EXHIBIT 99
COMMSCOPE, INC.
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 for the
year ended December 31, 1998, the Company's 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," "think", "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 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) employee workforce factors; (d) 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; (e) potential disruption from the "Year 2000" problem,
and the factors set forth below.
FACTORS RELATING TO THE DISTRIBUTION
General Instrument Corporation (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 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
electronic cable used in the cable television, satellite and other
industries to the Company (then a wholly-owned subsidiary of GI) and (ii)
then distributed all of the outstanding shares of capital stock of each of
NextLevel Systems and the Company to its stockholders on a pro rata basis
as a dividend (the "Distribution"), in a transaction that was consummated
on July 28, 1997. Immediately following the Distribution, General
Instrument Corporation changed its name to General Semiconductor, Inc.
General Instrument Corporation prior to the Distribution is herein referred
to as "GI" and following the Distribution is referred to herein as "General
Semiconductor". On February 2, 1998, NextLevel Systems changed its name to
General Instrument Corporation.
The Distribution Agreement, dated as of June 12, 1997, among the
Company, NextLevel Systems and GI (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 General Semiconductor 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
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 GI 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
General Semiconductor and could substantially exceed the net worth of
General Semiconductor. However, under certain circumstances, the Company
and General Instrument Corporation have agreed to indemnify General
Semiconductor for such tax liability. In addition, under the consolidated
return rules, each member of the consolidated group (including the Company
and General Instrument Corporation) is severally liable for such tax
liability.
LEVERAGE; CERTAIN RESTRICTIONS UNDER CREDIT FACILITIES
The Company is substantially leveraged. 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 CommScope, Inc. of North Carolina, a wholly owned
subsidiary of 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 are 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 General Semiconductor or require the Company to fund certain
liabilities of General Semiconductor and General Instrument Corporation for
the benefit of creditors.
DEPENDENCE OF THE COMPANY ON THE CABLE TELEVISION INDUSTRY AND CABLE
TELEVISION CAPITAL SPENDING
The majority of the Company's revenues come from sales to the cable
television industry. Demand for the Company's products depends primarily on
capital spending by cable television operators for constructing, rebuilding
or upgrading their systems. The amount of this capital spending, and,
therefore, the Company's sales and profitability will be affected by a
variety of factors, including general economic conditions, acquisitions of
cable television operators by non-cable television operators, cable system
consolidation within the industry, the financial condition of domestic
cable television operators and their access to financing, competition from
satellite and wireless television providers and telephone companies,
technological developments and new legislation and regulation of cable
television operators. There can be no assurance that cable television
capital spending will increase from historical levels or that existing
levels of cable television capital spending will be maintained.
In recent years, cable television capital spending has also been
affected by new legislation and regulation, on the federal, state and local
level, and many aspects of such regulation are currently the subject of
judicial proceedings and administrative or legislative proposals. During
1993 and 1994, the Federal Communications Commission (the "FCC") adopted
rules under the Cable Television Consumer Protection and Competition Act of
1992 (the "1992 Cable Act"), regulating rates that cable television
operators may charge for lower tiers of service and generally not
regulating the rates for higher tiers of service. In 1996, the
Telecommunications Act of 1996 (the "Telecom Act") was enacted to eliminate
certain governmental barriers to competition among local and long distance
telephone, cable television, broadcasting and wireless services. The FCC is
continuing its implementation of the Telecom Act which, when fully
implemented, may significantly impact the communications industry and alter
federal, state and local laws and regulations regarding the provision of
cable and telephony services. Among other things, the Telecom Act
eliminates substantially all restrictions on the entry of telephone
companies and certain public utilities into the cable television business.
Telephone companies may now enter the cable television business as
traditional cable operators, as common carrier conduits for programming
supplied by others, as operators of wireless distribution systems, or as
hybrid common carrier/cable operator providers of programming on so-called
"open video systems." The economic impact of the 1992 Cable Act, the
Telecom Act and the rules thereunder on the cable television industry and
the Company is still uncertain.
Although the domestic cable television industry is comprised of
approximately 11,200 cable systems, a small number of cable television
operators own a majority of cable television systems and account for a
majority of the capital expenditures made by cable television operators.
The loss of some or all of the Company's principal cable television
customers could have a material adverse effect on the business of the
Company.
TELECOMMUNICATIONS INDUSTRY COMPETITION AND TECHNOLOGICAL CHANGES AFFECTING
THE COMPANY
Many of the markets that the Company serves are characterized by
advances in information processing and communications capabilities which
require increased transmission speeds and greater capacity ("bandwidth")
for carrying information. These advances require ongoing improvements in
the capabilities of wire and cable products. The Company believes that its
future success will depend in part upon its ability to enhance existing
products and to develop and manufacture new products that meet or
anticipate such changes. The failure to introduce successful new or
enhanced products on a timely and cost-competitive basis could have an
adverse impact on the Company's operations and financial condition.
Fiber optic technology presents a potential substitute for the
products that comprise the majority of the Company's sales. To date, fiber
optic cables have penetrated the cable television and local area network
("LAN") markets served by the Company in high-bandwidth point-to-point and
trunking applications. Fiber optic cables have not, to date, significantly
penetrated the local distribution and residential application markets
served by the Company because of the high relative cost of electro-optic
interfaces and the high cost of fiber termination and connection. At the
same time, advances in data transmission equipment and copper cable
technologies have increased the relative performance of copper-based cables
which are the Company's principal product offerings. However, a significant
decrease in the cost of fiber optic systems could make such systems
superior on a price/performance basis to copper systems. While the Company
is a fiber optic cable manufacturer and supplier to a small portion of the
cable television market and certain specialty markets, such a significant
decrease in the cost of fiber optic systems would likely have an adverse
effect on the Company.
COMPETITION
The Company's coaxial, fiber optic and electronic cable products
compete with those of a substantial number of foreign and domestic
companies, some with greater resources, financial or otherwise, than the
Company, and the rapid technological changes occurring in the
telecommunications industry could lead to the entry of new competitors.
Existing competitors' actions and new entrants may have an adverse impact
on the Company's sales and profitability. The Company believes that it
enjoys a strong competitive position in the coaxial cable market because of
its position as a low-cost, high-volume coaxial cable producer and its
reputation as a high-quality provider of state-of-the-art cables, along
with its strong orientation toward customer service. However, there can be
no assurance that the Company will continue to compete successfully with
its existing competitors or that it will be able to compete successfully
with new competitors.
IMPACT OF PRICE FLUCTUATIONS OF RAW MATERIALS ON THE COMPANY; SOURCES OF RAW
MATERIALS
Fabricated aluminum, plastics, bi-metals, copper and optical fiber are
the principal raw materials purchased by the Company, and the Company's
profitability may be affected by changes in the market price of these
materials (which are linked to the commodity markets). Although the Company
has generally been able to pass on increases in the price of these
materials to its customers, there can be no assurance that the Company will
be able to do so in the future. Additionally, significant increases in the
price of the Company's products due to increases in the cost of raw
materials could have a negative effect on demand for the Company's
products.
A significant portion of the Company's raw material purchases are
bi-metallic center conductors for coaxial cables, nearly all of which are
purchased from Copperweld Corporation under a long-term supply arrangement
expiring in March 2000. However, the Company recently acquired the clad
wire fabrication equipment and technology of Texas Instruments Incorporated
for manufacturing copper-clad aluminum wire and copper-clad steel wire. At
full capacity, this acquisition will give the Company the ability to
produce a significant portion of the bi-metal center conductors used by the
Company. In addition to bi-metallic wires, fine aluminum wire, which is a
smaller raw material purchase than bi-metallic wire, is purchased primarily
from a single source. However, the Company also intends to pursue fine wire
drawing to produce braid wires for flexible coaxial cables. Neither of
these major raw materials could be readily replaced in sufficient
quantities if all supplies from the respective primary sources were
disrupted for an extended period and the Company was unable to vertically
integrate the production of these products. Additionally,
fluorinated-ethylene-propylene (FEP) is the primary raw material used
throughout the industry for producing flame-retarding cables for LAN
applications. There are few worldwide producers of FEP and market supplies
have been periodically limited over the past several years. Availability of
adequate supplies of FEP will be critical to future LAN cable sales growth.
INTERNATIONAL OPERATIONS
Management remains guarded about the near-term outlook for
international sales. During 1998, international sales decreased by
approximately 30%, or $60.6 million, compared to 1997, due to monetary
crises in key overseas markets, including the Pacific Rim and South
America. Excluding the Seneffe acquisition, which is expected to provide
approximately 5% sales growth in 1999, management expects 1999
international sales to be relatively unchanged compared to 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." However, in the long run, the Company's management believes
that continued growth in international markets, including the developing
markets in Asia, the Middle East and Latin America, and the expected
privatization of the telecommunications structure in many European
countries, represent significant future opportunities. However, the Company
cannot predict with certainty the outlook for international sales in 1999
and beyond due to unpredictable political and economic uncertainties.
International operations are subject to the usual risks inherent in
sales 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.
ENVIRONMENT
The Company is subject to various federal, state, local and foreign
laws and regulations governing 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. Compliance with
current laws and regulations has not had and is not expected to have a
material adverse effect on the Company's financial condition.
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.