Exhibit 99
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. The Company's Form 10-K for the year ended
December 31, 1997, the Company's 1997 Annual Report to Stockholders, any Form
10-Q or Form 8-K of the Company, or any other oral or written 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 identified by their use of
such terms and phrases as "intends," "intend," "intended," "goal," "estimate,"
"estimates," "expects," "expect," "expected," "project," "projects,"
"projected," "projections," "plans," "anticipates," "anticipated," "should,"
"designed to," "foreseeable future," "believe," "believes" and "scheduled" and
similar expressions. 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.
The actual results of the Company may differ significantly from the results
discussed in forward-looking statements. Factors that might cause such a
difference include, but are not limited to, (a) the general political, economic
and competitive conditions in the United States, Taiwan (Republic of China), the
People's Republic of China, Ireland, Germany, France and other markets where the
Company operates; (b) changes in capital availability or costs, such as changes
in interest rates, market perceptions of the industry in which the Company
operates, or security ratings; (c) uncertainties relating to customer plans and
commitments; (d) employee workforce factors; (e) authoritative generally
accepted accounting principles or policy changes from such standard-setting
bodies as the Financial Accounting Standards Board and the Securities and
Exchange Commission and the factors set forth below.
Factors Relating to the Distribution
On January 7, 1997, the Board of Directors of General Instrument Corporation
("GI") approved a plan to divide GI into three separate public companies. To
effect the transaction, GI (i) transferred all the assets and liabilities
relating to the manufacture and sale of broadband communications products used
in the cable television, satellite, and telecommunications industries and all
rights to the related GI trademarks to its wholly-owned subsidiary NextLevel
Systems, Inc. ("NextLevel Systems") and all the assets and liabilities relating
to the manufacture and sale of coaxial, fiber optic and other electric cable
used in the cable television, satellite and other industries to its wholly-owned
subsidiary CommScope, Inc. ("CommScope") and (ii) then distributed all of the
ordinary shares of capital stock of each of NextLevel Systems and CommScope to
its stockholders on a pro rata basis as a dividend (the "Distribution"), in a
transaction that was consummated on July 28, 1997 (the "Distribution Date"). The
Company retained all the assets and liabilities relating to the manufacture and
sale of discrete power rectifiers and transient voltage suppression components
used in telecommunications, automotive and consumer electronics products. On the
Distribution Date, NextLevel Systems and CommScope began operating as
independent entities with publicly traded common stock. GI retained no ownership
interest in either NextLevel Systems or CommScope. Concurrently with the
Distribution, GI changed its name to General Semiconductor, Inc. and effected a
one for four reverse stock split. On February 2, 1998, NextLevel Systems changed
its name to General Instrument Corporation.
The Distribution Agreement dated as of June 12, 1997, among GI, General
Instrument Corporation, and CommScope (the "Distribution Agreement") and certain
other agreements executed in connection with the Distribution (collectively, the
"Ancillary Agreements") allocate among the Company, General Instrument
Corporation and CommScope, and their respective subsidiaries, responsibility for
various indebtedness, liabilities and obligations. It is possible that a court
would disregard this contractual allocation of indebtedness, liabilities and
obligations among the parties and require the Company or its subsidiaries to
assume responsibility for obligations allocated to another party, particularly
if such other party were to refuse or was unable to pay or perform any of its
allocated obligations.
Pursuant to the Distribution Agreement and certain of the Ancillary Agreements,
the Company has agreed to indemnify the other parties (and certain related
persons) from and after consummation of the Distribution with respect to certain
indebtedness, liabilities and obligations, which indemnification obligations
could be significant.
Although GI has received a favorable ruling from the Internal Revenue Service,
if the Distribution were not to qualify as a tax free spin-off (either because
of the nature of the Distribution or because of events occurring after the
Distribution) under Section 355 of the Internal Revenue Code of 1986, as
amended, then, in general, a corporate tax would be payable by the consolidated
group of which the Company was the common parent based upon the difference
between the fair market value of the stock distributed and the distributing
corporation's adjusted basis in such stock. The corporate level tax would be
payable by the Company and could substantially exceed the net worth of the
Company. However, under certain circumstances, General Instrument Corporation
and CommScope have agreed to indemnify the Company for such tax liability. In
addition, under the consolidated return rules, each member of the consolidated
group (including General Instrument Corporation and CommScope) is severally
liable for such tax liability.
Leverage; Certain Restrictions Under Credit Facilities
The Company is substantially more leveraged than GI was prior to the
Distribution. The degree to which the Company is leveraged could have important
consequences, including the following: (i) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
product development, acquisitions, general corporate purposes or other purposes
may be impaired; (ii) a portion of the Company's and its subsidiaries' cash flow
from operations must be dedicated to the payment of the principal of and
interest on its indebtedness; (iii) the Credit Agreement, dated as of July 23,
1997, among the Company, certain banks, and The Chase Manhattan Bank, as
Administrative Agent, contains certain restrictive financial and operating
covenants, including, among others, requirements that the Company satisfy
certain financial ratios; (iv) a significant portion of the Company's borrowings
will be at floating rates of interest, causing the Company to be vulnerable to
increases in interest rates; (v) the Company's degree of leverage may make it
more vulnerable to a downturn in general economic conditions; and (vi) the
Company's degree of leverage may limit its flexibility in responding to changing
business and economic conditions.
In addition, in a lawsuit by an unpaid creditor or representative of creditors,
such as a trustee in bankruptcy, a court may be asked to void the Distribution
(in whole or in part) as a fraudulent conveyance and to require that the
stockholders return the special dividend (in whole or in part) to the Company or
require the Company to fund certain liabilities of General Instrument
Corporation and CommScope for the benefit of creditors.
Competition
The Company operates in the discrete segment of the semiconductor business. Its
products are commodity-like in nature and are subject to cyclical variations in
pricing and capacity utilization levels. The Company is subject to competition
from a substantial number of foreign and domestic companies, some of which have
greater financial, engineering, manufacturing and other resources, or offer a
broader product line, than the Company. The Company's competitors can be
expected to continue to improve the design and performance of their products and
to introduce new products with competitive price and performance
characteristics. Although the Company believes that it enjoys certain
technological and other advantages over its competitors, realizing and
maintaining such advantages will require continued investment by the Company in
engineering, research and development, marketing and customer service and
support. There can be no assurance that the Company will have sufficient
resources to continue to make such investments or that the Company will be
successful in maintaining such advantages.
International Operations
A significant portion of the Company's products are manufactured or assembled in
Taiwan (Republic of China), the People's Republic of China, Ireland, Germany,
and France. These foreign operations are subject to the usual risks inherent in
situating operations abroad, including risks with respect to currency exchange
rates, economic and political destabilization, restrictive actions by foreign
governments, nationalizations, the laws and policies of the United States
affecting trade, foreign investment and loans, and foreign tax laws. The
Company's cost-competitive status relative to other competitors could be
adversely affected if the Company experiences unfavorable movements in foreign
currency rates. In addition, a substantial portion of the annual sales of the
Company's business are outside of the United States.
Sales to the Asia Pacific region accounted for approximately 40% of the
Company's worldwide sales for the year ended December 31, 1997. During 1998
order trends and average selling prices have weakened significantly reflecting
the current economic and currency difficulties in Southeast Asia, the economic
slowdown in Japan and the difficulties in the computer and computer peripherals
industries. However, approximately 50% of the Company's production is currently
in Taiwan, the cost of which has benefited from the weakened New Taiwan Dollar
in relation to the U.S. dollar. Additionally, extended underutilization of the
Company's manufacturing facilities, resulting in production inefficiency, could
result in margin deterioration. There can be no assurance as to the extent or
duration of the impact of these events on the Company.
Environment
The Company is subject to various federal, state, local and foreign laws and
regulations governing environmental matters, including the use, discharge and
disposal of hazardous materials. The Company's manufacturing facilities are
believed to be in substantial compliance with current laws and regulations.
Complying with current laws and regulations has not had a material adverse
effect on the Company's financial condition. In connection with the
Distribution, the Company retained the obligations with respect to environmental
matters relating to the Company's discontinued operations and its status as a
"potentially responsible party." The Company is involved in remediation
programs, principally with respect to former manufacturing sites, which are
proceeding in connection with federal and state regulatory oversight.
Accordingly, the Company is currently named as a "potentially responsible party"
with respect to the disposal of hazardous wastes at nine hazardous waste sites
located in six states.
The Company has engaged independent consultants to assist management in
evaluating potential liabilities related to environmental matters. Management
assesses the input from these independent consultants along with other
information known to the Company in its effort to continually monitor these
potential liabilities. Management assesses its environmental exposure on a
site-by-site basis, including those sites where the Company has been named a
"potentially responsible party." Such assessments include the Company's share of
remediation costs, information known to the Company concerning the size of the
hazardous waste sites, their years of operation and the number of past users and
their financial viability. The Company has recorded a reserve for environmental
matters of $32.5 million at September 30, 1998 ($34.9 million at December 31,
1997). While the ultimate outcome of these matters cannot be determined,
management does not believe that the final disposition of these matters will
have a material adverse affect on the Company's financial position, results of
operations or cash flows beyond the amounts previously provided for in the
financial statements.
The Company's present and past facilities have been in operation for many years,
and over that time in the course of those operations, such facilities have used
substances which are or might be considered hazardous, and the Company has
generated and disposed of wastes which are or might be considered hazardous.
Therefore, it is possible that additional environmental issues may arise in the
future which the Company cannot now predict.
Year 2000
The Company recognizes the importance of ensuring that neither its customers nor
its business operations are disrupted as a result of Year 2000 software
failures. The Company, with the assistance of outside consulting resources, is
centrally coordinating activities directed toward achieving global Year 2000
compliance. The primary areas of potential impact include business application
systems, production equipment systems, suppliers, financial institutions,
government agencies and environmental support organizations. None of the
Company's products contain date sensitive or date processing logic.
In 1996 the Company began an upgrade of its business applications software which
includes the implementation of the full suite of JD Edwards ("JDE") financial,
distribution and manufacturing applications. The JDE software was selected to
add worldwide functionality and efficiency to the business processes of the
Company as well as address a major area of Year 2000 exposure. The financial and
distribution modules have already been installed. Implementation of the JDE
manufacturing modules is scheduled for the third quarter of 1999. In-house
developed applications will be tested for compliance by December 31, 1998.
Since the suite of JDE applications being installed is Year 2000 compliant,
incremental costs beyond the scope of this project, estimated at less than $1.0
million, do not have a material effect on the Company's results of operations
and are being expensed as incurred.
The Company has surveyed its suppliers, financial institutions, government
agencies and other vendors with which it does business to determine their Year
2000 readiness and coordinate conversion efforts. Survey results should be
received and evaluated by December 31, 1998. The Company is prepared to perform
on-site visits to validate the accuracy of the information received and will
test such systems where appropriate and possible. Additionally, the Company has
established programs to ensure that future purchases of equipment and software
are Year 2000 compliant. Costs incurred have been insignificant to date.
The Company's contingency plans to date have been focused on the stability of
its supply chain as described above. The Company expects to finalize material
supply and product delivery contingency plans in the second quarter of 1999 once
risks associated with the JDE manufacturing module installation have been
assessed. Contingency costs, if required, approximate $0.5 million.
At the present time, the Company does not expect Year 2000 issues to have a
material adverse affect on its products, services, competitive position,
financial condition or results of operations. However, the Company can give no
assurance that the systems of other companies on which the Company relies upon
will be converted on time or that a failure to convert by another company or a
conversion that is incompatible with the Company's systems would not have a
material adverse effect on the Company.