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 September 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)
(773) 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 October 31, 1996, there were 136,912,701 shares of Common Stock
outstanding.
<PAGE>
<TABLE>
PART I
FINANCIAL INFORMATION
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
ASSETS
<CAPTION>
(Unaudited)
September 30, December 31,
1996 1995
------------------ -------------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents ............................................................ $ 42,778 $ 36,382
Accounts receivable, less allowance for doubtful accounts
of $15,550 and $14,321, respectively ............................................ 416,871 367,672
Inventories .......................................................................... 403,704 281,398
Prepaid expenses and other current assets ............................................ 24,580 26,992
Deferred income taxes, net of valuation allowance .................................... 93,634 111,750
---------- ----------
Total current assets ............................................................ 981,567 824,194
Property, plant and equipment - net .................................................. 550,170 437,194
Intangibles, less accumulated amortization of $105,993
and $94,654, respectively ....................................................... 135,379 146,646
Excess of cost over fair value of net assets acquired, less
accumulated amortization of $154,001 and $135,654,
respectively ...................................................................... 833,605 842,954
Investments and other assets ......................................................... 37,126 27,576
Deferred income taxes, net of valuation allowance .................................... 48,391 8,885
Deferred financing costs, less accumulated amortization
of $27,682 and $28,045, respectively .............................................. 6,695 13,309
---------- ----------
TOTAL ASSETS ......................................................................... $2,592,933 $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)
September 30, December 31,
1996 1995
------------------ -------------------
Current Liabilities:
<S> <C> <C>
Accounts payable ................................................................... $ 241,453 $ 215,761
Accrued interest payable ........................................................... 9,526 3,571
Income taxes payable ............................................................... 11,947 33,904
Accrued liabilities ................................................................ 210,233 204,874
Current portion of long-term debt .................................................. 4,310 4,310
----------- -----------
Total current liabilities ..................................................... 477,469 462,420
Deferred income taxes .............................................................. 20,271 22,221
Long-term debt ..................................................................... 624,310 738,569
Litigation reserve ................................................................. 141,000 -
Other non-current liabilities ...................................................... 139,927 162,205
----------- -----------
Total liabilities ............................................................. 1,402,977 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; 137,131,034 and 126,034,911 issued at
September 30, 1996 and December 31, 1995, respectively ......................... 1,371 1,260
Additional paid-in capital ......................................................... 925,019 666,190
Retained earnings .................................................................. 271,615 256,416
----------- -----------
1,198,005 923,866
Less - Treasury stock, at cost, 229,011 shares ..................................... (7,246) (7,246)
Unearned compensation ....................................................... (803) (1,277)
----------- -----------
Total stockholders' equity .................................................... 1,189,956 915,343
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......................................... $2,592,933 $ 2,300,758
=========== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - In Thousands, Except Share Information)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ------------------------------
1996 1995 1996 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
NET SALES .................................................. $ 662,122 $ 563,251 $ 1,953,072 $ 1,783,606
----------- ----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of sales .......................................... 470,033 383,808 1,401,707 1,217,961
Selling, general and administrative .................... 56,131 55,255 172,205 178,167
Research and development ............................... 50,049 34,567 152,912 105,342
Purchased in-process technology ........................ - 139,860 - 139,860
Next Level litigation costs ............................ - - 141,000 -
Amortization of excess of cost over fair value
of net assets acquired .............................. 6,247 6,175 18,347 18,526
----------- ----------- ----------- -----------
Total operating costs and expenses ................ 582,460 619,665 1,886,171 1,659,856
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) .................................... 79,662 (56,414) 66,901 123,750
Other income/(expense), net ................................ 401 (510) 142 (1,366)
Interest expense, net ...................................... (11,236) (11,645) (34,814) (37,015)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES .......................... 68,827 (68,569) 32,229 85,369
Benefit (provision) for income taxes ....................... (26,705) 27,677 (17,030) (15,154)
----------- ----------- ----------- -----------
NET INCOME (LOSS) .......................................... $ 42,122 $(40,892) $ 15,199 $ 70,215
=========== =========== =========== ===========
Primary earnings (loss) per share .......................... $0.31 $(0.33) $0.12 $0.57
=========== =========== =========== ===========
Fully diluted earnings (loss) per share .................... $0.30 $(0.33) $0.12 $0.57
=========== =========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED STATEMENTS 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 income for the nine months
ended September 30, 1996 ........ 15,199 15,199
Exercise of stock options ......... 149 2 2,487 2,489
Tax benefit from exercise of
stock options ................... 757 757
Amortization of unearned
compensation ................... 474 474
Conversion of Convertible Junior
Subordinated Notes, net ........ 10,947 109 255,585 255,694
----------- ----------- ----------- ----------- --------- --------- -----------
BALANCE, SEPTEMBER 30, 1996 ....... 137,131 $ 1,371 $ 925,019 $ 271,615 $ (7,246) $ (803) $ 1,189,956
=========== =========== =========== =========== ========= ========= ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In Thousands)
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
1996 1995
-------------- --------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income .................................................................................... $ 15,199 $ 70,215
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization .............................................................. 92,462 80,795
Next Level Communications litigation costs, net ............................................ 91,650 -
Purchased in-process technology, net ....................................................... - 90,000
Changes in assets and liabilities:
Accounts receivable ................................................................... (51,106) (10,008)
Inventories ........................................................................... (126,021) (92,667)
Prepaid expenses and other current assets ............................................. (3,047) (11,593)
Other non-current assets .............................................................. (9,551) (3,418)
Deferred income taxes ................................................................. 29,135 (1,411)
Accounts payable, income taxes payable and other
accrued liabilities ................................................................. 34,838 69,939
Other non-current liabilities ......................................................... (22,783) (4,242)
Other ...................................................................................... 840 230
--------- ---------
Net cash provided by operating activities ...................................................... 51,616 187,840
--------- ---------
INVESTMENT ACTIVITIES:
Additions to property, plant and equipment ................................................. (167,410) (102,305)
Acquistions, net of cash acquired .......................................................... (29,520) (2,775)
Proceeds from sale of assets ............................................................... 4,368 -
Investments in other assets ................................................................ - (906)
--------- ---------
Net cash used in investment activities ......................................................... (192,562) (105,986)
--------- ---------
FINANCING ACTIVITIES:
Costs associated with the issuance of Common Stock and debt ................................ (882) (1,051)
Proceeds from the issuance of Flexible Term Notes .......................................... - 10,800
Net proceeds from/(repayments of) revolving credit facilities .............................. 154,330 (94,000)
Redemption of Convertible Junior Subordinated Notes ........................................ (6,440) -
Repayment of debt .......................................................................... (2,155) -
Proceeds from stock options ................................................................ 2,489 17,294
--------- ---------
Net cash provided by/(used in) financing activities ............................................ 147,342 (66,957)
--------- ---------
Increase in cash and cash equivalents .......................................................... 6,396 14,897
Cash and cash equivalents, beginning of period ................................................. 36,382 5,128
--------- ---------
Cash and cash equivalents, end of period ....................................................... $ 42,778 $ 20,025
========= =========
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 September 30, 1996, the consolidated
statements of operations for the three and nine month periods ended September
30, 1996 and 1995, the consolidated statements of cash flows for the nine month
periods ended September 30, 1996 and 1995 and the consolidated statement of
stockholders' equity for the nine month period ended September 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 nine month periods ended September 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.
Certain reclassifications have been made to the comparative prior period
financial statements to conform to the current period presentation.
2. INVENTORIES
Inventories consist of:
September 30, 1996 December 31, 1995
------------------ -----------------
Raw Materials $206,161 $142,573
Work in Process 45,556 38,565
Finished Goods 151,987 100,260
--------- ---------
Inventories $403,704 $281,398
========= =========
3. LONG-TERM DEBT
Long-term debt consists of:
September 30, 1996 December 31, 1995
Senior indebtedness: ------------------ -----------------
Revolving credit facilities $337,330 $183,000
Taiwan Loan 52,539 54,694
Flexible Term Notes 10,800 10,800
Convertible Junior
Subordinated Notes 227,951 494,385
--------- ---------
Total 628,620 742,879
Less current maturities 4,310 4,310
--------- ---------
Long-term debt $624,310 $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 the 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, $16.4 million in principal amount of Notes that
were not called for redemption were also converted into the Company's Common
Stock during 1996. These conversions resulted in the issuance of 10.9 million
shares of Common Stock.
In connection with the Common Stock conversions, $4.3 million was charged 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 nine month periods
ended September 30, 1996 and 1995 is based on the Company's expected annual
effective rate, excluding one-time charges. The provision for the nine month
period ended September 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 nine month period ended September 30, 1995 includes a $12
million credit for the settlement of certain tax matters and a $50 million
non-cash tax benefit associated with the write-off of in-process technology in
connection with the acquisition of Next Level Communications during September
1995.
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 attorney's 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 appealed 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 appeal has been briefed and
oral argument was held on 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 integrated 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. COMMITMENTS AND CONTINGENCIES
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 September 30, 1996 ("Third Quarter
1996") were $662 compared to $563 for the three month period ended September 30,
1995 ("Third Quarter 1995"), an increase of $99, or 18%. Net sales for the nine
month period ended September 30, 1996 were $1,953 compared to $1,784 for the
nine month period ended September 30, 1995, an increase of $169, or 10%. The
increase in net sales for the three and nine month periods relate to higher
sales in the Broadband Communications segment.
Broadband Communications sales were $577 and $1,670 in Third Quarter 1996 and
for the nine month period ended September 30, 1996, respectively, compared to
$454 and $1,472 for the comparable 1995 periods. Worldwide terrestrial broadband
sales of $441 and $1,250 in Third Quarter 1996 and for the nine month period
ended September 30, 1996, respectively, increased 35% and 26% from the
comparable 1995 periods primarily as a result of increased U.S. sales volume of
GI's latest generation CFT-2200 advanced analog set-top terminals and global
sales volume of 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 52% and 32% in Third Quarter 1996 and for the nine
month period ended September 30, 1996, respectively, over the comparable 1995
periods and represented 35% and 33% of worldwide terrestrial broadband sales in
Third Quarter 1996 and for the nine month period ended September 30, 1996,
respectively, compared to 31% in both the prior-year periods. Additionally,
terrestrial broadband sales in Third Quarter 1996 increased from Third Quarter
1995 due to first-time sales of GI's new DCT-1000 MPEG-2 digital cable terminals
and SURFboard cable modems. Worldwide satellite broadband sales increased $9 to
$136 in Third Quarter 1996 due to higher sales volumes of MPEG-2 digital
satellite systems, partially offset by lower sales volume of VideoCipher RS(TM)
analog satellite modules and receivers for C-band customers and digital
satellite consumer receivers to PRIMESTAR partners. Worldwide satellite
broadband sales for the nine month period ended September 30, 1996 decreased $62
from the comparable 1995 period to $420 due to lower sales volume of VideoCipher
RS(TM) analog satellite modules and receivers and digital satellite consumer
receivers, partially offset by higher sales volumes of MPEG-2 digital satellite
systems.
Power Semiconductor sales decreased 23% to $85 in Third Quarter 1996 and 9% to
$283 for the nine month period ended September 30, 1996, over the comparable
1995 periods due to the slowdown in the overall semiconductor industry as PSD's
OEM customers and distributors continue to align their inventories with future
needs. International Power Semiconductor sales represented 74% and 71% of the
division's worldwide sales in Third Quarter 1996 and for the nine month period
ended September 30, 1996, respectively, compared to 74% in both the prior-year
periods.
GROSS PROFIT (NET SALES LESS COST OF SALES)
- -------------------------------------------
Gross profit increased $13, or 7%, to $192 in Third Quarter 1996 from $179 in
Third Quarter 1995, and was 29.0% of sales in Third Quarter 1996 compared to
31.9% of sales in Third Quarter 1995. Gross profit decreased $14, or 3%, to
$551, and was 28.2% of sales, for the nine month period ended September 30,
1996, compared to 31.7% in the comparable 1995 period.
The decreased gross profit margin resulted from a shift in product mix from
higher margin VideoCipher RS(TM) analog satellite receiver consumer modules to
the Company's new advanced analog and digital television system products, which
initially carry lower margins, and lower Power Semiconductor sales.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative ("SG&A") expense was $56 in Third Quarter
1996, compared to $55 in Third Quarter 1995, and decreased $6, or 3%, to $172
for the nine month period ended September 30, 1996 from the comparable 1995
period. As a percentage of sales, SG&A decreased to 9% in both Third Quarter
1996 and the nine month period ended September 30, 1996, from 10% for the
comparable 1995 periods.
SG&A base spending in Third Quarter 1996, and for the nine month period ended
September 30, 1996, was greater than in the comparable 1995 periods as the
Company targeted 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 its sales force, field
support and marketing activities to take advantage of continued increased growth
opportunities in international cable and satellite television and worldwide
telecommunications markets. In addition, SG&A expense in Third Quarter 1995
included a $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. SG&A expense for the
nine month period ended September 30, 1995 also included $14 related to a
national advertising campaign to support sales of C-band satellite systems which
was not incurred in 1996.
RESEARCH AND DEVELOPMENT
- ------------------------
Research and development ("R&D") expense was $50 in Third Quarter 1996 and $153
for the nine month period ended September 30, 1996, compared to $35 and $105 for
the comparable 1995 periods. R&D expense increased to 8% of sales in Third
Quarter 1996 and for the nine month period ended September 30, 1996, from 6% for
the comparable 1995 periods. 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.
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 reached technological
feasibility and had no future alternative use. Further development activities
primarily include employee related costs for design, prototype development and
testing.
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 September 30, 1996 consolidated financial statements.
NET INTEREST EXPENSE
- --------------------
Net interest expense was $11 in Third Quarter 1996 and $35 for the nine month
period ended September 30, 1996, compared to $12 and $37 for the comparable 1995
periods.
<PAGE>
INCOME TAXES
- ------------
Income tax expense was $27 in Third Quarter 1996 and $66 for the nine month
period ended September 30, 1996, after excluding the $49 one-time tax benefit
associated with the Next Level litigation costs in June 1996, compared to $22
and $77 in Third Quarter 1995 and the nine month period ended September 30,
1995, respectively, after excluding the $50 one-time tax benefit associated with
the write-off of purchased in-process technology in September 1995 and the $12
credit related to the settlement of certain tax matters during the first quarter
of 1995. Excluding these tax adjustments and the related pre-tax charges, the
effective tax rate was 39% in Third Quarter 1996 and 38% for the nine month
period ended September 30, 1996, compared to 31% and 34% in the comparable 1995
periods. The lower effective tax rates in 1995 primarily reflect the utilization
of certain foreign tax credits.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1996, working capital was $504 compared to $362 at December 31,
1995. The working capital increase of $142 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 September 30, 1996, the Company had borrowings of $337 under its revolving
credit facilities, and available credit of $310 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 contingent obligations and liens 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. At September 30, 1996, the Company was in compliance with
all financial and operating covenants.
During the nine month period ended September 30, 1996, the Company invested $167
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 $210 to $220.
At September 30, 1996, the Company had $43 of cash and cash equivalents on hand
compared to $36 at December 31, 1995. At September 30, 1996, long-term debt,
including current maturities, was $629 compared to $743 at December 31, 1995. In
1996, the Company strengthened its balance sheet and enhanced its financial
flexibility through the conversion of $260 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 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. On October 2,
1996, an amended complaint was filed in the BKP Partners action, in
essence restating the foregoing claims.
See also Note 5 to the attached September 30, 1996 consolidated
financial statements.
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
------------------
No reports on Form 8-K were filed by the Registrant during the three
month period ended September 30, 1996.
<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
November 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
<PAGE>
<TABLE>
GENERAL INSTRUMENT CORPORATION
Exhibit 11 - Computation of Earnings/(Loss) Per Share
(In Thousands Except Per Share Amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PRIMARY:
Net income/(loss) .......................................... $ 42,122 $ (40,892) $ 15,199 $ 70,215
========= ========= ========= =========
Weighted average common shares outstanding ................. 136,864 123,255 129,981 122,739
Incremental shares under stock option plans ................ 657 1,078 833 1,052
--------- --------- --------- ---------
Weighted average common and common
equivalent shares outstanding ............................ 137,521 124,333 130,814 123,791
========= ========= ========= =========
Primary earnings/(loss) per share .......................... $ 0.31 $ (0.33) $ 0.12 $ 0.57
========= ========= ========= =========
FULLY DILUTED:
Net income/(loss) .......................................... $ 42,122 $ (40,892) $ 15,199 $ 70,215
Interest and amortization of debt issuance costs
related to the Convertible Junior Subordinated
Notes, net of income tax effects ...................... 1,887 4,119 9,984 12,357
--------- --------- --------- ---------
Adjusted net income/(loss) ................................. $ 44,009 $ (36,773) $ 25,183 $ 82,572
========= ========= ========= =========
Weighted average common shares outstanding ................. 136,864 123,255 129,981 122,739
Incremental shares under stock option plans ................ 657 1,078 833 1,076
Incremental weighted average shares attributable
to Convertible Junior Subordinated Notes .............. 9,898 21,053 16,723 21,053
--------- --------- --------- ---------
Adjusted weighted average shares outstanding ............... 147,419 145,386 147,537 144,868
========= ========= ========= =========
Fully diluted earnings/(loss) per share .................... $ 0.30 $ (0.25)* $ 0.17* $ 0.57
========= ========= ========= =========
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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the General
Instrument Corporation financial statements for the nine months ended September
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 42,778
<SECURITIES> 0
<RECEIVABLES> 416,871
<ALLOWANCES> 15,550
<INVENTORY> 403,704
<CURRENT-ASSETS> 981,567
<PP&E> 550,170
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,592,933
<CURRENT-LIABILITIES> 477,469
<BONDS> 624,310
0
0
<COMMON> 1,371
<OTHER-SE> 1,188,585
<TOTAL-LIABILITY-AND-EQUITY> 2,592,933
<SALES> 1,953,072
<TOTAL-REVENUES> 1,953,072
<CGS> 1,401,707
<TOTAL-COSTS> 1,401,707
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,814
<INCOME-PRETAX> 32,229
<INCOME-TAX> 17,030
<INCOME-CONTINUING> 15,199
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,199
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</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.
