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, 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," "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, 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 (the "Communications Business") 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
(the "Cable Manufacturing Business") 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 shareholders
on a pro rata basis as a dividend (the "Distribution"), in a transaction that
was consummated on July 28, 1997. General Instrument Corporation prior to the
Distribution is herein referred to as "GI" and following the Distribution is
referred to herein as "General Semiconductor".
The Company is a smaller and less diversified company than GI was prior
to the Distribution and the Company has no recent operating history as a
separate entity. The ability of the Company to satisfy its obligations and
maintain profitability will be solely dependent upon its own future performance,
and the Company will not be able to rely on the capital resources and cash flows
of the businesses of NextLevel Systems or General Semiconductor. The future
performance and cash flows of the Company will be subject to prevailing economic
conditions and to financial, business and other factors affecting the business
operations of the Company, including factors beyond its control.
The division of GI may result in some temporary dislocation and
inefficiencies to the business operations, as well as the organization and
personnel structure, of the Company, and will also result in the duplication of
certain personnel, administrative and other expenses required for the operation
of an independent company. The management of the Company has not previously
operated its businesses as a separate public company so there can be no
assurance that the transition will not alter or disrupt, at least temporarily,
the management and operations of the Company's business.
1
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, NextLevel Systems, 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 the Company 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 NextLevel Systems 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 NextLevel Systems) 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 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
General Semiconductor or require the Company to fund certain liabilities of
General Semiconductor and NextLevel Systems for the benefit of creditors.
2
Dependence of the Company on the Cable Television Industry and Cable Television
Capital Spending
The majority of the Company's revenues come from sales of systems and
equipment to the cable television industry. Demand for these 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, consolidation in 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 in the broadband
communications industry and new legislation and regulation of cable television
operators as described below. Capital spending in the cable television industry
fell sharply in the middle of 1990 compared to 1989 and remained at a low level
until it began to recover in mid-1992. Although the Company believes that the
constraining pressures on domestic cable television capital spending eased and
that cable television capital spending generally increased from mid-1992 through
1996, there can be no assurance that such increases will continue or that such
increased level 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. When fully implemented by the FCC, the Telecom Act 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.
3
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.
The Company's sales to international markets have recently increased
substantially and will continue to be an important focus of the Company in the
future. However, there can be no assurance that international markets will
continue to expand, or that growth and profitability in international sales will
not be affected by political uncertainties, currency exchange rate fluctuations
or variations in capital spending cycles in developing countries.
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.
4
Impact of Price Fluctuations of Raw Materials on the Company; Sources of
Raw Materials
Fabricated aluminum, copper and plastics 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. In addition to bi-metallic wires, fine aluminum wire is
purchased primarily from a single source; 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.
International Operations; Foreign Currency Risks
U.S. broadband system designs and equipment are increasingly being
employed in international markets, where cable television penetration is low.
However, there can be no assurance that international markets will continue to
develop or that the Company will receive additional contracts to supply its
systems and equipment in international markets.
In addition, sales of equipment into international markets by the
Company have recently grown. 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.
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.
5