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 March 31, 1997
--------------
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 April 30, 1997 there were 136,932,283 shares of Common Stock
outstanding.
<PAGE>
<TABLE>
PART I
FINANCIAL INFORMATION
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
ASSETS
(Unaudited)
<CAPTION>
March 31, December 31,
1997 1996
---------- ----------
Current Assets:
<S> <C> <C>
Cash and cash equivalents ........................................................... $ 82,007 $ 20,252
Short-term investments .............................................................. 18,328
49,946
Accounts receivable, less allowance for doubtful accounts
of $17,954 and $17,536, respectively ........................................... 499,206 544,430
Inventories ......................................................................... 354,848 336,516
Prepaid expenses and other current assets ........................................... 31,465 24,619
Deferred income taxes ............................................................... 97,234 107,322
---------- ----------
Total current assets ........................................................... 1,083,088 1,083,085
Property, plant and equipment - net ................................................. 573,068 571,051
Intangibles, less accumulated amortization of $113,879
and $110,298, respectively ..................................................... 127,606 131,051
Excess of cost over fair value of net assets acquired, less
accumulated amortization of $166,383 and $160,231,
respectively ..................................................................... 821,222 827,373
Investments and other assets ........................................................ 46,722 28,999
Deferred income taxes, net of valuation allowance ................................... 51,661 58,891
Deferred financing costs, less accumulated amortization
of $28,461 and $28,070, respectively ............................................. 6,010 6,401
---------- ----------
TOTAL ASSETS ........................................................................ $2,709,377 $2,706,851
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
(Unaudited)
March 31, December 31,
1997 1996
----------- -----------
Current Liabilities:
<S> <C> <C>
Accounts payable .................................................................... $ 229,768 $ 272,041
Accrued interest payable ............................................................ 14,297 7,772
Income taxes payable ................................................................ 5,005 20,703
Accrued liabilities ................................................................. 224,925 229,894
Current portion of long-term debt ................................................... 4,310 4,310
----------- -----------
Total current liabilities ...................................................... 478,305 534,720
Deferred income taxes ............................................................... 21,823 21,457
Long-term debt ...................................................................... 734,825 698,825
NLC litigation liability ............................................................ 138,000
139,100
Other non-current liabilities ....................................................... 133,898 139,596
----------- -----------
Total liabilities .............................................................. 1,506,851 1,533,698
----------- -----------
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; 137,173,053 and 137,144,412, shares issued
respectively .................................................................... 1,372 1,371
Additional paid-in capital .......................................................... 925,617 925,166
Retained earnings ................................................................... 272,235 254,552
Unrealized gain on investment ....................................................... 11,180 -
----------- -----------
1,210,404 1,181,089
Less - Treasury stock, at cost, 247,170 and 231,527 shares .......................... (7,317) (7,271)
of Common Stock, respectively
Unearned compensation ........................................................ (561) (665)
----------- -----------
Total stockholders' equity ..................................................... 1,202,526 1,173,153
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................................... $ 2,709,377 $ 2,706,851
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - In Thousands, Except Share Information)
<CAPTION>
Three Months Ended
March 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
NET SALES ...................................................................................... $ 641,271 $ 615,762
--------- ---------
OPERATING COSTS AND EXPENSES:
Cost of sales .............................................................................. 469,092 441,738
Selling, general and administrative ........................................................ 67,732 57,323
Research and development ................................................................... 53,744 48,699
Amortization of excess of cost over fair value
of net assets acquired .................................................................. 6,152 6,077
--------- ---------
Total operating costs and expenses .................................................... 596,720 553,837
--------- ---------
OPERATING INCOME ............................................................................... 44,551 61,925
Other expense-net .............................................................................. (269) (116)
Interest expense-net ........................................................................... (12,888) (11,544)
--------- ---------
INCOME BEFORE INCOME TAXES ..................................................................... 31,394 50,265
Provision for income taxes ..................................................................... (13,711) (19,101)
--------- ---------
NET INCOME ..................................................................................... $ 17,683 $ 31,164
========= =========
Weighted Average Shares Outstanding ............................................................ 137,391 126,405
Primary earnings per share ..................................................................... $ .13 $ .25
========= =========
Fully diluted earnings per share ............................................................... $ .13 $ .24
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited - In Thousands)
<CAPTION>
Common Stock Additional Unrealized Common Unearned
----------------- Paid-In Retained Gain on Stock in Compen-
Shares Amount Capital Earnings Investment Treasury sation
------ -------- --------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 .................... 137,144 $ 1,371 $ 925,166 $ 254,552 $ - $ (7,271) $ (665)
Net income for the three months
ended March 31, 1997 ..................... 17,683
Exercise of stock options and
related tax benefit ...................... 29 1 451
Amortization of unearned
compensation ............................. 104
Unrealized gain on investment-
net of tax ............................... 11,180
Treasury Stock transactions ................. (46)
-------- -------- -------- ---------- ---------- --------- ---------
BALANCE, MARCH 31, 1997 ..................... 137,173 $ 1,372 $ 925,617 $ 272,235 $ 11,180 $ (7,317) $ (561)
======== ======== ======== ========== ========== ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In Thousands)
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
-------- --------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income .............................................................................................. $ 17,683 $ 31,164
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization ........................................................................ 34,944 29,634
Changes in assets and liabilities:
Accounts receivable ............................................................................. 36,336 (21,379)
Inventories ..................................................................................... (18,332) (65,921)
Prepaid expenses and other current assets ....................................................... (4,345) (476)
Other non-current assets ........................................................................ (2,849) (2,465)
Deferred income taxes ........................................................................... 8,687 15,793
Accounts payable, income taxes payable and other
accrued liabilities ........................................................................... (27,614) 407
Other non-current liabilities ................................................................... (1,487) 1,891
Other ................................................................................................ (261) 675
-------- --------
Net cash provided by (used in) operating activities ...................................................... 42,762 (10,677)
-------- --------
INVESTING ACTIVITIES:
Additions to property, plant and equipment ........................................................... (24,974) (48,314)
Proceeds from sale of short-term investments ......................................................... 24,972 -
Proceeds from sale of assets ......................................................................... - 4,368
Investments in other assets .......................................................................... (17,374) -
-------- --------
Net cash used in investing activities .................................................................... (17,376) (43,946)
-------- --------
FINANCING ACTIVITIES:
Net proceeds from revolving credit facilities ........................................................ 36,000 32,000
Proceeds from stock options .......................................................................... 369 390
-------- --------
Net cash provided by financing activities ................................................................ 36,369 32,390
-------- --------
Increase/(decrease) in cash and cash equivalents ......................................................... 61,755 (22,233)
-------- --------
Cash and cash equivalents, beginning of period ........................................................... 20,252 36,382
-------- --------
Cash and cash equivalents, end of period ................................................................. $ 82,007 $ 14,149
======== ========
</TABLE>
See notes to consolidated financial statements.
<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 March 31, 1997, the consolidated statements
of income for the three months ended March 31, 1997 and 1996, the consolidated
statements of cash flows for the three months ended March 31, 1997 and 1996 and
the consolidated statement of stockholders' equity for the three months ended
March 31, 1997 of General Instrument Corporation and its wholly-owned
subsidiaries (the "Company") 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 months ended
March 31, 1997 and 1996 except for the charges discussed in Note 2 below. These
consolidated financial statements should be read in conjunction with the
Company's December 31, 1996 audited consolidated financial statements.
2. Restructuring of General Instrument Corporation
On January 7, 1997, the Company announced its intention to separate the Company
into three publicly-traded companies to focus on global growth opportunities.
The restructuring, expected to be completed in the third quarter of 1997 through
a tax-free distribution to stockholders (the "Distribution"), will create three
independent companies: NextLevel Systems, Inc., a leading worldwide supplier of
systems and components for high-performance networks, delivering video, voice
and Internet/data services to the cable, telephony and satellite markets (the
"Communications Business"); CommScope, Inc., the world's largest manufacturer of
coaxial cable for cable television applications and a leading supplier of
high-performance electronic cables; and General Semiconductor, Inc. (which will
change its name from General Instrument Corporation), a world leader in the
manufacture of low-to-medium power rectifiers and transient voltage suppressors
(the "Power Semiconductor Business"). The restructuring is subject to the
approval of the holders of a majority of shares of the Company, the receipt of a
ruling from the Internal Revenue Service that the transactions related to the
separation of NextLevel Systems, Inc., CommScope, Inc. and General
Semiconductor, Inc. are not taxable to the Company or its stockholders, and the
absence of events or developments that would have a material adverse impact on
the Company or its stockholders. In connection with the restructuring, NextLevel
Systems, Inc., CommScope, Inc. and General Semiconductor, Inc. will enter into
various agreements that will generally provide for the separation and
distribution of the operating assets and liabilities and pension plan assets and
liabilities of the Company, as well as tax sharing, transition services and
other matters.
In connection with the restructuring, the Company recorded a charge of $10
million to cost of sales during the three months ended March 31, 1997 for
severance costs, for 225 employees terminated, related to dividing the Company's
Taiwan operations between the Communications Business and the Power
Semiconductor Business. The Company's Taiwan legal entity is currently comprised
of operations which support both the Communications Business and the Power
Semiconductor Business. In order to effectuate the Distribution, the Company
expects to incur additional net-of-tax costs of approximately $40 million to $60
million, primarily employee costs, in order to separate its Taiwan operations
and other costs directly attributable to the transaction. Additionally, the
Company recorded a charge of $3 million to selling, general and administrative
expense during the three months ended March 31, 1997 for transaction costs
incurred through March 31, 1997 related to the restructuring. Such transaction
costs were primarily comprised of legal, accounting and other professional fees.
<PAGE>
<TABLE>
3. INVENTORIES
Inventories consist of:
<CAPTION>
March 31, 1996 December 31, 1996
-------------- -----------------
<S> <C> <C>
Raw Materials .................................. $155,024 $134,807
Work in Process ................................ 41,289 38,135
Finished Goods ................................. 158,535 163,574
-------- --------
Inventories .................................... $354,848 $336,516
======== ========
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of:
March 31, 1997 December 31, 1996
-------------- -----------------
Senior indebtedness:
Revolving credit facilities ............ $450,000 $414,000
Taiwan loan ............................ 50,384 50,384
Flexible Term Notes .................... 10,800 10,800
Convertible Junior
Subordinated Notes ..................... 227,951 227,951
-------- --------
Total .................................. 739,135 703,135
Less current maturities ................ 4,310 4,310
-------- --------
Long-Term debt .............................. $734,825 $698,825
======== ========
5. INCOME TAXES
The provision for income taxes for the three months ended March 31, 1997 and
1996 was computed utilizing the Company's expected annual effective income tax
rate adjusted for the tax effects of restructuring charges recorded during 1997.
6. LITIGATION
In April 1995, prior to the Company's acquisition of Next Level Communications
("NLC") in September 1995, DSC Communications Corporation and DSC Technologies
Corporation (collectively, "DSC") brought suit against NLC and the founders of
NLC ("NLC Litigation"). On March 28, 1996, a jury verdict was reached in the
case which stated that the founders of NLC 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 NLC used or benefited from the diversion of corporate
opportunity and misappropriation of trade secrets. In June 1996, a final
judgment against NLC and the individual defendants was entered in favor of DSC,
in a total amount of $137 million. However, the court denied DSC's request for
entry of permanent injunctive relief. In June 1996, a pre-tax charge to earnings
of $141 million was recorded, reflecting the judgment and costs of litigation.
Both sides appealed to the U.S. Court of Appeals for the Fifth Circuit. On
February 28, 1997, the U.S. Court of Appeals for the Fifth Circuit confirmed the
trial court's denial of DSC's request for injunctive relief, reversed the
district court judgment for diversion of a corporate opportunity and remanded
the case to the trial court for the entry of judgment on the misappropriation of
trade secrets claim, which the Company expects to result in a damage award of
not more than $138 million plus accrued interest. Enforcement of the judgment
was stayed pending the determination of the appeal. Both parties have filed
motions for rehearing with the Court of Appeals, and these motions have not yet
been decided
An action entitled BroadBand Technologies, Inc. vs. General Instrument Corp. was
brought in March 1997 in the United States District Court for the Eastern
District of North Carolina. The complaint alleges that the Company infringes
BroadBand Technologies, Inc.'s U.S. Patent No. 5,457,560 (the "560 Patent"),
covering an electronic communications system which delivers television signals,
and seeks monetary damages and injunctive relief. The Company has filed a motion
to dismiss the complaint for lack of personal jurisdiction. The motion has not
yet been decided.
In March 1997, NLC commenced an action against BroadBand Technologies, Inc. in
the United States District Court for the Northern District of California for a
declaratory judgment that BroadBand Technologies, Inc. 560 Patent is invalid and
unenforceable; for patent infringement; and for violation of the antitrust laws
of the United States. In the patent infringement claim, NLC charges that
BroadBand Technologies, Inc. infringes two patents licensed to NLC relating to
video compression and video signal processing. BroadBand Technologies, Inc. has
answered the complaint and does not contest jurisdiction.
While the ultimate outcome of the matters described above cannot be determined,
management does not believe that the final disposition of these matters beyond
the amounts previously provided for in the financial statements will have a
material adverse effect on the Company's financial statements.
7. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share ("SFAS No. 128"), which will be adopted by the Company
on December 31, 1997. SFAS No. 128, which supersedes Accounting Principles Board
Opinion No. 15, Earnings per Share, ("APB No. 15") replaces primary and fully
diluted earnings per share with basic and fully diluted earnings per share,
respectively. Had earnings per share been calculated in accordance with SFAS No.
128, basic and diluted earnings per share would have both been $0.13 for the
three months ended March 31, 1997 and $0.25 and $0.24, respectively, for the
three months ended March 31, 1996. These amounts reflect the same earnings per
share results calculated by the Company under APB No. 15.
<PAGE>
GENERAL INSTRUMENT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET SALES
- ---------
Net sales for the three months ended March 31, 1997 ("First Quarter 1997") were
$641 million compared to $616 million for the three months ended March 31, 1996
("First Quarter 1996"), an increase of $25 million, or 4%. This increase in net
sales reflects higher sales in the Broadband Communications segment, partially
offset by lower sales in the Power Semiconductor segment.
Broadband Communications sales were $556 million in First Quarter 1997 compared
to $518 million in First Quarter 1996. Worldwide terrestrial broadband sales of
$449 million in First Quarter 1997 increased 20% from First Quarter 1996
primarily as a result of increased U.S. sales volume of CFT-2200 advanced analog
set-top terminals and DCT-1000 MPEG-2 digital set-top terminals and increased
global sales volume of CommScope cables. These sales reflect the continued
commitment of domestic cable television operators to deploy 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 35% in First Quarter 1997 over First Quarter 1996 and
represented 34% of worldwide terrestrial broadband sales in First Quarter 1997
compared to 31% in First Quarter 1996. Worldwide satellite broadband sales
decreased $38 million to $107 million in First Quarter 1997 due to lower sales
volumes of digital satellite receivers to PRIMESTAR Partners and VideoCipher
analog satellite modules and receivers, partially offset by higher sales volumes
of DigiCipher(R) II/MPEG-2 digital satellite systems and digital video broadcast
("DVB") compliant Magnitude(R) satellite encoders. Analog and digital products
represented 65% and 35%, respectively, of the sales of the Broadband
Communications segment in 1997 compared to 66% and 34%, respectively, in 1996.
Power Semiconductor sales decreased 13% to $85 million in First Quarter 1997
over First Quarter 1996 as a result of decreased selling prices. International
Power Semiconductor sales decreased 8% in First Quarter 1997 over First Quarter
1996 and represented 74% of worldwide Power Semiconductor sales in First Quarter
1997 compared to 71% in First Quarter 1996.
GROSS PROFIT (NET SALES LESS COST OF SALES)
- -------------------------------------------
Gross profit decreased $2 million, or 1%, to $172 million in First Quarter 1997
from $174 million in First Quarter 1996. Gross profit was 26.8% of sales in
First Quarter 1997 compared to 28.3% of sales in First Quarter 1996. First
Quarter 1997 gross profit includes $10 million of restructuring charges for
employee costs related to dividing the Company's Taiwan operations between the
Communications and Power Semiconductor Businesses (see Note 2 to the
consolidated financial statements). Excluding these restructuring charges, the
gross profit margin would have increased to 28.4%.
Broadband Communications segment gross profit increased $18 million, or 14%, in
First Quarter 1997 over First Quarter 1996 and was 27% of sales in First Quarter
1997 compared to 26% in First Quarter 1996. The higher gross profit and gross
profit margin resulted from the higher sales volumes noted above and as a result
of ongoing cost reduction programs, partially offset by $3 million of charges
for employee costs related to dividing the Company's Taiwan operations between
the Communications and Power Semiconductor Businesses (see Note 2 to the
consolidated financial statements). Power Semiconductor gross profit in First
Quarter 1997 decreased 51% from First Quarter 1996 and decreased as a percentage
of sales to 23% in First Quarter 1997 from 40% in First Quarter 1996. The lower
gross profit and gross profit margin resulted from $7 million of charges for
employee costs related to dividing the Company's Taiwan operations between the
Communications and Power Semiconductor Businesses (see Note 2 to the
consolidated financial statements) and pricing pressures due to the
underutilization of industry capacity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative ("SG&A") expenses increased $11 million to
$68 million in First Quarter 1997 from $57 million in First Quarter 1996, and
increased as a percentage of sales to 11% in First Quarter 1997 from 9% in First
Quarter 1996. SG&A spending was greater in First Quarter 1997 compared to First
Quarter 1996 as a result of new growth opportunities from businesses acquired,
including the marketing of NLC's broadband access systems to telephone companies
for interactive digital video, voice and data services and Magnitude's
DVB-compliant satellite encoders, 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. Additionally, a $3 million charge was recorded in First Quarter 1997
for transaction costs incurred through March 31, 1997 related to the
restructuring. Such transaction costs were primarily comprised of legal,
accounting and other professional fees.
RESEARCH AND DEVELOPMENT
- ------------------------
Research and development ("R&D") expense was $54 million in First Quarter 1997
compared to $49 million in First Quarter 1996 and was 8% of sales in both
periods. The increased level of spending reflects: the continued development of
next-generation products, including cable modems and telephone company
switched-digital access systems, as well as the modification of existing
products for international markets; the continued development of enhanced
addressable analog terminals and advanced digital systems for cable and
satellite television distribution; ongoing cost-reduction programs; and product
development and international expansion through strategic alliances.
NET INTEREST EXPENSE
- --------------------
Net interest expense was $13 million in First Quarter 1997 compared to $12
million in First Quarter 1996. This increase resulted from interest costs in
First Quarter 1997 related to the NLC Litigation, partially offset by lower
weighted average borrowings in First Quarter 1997 compared to First Quarter
1996.
INCOME TAXES
- ------------
Income taxes decreased to $14 million in First Quarter 1997 from $19 million in
First Quarter 1996 and the effective tax rate increased to 44% in First Quarter
1997 from 38% in First Quarter 1996. The higher effective tax rate in First
Quarter 1997 resulted from the lower tax benefits related to certain
restructuring charges incurred during First Quarter 1997. Excluding the
restructuring charges recorded during First Quarter 1997, the effective tax rate
would have been 38%.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1997, working capital was $605 million compared to $548 million at
December 31, 1996. The working capital increase of $57 million primarily
resulted from a higher cash balance at March 31, 1997 which reflects temporary
cash funding required by the Taiwan government to establish the NextLevel
Systems Taiwan, Ltd. legal entity. 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.
During First Quarter 1997, the Company invested $25 million 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, 1997 are expected to approximate $250 million.
The Company's research and development expenditures (principally focused on the
Broadband Communications segment) were $54 million and $49 million in First
Quarter 1997 and First Quarter 1996, respectively, and are expected to
approximate $225 million for the year ending December 31, 1997.
At March 31, 1997, the Company had $82 million of cash and cash equivalents on
hand compared to $20 million at December 31, 1996. Long-term debt, including
current maturities, was $739 million at March 31, 1997, compared to $703 million
at December 31, 1996 and, at March 31, 1997, the Company had borrowings of $450
million under its revolving credit facilities and available credit of $197
million under these facilities.
In June 1996, a final judgment against NLC and the individual defendants was
entered in the NLC Litigation which, in February 1997, was affirmed in part,
reversed in part and remanded to the trial court by the U.S. Court of Appeals
for the Fifth Circuit. The Company expects the judgment on remand to result in a
damage award of not more than $138 million plus accrued interest. The Company
has the ability and intent to pay this judgment utilizing borrowings under its
revolving credit facilities.
During 1997, the Company expects to incur $50 million to $70 million of
after-tax charges for costs related to dividing the Company's Taiwan operations
between the Communications and Power Semiconductor Businesses and additional
transaction costs related to the restructuring. Approximately 50% of such costs
will be payable in 1997 ($8 million, net of the tax benefit, was paid by March
31, 1997). The Company intends to borrow under its revolving credit facilities
and from existing lenders to fund additional amounts payable in 1997.
Prior to the completion of the restructuring of the Company, the Company intends
to issue a notice to redeem all outstanding Convertible Junior Subordinated
Notes ("Convertible Notes"). The Company believes it will be able to obtain
adequate bank financing to fund Convertible Notes which are not converted but
are redeemed for cash.
The Company's principal sources of liquidity both on a short-term and long-term
basis 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, funding under
its revolving credit facilities and additional funding from existing lenders
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
-----------------
A securities class action is presently pending in the United States
"District Court for the Northern District of Illinois, Eastern Division,
In Re General Instrument Corporation Securities Litigation." This
action, which consolidates numerous class action complaints filed in
various courts between October 10 and October 27, 1995, is brought by
plaintiffs, on their own behalves and as representatives of a class of
purchasers of GI Common Stock during the period March 21, 1995 through
October 18, 1995. The complaint alleges that the Company and certain of
its officers and directors, as well as Forstmann Little & Co. and
certain related entities violated the federal securities laws, namely,
Sections 10(b) and 20(a) of the Exchange Act, by allegedly making false
and misleading statements and failing to disclose material facts about
the Company's planned shipments in 1995 of its CFT-2200 and DigiCipher
II products. The plaintiffs have moved for class certification. The
Company has filed a motion to dismiss the Consolidated Amended Class
Action Complaint. Also pending in the same court, under the same name,
is a derivative action brought on behalf of the Company. The derivative
action alleges that the members of the Company's Board of Directors,
several of its officers and Forstmann Little & Co. and related entities
had breached their fiduciary duties by reason of the matter complained
of in the class action and the defendants' alleged use of material
non-public information to sell shares of the Company's stock for
personal gain. The Company has filed a motion to dismiss the derivative
complaint.
An action entitled "BKP Partners, L.P. v. General Instrument Corp." was
brought in February 1996 by shareholders of NLC, which was merged into
the Company in September 1995. The action was originally filed in the
Northern District of California and was subsequently transferred to the
Northern District of Illinois. The complaint alleges that the GI Common
Stock, which was received by the plaintiffs as a result of the merger,
was overpriced because of the matters complained of in the class action
and the Company's failure to disclose information concerning a
significant reduction in its gross margins. The Company has filed a
motion to dismiss the complaint.
In April 1995, prior to the Company's acquisition of NLC in September
1995, DSC Communications Corporation and DSC Technologies Corporation
(collectively, "DSC") brought suit against NLC and the founders of NLC.
On March 28, 1996, a jury verdict was reached in the case which stated
that the founders of NLC 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 NLC used or benefited from the diversion of
corporate opportunity and misappropriation of trade secrets. In June
1996, a final judgment against NLC and the individual defendants was
entered in favor of DSC, in a total amount of $137 million. However, the
court denied DSC's request for entry of permanent injunctive relief. In
June 1996, a pre-tax charge to earnings of $141 million was recorded,
reflecting the judgment and costs of litigation. Both sides appealed to
the U.S. Court of Appeals for the Fifth Circuit. On February 28, 1997,
the U.S. Court of Appeals for the Fifth Circuit confirmed the trial
court's denial of DSC's request for injunctive relief, reversed the
district court judgment for diversion of a corporate opportunity and
remanded the case to the trial court for the entry of judgment on the
misappropriation of trade secrets claim, which the Company expects to
result in a damage award of not more than $138 million plus accrued
interest. Enforcement of the judgment was stayed pending the
determination of the appeal. Both parties have filed motions for
rehearing with the Court of Appeals, and these motions have not yet been
decided
An action entitled "BroadBand Technologies, Inc. vs. General Instrument
Corp." was brought in March 1997 in the United States District Court for
the Eastern District of North Carolina. The complaint alleges that the
Company infringes BroadBand Technologies, Inc.'s U.S. Patent No.
5,457,560 (the "560 Patent"), covering an electronic communications
system which delivers television signals, and seeks monetary damages and
injunctive relief. The Company has filed a motion to dismiss the
complaint for lack of personal jurisdiction. The motion has not yet been
decided.
In March 1997, NLC commenced an action against BroadBand Technologies,
Inc. in the United States District Court for the Northern District of
California for a declaratory judgment that BroadBand Technologies, Inc.
560 Patent is invalid and unenforceable; for patent infringement; and
for violation of the antitrust laws of the United States. In the patent
infringement claim, NLC charges that BroadBand Technologies, Inc.
infringes two patents licensed to NLC relating to video compression and
video signal processing. BroadBand Technologies, Inc. has answered the
complaint and does not contest jurisdiction.
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 January 7, 1997 announcing
the Company's intention to separate the Company into three
publicly-traded companies to focus on global growth opportunities. The
three independent companies are: NextLevel Systems, Inc., CommScope,
Inc. and General Semiconductor, Inc. (which will change its name from
General Instrument Corporation).
The Company filed a report on Form 8-K dated March 1, 1997 reporting
that the U.S. Court of Appeals for the Fifth Circuit confirmed that no
injunction will be issued against the Company's NLC subsidiary in the
litigation with DSC Communications Corp., reversed the district court
judgment for diversion of a corporate opportunity and remanded the case
to the trial court for the entry of judgment on the misappropriation of
trade secrets claim.
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
May 15, 1997 /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 Per Share
(In Thousands Except Per Share Amounts)
<CAPTION>
Three Months Ended
March 31,
-------------------
1997 1996
-------- --------
PRIMARY:
<S> <C> <C>
Net Income ....................................................................................... $ 17,683 $ 31,164
======== ========
Weighted average common shares outstanding ....................................................... 136,925 125,816
Incremental shares under stock option plans ...................................................... 466 589
-------- --------
Weighted average common and common equivalent
shares outstanding .......................................................................... 137,391 126,405
======== ========
Primary earnings per share ....................................................................... $ 0.13 $ 0.25
======== ========
FULLY DILUTED:
Net income ....................................................................................... $ 17,683 $ 31,164
Interest and amortization of debt issuance costs
related to the Convertible Junior Subordinated
Notes, net of income tax effects ............................................................ 1,881 4,076
-------- --------
Adjusted net income .............................................................................. $ 19,564 $ 35,240
======== ========
Weighted average common shares outstanding ....................................................... 136,925 125,816
Incremental shares under stock option plans ...................................................... 466 846
Incremental shares attributable to Convertible
Junior Subordinated Notes ................................................................... 9,598 20,816
-------- --------
Adjusted weighted average shares outstanding ..................................................... 146,989 147,478
======== ========
Fully diluted earnings per share ................................................................. $ .13 $ .24
======== ========
</TABLE>
Note: The computations of primary and fully diluted earnings per share assume
incremental shares under stock option plans using the treasury stock
method.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the General
Instrument Corporation financial statements for the three months ended March 31,
1997 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 82,007
<SECURITIES> 18,328
<RECEIVABLES> 517,160
<ALLOWANCES> 17,954
<INVENTORY> 354,848
<CURRENT-ASSETS> 1,083,088
<PP&E> 573,068
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,709,377
<CURRENT-LIABILITIES> 478,305
<BONDS> 0
0
0
<COMMON> 1,372
<OTHER-SE> 1,201,154
<TOTAL-LIABILITY-AND-EQUITY> 2,709,377
<SALES> 641,271
<TOTAL-REVENUES> 641,271
<CGS> 469,092
<TOTAL-COSTS> 469,092
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,888
<INCOME-PRETAX> 31,394
<INCOME-TAX> 13,711
<INCOME-CONTINUING> 17,683
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,683
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</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.
