital gains. In connection with the
settlement of certain tax matters, a portion of these capital loss
carryforwards were eliminated with a corresponding reduction in the valuation
reserve.
During 1995, the Company settled certain tax matters which resulted in a
$12 million credit to income taxes and a $36 million credit to goodwill since
certain matters related to the pre-Acquisition period.
- --------------------------------------------------------------------------------
7 Long-Term Debt
<TABLE>
Long-term debt consists of:
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Senior bank indebtedness:
Revolving credit facilities ........................................... $183,000 $240,000
Taiwan loan ........................................................... 54,694 56,849
Flexible Term Notes ................................................... 10,800 --
Convertible Junior Subordinated Notes ..................................... 494,385 500,000
----------------- -----------------
742,879 796,849
Less current maturities ................................................... 4,310 2,155
----------------- -----------------
Long-term debt ............................................................ $738,569 $794,694
================= =================
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The senior bank credit agreement of GI Delaware (the "Credit Agreement"),
which matures on December 31, 1999, provided for a $500 million unsecured
revolving credit facility. In accordance with its terms, on December 31,
1995, the revolving credit facility commitment was reduced by $50 million and
will be reduced by $50 million annually thereafter on December 31. Amounts
outstanding as of December 31, 1995 under this facility are classified as
long-term based on the Company's intent and ability to maintain these loans
on a long-term basis. The Credit Agreement requires the Company to pay a
commitment fee of .2% per annum on the unused portion of the total commitment
and agent fees of $50 per quarter. The Credit Agreement permits the Company
to choose either the ABR (Adjusted Base Rate) interest option, which is based
on the prime rate, or a Eurodollar rate (LIBOR) plus 1/2 of 1%. The interest
rates and commitment fees are subject to change based on the Company's
performance with respect to certain financial ratios and credit ratings by
nationally recognized statistical rating companies set forth in the Credit
Agreement.
The Company also has a $15 million uncommitted borrowing facility,
pursuant to which the aggregate amount of borrowings outstanding under this
facility and the revolving credit facility cannot exceed the total available
credit commitment under the Credit Agreement. At December 31, 1995 and 1994,
the Company had credit commitments of $267 and $260 million, respectively,
which the Company had not borrowed against under its revolving credit
facilities.
The Credit Agreement contains certain restrictions, including limitations
on additional debt issuance and restrictions on distributions to
shareholders, and requires the maintenance of certain financial ratios. In
addition, under the Credit Agreement, certain changes in control of the
Company would cause an event of default, and the banks could declare all
outstanding borrowings under the Credit Agreement immediately due and
payable. None of the restrictions contained in the Credit Agreement are
expected to have a significant effect on the ability of the Company to
operate. As of December 31, 1995 and 1994, the Company was in compliance with
all financial and operating covenants under existing credit agreements.
The Company has a $60 million loan agreement with a consortium of banks
in Taiwan (the "Taiwan Loan Agreement"). Borrowings under the Taiwan Loan
Agreement are secured by a mortgage on land and buildings in Taiwan. In July
1994, the interest rate under the Taiwan Loan Agreement was reduced from the
Singapore Interbank Offered Rate (SIBOR) plus 1-1/4% to SIBOR plus 3/4%, and
in October 1994, the Taiwan Loan Agreement was amended to extend required
installment repayment dates and maturity by one year. The borrowings under
the Taiwan Loan Agreement will mature on June 30, 2000 with nine semi-annual
installments, beginning on December 31, 1995, of $2.2 million paid on June 30
and December 31 and the remaining balance to be paid at maturity.
In January 1995, CommScope, Inc., an indirect wholly-owned subsidiary of
the Company, entered into an $11 million loan agreement in connection with
the issuance of notes by the Alabama State Industrial Development Authority
(the "Flexible Term Notes"). Borrowings under the loan agreement bear
interest at variable rates based upon current market conditions for
short-term financing. At December 31, 1995 the variable rate was 6.65%. The
loan agreement will mature on January 1, 2015, and any remaining amounts
outstanding under the Flexible Term Notes will be due and payable on that
date.
The Company consummated a public offering of an aggregate principal
amount of $500 million of 5% Convertible Junior Subordinated Notes (the
"Notes") in 1993. The Notes mature on June 15, 2000 and have semi-annual
interest payments on each June 15 and December 15. The Notes are not
redeemable prior to June 18, 1996 and are thereafter redeemable in whole or
in part at the Company's option at amounts decreasing from 102.857% of
principal at June 18, 1996 to 100% of principal at June 15, 2000. Holders of
the Notes have a repurchase right, whereby, in the event certain changes of
control of the Company occur, each holder will have the right, at the
holder's option, to require the Company to repurchase all or any part of the
holder's Notes at 100% of principal plus accrued interest to the repurchase
date. These Notes are initially convertible into Common Stock at a conversion
price of $23.75 per share. During the second half of 1995, $6 million of
Notes were converted by holders into 236 shares of Common Stock.
Approximately 20.8 million shares of Common Stock are reserved for issuance
upon conversion of the remaining outstanding Notes.
The effective interest rate on the Company's long-term debt at December
31, 1995 and 1994 was 5.60% and 5.62%, respectively.
- --------------------------------------------------------------------------------
8 Commitments and Contingencies
The Company leases office space, manufacturing and warehouse facilities and
transportation and other equipment under operating leases which expire at
various dates through the year 2020. Rent expense was $14, $13 and $9 million
in 1995, 1994 and 1993, respectively. Future minimum lease payments required
under these lease arrangements as of December 31, 1995 were as follows:
- --------------------------------------------------------------------------------
1996 ............................................................ $12,432
1997 ............................................................ 8,397
1998 ............................................................ 6,831
1999 ............................................................ 4,730
2000 ............................................................ 4,104
Thereafter ...................................................... 16,629
- --------------------------------------------------------------------------------
The Company is either a plaintiff or a defendant in several pending legal
matters. In addition, the Company is subject to various federal, state, local
and foreign laws and regulations governing the use, discharge and disposal of
hazardous materials. The Company's manufacturing facilities are believed to
be in substantial compliance with current laws and regulations. Compliance
with current laws and regulations has not had, and is not expected to have, a
material adverse effect on the Company's financial condition. The Company is
also involved in remediation programs, principally with respect to former
manufacturing sites, which are proceeding in conjunction with federal and
state regulatory oversight. In addition, the Company is currently named as a
potentially responsible party with respect to the disposal of hazardous
wastes at three hazardous waste sites located in two states.
The Company engages independent consultants to assist management in
evaluating potential liabilities related to environmental matters. Management
assesses the input from these independent consultants along with other
information known to the Company in its effort to continually monitor these
potential liabilities. Management assesses its environmental exposure on a
site-by-site basis, including those sites where the Company has been named as
a potentially responsible party. Such assessments include the Company's share
of remediation costs, information known to the Company concerning the size of
the hazardous waste sites, their years of operation and the number of past
users and their financial viability. Although the Company estimates, based on
assessments and evaluations made by management, that its exposure with
respect to these environmental matters could be as high as $54 million, the
Company believes that the reserve for environmental matters of $35 million at
December 31, 1995 ($45 million at December 31, 1994) is reasonable and
adequate. However, there can be no assurance that the ultimate resolution of
these matters will approximate the amount reserved. The decrease in the
reserve in 1995 primarily reflects $7 million in payments to settle certain
environmental matters at two sites.
Based on the factors discussed above, capital expenditures and expenses
for the Company's remediation programs, and the proportionate share of the
cost of the necessary investigation and eventual remedial work that may be
needed to be performed at the sites for which the Company has been named as a
potentially responsible party, are not expected to have a material adverse
effect on the Company's financial statements. The Company's present and past
facilities have been in operation for many years, and over that time in the
course of those operations, the Company's facilities have used substances
which are or might be considered hazardous, and the Company has generated and
disposed of wastes which are or might be considered hazardous. Therefore, it
is possible that additional environmental issues may arise in the future
which the Company cannot now predict.
During October 1995, the Company and certain of its officers and
directors were named as defendants in purported class action complaints in
which the plaintiffs alleged that during various periods generally extending
from March 21, 1995 through October 18, 1995, the Company and certain
officers and directors violated certain federal securities laws by making
false and misleading statements about the Company's financial prospects, and
as a result, the plaintiffs allege that the market value of the Company Stock
declined, thereby causing unspecified monetary damages to the plaintiffs. The
Company intends to vigorously defend these allegations.
While the ultimate outcome of the matters described above cannot be
determined, management does not expect they will have a material adverse
effect on the Company's financial statements.
- --------------------------------------------------------------------------------
9 Employee Benefits
<TABLE>
Net pension cost consisted of the following:
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1995 1994 1993
----------------------- ----------------------- -----------------------
Domestic Foreign Domestic Foreign Domestic Foreign
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service cost .......................... $ 1,999 $ 3,543 $ 2,113 $ 3,149 $ 1,808 $ 3,033
Interest .............................. 6,832 4,967 6,580 4,851 6,638 4,287
Loss (return) on plan assets .......... (22,872) (1,885) 5,974 (2,092) (11,776) (1,853)
Net amortization and deferral ......... 16,659 203 (12,097) (99) 4,949 (22)
-------- -------- -------- -------- -------- --------
Net pension cost ...................... $ 2,618 $ 6,828 $ 2,570 $ 5,809 $ 1,619 $ 5,445
======== ======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The funded status of the pension plans and the related amounts as
recorded in the accompanying consolidated balance sheets were as follows:
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1995 December 31, 1994
---------------------------- ----------------------------
Domestic Foreign Domestic Foreign
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefits ............................. $ 87,503 $ 11,657 $ 71,604 $ 8,828
======== ======== ======== ========
Accumulated benefits ........................ $ 90,157 $ 39,305 $ 73,540 $ 29,793
======== ======== ======== ========
Projected benefit obligation ................ $ 99,693 $ 82,768 $ 83,017 $ 64,302
Market value of plan assets ................. 83,443 30,759 64,849 28,955
-------- -------- -------- --------
Funded status ............................... (16,250) (52,009) (18,168) (35,347)
Unrecognized loss ........................... 2,947 32,069 7,422 15,356
-------- -------- -------- --------
Accrued pension obligation .................. $(13,303) $(19,940) $(10,746) $(19,991)
======== ======== ======== ========
Actuarial assumptions:
Discount rate ............................... 7.25% 6.5% 8.5% 8%
Investment return ........................... 9% 8% 9.5% 8%
Compensation increases ...................... 4.25% 6% 5.5% 6%
</TABLE>
The impact of the changes in the actuarial assumptions, as of December 31,
1995, has been reflected in the funded status of the domestic and foreign
pension plans, and the Company believes that such changes will not have a
material effect on net pension cost in 1996.
The domestic pension plans consist principally of a qualified retirement
plan which has satisfied the full funding limitation requirements under the
Employee Retirement Income Security Act of 1974 ("ERISA"), and therefore, no
contributions were made to the plan during 1995. It is anticipated that
pension contributions of $7 million will be required under ERISA during 1996.
In 1994, the Company established unfunded supplemental retirement plans for
certain members of management. Net pension cost and accrued pension
obligations for these plans are included in the disclosed amounts above. The
foreign pension plans consist principally of a Taiwan pension plan, which is
funded under Taiwan's statutory requirements. Pension contributions for the
Taiwan pension plan were $6, $4 and $3 million in 1995, 1994 and 1993,
respectively, and are expected to approximate $6 million in 1996. Domestic
plans assets consist of fixed income and equity securities. Foreign plans
assets principally consist of fixed income securities.
One of the Company's indirect subsidiaries maintains an Employee's Profit
Sharing and Savings Plan (the "Profit Sharing and Savings Plan"). The
majority of contributions to the Profit Sharing and Savings Plan are made at
the discretion of the subsidiary's Board of Directors. In addition, eligible
employees may elect to contribute up to 10% of their salaries. The subsidiary
contributes an amount equal to 50% of the first 4% of the employee's salary
that the employee contributes. During the years ended December 31, 1995, 1994
and 1993, the subsidiary contributed $7, $6 and $4 million, respectively, to
the Profit Sharing and Savings Plan, of which $6, $5 and $4 million,
respectively, was discretionary.
The Company maintains a voluntary savings plan covering all domestic
non-union employees. Eligible employees not covered by the Profit Sharing and
Savings Plan (as described in the preceding paragraph) may elect to
contribute up to 10% of their salaries. Effective January 1, 1994, the
Company increased its contribution to an amount equal to 50% of the first 6%
of the employee's salary that the employee contributes from an amount equal
to 50% of the first 4% of the employee's salary that the employee
contributed. The Company contributed $3, $2 and $1 million in the years ended
December 31, 1995, 1994 and 1993, respectively, under this plan.
10 Postretirement and Postemployment Benefits Other Than Pensions
Postretirement: The Company maintains an unfunded contributory group
medical plan (the "Plan") for all full-time U.S. employees not covered by a
collective bargaining agreement who retire under the General Instrument
Pension Plan directly after active service. The Plan is the primary provider
of benefits for retirees up to age 65. After age 65, Medicare becomes the
primary provider. In 1993, the Company adopted Financial Accounting Standards
Board Statement No.106, Employers' Accounting for Postretirement Benefits
Other Than Pensions ("SFAS No.106"). Under SFAS No.106, the Company is
required to recognize the cost of providing and maintaining postretirement
benefits during employees' active service periods. Upon adoption of SFAS
No.106, the Company recorded a cumulative effect charge to income of
$10 million to recognize the accumulated postretirement benefit obligation as
of January 1, 1993, which had not been previously accrued.
Subsequent to the adoption of SFAS No. 106, in 1993, the Company amended
the Plan with respect to future retirees. The effects of these plan
amendments are being amortized as a reduction in determining net
postretirement benefit cost. Net postretirement benefit cost consisted of the
following:
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year ended December 31,
---------------------------------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost ........................................... $ 669 $ 663 $ 458
Interest ............................................... 1,522 1,424 1,646
Net amortization and deferral .......................... (599) (515) (472)
------- ------- -------
Net postretirement benefit cost ........................ $ 1,592 $ 1,572 $ 1,632
======= ======= =======
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The status of the Plan and the related amounts as recorded in the
accompanying consolidated balance sheets were as follows:
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Accumulated postretirement benefit obligation ("APBO"):
Retirees ..................................................................... $ 13,721 $ 13,380
Active participants .......................................................... 8,724 6,306
-------- --------
Total accumulated postretirement benefit obligation .............................. 22,445 19,686
Unrecognized prior service cost .................................................. 8,047 8,563
Unrecognized gain (loss) ......................................................... (97) 1,868
-------- --------
Accrued postretirement benefit obligation ........................................ $ 30,395 $ 30,117
======== ========
Discount rate used in determining APBO ........................................... 7.25% 8.5%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The assumed rate of future increases in health care cost during 1995 and 1994
was 15% and 16%, respectively, for pre-age 65 retirees, and 12% and 13%,
respectively, for post-age 65 retirees, and is expected to decline to 6% by
the year 2005. Under the amended Plan, the actuarially determined effect of a
one percentage point increase in the assumed health care cost trend rate on
annual net postretirement benefit cost and the APBO would be $.5 and $4
million, respectively.
Postemployment: Effective January 1, 1994, the Company adopted Financial
Accounting Standards Board Statement No. 112, Employers' Accounting for
Postemployment Benefits ("SFAS No. 112"). Under SFAS No. 112, the Company is
required to accrue the cost of providing benefits to employees after
employment but before retirement. The postemployment benefit obligation
relates principally to medical costs for former employees on long-term
disability. The Company's previous accounting policy had been to expense
costs of providing postemployment benefits on an as-incurred basis. Upon
adoption of SFAS No. 112, the Company recorded a cumulative effect charge to
income of $2 million to recognize the accumulated postemployment benefit
obligation as of January 1, 1994.
11 Stockholders' Equity
Common Shares. In July 1994, the Company's Board of Directors declared a
two-for-one split of the Company's Common Stock effective August 8, 1994. All
share-related data for all periods presented have been restated to reflect
the stock split. In April 1995, the stockholders approved an amendment to the
Company's Certificate of Incorporation which increased the number of
authorized shares of Common Stock from 175 to 400 million.
In 1993 and 1995, FL & Co. and certain current and former directors,
senior managers and other employees of the Company sold an aggregate 33 and
16 million shares, respectively, of Common Stock pursuant to public
offerings. The Company received no proceeds from these offerings. Costs
associated with these offerings have been charged to additional
paid-in-capital.
Stock Incentive Agreements. In May 1993, the Board of Directors adopted
the General Instrument Corporation 1993 Stock Appreciation Rights (SAR)
Replacement Stock Option Plan. Pursuant to this plan, the Company granted 288
stock options to certain holders of SARs in consideration for the amendment
and cancellation of the rights under the Stock Appreciation Right Agreement
("SAR Agreement") between the Company and each such holder. These stock
options were granted at an exercise price of $2.75 per share (the reference
price with respect to the SARs) and are exercisable consistent with the
vesting schedule as stipulated in the SAR Agreement. The options became fully
vested on the third anniversary of the date of grant of the related SARs.
Consistent with this Plan, the Company charged its SARs reserves and
increased additional paid-in-capital by $4 million. At December 31, 1995,
there were 17 SARs outstanding.
In May 1993, the stockholders of the Company approved the General
Instrument Corporation 1993 Long-Term Incentive Plan and the Amended and
Restated Certificate of Incorporation of the Company to eliminate Class B
Common Stock and provisions relating to multiple classes of common stock. The
1993 Long-Term Incentive Plan provides for the granting of stock options,
SARs, restricted stock, performance units, performance shares and phantom
stock to employees of the Company and its subsidiaries and the granting of
stock options to non-employee directors of the Company.
In May 1994, the stockholders approved an increase of 5 million shares of
Common Stock that may be awarded under the 1993 Long-Term Incentive Plan. As
of December 31, 1995, the exercise prices of all stock options granted under
the 1993 Long-Term Incentive Plan were equal to the closing price of the
Common Stock on the New York Stock Exchange on the date of grant.
In February 1996, the Company's Compensation Committee and Board of
Directors approved an amendment to increase the number of shares of Common
Stock that may be awarded under the 1993 Long-Term Incentive Plan by 6
million, which is subject to stockholder approval at the 1996 Annual Meeting.
In connection with the acquisition of Next Level, the Company entered
into restricted stock agreements with Next Level stockholders who, prior to
the merger, held Next Level Common Stock that was subject to repurchase
rights. The repurchase rights generally permit the Company to repurchase
shares of Common Stock upon a termination of employment. At the acquisition
date, unearned compensation, based on the unamortized excess of the market
value of the shares awarded over the price paid by the recipient at the date
of grant, was charged to stockholders' equity and is being amortized to
expense over the vesting period, which expires in July 1999.
The following table summarizes stock option activity relating to the
Company's stock option plans.
<TABLE>
<CAPTION>
Number of Option Price
Shares (range per share)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1993 .................................... 4,444 $ 1.51 - $ 2.75
Grants ............................................................ 3,069 15.88 - 28.88
Exercised ......................................................... (2,564) 1.51 - 2.75
Exchange of SARs .................................................. 288 2.75
Cancelled ......................................................... (178) 2.75 - 15.88
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1993 .................................. 5,059 1.51 - 28.88
Grants ............................................................ 4,470 25.19 - 32.13
Exercised ......................................................... (1,955) 1.51 - 23.50
Cancelled ......................................................... (2,637) 2.75 - 29.94
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 .................................. 4,937 1.51 - 32.13
Grants ............................................................ 8,933 18.88 - 39.50
Exercised ......................................................... (1,103) 1.51 - 26.38
Cancelled ......................................................... (3,116) 15.88 - 33.25
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 .................................. 9,651 1.51 - 39.50
- ----------------------------------------------------------------------------------------------------------------------------------
Exercisable at December 31, 1995 .................................. 2,342 1.51 - 32.13
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995 and 1994, 295 and 6,100 shares, respectively, were
reserved for future awards under the Company's stock award plans.
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"),
which will be adopted by the Company in 1996. SFAS No. 123 defines a new
"fair value" method of accounting for stock-based compensation expense and
requires additional disclosure for stock plans. SFAS No. 123 allows companies
to continue to measure compensation costs in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
("APB No. 25"). Companies electing to retain this method are required to
present pro forma disclosures of net income and earnings per share as if the
fair-value-based method had been applied. The Company will continue to use
the provisions of APB No. 25 which does not require the Company to record
compensation expense related to stock options it awards to employees. In
1996, the Company will disclose the pro forma effect of the fair value method
on 1995 and 1996 net income and earnings per share.
12 Derivatives and Other Financial Instruments
Derivative financial instruments are utilized by the Company to reduce market
risks arising from changes in foreign exchange and interest rates. The
Company does not use derivative financial instruments for trading purposes,
nor does it engage in currency or interest rate speculation. The Company
believes that the various counterparties with which the Company enters into
interest rate hedge agreements and currency exchange contracts consist of
only financially sound institutions and, accordingly, believes that the
credit risk for non-performance of these contracts or concentration of
instruments with a single counterparty is remote. The Company monitors its
underlying exchange rate and interest rate exposures and its derivative
hedging instruments on an ongoing basis and believes that it can modify or
adapt its hedging strategies as needed.
Foreign Exchange Instruments. The Company enters into forward exchange
contracts on a month-to-month basis to hedge foreign currency exposure with
regard to certain monetary assets and liabilities denominated in currencies
other than the U.S. dollar. These contracts generally do not subject the
Company's results of operations to risk of exchange rate movements because
gains and losses on these contracts generally offset, in the same period,
gains and losses on the monetary assets and liabilities being hedged.
On a selective basis, the Company enters into forward exchange and
purchased option contracts to hedge the currency exposure of contractual and
other firm commitments denominated in foreign currencies. The Company may
also enter into forward exchange and purchased option contracts designed to
hedge the currency exposure of anticipated, but not yet committed,
transactions expected to be denominated in foreign currencies. The purpose of
these activities is to protect the Company from the risk that the eventual
net cash flows in U.S. dollars from foreign receivables and payables will be
adversely affected by changes in exchange rates. Gains and losses on hedges
related to contractual and other firm commitments are deferred and recognized
in the Company's results of operations in the same period as the gain or loss
from the underlying transactions. Gains and losses on forward exchange
contracts used to hedge anticipated, but not yet committed, transactions are
recognized in the Company's results of operations as changes in exchange
rates for the applicable foreign currencies occur. Historically, foreign
exchange contracts with respect to contractual and other firm commitments and
anticipated, but not yet committed, transactions have been short-term in
nature. In addition, purchased options have had no intrinsic value at the
time of purchase.
The Company generally settles forward exchange contracts at maturity at
prevailing market rates. The Company recognizes in its results of operations
over the life of the contract the amortization of contract premium or
discount. The amortization of these premiums or discounts during each of the
three years in the period ended December 31, 1995 was not significant. During
1995, in response to first half of the year appreciation in the New Taiwanese
dollar, the Company increased the volume of forward exchange contracts
utilized to hedge its cash flows in Taiwan. As of December 31, 1995 and 1994,
the Company had outstanding forward exchange contracts in the amounts of $162
and $3 million, respectively, comprised of foreign currencies which were to
be purchased (principally the New Taiwanese dollar) and $46 and $36 million,
respectively, comprised of foreign currencies which were to be sold
(principally the Japanese Yen and Canadian dollar). All outstanding forward
exchange contracts at December 31, 1995 and 1994 mature within six months,
and the fair values of such contracts approximated their carrying values.
Accordingly, deferred gains or losses on such contracts at December 31, 1995
and 1994 were not significant. Foreign currency transaction losses included
in net income were $10 million in 1995. Gains and losses in 1994 and 1993
were not significant. As of December 31, 1995 and 1994, the Company had no
purchased option contracts outstanding.
Interest Rate Instruments. On a selective basis, the Company from time to
time enters into interest rate cap or swap agreements to reduce the potential
negative impact of increases in interest rates on its outstanding
variable-rate debt under the Credit Agreement. The Company recognizes in its
results of operations over the life of the contract, as interest expense, the
amortization of contract premiums incurred from buying interest rate caps.
Net payments or receipts resulting from these agreements are recorded as
adjustments to interest expense. The effect of interest rate instruments on
the Company's results of operations in each of the three years in the period
ended December 31, 1995 was not significant.
In the fourth quarter of 1994, the Company entered into two interest rate
cap agreements to hedge an aggregate amount of $150 million of outstanding
variable-rate borrowings under the Credit Agreement. Each contract has a
notional amount of $75 million and a one-year term, covering the period from
January 3, 1995 through January 3, 1996. At December 31, 1995, the fair value
of interest rate agreements was nominal.
Other Financial Instruments. The carrying value of cash and cash
equivalents approximates fair value because of the immediate or short-term
maturity of these financial instruments. The carrying amount of the Company's
senior bank indebtedness approximates fair value because the underlying
instruments have variable interest rates that adjust to market on a
short-term basis. The estimated fair value of the Notes, which are publicly
traded, as of December 31, 1995 and 1994 was $544 and $633 million,
respectively, based on quoted market prices.
<PAGE>
13 Segment Information
The Company's major business segments are Broadband Communications and Power
Semiconductor. Broadband Communications offers a variety of products and
services for the cable and satellite television industries, including active
and passive electronics, subscriber terminals, coaxial and fiber optic cable,
and encryption/decryption equipment for the scrambling and descrambling of
satellite television programming. Products offered by Power Semiconductor
include discrete power rectifying and transient voltage suppression
components used in telecommunications, automotive and consumer electronic
products. A significant portion of the Company's products are manufactured or
assembled in Mexico, Taiwan and Ireland. At December 31, 1995, the net assets
of these production operations were $1, $72 and $29 million, respectively.
Operating profit represents net revenue less operating expenses including
the effects of acquisition adjustments, but excluding interest, unallocated
corporate expenses and income taxes. Identifiable assets are those used in
the operations of each segment or geographic area.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
United States(1) Europe Far East 0ther Eliminations Consolidated(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Operations by Geographic Area:
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Net sales ........................... $2,153,144 $ 210,436 $ 38,505 $ 29,939 $ -- $2,432,024
Transfers (3) ....................... 202,091 47,801 250,190 -- (500,082) --
---------- --------- --------- -------- --------- ----------
Net revenues .................... 2,355,235 258,237 288,695 29,939 (500,082) 2,432,024
0perating profit .................... 137,958(4) 55,533 20,583 19,327 -- 233,401
Identifiable assets ................. 1,803,922 105,356 217,639 31,734 -- 2,158,651
Year ended December 31, 1994:
Net sales ........................... 1,822,383 151,644 32,803 29,493 -- 2,036,323
Transfers (3) ....................... 140,691 32,772 221,930 23,264 (418,657) --
---------- --------- --------- -------- --------- ----------
Net revenues .................... 1,963,074 184,416 254,733 52,757 (418,657) 2,036,323
0perating profit .................... 300,797 16,854 20,186 4,336 -- 342,173
Identifiable assets ................. 1,690,608 85,007 179,426 17,331 -- 1,972,372
Year ended December 31, 1993:
Net sales ........................... 1,224,968 123,752 28,483 15,319 -- 1,392,522
Transfers (3) ....................... 111,507 15,289 163,171 17,331 (307,298) --
---------- --------- --------- -------- --------- ----------
Net revenues .................... 1,336,475 139,041 191,654 32,650 (307,298) 1,392,522
0perating profit .................... 183,635 9,334 15,218 821 -- 209,008
Identifiable assets ................. 1,519,343 66,749 163,957 6,101 -- 1,756,150
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Net sales by geographic segment reflect the originating source of the
unaffiliated sale. Included in the U.S. net sales amount are export sales of
$513, $413 and $238 million in 1995, 1994 and 1993, respectively.
(2) A limited number of cable and satellite television operators provide
services to a large percentage of television households in the U.S. The
loss of some of these operators as customers could have a material adverse
effect on the Company's sales. One customer, including affiliates, accounted
for 20%, 15% and 11% of the Company's consolidated net sales in 1995, 1994
and 1993, respectively. Sales to this customer are made primarily from the
Broadband Communications segment.
(3) Intercompany transfers reflect the originating geographic source of the
transfer and principally reflect product assembly which is accounted for at
cost plus a nominal profit.
(4) Includes a one-time charge of $140 million for purchased in-process
technology in connection with the Company's acquisition of Next Level
Communications.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Broadband Power
Communications Semiconductor Corporate Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Operations by Segment:
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Net sales .......................................... $ 2,017,755 $ 414,269 $ -- $ 2,432,024
0perating profit ................................... 132,172(1) 101,229 -- 233,401
Corporate expenses ................................. -- -- (28,100) (28,100)
Identifiable assets ................................ 1,752,625 406,026 -- 2,158,651
Corporate assets ................................... -- -- 142,107 142,107
Capital expenditures ............................... 124,261 34,990 190 159,441
Depreciation and amortization expense .............. 90,394 19,417 329 110,140
Year ended December 31, 1994:
Net sales .......................................... 1,720,634 315,689 -- 2,036,323
0perating profit ................................... 281,612 60,561 -- 342,173
Corporate expenses ................................. -- -- (26,102) (26,102)
Identifiable assets ................................ 1,600,559 371,813 -- 1,972,372
Corporate assets ................................... -- -- 136,579 136,579
Capital expenditures ............................... 112,080 23,406 254 135,740
Depreciation and amortization expense .............. 77,333 19,642 375 97,350
Year ended December 31, 1993:
Net sales .......................................... 1,124,749 267,773 -- 1,392,522
0perating profit ................................... 165,617 43,391 -- 209,008
Corporate expenses ................................. -- -- (21,465) (21,465)
Identifiable assets ................................ 1,397,321 358,829 -- 1,756,150
Corporate assets ................................... -- -- 19,938 19,938
Capital expenditures ............................... 43,630 23,319 111 67,060
Depreciation and amortization expense .............. 73,501 23,546 411 97,458
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes a one-time charge of $140 million for purchased in-process
technology in connection with the Company's acquisition of Next Level
Communications.
</TABLE>
- --------------------------------------------------------------------------------
14 Quarterly Financial Data (Unaudited)
Summarized quarterly data for 1995 and 1994 are as follows:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
----------------------------------------------------------------------------------------------------
1995 1994(1) 1995 1994 1995(2) 1994 1995 1994(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ................ $ 608,716 $ 432,521 $ 611,639 $ 508,783 $ 563,251 $ 554,750 $ 648,418 $ 540,269
Gross profit ............. 190,832 149,153 195,370 154,913 179,443 165,370 175,740 163,302
Net income (loss) ........ $ 57,055 $ 50,985 $ 54,051 $ 52,001 $ (40,892) $ 56,781 $ 53,568 $ 86,768
Earnings (loss) per share:(4)
Primary ............... $ .46 $ .41 $ .44 $ .42 $ (.33) $ .46 $ .43 $ .70
Fully diluted(5) ...... .42 .40 .40 .40 (.33) .44 .39 .64
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock
Prices:(4)(6)
High ............... $ 36 1/4 $ 30 7/8 $ 39 1/4 $ 31 5/8 $ 41 5/8 $ 33 1/2 $ 29 3/4 $ 34 5/8
Low ................ 25 5/8 21 1/2 30 1/2 21 1/4 30 1/4 28 3/8 18 1/4 26 3/4
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes a cumulative effect charge of $2 million, or $.02 per primary share
and $.01 per fully diluted share, to reflect the adoption of SFAS No. 112.
(2) Includes a non-recurring $90 million net-of-tax charge for purchased
in-process technology in connection with the acquisition of Next Level
Communications.
(3) Includes an income tax benefit of $30 million for the reversal of a
valuation allowance related to domestic deferred tax assets.
(4) Per share and Common Stock price data for all periods presented have been
restated to reflect the 1994 two-for-one stock split.
(5) The sum of the four quarters does not equal the full-year fully-diluted
calculation because the Company recorded a loss in the third quarter of 1995
for purchased in-process technology; the impact of which had an
anti-dilutive effect on the Company's normalized fully-diluted calculation
during this period but not on the full-year calculation.
(6) The New York Stock Exchange is the principal market on which these
securities are traded. The Company did not pay dividends on its Common
Stock during 1995 or 1994.
</TABLE>
<TABLE>
GENERAL INSTRUMENT CORPORATION Exhibit 21
<CAPTION>
Company Name Place of Incorporation
- ------------- ----------------------
<S> <C>
GENERAL INSTRUMENT CORPORATION ....................................................................... Delaware
(Formerly FLGI Holding Corp.)
GENERAL INSTRUMENT CORPORATION OF DELAWARE ....................................................... Delaware
(Formerly GI Corporation and General Instrument Corporation)
ATC Corp. (Formerly American Totalisator Company, Inc.) ...................................... Delaware
Cable/Home Communication Corp. ............................................................... Delaware
Access Control Center, Inc. (Formerly DBS Authorization Center, Inc.) ....................... Delaware
Charger Industries .......................................................................... California
CommScope, Inc. ............................................................................. North Carolina
Cable Transport, Inc. .............................................................. North Carolina
DBS Services, Inc. .......................................................................... California
VideoCipher Finance Corporation ............................................................. California
Century Components, Inc. ..................................................................... Delaware
Ensambladora de Matamoros, S.A ............................................................... Mexico
General Instrument of Arizona, Inc. .......................................................... Delaware
General Instrument Australia Pty. Ltd. ....................................................... Australia
General Instrument Belgium B.V.B.A ........................................................... Belgium
General Instrument do Brazil Comunicacoes Ltd. ............................................... Brazil
General Instrument of Canada Inc. ............................................................ Canada
General Instrument Deutschland GmbH .......................................................... Germany
General Instrument Europe N.V ................................................................ Belgium
General Instrument Foreign Sales Corp. ....................................................... Barbados
General Instrument France S.A ................................................................ France
General Instrument High Definition Television Corporation .................................... Delaware
General Instrument Hong Kong Limited ......................................................... Hong Kong
General Instrument India Holdings, Inc. ...................................................... Delaware
General Instrument International Corp. ....................................................... New York
General Instrument Japan, Ltd. .............................................................. Japan
General Instrument Italia S.r.L .............................................................. Italy
General Instrument Ireland ................................................................... Ireland
General Instrument de Mexico, S.A. de C.V .................................................... Mexico
General Instrument PSD (China) Holdings, Inc. ................................................ Delaware
General Instrument PSD (China) Co., Ltd. .................................................... Rep. of China
General Instrument (Puerto Rico), Inc. ....................................................... Delaware
General Instrument Remittance Products, Inc. ................................................. Florida
General Instrument Semiconductor Industries, Inc. ............................................ Delaware
</TABLE>
<PAGE>
<TABLE>
GENERAL INSTRUMENT CORPORATION
<CAPTION>
Company Name Place of Incorporation
- ------------ ----------------------
<S> <C>
SI - General Instrument Semiconductor Industries, Inc. ...................................... Delaware
General Instrument Ireland (formerly General Semiconductor Ireland) ................ Ireland
General Instrument Europe Limited ......................................... Ireland
General Instrument Services, Inc. ........................................................... Delaware
General Instrument (Singapore) Pte. Ltd. .................................................... Singapore
General Instrument of Taiwan, Ltd. .......................................................... Rep. of China
General Instrument (UK) Ltd. ................................................................ U.K.
Amplevalue Ltd. .................................................................... U.K.
General Instrument Microelectronics Limited ........................................ U.K.
General Instrument (Music Services) Limited ........................................ U.K.
General Instrument Services Ltd. ................................................... U.K.
Sharpstep Ltd. ..................................................................... U.K.
Jerrold DC Radio, Inc. ...................................................................... Delaware
NEXT LEVEL COMMUNICATIONS ............................................................................ California
</TABLE>
<PAGE>
GENERAL INSTRUMENT CORPORATION
JOINT VENTURES
Japan VideoCipher Corporation
Vision Cables Pty. Ltd. (CommScope Australian joint venture)
PARTNERSHIPS
Digital Cable Radio Associates
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the General
Instrument Corporation financial statements for the year ended December 31, 1995
and is qualified in its entirety by references to such financial statements.
</LEGEND>
<CIK> 0000040656
<NAME> General Instrument
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Dec-31-1995
<CASH> 36,382
<SECURITIES> 0
<RECEIVABLES> 367,672
<ALLOWANCES> 14,321
<INVENTORY> 281,398
<CURRENT-ASSETS> 824,194
<PP&E> 437,194
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,300,758
<CURRENT-LIABILITIES> 462,420
<BONDS> 738,569
<COMMON> 1,260
0
0
<OTHER-SE> 914,083
<TOTAL-LIABILITY-AND-EQUITY> 2,300,758
<SALES> 2,432,024
<TOTAL-REVENUES> 2,432,024
<CGS> 1,690,639
<TOTAL-COSTS> 1,690,639
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,594
<INCOME-PRETAX> 162,348
<INCOME-TAX> 38,566
<INCOME-CONTINUING> 123,782
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 123,782
<EPS-PRIMARY> 1.00
<EPS-DILUTED> .96
</TABLE>
GENERAL INSTRUMENT CORPORATION
EXHIBIT 99 - FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Form 10-K, the Company's Annual
Report to Shareholders, any Form 10-Q or any Form 8-K of the Company or any
other written or oral statements made by or on behalf of the Company may include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to certain uncertainties and other factors that could
cause actual results to differ materially from such statements. These
uncertainties and other factors include, but are not limited to, uncertainties
relating to economic conditions, uncertainties relating to government and
regulatory policies, uncertainties relating to customer plans and commitments,
the Company's dependence on the cable television industry and cable television
spending, signal security, the pricing and availability of equipment, materials
and inventories, technological developments, the competitive environment in
which the Company operates, changes in the financial markets relating to the
Company's capital structure and cost of capital, the uncertainties inherent in
international operations and foreign currency fluctuations. The words "believe,"
"expect," "anticipate," "project" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date the statement
was made. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
