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, 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 001-12925

                             NextLevel Systems, Inc.
             (Exact name of registrant as specified in its charter)

           Delaware                                                36-4134221
(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,  1997,  there  were  147,912,273  shares  of  Common  Stock
outstanding.



<PAGE>




                                       PART I
                                FINANCIAL INFORMATION

                               NEXTLEVEL SYSTEMS, INC.
                             CONSOLIDATED BALANCE SHEETS
                                   (In thousands)

                                       ASSETS
<TABLE>
<CAPTION>

                                                                                           (Unaudited)
                                                                                          September 30,                 December 31,
                                                                                               1997                         1996
                                                                                          -------------                 ------------

Current Assets:
<S>                                                                                       <C>                            <C>       
Cash and cash equivalents ..............................................................  $   162,027                    $         -
Short-term investment ..................................................................       26,900                              -
Accounts receivable, less allowance for doubtful accounts
     of $8,712 and $12,910, respectively ...............................................      346,025                        392,984
Inventories ............................................................................      305,199                        263,829
Prepaid expenses and other current assets ..............................................       29,751                         17,657
Deferred income taxes ................... ..............................................      107,906                         81,226
                                                                                          -----------                    -----------
     Total current assets ..............................................................      977,808                        755,696

Property, plant and equipment, net .....................................................      260,937                        251,748
Intangibles, less accumulated amortization of $83,639
     and $76,077, respectively .........................................................       85,240                         92,802
Excess of cost over fair value of net assets acquired, less
     accumulated amortization of $104,368 and $93,552, respectively ....................      472,446                        478,783
Investments and other assets ...........................................................       57,398                         18,208
Deferred income taxes ..................................................................        2,171                         32,499
                                                                                          -----------                    -----------
TOTAL ASSETS ...........................................................................   $1,856,000                     $1,629,736
                                                                                          ===========                    ===========

</TABLE>

                 See notes to consolidated financial statements


<PAGE>




                             NEXTLEVEL SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                                                                          (Unaudited)
                                                                                         September 30,                  December 31,
                                                                                             1997                           1996
                                                                                         -------------                  ------------

Current Liabilities:
<S>                                                                                       <C>                            <C>        
Accounts payable .....................................................................    $  202,905                     $   201,382
NLC litigation liability .............................................................       138,000                               -
Other accrued liabilities ............................................................       183,594                         172,782
                                                                                          ----------                     -----------
     Total current liabilities .......................................................       524,499                         374,164

Deferred income taxes ................................................................        15,079                           6,353
NLC litigation liability .............................................................             -                         139,100
Other non-current liabilities ........................................................        66,000                          58,945
                                                                                          ----------                     -----------
     Total liabilities ...............................................................       605,578                         578,562
                                                                                          ----------                     -----------

Commitments and contingencies

Stockholders' Equity:
Divisional net equity ................................................................             -                       1,051,174
Preferred Stock, $.01 par value; 20,000,000 shares authorized; no
       shares issued .................................................................             -                               -
Common Stock, $.01 par value: 400,000,000 shares authorized;
       147,847,544 shares issued at September 30, 1997 ...............................         1,478                               -
Additional paid-in capital ...........................................................     1,206,208                               -
Retained earnings ....................................................................        26,702                               -
Unrealized gain on investment, net of taxes of $10,491 ...............................        16,409                               -
                                                                                          ----------                     -----------
                                                                                           1,250,797                       1,051,174
Less - Treasury Stock, at cost, 4,309 shares of Common Stock .........................            (2)                              -
       Unearned compensation .........................................................          (373)                              -
                                                                                          ----------                     -----------
Total stockholders' equity ...........................................................     1,250,422                       1,051,174
                                                                                          ----------                     -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...........................................    $1,856,000                     $ 1,629,736
                                                                                          ==========                     ===========
</TABLE>


                 See notes to consolidated financial statements.



<PAGE>



                             NEXTLEVEL SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              (Unaudited - In thousands, except per share amounts)
<TABLE>
<CAPTION>



                                                                      Three Months Ended                    Nine Months Ended
                                                                         September 30,                        September 30,
                                                                -------------------------------      -------------------------------
                                                                     1997              1996               1997              1996
                                                                -------------     -------------      -------------     -------------


<S>                                                             <C>               <C>                <C>               <C>       
NET SALES ...................................................   $     464,582     $     428,892      $   1,323,013     $  1,249,013
                                                                -------------     -------------      -------------     ------------

OPERATING COSTS AND EXPENSES
    Cost of sales ...........................................         331,141           307,669            958,441          916,841
    Selling, general and administrative .....................          45,316            37,958            139,958          112,264
    NLC litigation costs ....................................               -                 -                  -          141,000
    Research and development ................................          47,867            47,363            148,542          144,683
    Amortization of excess of cost over fair value
       of net assets acquired ...............................           3,698             3,638             10,816           10,638
                                                                -------------     -------------      -------------     ------------
         Total operating costs and expenses .................         428,022           396,628          1,257,757        1,325,426
                                                                -------------     -------------      -------------     ------------

OPERATING INCOME (LOSS) .....................................          36,560            32,264             65,256          (76,413)
Other income (expense), net .................................           3,717               (63)             1,864             (912)
Interest expense, net .......................................            (829)           (6,295)           (14,340)         (19,698)
                                                                -------------     -------------       ------------     ------------

INCOME (LOSS) BEFORE INCOME TAXES ...........................          39,448            25,906             52,780          (97,023)
(Provision) Benefit for income taxes ........................         (14,990)           (9,093)           (22,955)          33,549
                                                                -------------     -------------       ------------     ------------
NET INCOME (LOSS) ...........................................   $      24,458     $      16,813       $     29,825     $    (63,474)
                                                                =============     =============       ============     ============

Weighted Average Shares Outstanding .........................         149,491                              149,416

Earnings Per Common Share ...................................   $        0.16                         $       0.20
                                                                =============                         ============

</TABLE>

              See notes to consolidated financial statements.

<PAGE>



                             NEXTLEVEL SYSTEMS, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                           (Unaudited - In thousands)

<TABLE>
<CAPTION>


                                                                               Unrealized                                    Total
                                         Common Stock    Additional              Gain      Common  Unearned                 Stock-
                                        ---------------   Paid-In   Retained      On      Stock In Compen-   Divisional     holders'
                                        Shares   Amount   Capital   Earnings  Investment  Treasury sation    Net Equity     Equity
                                        -------  ------  ---------- --------  ----------  -------- --------  ----------   ----------

<S>                                          <C> <C>     <C>        <C>       <C>         <C>       <C>      <C>         <C>       
BALANCE, DECEMBER 31, 1996 .........         -   $    -  $        - $      -  $      -    $      -  $    -   $1,051,174  $1,051,174
Net income for the period           
   January 1, 1997 to July 25, 1997                                                                               3,123       3,123
Transfers from General Instrument ..                                                                            125,310     125,310
Other transactions with             
   General Instrument ..............                                                                             17,814      17,814
Unrealized gain on investment, 
   net of tax ......................                                                                             21,576      21,576
Spin-off from General Instrument ...   147,315    1,473   1,196,370             21,576                (422)  (1,218,997)          -
Net income for the period July 26,
   1997 to September 30, 1997 ......                                  26,702                                                 26,702
Exercise of stock options
    and related tax benefit ........       169        1       2,716                                                           2,717
Stock issued in connection with a
    business acquisition ...........       358        4       6,996                                                           7,000
Net change in investment ...........                                            (5,167)                                      (5,167)
Amortization of unearned 
    compensation ...................                                                                    59                       59
Other ..............................         6                  126                             (2)    (10)                     114
                                       -------   ------  ---------- --------  ---------   --------- -------  ----------- -----------
BALANCE, SEPTEMBER 30, 1997 ........   147,848   $1,478  $1,206,208 $ 26,702  $ 16,409    $     (2) $ (373)  $        -  $1,250,422
                                       =======   ======  ========== ========  =========   ========= =======  =========== ===========

</TABLE>

                 See notes to consolidated financial statements.



<PAGE>



                             NEXTLEVEL SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (Unaudited - In thousands)


<TABLE>
<CAPTION>

                                                                                                                  Nine Months Ended
                                                                                                                    September 30,
                                                                                                               ---------------------
                                                                                                                 1997         1996
                                                                                                               --------     --------
OPERATING ACTIVITIES:
<S>                                                                                                           <C>          <C>      
 Net income (loss) ........................................................................................   $  29,825    $(63,474)
 Adjustments to reconcile net income (loss) to
  net cash provided by (used in) operating activities:
    Depreciation and amortization .........................................................................      67,000      60,227
    NLC litigation costs, net .............................................................................           -      91,650
    Gain on sale of short-term investment .................................................................      (4,829)          -
    Changes in assets and liabilities:
         Accounts receivable ..............................................................................      57,105     (38,258)
         Inventories ......................................................................................     (41,358)   (118,193)
         Prepaid expenses and other current assets ........................................................          30      (2,811)
         Other non-current assets .........................................................................      (1,573)     (7,587)
         Deferred income taxes ............................................................................      13,697      17,205
         Accounts payable, income taxes payable and other accrued liabilities .............................       4,731      35,161
         Other non-current liabilities ....................................................................         792     (20,945)
    Other .................................................................................................         767         548
                                                                                                               --------     -------
Net cash provided by (used in) operating activities .......................................................     126,187     (46,477)
                                                                                                               ========     =======

INVESTING ACTIVITIES:
    Additions to property, plant and equipment ............................................................    (56,437)    (106,893)
    Investments in other assets ...........................................................................    (32,635)      (1,266)
    Acquisitions, net of cash acquired ....................................................................     (6,980)     (11,671)
    Proceeds from sale of short-term investment ...........................................................      4,829            -
                                                                                                               --------     -------
Net cash used in investing activities .....................................................................    (91,223)    (119,830)
                                                                                                               ========    ========

FINANCING ACTIVITIES:
    Transfers from General Instrument .....................................................................    125,310      166,307
    Proceeds from stock options ...........................................................................      2,319            -
    Other .................................................................................................       (566)           -
                                                                                                               --------    --------
Net cash provided by financing activities .................................................................    127,063      166,307
                                                                                                               ========    ========

Change in cash and cash equivalents .......................................................................    162,027            -
Cash and cash equivalents, beginning of period ............................................................          -            -
                                                                                                               --------    --------
Cash and cash equivalents, end of period ..................................................................   $162,027    $       -
                                                                                                               ========    ========
</TABLE>

                 See notes to consolidated financial statements.

<PAGE>


                             NEXTLEVEL SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
                     (in thousands, unless otherwise noted)

1.       COMPANY BACKGROUND

         NextLevel  Systems,   Inc.  ("NextLevel  Systems"  or  the  "Company"),
formerly the Communications Business of General Instrument Corporation ("General
Instrument"),  was  incorporated  in Delaware  in January  1997 and is 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.  NextLevel Systems is the world leader in digital and analog
set-top  systems for wired and wireless cable  television  networks,  as well as
hybrid  fiber/coaxial  network  transmission  systems  used by cable  television
operators  and  is  a  leading  provider  of  digital   satellite   systems  for
programmers, direct-to-home satellite network providers and private networks for
business  communications.   Through  its  Next  Level  Communications  business,
NextLevel Systems will provide telephone network solutions through its NLevel(3)
Switched Digital Services system.

         In a  transaction  that  was  consummated  on July  28,  1997,  General
Instrument  (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 NextLevel Systems
(then a wholly-owned  subsidiary of General  Instrument)  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)
distributed all of its outstanding  shares of capital stock of each of NextLevel
Systems and  CommScope  to its  stockholders  on a pro rata basis as a dividend.
Approximately  147.3 million shares of NextLevel Systems Common Stock,  based on
an  exchange  ratio of one for one,  were  distributed  to General  Instrument's
stockholders of record on July 25, 1997 (the "NextLevel Distribution").  On July
28, 1997,  approximately 49.1 million shares of CommScope Common Stock, based on
an exchange  ratio of one for three,  were  distributed  to  NextLevel  Systems'
stockholders of record on that date (the "CommScope  Distribution" and, together
with  the  NextLevel  Distribution,  the  "Distributions").  On July  28,  1997,
NextLevel  Systems and CommScope  began  operating as independent  entities with
publicly  traded  common  stock,  and General  Instrument  retained no ownership
interest in either  NextLevel  Systems or CommScope.  Additionally,  immediately
following the NextLevel  Distribution,  General  Instrument was renamed  General
Semiconductor,  Inc.  ("General  Semiconductor")  and  effected  a one for  four
reverse stock split.

         For the purpose of governing certain of the ongoing relationships among
NextLevel Systems,  CommScope and General  Semiconductor after the Distributions
and  to  provide  mechanisms  for  an  orderly  transition,  NextLevel  Systems,
CommScope  and General  Semiconductor  have  entered  into  various  agreements.
NextLevel  Systems,   CommScope  and  General  Semiconductor  believe  that  the
agreements  are fair to each of the parties and are  comparable to those,  which
would have been reached in arm's length negotiations with unaffiliated parties.

         In connection  with the  Distributions,  NextLevel  Systems  recorded a
charge of $18 million to cost of sales for the nine months ended  September  30,
1997  for  employee  costs  related  to  dividing  General  Instrument's  Taiwan
operations  between NextLevel Systems and General  Semiconductor.  Additionally,
NextLevel  Systems  recorded  a charge of $6  million to  selling,  general  and
administrative expense for legal and other professional fees incurred during the
nine months ended September 30, 1997.



<PAGE>


2.       BASIS OF PRESENTATION

         The accompanying interim consolidated  financial statements reflect the
results of operations,  financial position,  changes in stockholders' equity and
cash flows of NextLevel Systems.  The consolidated balance sheet as of September
30, 1997,  the  consolidated  statements  of  operations  for the three and nine
months  ended  September  30,  1997 and  1996,  the  consolidated  statement  of
stockholders'  equity  for the nine  months  ended  September  30,  1997 and the
consolidated  statements  of cash flows for the nine months ended  September 30,
1997 and 1996 of NextLevel  Systems are unaudited and reflect all adjustments of
a normal recurring nature (except for those charges  disclosed in Notes 1 and 5)
which are, in the opinion of management,  necessary for a fair  presentation  of
the interim  period  financial  statements.  The results of  operations  for the
interim period are not necessarily indicative of the results of operations to be
expected for the full year.

         The consolidated  financial statements include an allocation of certain
assets,  liabilities and general corporate  expenses from General Instrument for
the periods prior to the  Distributions.  In the opinion of management,  general
corporate  administrative expenses have been allocated to NextLevel Systems on a
reasonable and consistent basis using management's estimate of services provided
to NextLevel Systems by General  Instrument.  However,  such allocations are not
necessarily  indicative of the level of expenses  which would have been incurred
had NextLevel Systems been operating as a separate stand-alone entity during the
periods presented.

         Prior to the Distributions,  NextLevel Systems  participated in General
Instrument's  cash  management  program,   and  the  accompanying   consolidated
financial  statements include an allocation of net interest expense from General
Instrument.  To the extent  NextLevel  Systems  generated  positive  cash,  such
amounts were remitted to General  Instrument.  To the extent  NextLevel  Systems
experienced  temporary  cash  needs for  working  capital  purposes  or  capital
expenditures,  such funds were historically provided by General Instrument.  The
net effect of these  transactions  is reflected in  divisional  net equity.  Net
interest expense has been allocated based upon NextLevel  Systems' net assets as
a percentage of the total net assets of General Instrument. The allocations were
made  consistently in each period,  and management  believes the allocations are
reasonable. However, these interest costs would not necessarily be indicative of
what the  actual  costs  would have been had  NextLevel  Systems  operated  as a
separate, stand-alone entity. Subsequent to the Distributions, NextLevel Systems
is  responsible  for the cash  management  functions  using its own resources or
purchased services and is responsible for the costs associated with operating as
a public company.

         Prior  to  the  Distributions,  NextLevel  Systems'  financial  results
included the costs incurred by General  Instrument's  pension and postretirement
benefit plans for employees and retirees of NextLevel Systems. The provision for
income taxes for the periods prior to the  Distributions  was based on NextLevel
Systems'  expected  annual  effective  tax rate  including  the tax  effects  of
restructuring charges,  calculated assuming NextLevel Systems had filed separate
tax returns under its existing structure.

         The financial  information included herein does not necessarily reflect
the  consolidated  results  of  operations,   financial  position,   changes  in
stockholders'  equity and cash flows of NextLevel  Systems in the future or on a
historical basis had NextLevel  Systems been a separate  stand-alone  entity for
the periods presented. These interim consolidated financial statements should be
read in  conjunction  with the  Company's  December  31, 1996  audited  combined
financial statements contained in the Company's Prospectus, dated June 13, 1997.

         Certain  reclassifications  have  been  made to the  comparative  prior
period financial statements to conform to the current period presentation.



<PAGE>


3.       PRO FORMA FINANCIAL INFORMATION

         The unaudited pro forma consolidated statements of operations presented
below are the  consolidated  results of NextLevel  Systems and were  prepared to
give effect to the Distributions as if they had occurred on January 1, 1996. The
unaudited pro forma  statements of operations  set forth below do not purport to
represent what NextLevel  Systems'  operations  actually would have been had the
Distributions  occurred  on  January 1, 1996 or to  project  NextLevel  Systems'
operating results for any future period.

         The unaudited  pro forma  information  has been prepared  utilizing the
historical consolidated statements of operations of NextLevel Systems which were
adjusted to reflect:  (i) an  additional  $1.3  million of selling,  general and
administrative  ("SG&A") costs for the three months ended September 30, 1996 and
an  additional  $3.6 and $5.0  million of SG&A costs for the nine  months  ended
September  30, 1997 and 1996,  respectively,  to  eliminate  the  allocation  of
corporate  expenses  to  CommScope  and  General  Semiconductor,  as such  costs
subsequent to the  Distributions  are no longer allocable and are expected to be
incurred by NextLevel  Systems in the future;  and (ii) a net debt level of $100
million at the  beginning of each period  presented  through July 25, 1997,  the
date of the NextLevel Distribution.

 <TABLE>
<CAPTION>
                                                                               Three months ended            Nine months ended
                                                                                    September 30,                 September 30,
                                                                            --------------------------    --------------------------
                                                                                1997           1996           1997           1996
                                                                            -----------    -----------    -----------    -----------

<S>                                                                        <C>            <C>            <C>            <C>        
Net sales ..............................................................   $   464,582    $   428,892    $ 1,323,013    $ 1,249,013
                                                                           -----------    -----------    -----------    -----------


Operating costs and expenses
   Cost of sales .......................................................       331,141        307,669        958,441        916,841
   Selling, general and administrative .................................        45,316         39,258        143,558        117,264
   NLC litigation costs ................................................          --             --             --          141,000
   Research and development ............................................        47,867         47,363        148,542        144,683
   Amortization of excess of cost over fair
      value of net assets acquired .....................................         3,698          3,638         10,816         10,638
                                                                           -----------    -----------    -----------    -----------

           Total operating costs and expenses ..........................       428,022        397,928      1,261,357      1,330,426
                                                                           -----------    -----------    -----------    -----------


Operating income (loss) ................................................        36,560         30,964         61,656        (81,413)
Other income (expense), net ............................................         3,717            (63)         1,864           (912)
Interest income (expense), net .........................................           299         (1,900)        (3,499)        (5,700)
                                                                           -----------    -----------    -----------    -----------


Income (loss) before income taxes ......................................        40,576         29,001         60,021        (88,025)
(Provision) Benefit for income taxes ...................................       (15,421)       (10,180)       (25,808)        30,376
                                                                           -----------    -----------    -----------    -----------


Net income (loss) ......................................................   $    25,155    $    18,821    $    34,213    $   (57,649)
                                                                           ===========    ===========    ===========    ===========




Weighted average shares outstanding (*) ................................       149,491        148,700        149,416        148,700
Earnings (loss) per common share (*) ...................................   $      0.17    $      0.13    $      0.23    $     (0.39)
                                                                           ===========    ===========    ===========    ===========
</TABLE>

-----------

(*)      For the three and nine months ended September 30, 1996, earnings (loss)
         per common share was calculated by dividing pro forma net income (loss)
         by the sum of 147.3 million NextLevel System common shares issued,  and
         1.4  million  common  equivalent  shares  existing,  on the date of the
         Distributions.  See Note 6 regarding  earnings per common share for the
         three and nine months ended September 30, 1997.



<PAGE>


4.       INVENTORIES

         Inventories consist of:

                                      September 30, 1997      December 31, 1996
                                   ---------------------- ----------------------

 Raw materials                         $          137,391     $          104,984
 Work in process                                   26,834                 21,344
 Finished goods                                   140,974                137,501
                                   ---------------------- ----------------------

 Total inventories                     $          305,199     $          263,829
                                   ====================== ======================

5.       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.   Enforcement  of  the  judgment  was  stayed  pending  the
determination of the appeal. 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. On June 25, 1997, the
Court of Appeals  denied both  parties'  motions for  rehearing.  On October 28,
1997,  the trial  court  entered a revised  final  judgment  against NLC and the
individual defendants in a total amount of $138 million, plus interest from July
3, 1997. On November 7, 1997, the Company  satisfied the judgment with a payment
of approximately $141 million.

         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 ("BBT") 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. On June
13,  1997,  General  Instrument's  motion to dismiss the  complaint  for lack of
personal jurisdiction was denied.

         In March 1997, NLC commenced an action against BBT in the United States
District  Court  for the  Northern  District  of  California  for a  declaratory
judgment  that  BBT's 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 BBT  infringes  two patents
licensed to NLC relating to video compression and video signal  processing.  BBT
has answered the complaint and does not contest  jurisdiction.  On September 30,
1997, BBT's motion to have the case transferred to North Carolina was denied.



<PAGE>


         During October 1995, General Instrument and certain of its officers and
directors were named as defendants in purported class action complaints in which
the plaintiffs  alleged that during various  periods,  generally  extending from
March 21, 1995 through October 18, 1995, General Instrument and certain officers
and  directors  violated  certain  federal  securities  laws by making false and
misleading statements about General Instrument's  financial prospects,  and as a
result,  the  plaintiffs  allege that the market  value of General  Instrument's
stock declined,  thereby causing unspecified monetary damages to the plaintiffs.
On September 23, 1997,  the district  court  dismissed the  complaints,  without
prejudice,  and the plaintiffs  were given until November 7, 1997 to amend their
complaints.  On November 7, 1997,  plaintiffs served the defendants with amended
complaints,  which  contain  allegations  substantially  similar to those in the
original complaints.  The Company intends to vigorously contest these actions.

         In February 1996,  General  Instrument and NLC were named as defendants
in a  complaint  in which  the  plaintiffs,  who  were  some of the  holders  of
preferred stock of NLC, allege, among other things, that the defendants violated
federal securities laws by making  misrepresentations and omissions and breached
fiduciary duties to NLC in connection with the acquisition by General Instrument
of NLC in September  1995.  Plaintiffs  seek,  among other  things,  unspecified
compensatory  and punitive  damages and attorney's  fees and costs. On September
23, 1997, the district court dismissed the complaint, without prejudice, and the
plaintiffs  were given  until  November  7, 1997 to amend  their  complaint.  On
November 7, 1997,  plaintiffs  served the  defendants  with amended  complaints,
which  contain  allegations  substantially  similar  to  those  in the  original
complaint. The Company intends to vigorously contest this action.

         In connection with the  Distributions,  NextLevel Systems has agreed to
indemnify General  Semiconductor  (formerly General  Instrument) with respect to
its obligations, if any, related to these matters.

         On October 21,  1997,  a securities  class  action  complaint  entitled
Michael J.  DiBattista v. NextLevel  Systems,  Inc. and Richard S. Friedland was
filed in the United States District court for the Northern District of Illinois,
Eastern  Division.  The  complaint  was  filed on  behalf  of  stockholders  who
purchased  stock of the Company  between July 28, 1997 and October 16, 1997. The
complaint  alleges that the defendants  violated Sections 10(b) and 20(a) of the
Exchange Act and Rule 10b-5 thereunder by making false and misleading statements
about the Company's business, finances and future prospects. The Company intends
to vigorously contest this action.

         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.

6.       EARNINGS (LOSS) PER COMMON SHARE

         Earnings  (loss) per common  share is computed  based upon the weighted
average number of common and common  equivalent  shares  outstanding  during the
applicable  periods  adjusted  for the  dilutive  effect of stock  options.  The
computation  of earnings per common  share assume the exercise of stock  options
using the  treasury  stock  method,  and to the extent  that stock  options  are
anti-dilutive,  they are  excluded  from the  computation.  Historical  earnings
(loss) per common share for the three and nine month period ended  September 30,
1996 have been  omitted  since the  Company  was not a separate  company  with a
capital structure of its own.

         In February  1997,  the  Financial  Accounting  Standards  Board issued
Statement  No.  128,  Earnings  per Share  ("SFAS No.  128"),  which  supersedes
Accounting  Principles  Board Opinion No. 15,  Earnings per Share,  and replaces
primary and fully diluted earnings per share with basic and diluted earnings per
share,  respectively.  The Company will adopt SFAS No. 128 on December 31, 1997.
Had earnings per share been  calculated in accordance  with SFAS No. 128,  basic
and diluted  earnings  per share would have been $0.17 and $0.16,  respectively,
for the three months ended  September  30, 1997,  and would have both been $0.20
for the nine months ended September 30, 1997.



<PAGE>


7.        CREDIT FACILITIES

         In July 1997,  NextLevel  Systems entered into a bank credit  agreement
(the  "Credit  Agreement")  which  provides a $600 million  unsecured  revolving
credit facility and matures on December 31, 2002. The Credit  Agreement  permits
NextLevel Systems to choose between two interest rate options:  an Adjusted Base
Rate (as defined in the Credit Agreement),  which is based on the highest of (i)
the rate of interest publicly announced by The Chase Manhattan Bank as its prime
rate,  (ii) 1% per  annum  above  the  secondary  market  rate  for  three-month
certificates  of deposit and (iii) the federal funds effective rate from time to
time plus 0.5%,  and a Eurodollar  rate (LIBOR) plus a margin which varies based
on certain performance criteria.  NextLevel Systems is also able to set interest
rates through a competitive  bid procedure.  In addition,  the Credit  Agreement
requires  NextLevel  Systems to pay a facility fee on the total loan commitment.
The Credit  Agreement  contains  financial  and operating  covenants,  including
limitations on guarantee obligations, liens and sale of assets, and requires the
maintenance of certain financial ratios.  None of the restrictions  contained in
the Credit  Agreement is expected to have a significant  effect on the Company's
ability to operate. As of September 30, 1997, the Company was in compliance with
all financial and operating covenants under the Credit Agreement.

8.        STRATEGIC RESTRUCTURING

         On October 16, 1997, the Board of Directors of the Company announced it
is developing a multifaceted plan to improve the Company's financial performance
and achieve  the full  strategic  potential  of its  world-class  communications
technologies and market leadership positions. The Board accepted the resignation
of Richard S.  Friedland  as Chairman  and Chief  Executive  Officer,  and named
Edward D. Breen President and Acting CEO. The Company,  in conjunction  with the
Board, expects to announce details of this plan in mid-December.

         While the plan has not been  completed  and is subject  to change,  the
plan has three  principal  elements.  First,  the  Company  intends to  promptly
explore  and  evaluate   alternatives  for  its  advanced   telephony   products
subsidiary,  Next Level Communications  (NLC), based in Rohnert Park, Calif. NLC
produces  next-generation  broadband  digital  loop  carrier  networks  and xDSL
products, and  has entered into contracts for deployment of these  products with
U S West and Bell Atlantic. NLC is investing heavily in research and development
of its technology and, as a result,  will produce  operating  losses of over $50
million in 1997.  Second,  the Company will streamline the cost structure of its
Satellite Data Networks  Group,  located in San Diego. At the same time, it will
support the division's key engineering developments and share those technologies
more widely across the Company.  In 1997,  the Satellite  Data Networks Group is
expected to generate over $500 million of revenue, but will produce a small loss
on an operating  basis.  Third,  the Company will  actively  employ its Board to
capitalize  on the  strategic  opportunities  and  alliances  made  possible  by
NextLevel  Systems' large installed base of cable television  network  equipment
and the increasing  importance of these networks for low-cost home computing and
high-speed Internet access.

         Also in  connection  with this plan,  on November 4, 1997,  the Company
announced  that it would be moving  its  corporate  headquarters  from  Chicago,
Illinois to Horsham,  Pennsylvania during the first quarter of 1998. The Company
plans  to  consolidate  its  corporate  staff  with the  staff of its  principal
operating unit, the Broadband  Networks Group. On November 13, 1997, the Company
announced  it is  restructuring  its San  Diego-based  Satellite  Data  Networks
business and reducing headcount by 225. Separately,  the Company also named Eric
M. Pillmore to the position of Acting Chief Financial  Officer (CFO),  replacing
Charles T. Dickson, Vice President and CFO.







<PAGE>


                             NEXTLEVEL SYSTEMS, INC.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                      (in millions, unless otherwise noted)

NET SALES

         Net sales for the  three  months  ended  September  30,  1997 were $465
compared to $429 for the three months ended  September  30, 1996, an increase of
$36, or 8%. Net sales for the nine months ended  September  30, 1997 were $1,323
compared to $1,249 for the nine months ended  September 30, 1996, an increase of
$74,  or 6%. The  increases  in net sales for the three and nine  month  periods
reflect increased sales of digital cable systems and interactive advanced analog
systems,  partially offset by lower sales of basic analog cable terminals, cable
transmission  systems  and  satellite  systems  for  private  and  international
networks.

         Broadband  sales  (consisting  of digital and analog cable and wireless
television systems and network transmission  systems) were $335 and $953 for the
three and nine months ended  September 30, 1997,  respectively.  Broadband sales
increased  $42, or 14%, and $124, or 15%, for the three and nine month  periods,
respectively,  from the comparable  1996 periods.  The increases are primarily a
result of increased  U.S.  sales volume of digital cable  terminals and headends
and CFT-2200 advanced analog set-top terminals,  partially offset by lower sales
of analog  cable and  transmission  network  systems.  These  sales  reflect the
commitment of cable television operators to deploy state-of-the-art  digital and
interactive  advance analog  systems in order to offer  advanced  entertainment,
interactive  services  and  Internet  access to their  customers.  International
broadband  sales decreased 9% for the three months ended September 30, 1997, but
increased 10% for the nine months ended  September 30, 1997, over the comparable
1996 periods, and represented approximately 30% of worldwide broadband sales for
all periods.  Analog and digital  broadband  products  represented  69% and 31%,
respectively,  of total broadband sales for the three months ended September 30,
1997,  and 79% and 21%,  respectively,  of total  broadband  sales  for the nine
months ended September 30, 1997. For the comparable  periods in 1996, analog and
digital  sales  represented  approximately  99% and 1%,  respectively,  of total
broadband sales.

         Satellite  sales of $127 for the three months ended  September 30, 1997
decreased $9, or 7%, from the  comparable  1996 period  primarily as a result of
lower private and international  network sales.  Satellite sales of $367 for the
nine months ended  September 30, 1997 decreased $53, or 13%, from the comparable
1996 period as a result of lower sales volumes of digital satellite receivers to
PRIMESTAR  Partners,  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.   International   satellite  sales
represented  approximately  20% of worldwide  satellite  sales for the three and
nine months ended  September 30, 1997,  compared to 9% for the  comparable  1996
periods.  Analog  and  digital  satellite  products  represented  15%  and  85%,
respectively,  of total satellite sales for the three months ended September 30,
1997,  and 12% and 88%,  respectively,  of total  satellite  sales  for the nine
months ended September 30, 1997. For the comparable  periods in 1996, analog and
digital  sales  represented  approximately  9% and 91%,  respectively,  of total
satellite sales.

         In late 1996, TCI announced that it would significantly curtail capital
spending on its cable  networks,  although  TCI  informed  the  Company  that it
planned to continue  spending on its digital  cable  networks.  TCI  represented
approximately  23% of the  revenues  of  NextLevel  Systems  for the year  ended
December 31, 1996. Through September 30, 1997, TCI (and its Primestar  interest)
represented approximately 18% of total NextLevel Systems' sales.

GROSS PROFIT (NET SALES LESS COST OF SALES)

         Gross  profit  was $133 and $365 for the  three and nine  months  ended
September 30, 1997,  respectively,  and increased  $12, or 10%, and $32, or 10%,
respectively,  from the comparable 1996 periods. Gross profit was 29% and 28% of
sales for the three and nine months  ended  September  30,  1997,  respectively,
compared to 28% and 27% for the  comparable  1996 periods.  Gross profit for the
nine  months  ended  September  30,  1997  included  $18  million of charges for
employee  costs  incurred  related  to  dividing  General   Instrument's  Taiwan
operations  between NextLevel Systems and General  Semiconductor  (see Note 1 to
the  consolidated  financial  statements).  Excluding  these charges,  the gross
profit margin for the nine months ended  September 30, 1997 would have increased
to 29%. The higher gross profit and gross  profit  margin  resulted  from higher
production  volumes noted above and ongoing cost reduction  programs on advanced
analog and digital products.

SELLING, GENERAL AND ADMINISTRATIVE

         Selling general & administrative  ("SG&A") expense was $45 and $140 for
the three and nine months ended  September 30, 1997,  respectively,  compared to
$38 and $112 for the  comparable  1996  periods.  SG&A  expense  increased  as a
percentage of sales to 10% and 11% for the three and nine months ended September
30, 1997,  respectively,  from 9% for the 1996  periods.  SG&A  spending for the
three  and  nine  months  ended  September  30,  1997 was  greater  than for the
comparable 1996 periods as a result of new potential growth  opportunities  from
businesses  acquired,  including  the  marketing  and  field  support  of  NLC's
NLevel(3)  telephony  system and  Magnitude's  DVB-compliant  digital  satellite
products,  and increased sales force, field support and marketing  activities to
take advantage of increased  potential  growth  opportunities  in  international
cable and satellite television and worldwide  telecommunications  markets.  This
increased  spending was partially  offset by a credit of $3 in the third quarter
of 1997 related to the collection of certain receivables  previously  considered
to be  uncollectible.  Additionally,  SG&A  expense  for the nine  months  ended
September 30, 1997 included a $6 charge for legal and other  professional  fees,
which were  incurred in  connection  with the  Distributions  (see Note 1 to the
consolidated financial statements).

         Pro forma SG&A expense for the three months ended  September  30, 1996,
and for the  nine  months  ended  September  30,  1997  and  1996,  reflects  an
additional $1, $4 and $5, respectively,  of costs to eliminate the allocation of
corporate  expenses  to  CommScope  and  General  Semiconductor,  as such  costs
subsequent to the Distributions  will no longer be allocable and are expected to
be   incurred   by   NextLevel   Systems   in   the   future.    Excluding   the
Distribution-related charges of $6 and including the pro forma adjustments, SG&A
expense as a percentage of sales would have been 10% for the 1997 periods and 9%
for the 1996 periods.

NLC LITIGATION COSTS

         In June  1996,  NextLevel  Systems  recorded  a pre-tax  charge of $141
reflecting  the judgment and costs of litigation in the case  involving NLC, its
founders and DSC Communications Corporation (the "NLC Litigation") subsequent to
the  entry of a final  judgment  by the  United  States  District  Court for the
Eastern  District of Texas.  The NLC  Litigation was concluded in November 1997.
See  Note 5 to the  consolidated  financial  statements  and  Item 1 of Part II,
"Legal Proceedings."

RESEARCH AND DEVELOPMENT

         Research and development ("R&D") expense was $48 and $149 for the three
and nine months ended September 30, 1997, respectively, compared to $47 and $145
for the comparable 1996 periods.  R&D expense decreased as a percentage of sales
to 10%  and  11% for the  three  and  nine  months  ended  September  30,  1997,
respectively,  from 11% and 12% for the  comparable  1996  periods.  The current
level  of  spending  reflects:  the  continued  development  of  next-generation
products,  including  high-speed data systems for cable and telephone  networks,
switched-digital  access systems for fiber and twisted-pair networks, 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; and product development
and international expansion through strategic alliances. In addition,  NextLevel
Systems is focused on reducing  costs and  enhancing the features of its digital
cable and satellite systems.

OTHER INCOME (EXPENSE) - NET

         Other  income of $4 for the  three  months  ended  September  30,  1997
primarily reflects net investment gains, primarily from the sale of a portion of
the Company's investment in Ciena Corporation.

INTEREST EXPENSE-NET

         Net interest expense  represents an allocation of interest expense from
General Instrument and was allocated based upon NextLevel Systems' net assets as
a  percentage  of the total net assets of General  Instrument  through  July 25,
1997, the date of the NextLevel Distribution.  Net interest expense allocated to
NextLevel  Systems was $2 and $15 for the three and nine months ended  September
30, 1997, respectively,  compared to $6 and $20 for the comparable 1996 periods.
Subsequent  to July  25,  1997,  the  date of the  NextLevel  Distribution,  net
interest  represents  actual  interest  earned on the  Company's  cash  balance,
partially offset by interest accrued related to the NLC Litigation.

INCOME TAXES

         Through the date of the Distributions,  income taxes were determined as
if NextLevel Systems had filed separate tax returns under its existing structure
for the  periods  presented.  Accordingly,  future tax rates could vary from the
historical  effective  tax rates  depending  on  NextLevel  Systems'  future tax
elections.  NextLevel  Systems  recorded a provision for income taxes of $15 and
$23 for the three and nine months ended September 30, 1997, respectively,  and a
provision  of $9 and a  benefit  of $34 for the  three  and  nine  months  ended
September 30, 1996. Excluding the charges related to the Distributions  recorded
in the nine months ended  September 30, 1997 and the NLC charge  recorded in the
nine months ended September 30, 1996, the effective tax rates were approximately
38% for three and the nine months ended  September  30, 1997 compared to 35% and
36%, respectively, for the three and nine months ended September 30, 1996.

LIQUIDITY AND CAPITAL RESOURCES

         Through the date of the Distributions,  NextLevel Systems  participated
in General Instrument's cash management program. To the extent NextLevel Systems
generated  positive cash, such amounts were remitted to General  Instrument.  To
the extent  NextLevel  Systems  experienced  temporary  cash  needs for  working
capital purposes or capital expenditures,  such funds were historically provided
by General  Instrument.  Based on General  Instrument's debt balance on July 25,
1997, and since CommScope and General Semiconductor each assumed net debt levels
of $275, $125 of cash was transferred to NextLevel Systems.

         For the  nine  months  ended  September  30,  1997,  cash  provided  by
operations  was $126  compared  to cash used in  operations  of $46 for the nine
months ended  September 30, 1996.  Cash provided by operations in the first nine
months of 1997 reflects net income adjusted for  depreciation  and  amortization
and the  collection  of  accounts  receivable,  partially  offset  by  increased
inventory  levels  to  support  business  growth  and  the  introduction  of new
products.  Cash used in operations  in the nine months ended  September 30, 1996
reflects the net loss adjusted for non-cash items, more than offset by increased
working capital requirements.

         At September  30, 1997,  working  capital was $453  compared to $382 at
December 31, 1996.  Based on current levels of order input and backlog,  as well
as significant  sales  agreements not yet reflected in order and backlog levels,
NextLevel  Systems  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
NextLevel Systems' working capital requirements.

         During the nine months  ended  September  30, 1997 and 1996,  NextLevel
Systems  invested  $56 and $107,  respectively,  in  equipment  and  facilities.
NextLevel  Systems  expects to continue to expand its capacity to meet increased
current and  anticipated  future demands for analog and digital  products,  with
capital  expenditures  for the year expected to approximate  $85.  Additionally,
during the nine months ended September 30, 1997 and 1996, NextLevel Systems made
$40 and $13, respectively, of strategic investments.

         NextLevel  Systems'  R&D  expenditures  were $149 and $145 for the nine
months  ended  September  30, 1997 and 1996,  respectively,  and are expected to
approximate $200 for the year ending December 31, 1997.

         In July 1997,  NextLevel  Systems entered into a bank credit  agreement
(the  "Credit  Agreement")  which  provides a $600  unsecured  revolving  credit
facility  and  matures  on  December  31,  2002.  The Credit  Agreement  permits
NextLevel Systems to choose between two interest rate options:  an Adjusted Base
Rate (as defined in the Credit Agreement),  which is based on the highest of (i)
the rate of interest publicly announced by The Chase Manhattan Bank as its prime
rate,  (ii) 1% per  annum  above  the  secondary  market  rate  for  three-month
certificates  of deposit and (iii) the federal funds effective rate from time to
time plus 0.5%,  and a Eurodollar  rate (LIBOR) plus a margin which varies based
on certain performance criteria.  NextLevel Systems is also able to set interest
rates through a competitive  bid procedure.  In addition,  the Credit  Agreement
requires  NextLevel  Systems to pay a facility fee on the total loan commitment.
The Credit  Agreement  contains  financial  and operating  covenants,  including
limitations on guarantee obligations, liens and sale of assets, and requires the
maintenance of certain financial ratios.  None of the restrictions  contained in
the Credit  Agreement is expected to have a significant  effect on the Company's
ability to operate. As of September 30, 1997, the Company was in compliance with
all financial and operating covenants contained in the Credit Agreement.

         In October  1997,  the trial  court  entered a revised  final  judgment
against NLC and the individual defendants in the NLC Litigation.  On November 7,
1997, the Company satisfied the judgment plus accrued interest with a payment of
approximately $141 from available operating funds.

         NextLevel  Systems  management  assesses its  liquidity in terms of its
overall  ability to obtain cash to support its  ongoing  business  levels and to
fund its growth  objectives.  NextLevel  Systems' principal sources of liquidity
both on a short-term  and long-term  basis are cash flows provided by operations
and borrowings  under the Credit  Agreement.  NextLevel  Systems  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 the Credit  Agreement  will be
adequate to fund  operations,  research and  development  expenditures,  capital
expenditures,   strategic   restructuring   expenditures  (see  Note  8  to  the
consolidated  financial statements) and any debt service for the next 12 months.
There can be no assurance,  however, that future industry-specific  developments
or  general  economic  trends  will  not  adversely  affect  NextLevel  Systems'
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 General  Instrument  Common
Stock during the period March 21, 1995 through  October 18, 1995.  The complaint
alleges that General  Instrument 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  General  Instrument's  planned  shipments  in 1995 of its
CFT-2200  and  DigiCipher  II  products.  The  plaintiffs  have  moved for class
certification.  A derivative  action brought on behalf of General  Instrument is
also  pending in the same  court,  under the same name.  The  derivative  action
alleges that the members of General Instrument'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
General  Instrument's  stock for  personal  gain.  On September  23,  1997,  the
district court dismissed the Consolidated Amended Class Action Complaint and the
derivative  complaint,  without  prejudice,  and the plaintiffs were given until
November 7, 1997 to amend  their  complaints.  On  November 7, 1997,  plaintiffs
served  the  defendants  with  amended  complaints,  which  contain  allegations
substantially similar to those in the original 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 General
Instrument 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 General  Instrument  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  General
Instrument's failure to disclose information  concerning a significant reduction
in its gross margins.  On September 23, 1997,  the district court  dismissed the
complaint,  without  prejudice,  and the plaintiffs were given until November 7,
1997 to amend  their  complaint.  On  November  7, 1997,  plaintiffs  served the
defendants  with amended  complaints,  which contain  allegations  substantially
similar to those in the original complaint.

         In April  1995,  prior to General  Instrument'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.  Enforcement of the judgment was stayed
pending the determination of the appeal. 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.  On
June 25, 1997, the Court of Appeals denied both parties'  motions for rehearing.
On October 28, 1997, the trial court entered a revised final judgment in a total
amount of $138  million,  plus  interest from July 3, 1997. On November 7, 1997,
the Company satisfied the judgment with a payment of approximately $141 million.




<PAGE>


         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 ("BBT) 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. On June
13,  1997,  General  Instrument's  motion to dismiss the  complaint  for lack of
personal jurisdiction was denied.

         In March 1997, NLC commenced an action against BBT in the United States
District  Court  for the  Northern  District  of  California  for a  declaratory
judgment  that  BBT's 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 BBT  infringes  two patents
licensed to NLC relating to video compression and video signal  processing.  BBT
has answered the complaint and does not contest  jurisdiction.  On September 30,
1997, BBT's motion to have the case transferred to North Carolina was denied.

         In connection with the  Distributions,  NextLevel Systems has agreed to
indemnify General  Semiconductor  (formerly General  Instrument) with respect to
its obligations, if any, related to these matters.

         On October 21,  1997,  a securities  class  action  complaint  entitled
Michael J.  DiBattista v. NextLevel  Systems,  Inc. and Richard S. Friedland was
filed in the United States District court for the Northern District of Illinois,
Eastern  Division.  The  complaint  was  filed on  behalf  of  stockholders  who
purchased  stock of the Company  between July 28, 1997 and October 16, 1997. The
complaint  alleges that the defendants  violated Sections 10(b) and 20(a) of the
Exchange Act and Rule 10b-5 thereunder by making false and misleading statements
about the Company's business, finances and future prospects.

Item 4. Submission of Matters to a Vote of Security Holders

         On July 25,  1997,  the sole  stockholder  of the Company  approved the
following by written consent:

         1.   NextLevel Systems, Inc. 1997 Long-Term Incentive Plan, as amended.

         2.   Amended and Restated Certificate of Incorporation to provide for a
              classified board of directors.

         3.   The merger  of NextLevel Systems of  Delaware, Inc. with  and into
              the Company.


Item 6. Exhibits and Reports on Form 8-K

(a)      Exhibits

         Exhibit 99 - Forward-Looking Information

(b)      Report on Form 8-K

         The  Company  filed a  report  on  Form  8-K  dated  October  16,  1997
         announcing  the  resignation  of Richard S.  Friedland  as Chairman and
         Chief  Executive  Officer,  and naming  Edward D. Breen  President  and
         Acting CEO. In addition, the Company announced that it was developing a
         multifaceted  plan to improve the Company's  financial  performance and
         achieve the full strategic potential of its world-class  communications
         technologies and market leadership positions.



<PAGE>



                                    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.



                                  NEXTLEVEL SYSTEMS, INC.

                                  /s/Paul J. Berzenski
                                  --------------------
                                  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

November 14, 1997
-----------------
Date