1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
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)
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
---- ----
As of July 31, 1996, there were 137,117,667 shares of Common Stock
outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
<TABLE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
ASSETS
<CAPTION>
(Unaudited)
June 30, December 31,
1996 1995
---------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............................................................ $ 32,875 $ 36,382
Accounts receivable, less allowance for doubtful accounts
of $15,084 and $14,321, respectively ............................................ 423,536 367,672
Inventories .......................................................................... 393,491 281,398
Prepaid expenses and other current assets ............................................ 26,644 26,992
Deferred income taxes, net of valuation allowance .................................... 106,603 111,750
---------- ----------
Total current assets ............................................................ 983,149 824,194
Property, plant and equipment - net .................................................. 513,393 437,194
Intangibles, less accumulated amortization of $102,164
and $94,654, respectively ....................................................... 139,136 146,646
Excess of cost over fair value of net assets acquired, less
accumulated amortization of $147,754 and $135,654,
respectively ...................................................................... 841,601 842,954
Investments and other assets ......................................................... 33,121 27,576
Deferred income taxes, net of valuation allowance .................................... 65,992 8,885
Deferred financing costs, less accumulated amortization
of $27,023 and $28,045, respectively .............................................. 6,768 13,309
---------- ----------
Total Assets ......................................................................... $2,583,160 $2,300,758
========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
(Unaudited)
June 30, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Current Liabilities:
Accounts payable ................................................................. $ 268,681 $ 215,761
Accrued interest payable ......................................................... 4,360 3,571
Income taxes payable ............................................................. 25,116 33,904
Accrued liabilities .............................................................. 196,214 204,874
Current portion of long-term debt ................................................ 4,310 4,310
----------- -----------
Total current liabilities ................................................... 498,681 462,420
Deferred income taxes ............................................................ 26,515 22,221
Long-term debt ................................................................... 608,463 738,569
Litigation reserve ............................................................... 141,000 --
Other non-current liabilities .................................................... 164,728 162,205
----------- -----------
Total liabilities ........................................................... 1,439,387 1,385,415
----------- -----------
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; 136,959,455 and 126,034,911 issued at
June 30, 1996 and December 31, 1995, respectively ............................ 1,369 1,260
Additional paid-in capital ....................................................... 921,081 666,190
Retained earnings ................................................................ 229,492 256,416
----------- -----------
1,151,942 923,866
Less - Treasury stock, at cost, 229,011 shares ................................... (7,246) (7,246)
Unearned compensation ..................................................... (923) (1,277)
----------- -----------
Total stockholders' equity .................................................. 1,143,773 915,343
----------- -----------
Total liabilities and stockholders' equity ....................................... $ 2,583,160 $ 2,300,758
=========== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - In Thousands, Except Per Share Information)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ------------------------------
1996 1995 1996 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
NET SALES .................................................. $ 675,189 $ 611,639 $ 1,290,950 $ 1,220,356
----------- ----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of sales .......................................... 489,936 416,269 931,674 834,153
Selling, general and administrative .................... 58,750 58,879 116,073 122,913
Research and development ............................... 54,164 37,116 102,863 70,775
Next Level litigation costs ............................ 141,000 - 141,000 -
Amortization of excess of cost over fair value
of net assets acquired .............................. 6,023 6,175 12,101 12,351
----------- ----------- ----------- -----------
Total operating costs and expenses ................ 749,873 518,439 1,303,711 1,040,192
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) .................................... (74,684) 93,200 (12,761) 180,164
Other expense, net ......................................... (144) (783) (260) (857)
Interest expense, net ...................................... (12,034) (12,342) (23,578) (25,370)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES .......................... (86,862) 80,075 (36,599) 153,937
Benefit (provision) for income taxes ....................... 28,776 (26,024) 9,675 (42,830)
----------- ----------- ----------- -----------
NET INCOME (LOSS) .......................................... $ (58,086) $ 54,051 $ (26,924) $ 111,107
=========== =========== =========== ===========
Primary earnings (loss) per share .......................... $ (0.45) $ 0.44 $ (0.21) $ 0.90
=========== =========== =========== ===========
Fully diluted earnings (loss) per share .................... $ (0.45) $ 0.40 $ (0.21) $ 0.82
=========== =========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited - In Thousands)
<CAPTION>
Total
Common Stock Additional Common Unearned Stock-
---------------------- Paid-In Retained Stock in Compen- holders'
Shares Amount Capital Earnings Treasury sation Equity
--------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 .......... 126,035 $ 1,260 $ 666,190 $ 256,416 $ (7,246) $ (1,277) $ 915,343
Net loss for the six months
ended June 30, 1996 ............... (26,924) (26,924)
Exercise of stock options ........... 124 1 2,180 2,181
Tax benefit from exercise of
stock options ..................... 624 624
Amortization of unearned
compensation ..................... 354 354
Conversion of Convertible Junior
Subordinated Notes, net .......... 10,800 108 252,087 252,195
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1996 .............. 136,959 $ 1,369 $ 921,081 $ 229,492 $ (7,246) $ (923) $1,143,773
========== ========== ========== ========== ========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In Thousands)
<CAPTION>
Six Months Ended
June 30,
----------------------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ....................................................................... $ (26,924) $ 111,107
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization ........................................................ 60,105 52,856
Next Level Communications litigation costs, net ...................................... 91,650 -
Changes in assets and liabilities:
Accounts receivable ............................................................. (59,071) (1,451)
Inventories ..................................................................... (107,208) (50,357)
Prepaid expenses and other current assets ....................................... (5,024) (7,454)
Other non-current assets ........................................................ (5,545) -
Deferred income taxes ........................................................... 10,074 (2,719)
Accounts payable, income taxes payable and other
accrued liabilities ........................................................... 41,601 36,812
Other non-current liabilities ................................................... 2,022 (2,407)
Other ................................................................................ 903 (2,779)
--------- ---------
Net cash provided by operating activities ................................................ 2,583 133,608
--------- ---------
INVESTMENT ACTIVITIES:
Additions to property, plant and equipment ........................................... (109,239) (63,166)
Asset acquistions .................................................................... (29,520) -
Proceeds from sale of assets ......................................................... 4,368 -
Investments in other assets .......................................................... - (6,506)
--------- ---------
Net cash used in investment activities ................................................... (134,391) (69,672)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from the issuance of Flexible Term Notes .................................... - 10,800
Net proceeds from/(repayments of) revolving credit facilities ........................ 135,000 (70,000)
Redemption of Convertible Junior Subordinated Notes .................................. (6,440) -
Repayment of debt .................................................................... (2,155) -
Proceeds from stock options .......................................................... 2,181 7,403
Other ................................................................................ (285) (678)
--------- ---------
Net cash provided by/(used in) financing activities ...................................... 128,301 (52,475)
--------- ---------
(Decrease)/Increase in cash and cash equivalents ......................................... (3,507) 11,461
Cash and cash equivalents, beginning of period ........................................... 36,382 5,128
--------- ---------
Cash and cash equivalents, end of period ................................................. $ 32,875 $ 16,589
========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In Thousands, Unless Otherwise Noted)
1. BASIS OF PRESENTATION
The consolidated balance sheet as of June 30, 1996, the consolidated statements
of operations for the three and six months ended June 30, 1996 and 1995, the
consolidated statements of cash flows for the six months ended June 30, 1996 and
1995 and the consolidated statement of stockholders' equity for the six months
ended June 30, 1996 of General Instrument Corporation (the "Company" or "GI")
are unaudited and reflect all adjustments of a normal recurring nature which
are, in the opinion of management, necessary for a fair presentation of the
interim period financial statements. There were no adjustments of a
non-recurring nature recorded during the three and six months ended June 30,
1996 and 1995, except for certain items disclosed in the notes to these
consolidated financial statements. These consolidated financial statements
should be read in conjunction with the Company's December 31, 1995 consolidated
financial statements.
2. INVENTORIES
Inventories consist of:
June 30, 1996 December 31, 1995
------------- -----------------
Raw Materials $227,814 $142,573
Work in Process 42,490 38,565
Finished Goods 123,187 100,260
--------- ---------
Inventories $393,491 $281,398
========= =========
3. LONG-TERM DEBT
Long-term debt consists of:
June 30, 1996 December 31, 1995
------------- -----------------
Senior indebtedness:
Revolving credit facilities $318,000 $183,000
Taiwan Loan 52,539 54,694
Flexible Term Notes 10,800 10,800
Convertible Junior
Subordinated Notes 231,434 494,385
---------- ---------
Total 612,773 742,879
Less current maturities 4,310 4,310
---------- ---------
Long-term debt $608,463 $738,569
========== =========
In May 1996, the Company issued a notice to redeem $250 million in principal
amount of its Convertible Junior Subordinated Notes ("Notes"). Of these Notes
called, $243.6 million in principal amount were converted into the Company's
Common Stock prior to the redemption date, with the remaining $6.4 million
redeemed for cash. Additionally, $13.0 million in principal amount of Notes that
were not called for redemption were also converted into the Company's Common
Stock in June. These conversions resulted in the issuance of 10.8 million shares
of Common Stock.
In connection with the Common Stock conversion, the Company charged $4.3 million
to additional paid-in capital for unamortized deferred financing costs and
accrued but unpaid interest related to the converted Notes.
4. INCOME TAXES
The provision/(benefit) for income taxes for the three and six months ended June
30, 1996 and 1995 is based on the Company's expected annual effective rate,
excluding one-time charges. The benefit for the six months ended June 30, 1996
includes a $49 million one-time tax benefit associated with the costs of the
litigation described in Note 5 below, and the provision for the six months ended
June 30, 1995 includes a $12 million credit for the settlement of certain tax
matters.
5. LITIGATION
On April 10, 1995, prior to the Company's acquisition of Next Level
Communications ("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 stated 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. In
June 1996, the United States District Court for the Eastern District of Texas
entered a final judgment against Next Level and the individual defendants in
favor of DSC, in a total amount of $136.7 million. In so doing, the court
denied DSC's request to aggregate amounts awarded by the jury on the various
claims so as to arrive at a total judgment in excess of $369 million plus
pre-judgment interest and attorneys' fees, and it also denied DSC's request for
entry of permanent injunctive relief. 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. In June 1996, a non-recurring pre-tax charge to
earnings of $141 million was recorded, reflecting the judgment and costs of
litigation. Both sides have filed notices of appeal to the U.S. Court of Appeals
for the Fifth Circuit. In connection with its appeal, Next Level has posted an
appeal bond, staying the enforcement of the final judgment. The court has set a
briefing schedule and tentatively set oral argument for the week of September
30, 1996.
6. ASSET ACQUISITIONS
In May 1996, the Company's CommScope, Inc. subsidiary acquired the assets of
Teledyne, Inc.'s Thermatics unit, a high performance wire and cable manufacturer
specializing in high temperature cables, for a net purchase price of $17.8
million. CommScope plans to integrate the Thermatics unit into its Network Cable
operations which manufacture coaxial, multiconductor and fiber optic cable for
the local area network and other markets.
In June 1996, the Company acquired the assets of the Magnitude(R) MPEG-2/DVB
product family of Compression Labs Inc. for a purchase price of $11.7 million in
cash and the assumption of $2 million in liabilities. The Magnitude line
consists of modular video and audio encoders and decoders for the delivery of
entertainment and information services over cable, satellite and telephone
networks, including direct to home.
Both acquisitions were accounted for as purchases and, accordingly, the acquired
assets and liabilities were recorded at their estimated fair value at the date
of acquisition.
7. SUBSEQUENT EVENTS
In August 1996, the Company amended and restated the senior bank credit
agreement of GI Delaware (as further amended and restated, the "Credit
Agreement") to lower its interest costs and commitment fees, increase available
credit commitments and obtain greater operating flexibility with less
restrictive financial and operating covenants. The Credit Agreement provides for
a $650 million unsecured Revolving Credit Facility and matures on December 31,
2001. The Credit Agreement requires the Company to pay a facility fee of .125%
per annum on the total commitment. The Credit Agreement permits the Company to
choose between two interest rate options: the Adjusted Base Rate, which is based
on the prime rate of The Chase Manhattan Bank, and a Eurodollar rate (LIBOR)
plus .225%. The interest rates and facility fees are subject to change based on
the Company's performance with respect to certain credit ratings by nationally
recognized statistical rating companies contained in the Credit Agreement. The
Credit Agreement contains financial and operating covenants, including
limitations on total indebtedness, contingent obligations, liens and the payment
of dividends, and requires the maintenance of certain financial ratios.
In August 1996, the Company entered into a seven-year operating lease agreement
for two administrative facilities. The total cost of the facilities covered by
this lease agreement is limited to $115 million. The lease provides for a
substantial residual value guarantee (approximately 83% of the total cost) by
the Company at the end of the lease term.
<PAGE>
GENERAL INSTRUMENT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
NET SALES
- ---------
Net sales for the three month period ended June 30, 1996 ("Second Quarter 1996")
were $675 compared to $612 for the three month period ended June 30, 1995
("Second Quarter 1995"), an increase of $63, or 10%. This increase relates to
higher sales in the Broadband Communications segment.
Broadband Communications sales were $575 in Second Quarter 1996 compared to $500
in Second Quarter 1995. Worldwide terrestrial broadband sales of $436 in Second
Quarter 1996 increased 30% from Second Quarter 1995 primarily as a result of
increased sales volume of GI's advanced analog CFT 2200 set-top terminals in the
U.S. and higher global sales for mature analog addressable set-top terminals,
distribution electronics and CommScope cables. These sales reflect the continued
commitment of domestic cable television operators to deployment of state of the
art addressable systems and enhanced services and the continued deployment of
new cable television systems in international markets. International terrestrial
broadband sales increased 31% in Second Quarter 1996 over Second Quarter 1995
and represented 33% of worldwide terrestrial broadband sales in Second Quarter
1996. Worldwide satellite broadband sales decreased $25 to $140 in Second
Quarter 1996 due to lower sales volumes, as expected, of VideoCipher analog
satellite receiver consumer modules.
Power Semiconductor sales decreased 10% to $100 in Second Quarter 1996 over
Second Quarter 1995 due to the slowdown in the overall semiconductor industry as
PC and distributor markets rebalance their inventory. International Power
Semiconductor sales represented 68% of worldwide Power Semiconductor sales in
Second Quarter 1996.
GROSS PROFIT (NET SALES LESS COST OF SALES)
- -------------------------------------------
Gross profit decreased $10, or 5%, to $185 in Second Quarter 1996 from $195 in
Second Quarter 1995. Gross profit was 27.4% of sales in Second Quarter 1996
compared to 31.9% of sales in Second Quarter 1995.
The decreased gross profit and gross profit margin resulted from a shift in
product mix from higher margin VideoCipher RS(TM) analog satellite receiver
consumer modules to advanced analog and digital television system products, new
products which initially carry lower margins, and lower Power Semiconductor
sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative ("SG&A") expense was $59 in both Second
Quarter 1996 and Second Quarter 1995, but decreased as a percentage of sales to
8.7% in Second Quarter 1996 from 9.6% in Second Quarter 1995.
SG&A expense in Second Quarter 1995 included expenses of $5 related to a
national advertising campaign to support sales of C-Band satellite systems which
was not incurred in Second Quarter 1996. Offsetting this decrease, SG&A spending
in Second Quarter 1996 was targeted for new growth opportunities, including the
marketing of Next Level Communications' broadband access systems to telephone
companies for interactive digital video, voice and data services, and increased
sales force, field support and marketing activities to take advantage of
increased growth opportunities in international cable and satellite television
and worldwide telecommunications markets.
RESEARCH AND DEVELOPMENT
- ------------------------
Research and development ("R&D") expense was $54 in Second Quarter 1996 compared
to $37 in Second Quarter 1995 and was 8.0% of sales in Second Quarter 1996
compared to 6.1% in Second Quarter 1995. The increased level of spending
reflects: on-going cost-reduction programs; continued development of
next-generation products, including cable modems and telephone company access
products through Next Level Communications, as well as the modification of
existing products for international markets; continued development of enhanced
addressable analog terminals and advanced digital systems for cable and
satellite television distribution; and product development and international
expansion through strategic alliances. The Company's research and development
expenditures are expected to approximate $200 to $210 for the year ending
December 31, 1996.
NEXT LEVEL LITIGATION COSTS
- ---------------------------
In June 1996, the Company recorded a one-time pre-tax charge of $141 reflecting
the judgment and costs of litigation in the DSC Communications Corporation and
DSC Technologies Corporation v. Next Level Communication, Thomas R. Eames and
Peter W. Keeler case subsequent to the entry of a final judgment by the United
States District Court for the Eastern District of Texas. See Note 5 to the
attached June 30, 1996 consolidated financial statements.
<PAGE>
NET INTEREST EXPENSE
- --------------------
Net interest expense was $12 in both Second Quarter 1996 and Second Quarter
1995. Interest resulting from higher weighted average borrowings in Second
Quarter 1996 compared to Second Quarter 1995 were offset by lower average
interest rates in Second Quarter 1996 compared to the comparable prior year
quarter.
INCOME TAXES
- ------------
Income tax expense was $21 in Second Quarter 1996 and $40 for the six month
period ended June 30, 1996 after excluding the $49 one-time tax benefit
associated with the Next Level litigation costs, compared to $26 and $43 in
Second Quarter 1995 and for the six month period ended June 30, 1995,
respectively. Excluding the Next Level litigation charge, the effective rate was
38.0% in Second Quarter 1996 compared to 32.5% in Second Quarter 1995. The lower
effective tax rate in Second Quarter 1995 primarily reflects the utilization of
certain foreign tax credits.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 30, 1996, working capital was $484 compared to $362 at December 31,
1995. The working capital increase of $122 was due primarily to inventory
build-up to support business growth and the introduction of new products. 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.
At June 30, 1996, the Company had borrowings of $318 under its revolving credit
facilities, and available credit of $129, under these facilities. In August
1996, the Company amended and restated the senior bank credit agreement of GI
Delaware (as further amended and restated, the "Credit Agreement") to lower its
interest costs and commitment fees, increase available credit commitments and
obtain greater operating flexibility with less restrictive financial and
operating covenants. The Credit Agreement provides for a $650 unsecured
Revolving Credit Facility and matures on December 31, 2001. Amounts outstanding
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
contains financial and operating covenants, including limitations on total
indebtedness, contingent obligations, liens and the payment of dividends, and
requires the maintenance of certain financial ratios. None of the restrictions
contained in the Credit Agreement are expected to have a significant effect on
the ability of the Company to operate.
During the six months ended June 30, 1996, the Company invested $109 in
equipment and facilities. These capital expenditures were used to expand
capacity to meet increased current and anticipated future demands for analog and
digital products, coaxial cable and rectifiers. Capital expenditures for the
year ending December 31, 1996 are expected to approximate $225.
At June 30, 1996, the Company had $33 of cash and cash equivalents on hand
compared to $36 at December 31, 1995. At June 30, 1996, long-term debt,
including current maturities, was $613 compared to $743 at December 31, 1995. In
June 1996, the Company strengthened its balance sheet and enhanced its financial
flexibility through the conversion of $257 million of its 5% Convertible Junior
Subordinated Notes into Common Stock.
The Company's principal sources of liquidity are cash flow provided by
operations and borrowings under its revolving credit facilities. 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 its revolving
credit facilities 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.
<PAGE>
PART II
OTHER INFORMATION
Item 1. 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 District 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 director, 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 9, 1996, a complaint was filed in the United States District
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.
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 District Court for the Northern
District of Illinois. On June 5, 1996, an order was issued by the
Judicial Panel on Multidistrict Litigation transferring the BKP
Partners action to the same court. On August 5, 1996, a consolidated
amended class action complaint and an amended derivative complaint were
filed in that court, in essence restating the foregoing claims.
See also Note 5 to the attached June 30, 1996 consolidated financial
statements.
Item 4. Submission of Matters to a Vote of Securities Holders
-----------------------------------------------------
The Company held its Annual Meeting of Stockholders (the "Meeting") on
April 24, 1996.
At the Meeting, the stockholders approved an amendment to the General
Instrument Corporation 1993 Long-Term Incentive Plan to increase by
6,000,000 the number of shares of Common Stock which may from time to
time be made the subject of awards hereunder. 78,133,211 votes were cast
for the approval of the amendment, 26,384,384 votes were cast against
the approval of the amendment, and there were 2,161,538 abstentions.
Also at the Meeting, the stockholders also approved a stockholder
proposal to declassify the Board of Directors. 74,707,796 votes were
cast for the approval of the amendment, 11,996,343 votes were cast
against the approval of the amendment, and there were 19,974,994
abstentions.
Four directors were nominated for election at the Meeting and each was
elected. Daniel F. Ackerson received 105,675,249 votes for election and
1,003,884 votes were withheld. Frank M. Drendel received 105,675,249
votes for election and 1,003,884 votes were withheld. Steven B. Klinsky
received 105,675,249 votes for election and 1,003,884 votes were
withheld. Robert S. Strauss received 105,675,249 votes for election and
1,003,884 votes were withheld.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
Exhibit 11 - Computation of Earnings Per Share
Exhibit 99 - Forward-Looking Information
(b) Report on Form 8-K
------------------
The Company filed a report on Form 8-K dated June 12, 1996 regarding the
entry of a final judgment by the United States District Court for the
Eastern District of Texas in the DSC Communications v. Next Level
Communications litigation.
The Company filed a report on Form 8-K dated June 19, 1996 reporting
that the Company planned to record a pre-tax charge to earnings in its
second quarter of $141 million, reflecting the judgment and the costs of
litigation in the DSC Communications v. Next Level Communications
litigation.
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL INSTRUMENT CORPORATION
August 14, 1996 /s/Paul J. Berzenski
- --------------- --------------------
Date Paul J. Berzenski
Vice President and Controller
Signing both in his capacity
as Vice President on behalf of
the Registrant and as Chief
Accounting Officer of the
Registrant
<TABLE>
GENERAL INSTRUMENT CORPORATION
Exhibit 11 - Computation of Earnings/(Loss) Per Share
(In Thousands Except Per Share Amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PRIMARY:
Net Income/(loss) ........................................... $ (58,086) $ 54,051 $ (26,924) $ 111,107
========= ========= ========= =========
Weighted average common shares outstanding .................. 127,188 122,647 126,502 122,476
Incremental shares under stock option plans ................. 1,220 1,094 893 1,023
--------- --------- --------- ---------
Weighted average common and common
equivalent shares outstanding ............................. 128,408 123,741 127,395 123,499
========= ========= ========= =========
Primary earnings/(loss) per share ........................... $ (0.45) $ 0.44 $ (0.21) $ 0.90
========= ========= ========= =========
FULLY DILUTED:
Net income/(loss) ........................................... $ (58,086) $ 54,051 $ (26,924) $ 111,107
Interest and amortization of debt issuance costs
related to the Convertible Junior Subordinated
Notes, net of income tax effects ....................... 4,022 4,119 8,097 8,238
--------- --------- --------- ---------
Adjusted net income/(loss) .................................. $ (54,064) $ 58,170 $ (18,827) $ 119,345
========= ========= ========= =========
Weighted average common shares outstanding .................. 127,188 122,647 126,502 122,476
Incremental shares under stock option plans ................. 1,220 1,362 1,079 1,392
Incremental weighted average shares attributable
to Convertible Junior Subordinated Notes ............... 19,529 21,053 20,172 21,053
--------- --------- --------- ---------
Adjusted weighted average shares outstanding ................ 147,937 145,062 147,753 144,921
========= ========= ========= =========
Fully diluted earnings/(loss) per share ** .................. $ (0.37) $ 0.40 $ (0.13) $ 0.82
========= ========= ========= =========
</TABLE>
Note: The computations of primary and fully diluted earnings per share assume
incremental shares under stock option plans using the treasury stock
method.
** Differs from earnings (loss) per share as reported in the Consolidated
Statements of Operations because the calculation was antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the General
Instrument Corporation financial statements for the six months ended June 30,
1996 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 32,875
<SECURITIES> 0
<RECEIVABLES> 423,536
<ALLOWANCES> 15,084
<INVENTORY> 393,491
<CURRENT-ASSETS> 983,149
<PP&E> 513,393
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,583,160
<CURRENT-LIABILITIES> 498,681
<BONDS> 608,463
0
0
<COMMON> 1,369
<OTHER-SE> 1,142,404
<TOTAL-LIABILITY-AND-EQUITY> 2,583,160
<SALES> 1,290,950
<TOTAL-REVENUES> 1,290,950
<CGS> 931,674
<TOTAL-COSTS> 931,674
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,578
<INCOME-PRETAX> (36,599)
<INCOME-TAX> (9,675)
<INCOME-CONTINUING> (26,924)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,924)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</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. The Company's Form 10-K, the Company's
Annual Report to Shareholders, this or any other 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.
