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. PART I FINANCIAL INFORMATION GENERAL INSTRUMENT CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data) ASSETS (Unaudited) September 30, December 31, 1996 1995 ------------------ ------------------- Current Assets: 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. GENERAL INSTRUMENT CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data) LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) September 30, December 31, 1996 1995 ------------------ ------------------- Current Liabilities: 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. GENERAL INSTRUMENT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited - In Thousands, Except Share Information) Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ------------------------------ 1996 1995 1996 1995 ----------- ----------- ----------- ------------ 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. GENERAL INSTRUMENT CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited - In Thousands) Total Common Stock Additional Common Unearned Stock- ------------------------ Paid-In Retained Stock in Compen- holders' Shares Amount Capital Earnings Treasury sation Equity --------- --------- --------- --------- --------- --------- --------- 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. GENERAL INSTRUMENT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited - In Thousands) Nine Months Ended September 30, --------------------------------- 1996 1995 -------------- -------------- OPERATING ACTIVITIES: 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. 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. 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. 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. 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. 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. 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