<PAGE>

                         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 June 30, 1998

                                          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
                                          
                           GENERAL INSTRUMENT CORPORATION
               (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.)

                  101 TOURNAMENT DRIVE, HORSHAM, PENNSYLVANIA, 19044
                       (Address of principal executive offices)
                                      (Zip Code)

                                    (215) 323-1000
                 (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 July 15, 1998, there were 151,746,136 shares of Common Stock outstanding.


<PAGE>

PAGES

PART I.             FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

          Consolidated Balance Sheets                                     3-4

          Consolidated Statements of Operations                             5

          Consolidated Statement of Stockholders' Equity                    6

          Consolidated Statements of Cash Flows                             7

          Notes to Consolidated Financial Statements                     8-16

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS                           17-21

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
          MARKET RISK                                                      22



PART II.       OTHER INFORMATION

ITEM 1.  Legal Proceedings                                                 23

ITEM 4.  Submission of Matters to a Vote of  Securities Holders            24

ITEM 5.  Other Information                                              24-25

ITEM 6.  Exhibits                                                          25

SIGNATURES                                                                 26

INDEX TO EXHIBITS                                                          27





<PAGE>

                                    PART I   

                            FINANCIAL INFORMATION   

ITEM 1.  FINANCIAL STATEMENTS   
   
                        GENERAL INSTRUMENT CORPORATION   
                          CONSOLIDATED BALANCE SHEETS   
                               (In thousands)   
   
   
                                   ASSETS
<TABLE>
<CAPTION>
                                                            (Unaudited)  
                                                              June 30,     December 31,
                                                                1998           1997
                                                            -----------    -----------
<S>                                                         <C>            <C>
Cash and cash equivalents                                   $    82,854    $    35,225 
Short-term investments                                           25,659         30,346 
Accounts receivable, less allowance for doubtful accounts   
     of $3,120 and $3,566, respectively                         323,000        343,625 
Inventories                                                     261,031        288,078 
Deferred income taxes                                           121,494        105,582 
Other current assets                                             14,112         21,862 
                                                            -----------    -----------
     Total current assets                                       828,150        824,718 

Property, plant and equipment, net                              226,918        236,821 
Intangibles, less accumulated amortization of $91,547   
     and $86,333, respectively                                   76,171         82,546 
Excess of cost over fair value of net assets acquired, less 
     accumulated amortization of $114,919 and $108,123, 
     respectively                                               457,418        471,186 
Deferred income taxes                                            19,889          5,634 
Investments and other assets                                     84,723         54,448 
                                                            -----------    -----------
TOTAL ASSETS                                                $ 1,693,269    $ 1,675,353 
                                                            ===========    ===========
</TABLE>


                    See notes to consolidated financial statements.


                                            3
<PAGE>

                              GENERAL INSTRUMENT CORPORATION
                                CONSOLIDATED BALANCE SHEETS
                             (In thousands, except share data)


                            LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                            (Unaudited)  
                                                              June 30,     December 31,
                                                                1998           1997
                                                            -----------    -----------
<S>                                                         <C>            <C>
Accounts payable                                            $   203,780    $   200,817 
Other accrued liabilities                                       170,993        188,250 
                                                            -----------    -----------
     Total current liabilities                                  374,773        389,067 

Deferred income taxes                                             5,663          5,745 
Other non-current liabilities                                    62,525         65,730 
                                                            -----------    -----------
     Total liabilities                                          442,961        460,542 
                                                            -----------    -----------

Commitments and contingencies (See Note 5)

Stockholders' Equity:   
Preferred Stock, $.01 par value; 20,000,000 shares 
    authorized; no shares issued                                      -              -
Common Stock, $.01 par value; 400,000,000 shares 
    authorized; 151,686,994 and 148,358,188 shares 
    issued at June 30, 1998 and December 31, 1997, 
    respectively                                                  1,517          1,484
Additional paid-in capital                                    1,282,428      1,213,566
Accumulated deficit                                             (49,165)       (19,236)
Accumulated other comprehensive income, net of 
    taxes of $9,129 and $11,347, respectively                    15,530         18,999
                                                            -----------    -----------
                                                              1,250,310      1,214,813
   
Less-Treasury Stock, at cost, 6,134 shares of Common Stock           (2)            (2)
                                                            -----------    -----------
Total stockholders' equity                                    1,250,308      1,214,811
                                                            -----------    -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                  $ 1,693,269    $ 1,675,353
                                                            ===========    ===========
</TABLE>


                   See notes to consolidated financial statements.


                                          4
<PAGE>

                              GENERAL INSTRUMENT CORPORATION
                           CONSOLIDATED STATEMENTS OF OPERATIONS
                   (Unaudited - In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED            SIX MONTHS ENDED
                                                      JUNE 30,                     JUNE 30,
                                              ------------------------      ------------------------
                                                 1998           1997           1998           1997
                                              ---------      ---------      ---------      ---------
<S>                                           <C>            <C>            <C>            <C>
NET SALES                                     $ 488,505      $ 450,403      $ 905,425      $ 858,431
Cost of sales                                   347,384        332,785        671,316        627,299
                                              ---------      ---------      ---------      ---------
GROSS PROFIT                                    141,121        117,618        234,109        231,132
                                              ---------      ---------      ---------      ---------

OPERATING EXPENSES:
   Selling, general and administrative           45,883         51,890        101,768         94,644
   Research and development                      42,266         49,630        158,169        100,675
   Amortization of excess of cost over fair
    value of net assets acquired                  3,562          3,560          7,123          7,118
                                              ---------      ---------      ---------      ---------
      Total operating expenses                   91,711        105,080        267,060        202,437
                                              ---------      ---------      ---------      ---------

OPERATING INCOME (LOSS)                          49,410         12,538        (32,951)        28,695
Other expense - net                                (796)        (1,324)        (9,804)        (1,853)
Interest expense - net                             (284)        (6,420)        (1,264)       (13,511)
                                              ---------      ---------      ---------      ---------

INCOME (LOSS) BEFORE INCOME TAXES                48,330          4,794        (44,019)        13,331
Benefit (provision) for income taxes            (18,367)        (4,388)        14,090         (7,965)
                                              ---------      ---------      ---------      ---------

NET INCOME (LOSS)                             $  29,963      $     406      $ (29,929)     $   5,366
                                              =========      =========      =========      =========

EARNINGS (LOSS) PER SHARE - BASIC             $    0.20                     $   (0.20)
                                              =========                     =========
EARNINGS (LOSS) PER SHARE - DILUTED           $    0.19                     $   (0.20)
                                              =========                     =========
PRO FORMA EARNINGS PER SHARE - BASIC 
   AND DILUTED                                               $       -                     $    0.04
                                                             =========                     =========
WEIGHTED-AVERAGE SHARES 
  OUTSTANDING - BASIC                           151,226                       150,450

WEIGHTED-AVERAGE SHARES 
  OUTSTANDING - DILUTED                         160,863                       150,450

PRO FORMA WEIGHTED-AVERAGE SHARES 
  OUTSTANDING                                                  148,700                       148,700

</TABLE>

                                 See notes to consolidated financial statements.


                                                       5
<PAGE>

                              GENERAL INSTRUMENT CORPORATION
                      CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                (Unaudited - In thousands)

<TABLE>
<CAPTION>
                                                                                Accumulated
                                   Common Stock       Additional                   Other         Common          Total
                               ---------------------   Paid-In     Accumulated  Comprehensive    Stock-In     Stockholders'
                                 Shares     Amount     Capital       Deficit       Income        Treasury        Equity
                               ---------  ---------    -------       -------       ------        --------        ------
<S>                             <C>        <C>        <C>            <C>           <C>           <C>           <C>
BALANCE, JANUARY 1, 1998        148,358    $ 1,484    $1,213,566     $(19,236)     $18,999       $     (2)     $1,214,811

Net loss                                                              (29,929)                                    (29,929)
Exercise of stock options        
  and related tax benefit         3,329         33        57,216                                                   57,249
Amortization of warrant costs                             11,646                                                   11,646
Net change in investments                                                           (3,469)                        (3,469)
                               --------    -------    ----------     --------      -------       --------      ----------
BALANCE, JUNE 30, 1998          151,687    $ 1,517    $1,282,428     $(49,165)     $15,530       $     (2)     $1,250,308
                               ========    =======    ==========     ========      =======       ========      ==========

</TABLE>
                                 See notes to consolidated financial statements.









                                                         6
<PAGE>

                              GENERAL INSTRUMENT CORPORATION
                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (Unaudited - In thousands)

<TABLE>
<CAPTION>
                                                                SIX MONTHS ENDED
                                                                    JUNE 30,
                                                            --------------------------
                                                                1998           1997
                                                            -----------    -----------
<S>                                                         <C>            <C>
OPERATING ACTIVITIES:
Net income (loss)                                           $   (29,929)   $     5,366
Adjustments to reconcile net income (loss) to net cash
 provided by operating activities:
  Depreciation and amortization                                  50,307         45,660
  Gain on sale of short-term investment                          (4,529)           -
  Losses from asset sales and write-downs, net                    6,714            -
  Loss from equity investments                                   17,852            -
  Changes in assets and liabilities:
     Accounts receivable                                         13,103         49,560
     Inventories                                                 13,133        (18,800)
     Prepaid expenses and other current assets                    2,427            779
     Deferred income taxes                                      (28,031)         4,620
     Non-current assets                                            (436)           -
     Accounts payable and other accrued liabilities              (1,458)       (21,806)
     Other non-current liabilities                               (3,206)         3,041
  Other                                                            (901)        (2,105)
                                                            -----------    -----------
Net cash provided by operating activities                        35,046         66,315
                                                            -----------    -----------

INVESTING ACTIVITIES:
  Additions to property, plant and equipment                    (40,091)       (36,547)
  Investments in other assets                                    (1,995)       (20,778)
  Proceeds from sale of short-term investment                     4,529            -
                                                            -----------    -----------
Net cash used in investing activities                           (37,557)       (57,325)
                                                            -----------    -----------

FINANCING ACTIVITIES:
  Transfers to Distributing Company                                 -           (8,990)
  Proceeds from stock option exercises                           50,140            -
                                                            -----------    -----------
Net cash provided by (used in) financing activities              50,140         (8,990)
                                                            -----------    -----------

Change in cash and cash equivalents                              47,629            -
Cash and cash equivalents, beginning of period                   35,225            -
                                                            -----------    -----------
Cash and cash equivalents, end of period                    $    82,854    $       -
                                                            ===========    ===========
</TABLE>

                     See notes to consolidated financial statements.


                                           7
<PAGE>

                           GENERAL INSTRUMENT CORPORATION
                                          
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
                       (In thousands, unless otherwise noted)


1.   COMPANY BACKGROUND

     General Instrument Corporation ("General Instrument" or the "Company"), 
formerly NextLevel Systems, Inc., is a leading worldwide supplier of systems 
and components for high-performance networks, delivering video, voice and 
Internet/data services to the cable, satellite and telephony markets.  
General Instrument 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 limited partnership interest in Next Level 
Communications, L.P. (the "Partnership")(see Note 10), the Company provides 
telephone network solutions through the Partnership's  NLevel3-Registered 
Trademark- Switched Digital Access system.

     The Company was formerly the Communications Business of the former 
General Instrument Corporation (the "Distributing Company").  In a 
transaction that was consummated on July 28, 1997, the Distributing Company 
(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 the Company (then a 
wholly-owned subsidiary of the Distributing Company) 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 
the Company and CommScope to its stockholders on a pro rata basis as a 
dividend. Approximately 147.3 million shares of the Company's common stock, 
par value $.01 per share (the "Common Stock"), based on a ratio of one for 
one, were distributed to the Distributing Company's stockholders of record on 
July 25, 1997 (the "Communications Distribution").  On July 28, 1997, 
approximately 49.1 million shares of CommScope common stock, based on a ratio 
of one for three, were distributed to the Company's stockholders of record on 
that date (the "CommScope Distribution" and, together with the Communications 
Distribution, the "Distributions").  On July 28, 1997, the Company and 
CommScope began operating as independent entities with publicly traded common 
stock, and the Distributing Company retained no ownership interest in either 
the Company or CommScope. Additionally, immediately following the 
Communications Distribution, the Distributing Company was renamed General 
Semiconductor, Inc. ("General Semiconductor") and effected a one for four 
reverse stock split. 

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 General Instrument.  The consolidated balance sheet as of 
June 30, 1998, the consolidated statements of operations for the three and 
six months ended June 30, 1998 and 1997, the consolidated statement of 
stockholders' equity for the six months ended June 30, 1998 and the 
consolidated statements of cash flows for the six months ended June 30, 1998 
and 1997 of General Instrument are unaudited and reflect all adjustments of a 
normal recurring nature (except for those charges disclosed in Notes 5, 9, 10 
and 12) 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 statements of operations for the three and six months
ended June 30, 1997 include an allocation of general corporate expenses from the
Distributing Company.  In the opinion of management, general corporate
administrative expenses have been allocated to the Company on a reasonable and
consistent basis using management's estimate of services provided to the Company
by the Distributing Company.  However, such allocation is not necessarily
indicative of the level of expenses which would have been incurred had the
Company been operating as a separate stand alone entity during the periods
presented. 


                                          8
<PAGE>


                           GENERAL INSTRUMENT CORPORATION
                                          
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
                       (In thousands, unless otherwise noted)


     Prior to the Distributions, the Company participated in the Distributing
Company's cash management program, and the accompanying consolidated statements
of operations for the three and six months ended June 30, 1997 include an
allocation of net interest expense from the Distributing Company.  To the extent
the Company generated positive cash, such amounts were remitted to the
Distributing Company.  To the extent the Company experienced temporary cash
needs for working capital purposes or capital expenditures, such funds were
historically provided by the Distributing Company. Net interest expense has been
allocated based upon the Company's net assets as a percentage of the total net
assets of the Distributing Company.  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 the Company operated as a separate, stand-alone
entity.  Subsequent to the Distributions, the Company is responsible for all
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, the Company's financial results included the
costs incurred under the Distributing Company's pension and postretirement
benefit plans for employees and retirees of the Company.  Subsequent to the
Distributions, the Company's financial results include the costs incurred under
the Company's own pension and postretirement benefit plans. The provision for
income taxes for the periods prior to the Distributions was based on the
Company's expected annual effective tax rate calculated assuming the Company had
filed separate tax returns under its then existing structure.  For the three and
six months ended June 30, 1998, income taxes were computed based upon the
expected annual effective tax rate.

     The financial information included herein, related to the periods prior to
the Distributions, may not necessarily reflect the consolidated results of
operations, financial position and cash flows of the Company since the Company
was not a separate stand-alone entity.










                                          9
<PAGE>


                           GENERAL INSTRUMENT CORPORATION
                                          
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
                       (In thousands, unless otherwise noted)

3.   PRO FORMA FINANCIAL INFORMATION

     The unaudited pro forma consolidated statements of operations presented
below give effect to the Distributions as if they had occurred on January 1,
1997.  The unaudited pro forma statements of operations set forth below do not
purport to represent what the Company's operations actually would have been had
the Distributions occurred on January 1, 1997 or to project the Company's
operating results for any future period. 

     The unaudited pro forma information has been prepared utilizing the
historical consolidated statements of operations of the Company which were
adjusted to reflect: (i) an additional $1.8 million and $3.6 million of selling,
general and administrative costs for the three and six months ended June 30,
1997, respectively, to eliminate the allocation of corporate expenses to
CommScope and General Semiconductor, as such costs subsequent to the
Distributions were no longer allocable and were expected to be incurred by the
Company in the future; and (ii) a net debt level of $100 million at January 1,
1997. 


                                         Three months ended     Six months ended
                                            June 30, 1997        June 30, 1997
                                            -------------        -------------

Net sales                                     $ 450,403            $ 858,431
Cost of sales                                   332,785              627,299
                                              ---------            ---------
Gross profit                                    117,618              231,132

Operating expenses:
  Selling, general and administrative            53,690               98,244
  Research and development                       49,630              100,675
  Amortization of excess of cost over
  fair value of net assets acquired               3,560                7,118
                                              ---------            ---------
Total operating expenses                        106,880              206,037
                                              ---------            ---------
Operating income                                 10,738               25,095
Other expense - net                              (1,324)              (1,853)
Interest expense - net                           (1,900)              (3,800)
                                              ---------            ---------

Income before income taxes                        7,514               19,442
Provision for income taxes                       (5,488)             (10,387)
                                              ---------            ---------

Net income                                    $   2,026            $   9,055
                                              =========            =========

Weighted-average shares outstanding             148,700              148,700

Earnings per share - basic and diluted        $    0.01            $    0.06
                                              =========            =========




                                          10
<PAGE>

                           GENERAL INSTRUMENT CORPORATION
                                          
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
                       (In thousands, unless otherwise noted)

4.   INVENTORIES

     Inventories consist of: 

                                            JUNE 30, 1998      DECEMBER 31, 1997
                                            -------------      -----------------

       Raw materials                         $  107,144           $  111,148
       Work in process                           17,054               19,676
       Finished goods                           136,833              157,254
                                             ----------           ----------
       Total inventories                     $  261,031           $  288,078
                                             ==========           ==========

5.   COMMITMENTS AND CONTINGENCIES

     The Company is either a plaintiff or a defendant in several pending legal
matters.  In addition, 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 statements. 

     On May 5, 1998, the action entitled BROADBAND TECHNOLOGIES, INC. V. GENERAL
INSTRUMENT CORP., pending in the United States District Court for the Eastern
District of North Carolina, was dismissed with prejudice.  In addition, on May
4, 1998, the action entitled NEXT LEVEL COMMUNICATIONS V. BROADBAND
TECHNOLOGIES, INC., was dismissed with prejudice.  These dismissals were entered
pursuant to a settlement agreement under which, among other things, the
Partnership has paid BroadBand Technologies $5 million and BroadBand
Technologies and the Partnership have entered into a perpetual cross-license of
patents applied for or issued currently or during the next five years. The
Company also has granted BroadBand Technologies a covenant not to sue on all
Company patents applied for or issued currently or during the next five years.

     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 behalf
and as representatives of a class of purchasers of the Distributing Company's
common stock during the period March 21, 1995 through October 18, 1995.  The
complaint alleges that the Distributing Company 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
Securities Exchange Act of 1934, as amended (the "Exchange Act"), prior to the
Distributions, by allegedly making false and misleading statements and failing
to disclose material facts about the Distributing Company's planned shipments in
1995 of its CFT 2200 and DigiCipher-Registered Trademark- products.  Also
pending in the same court, under the same name, is a derivative action brought
on behalf of the Distributing Company.  The derivative action alleges that,
prior to the Distributions, the members of the Distributing Company's Board of
Directors, several of its officers and Forstmann Little & Co. and related
entities have 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 the Distributing Company's stock for personal
gain.  The court had granted the defendants' motions to dismiss the original
complaints in both of these actions, but allowed the plaintiffs in each action
an opportunity to file amended complaints.  Amended complaints were filed on
November 7, 1997.  The defendants have answered the amended consolidated
complaint in the class actions, denying liability, and have filed a renewed
motion to dismiss the derivative action.  The Company intends to vigorously
contest these actions.

     An action entitled BKP PARTNERS, L.P. V. GENERAL INSTRUMENT CORP. was 
brought in February 1996 by certain holders of preferred stock of Next Level 
Communications ("NLC"), which merged into a subsidiary of the Distributing 
Company in

                                          11
<PAGE>


                           GENERAL INSTRUMENT CORPORATION
                                          
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
                       (In thousands, unless otherwise noted)


September 1995.  The action was originally filed in the Northern District of
California and was subsequently transferred to the Northern District of
Illinois.  The plaintiffs allege that the defendants violated federal securities
laws by making misrepresentations and omissions and breached fiduciary duties to
NLC in connection with the acquisition of NLC by the Distributing Company. 
Plaintiffs seek, among other things, unspecified compensatory and punitive
damages and attorneys' 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
defendants have filed a motion to dismiss parts of the amended complaint and
have answered the balance of the amended complaint, denying liability. The
Company intends to vigorously contest this action.

     In connection with the Distributions, the Company has agreed to indemnify
General Semiconductor in respect of its obligations, if any, arising out of or
in connection with the matters discussed in the preceding two paragraphs. 

     On February 19, 1998, a consolidated securities class action complaint 
entitled IN RE NEXTLEVEL SYSTEMS, INC. SECURITIES LITIGATION was filed in the 
United States District Court for the Northern District of Illinois, Eastern 
Division, naming the Company and certain former officers and directors as 
defendants.  The complaint was filed on behalf of stockholders who purchased 
or otherwise acquired stock of the Company between July 25, 1997 and October 
15, 1997.  The complaint alleged that the defendants violated Sections 11 and 
15 of the Securities Act of  1933, as amended (the "Securities Act"), and 
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.  On April 9, 1998, the plaintiffs voluntarily dismissed 
their Securities Act claims. On May 5, 1998, the defendants served upon the 
plaintiffs a motion to dismiss the remaining counts of the complaint.

     On March 5, 1998, an action entitled DSC COMMUNICATIONS CORPORATION V. NEXT
LEVEL COMMUNICATIONS, L.P. was filed in the Superior Court of the State of
Delaware in and for New Castle County.  DSC alleged that the defendants
misappropriated trade secrets relating to a switched digital video product, and
that the defendants conspired to misappropriate the trade secrets.  The
plaintiffs sought monetary and exemplary damages and attorney fees.  On May 14,
1998, the United States District Court for the Eastern District of Texas issued
a preliminary injunction preventing DSC from proceeding with this litigation. 
DSC has filed a notice of appeal of that order.  On July 6, 1998, the defendants
filed a motion for summary judgment with the district court requesting a
permanent injunction preventing DSC from proceeding with this litigation.

     In May 1997, StarSight Telecast, Inc. ("StarSight") filed a Demand for
Arbitration against the Company alleging that the Company breached the terms of
a license agreement with StarSight by (a) developing a competing product that
wrongfully incorporates StarSight's technology and inventions claimed within a
certain StarSight patent, (b) failing to promote and market the StarSight
product as required by the license agreement, and (c) wrongfully using
StarSight's technical information, confidential information and StarSight's
graphical user interface in breach of the license agreement.  StarSight is
seeking injunctive relief as well as damages. The Company has denied StarSight's
allegations and is vigorously defending the arbitration action.  The arbitration
proceeding was originally scheduled to begin before an arbitration panel of the
American Arbitration Association in San Francisco, California in July 1998.  Due
to the resignation of one of the panel members two days before the arbitration
proceeding was expected to begin, the proceeding has been postponed until a
third arbitrator is selected and a new scheduling order is issued.  The Company
currently anticipates the proceeding to begin in 1999.

     While the ultimate outcome of the matters described above cannot be
determined, management does not believe that the final disposition of these
matters will have a material adverse effect on the Company's financial
statements. 


                                          12
<PAGE>


                           GENERAL INSTRUMENT CORPORATION
                                          
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
                       (In thousands, unless otherwise noted)


6.   EARNINGS (LOSS) PER SHARE AND PRO FORMA EARNINGS PER SHARE

     Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted-average number of common shares outstanding.  Diluted earnings
(loss) per share is computed by dividing net income (loss) by the
weighted-average number of common shares outstanding adjusted for the dilutive
effect of stock options and warrants (unless inclusion of such common stock
equivalents would be anti-dilutive).  The dilutive effect of options and
warrants of 9,637 shares for the Second Quarter 1998 was computed using the
treasury stock method.  Further, since the computation of diluted loss per share
is anti-dilutive for the six months ended June 30, 1998, the amounts reported
for basic and diluted loss per share are the same.

     Prior to the Distributions, the Company did not have its own capital
structure, and pro forma per share information has been presented for the three
and six months ended June 30, 1997.  The pro forma weighted-average number of
shares outstanding used in the pro forma per share calculation for the three and
six months ended June 30, 1997 equaled the number of common shares issued and
common equivalent shares existing on the date of the Distributions. 

7.   LONG-TERM DEBT

     In July 1997, the Company 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 the Company 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. The Company is also able to set interest rates through a competitive
bid procedure. In addition, the Credit Agreement requires the Company 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. In addition, under the Credit Agreement, certain changes in
control of the Company would result in an event of default, and the lenders
under the Credit Agreement could declare all outstanding borrowings under the
Credit Agreement immediately due and payable.  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 June 30, 1998, the Company was in
compliance with all financial and operating covenants under the Credit
Agreement. At June 30, 1998, the Company had available credit of $500 million
under the Credit Agreement.   The Company had approximately $109 million of
letters of credit outstanding at June 30, 1998.


8.   OTHER EXPENSE-NET

Other expense-net for the Second Quarter 1998 and for the six months ended June
30, 1998 includes $7 million and $18 million, respectively, related to the
Company's share of the Partnership losses, including the charges described in
Note 12, partially offset by $2 million and $5 million, respectively, related to
a gain on the  sale of  a portion of the Company's investment in Ciena
Corporation and $5 million for both periods related to proceeds received from
the settlement of an insurance claim.   



9.   RESTRUCTURINGS

In the fourth quarter of 1997, the Company announced a plan to streamline the
cost structure of its San


                                          13
<PAGE>


                           GENERAL INSTRUMENT CORPORATION
                                          
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
                       (In thousands, unless otherwise noted)


Diego-based satellite business and reduced this unit's headcount by 225. 
Additionally, the Company closed its Puerto Rico satellite TV manufacturing
facility, which manufactured receivers used in the private network, commercial
and consumer satellite markets for the reception of analog and digital
television signals, and reduced headcount by 1,100. The Company recorded a
pre-tax charge of $36 million during the fourth quarter of 1997 related to the
restructuring.  Current satellite receiver manufacturing has been subcontracted
to a third party manufacturer. 

     As part of the restructuring plan, the Company recorded an additional 
$16 million of pre-tax charges in the first quarter of 1998 primarily related 
to severance and other employee separation costs, costs associated with the 
closure of various facilities and the write-down of certain assets to their 
estimated net realizable values.  Of these charges, $9 million were recorded 
as cost of sales and $6 million as SG&A. Through June 30, 1998, the Company 
has made severance and other restructuring related payments of $17 million. 
Substantially all of the remaining severance and other employee separation 
costs are expected to be paid during 1998. Also, during the first quarter of 
1998, the Company moved its corporate headquarters from Chicago, Illinois to 
Horsham, Pennsylvania.

     In connection with the Distributions (see Note 1), during the second
quarter of 1997 and the six months ended June 30, 1997, the Company recorded
pre-tax charges to cost of sales of $16 million and $18 million, respectively,
for employee costs related to dividing the Distributing Company's Taiwan
operations between the Company and General Semiconductor. 


10.  THE PARTNERSHIP

     In January 1998, the Company transferred the net assets, principally 
technology, and the management and workforce of NLC to the newly formed 
Partnership in exchange for approximately an 89% limited partnership interest 
(subject to additional dilution).  The limited partnership interest is 
included in "investments and other assets" in the accompanying consolidated 
balance sheet at June 30, 1998.  The operating general partner, which was 
formed by Spencer Trask & Co., has acquired approximately an 11% interest in 
the Partnership and has the potential to acquire up to an additional 11% in 
the future.  Net assets transferred to the Partnership of $44 million 
primarily included property, plant and equipment, inventories and accounts 
receivable partially offset by accounts payable and accrued expenses.

     Pursuant to the Partnership agreement, the operating general partner 
controls the Partnership and is responsible for developing the business plan 
and infrastructure necessary to position the Partnership as a stand-alone 
company. The Company, as the limited partner, has certain protective rights, 
including the right to approve an alteration of the legal structure of the 
Partnership, the sale of the Partnership's principal assets, the sale of the 
Partnership, a change in the general partner and a change in the limited 
partner's financial interests in the Partnership.  Since the operating 
general partner controls the day-to-day operations of the Partnership and has 
the ability to make decisions typical of a controlling party, the 
Partnership's operating results have not been consolidated with the operating 
results of the Company subsequent to the January 1998 transfer.

     In addition, in January 1998, the Company advanced $75 million to the
Partnership in exchange for an 8% debt instrument (the "Note"), and the Note
contains normal creditor security rights, including a prohibition against
incurring amounts of indebtedness for borrowed money in excess of $10 million. 
Since the repayment of the Note is solely dependent upon the results of the
Partnership's research and development activities and the commercial success of
its product development, the Company recorded a charge to research and
development expense during the quarter ended March 31, 1998 to fully reserve for
the Note concurrent with the funding.

     The Company is accounting for its interest in the Partnership as an
investment under the equity method of accounting. Further, the Company's share
of the Partnership's losses related to future research


                                          14
<PAGE>

                           GENERAL INSTRUMENT CORPORATION
                                          
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
                       (In thousands, unless otherwise noted)


and development activities will be offset against the $75 million reserve
discussed above.  For the three and six months ended June 30, 1998, the
Company's share of the Partnership's losses was $7 million and $18 million,
respectively, (net of the Company's share of research and development expenses
of $10 million and $19 million, respectively).  The Company has eliminated its
interest income from the Note against its share of the Partnership's related
interest expense on the Note.

11.  COMPREHENSIVE INCOME (LOSS)

     Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."  This
statement requires that an enterprise report the change in its net assets during
the period from nonowner sources.   Since this statement only requires
additional disclosures, it had no impact on the Company's consolidated financial
position or cash flows.  For the three and six months ended June 30, 1998 and
1997, other comprehensive income comprised unrealized gains and losses on
investments.  Comprehensive income is summarized below:
 
<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED JUNE 30,    SIX MONTHS ENDED JUNE 30,
                                              ------------------------      ------------------------
                                                 1998           1997           1998           1997
                                              ---------      ---------      ---------      ---------
<S>                                           <C>            <C>            <C>            <C>
     Net income (loss)                        $  29,963      $     406      $ (29,929)     $   5,366
     Other comprehensive income (loss)            3,904          7,307         (3,469)        18,487
                                              ---------      ---------      ---------      ---------

     Total comprehensive income (loss)        $  33,867      $   7,713      $ (33,398)     $  23,853
                                              =========      =========      =========      =========
</TABLE>
 
12.  OTHER CHARGES

     The Company incurred approximately $33 million of certain other pre-tax
charges during the first quarter of 1998.  Of these charges, $18 million has
been reflected in cost of sales and $7 million has been reflected in SG&A
expense. These charges relate to the write-down of inventories and certain other
assets to their net realizable value, and moving costs associated with
relocating certain assets to other facilities owned by the Company. The
remaining $8 million of charges are included in "other expense-net" and relate
to costs incurred by the Partnership, which the Company accounts for under the
equity method. Such costs are primarily related to the BBT litigation settlement
(see Note 5) and compensation expense related to key executives of an acquired
company.

13.  NEW ACCOUNTING PRONOUNCEMENTS  NOT YET ADOPTED

     SEGMENT REPORTING - In June 1997, SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," was issued and is effective for
fiscal periods beginning after December 15, 1997.  SFAS No. 131 establishes
standards for the reporting of information about operating segments, including
related disclosures about products and services, geographic areas and major
customers, and requires the reporting of selected information about operating
segments in interim financial statements.  The Company is currently evaluating
the disclosure requirements of this statement and will include the necessary
disclosures in the year-end financial statements as required in the initial year
of adoption.

     PENSION AND OTHER POSTRETIREMENT DISCLOSURES - In February 1998, the FASB
issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits - an amendment of FASB Statements No. 87, 88 and 106." 
This statement, which is effective for fiscal years beginning after December 15,
1997,


                                          15
<PAGE>

                           GENERAL INSTRUMENT CORPORATION
                                          
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
                       (In thousands, unless otherwise noted)

requires revised disclosures about pension and other postretirement benefit
plans. 

     Since the above two statements only revise financial statement 
disclosures, their adoption will not have any impact on the Company's 
consolidated financial position, results of operations or cash flows.

     DERIVATIVE AND HEDGE ACCOUNTING - In June 1998, SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued and is effective
for fiscal years beginning after June 15, 1999.  SFAS No. 133 requires that all
derivative instruments be measured at fair value and recognized in the balance
sheet as either assets or liabilities.  The Company is currently evaluating the
impact this pronouncement will have on its consolidated financial statements.


14.  SUBSEQUENT EVENT

     On June 17, 1998, the Company entered into an Asset Purchase Agreement 
(the "Agreement") with two affiliates of Tele-Communications, Inc., 
TCIVG-GIC, Inc. ("TCIVG") and NDTC Technology, Inc. ("NDTC Technology" and, 
collectively with TCIVG, "TCI") pursuant to which the Company agreed to 
acquire from TCIVG, in exchange for 21,356,000 shares of the Company's Common 
Stock, certain assets, a license to certain intellectual property from NDTC 
Technology which will enable the Company to conduct authorization services 
and future cash consideration as discussed below.  The Company's provision of 
services under the aforementioned license is intended to provide the cable 
industry with a secure access control platform to support widespread 
deployment of digital terminals and related systems and applications.  On 
July 17, 1998 the transaction was consummated. The Agreement provides the 
Company with minimum revenue guarantees from TCI over the first nine years 
from the date of closing.  The Company has contracted with NDTC Technology 
for certain support services during the first nine years following the date 
of closing, with renewable one-year terms. The  Agreement gives the Company 
the right to license the technology for a period of 20 years.  As mentioned 
above, the Agreement contains a provision for TCIVG to pay the Company $50 
million over the first five years from the date of closing in equal monthly 
installments which represents a reduction of purchase price. The net purchase 
price of approximately $280 million will be allocated to the license and the 
assets acquired based on their respective estimated fair values.  The Company 
expects to amortize the license over the license term of 20 years.


                                          16
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

NET SALES

     Net sales for the three months ended June 30, 1998 ("Second Quarter 1998")
were $489 million compared to $450 million for the three months ended June 30,
1997 ("Second Quarter 1997"), an increase of $39 million, or 9%.  Net sales for
the six months ended June 30, 1998 were $905 million compared to $858 million
for the six months ended June 30, 1997, an increase of  $47 million, or 5%.  The
increases in net sales for the three and six month periods reflect increased
sales of digital cable systems, partially offset by lower sales of analog cable
terminals and satellite systems for private and commercial networks.  Analog and
digital products each represented approximately 50% of total sales of the
Company for the six months ended June 30, 1998, compared to approximately 63%
and 37%, respectively, for the six months ended June 30, 1997. 

     Worldwide broadband sales (consisting of digital and analog cable and
wireless television systems and network transmission systems) of $380 million
and $689 million for Second Quarter 1998 and for the six months ended June 30,
1998, respectively, increased $61 million, or 19%, and $71 million, or 11%,
respectively, from the comparable 1997 periods primarily as a result of
increased U.S sales volume of digital cable terminals and headends, partially
offset by the expected decline in sales of basic analog cable network systems. 
These sales reflect the increasing commitment of cable television operators to
deploy state-of-the-art digital and interactive advanced analog systems in order
to offer advanced entertainment, interactive services and Internet access to
their customers. During the Second Quarter 1998 and Second Quarter 1997, net
broadband sales in the U.S. were 83% and 70%, respectively, combined U.S. and
Canadian sales were 84% and 73%, respectively, and all other international sales
were 16% and 27%, respectively, of total worldwide broadband sales. For the six
months ended June 30, 1998 and 1997, net broadband sales in the U.S. were 82%
and 69%, respectively, combined U.S. and Canadian sales were 84% and 73%,
respectively, and all other international sales were 16% and 27%, respectively,
of total worldwide broadband sales. 

     Worldwide satellite sales of $109 million and $216 million for Second
Quarter 1998 and the six months ended June 30, 1998, respectively, decreased $22
million, or 17%, and $24 million, or 10%, respectively, from the comparable 1997
periods primarily as a result of lower private and commercial network sales. 
During the Second Quarter 1998 and Second Quarter 1997, net satellite sales in
the U.S. were 96% and 75%, respectively, combined U.S. and Canadian sales were
96% and 85%, respectively, and all other international sales were 4% and 15%,
respectively, of total worldwide satellite sales.  For the six months ended June
30, 1998 and 1997, net satellite sales in the U.S. were 95% and 79%,
respectively, combined U.S. and Canadian sales were 98% and 86%, respectively,
and all other international sales were 2% and 14%, respectively, of total
worldwide satellite sales.

     The decrease in broadband and satellite international sales during the 1998
periods was experienced in all international regions.  The largest decreases in
sales during the first half of 1998 were experienced in the Asia/Pacific and
Latin American regions and there can be no assurance that international sales
will return to 1997 levels in the near term.

     TCI and Time Warner, including affiliates, each represented approximately
14% of the revenues of the Company for the year ended December 31, 1997. For the
six months ended June 30, 1998, TCI, Primestar and Time Warner accounted for
approximately 24%, 14% and 11% of total Company sales, respectively.

GROSS PROFIT 

     Gross profit of $141 million and $234 million for Second Quarter 1998 and
the six months ended June 30, 1998, respectively, increased $23 million, or 20%,
and $3 million, or 1%, respectively, from the comparable 1997 periods.  Gross
profit was 29% and 26% of sales for Second Quarter 1998 and the six months ended
June 30, 1998, respectively, compared to 26% and 27%, respectively, for the
comparable 1997 periods.  Gross profit for the six months ended June 30, 1998
included $27 million of charges recorded in the first quarter of 1998, primarily
related to severance and other employee separation costs, costs associated with
the closure of various facilities and the write-down of certain assets to their
net realizable values.  Gross profit for Second Quarter 1997 and the six


                                          17
<PAGE>

months ended June 30, 1997 included $16 million and $18 million, respectively,
of charges for employee costs related to dividing the Distributing Company's 
Taiwan operations between the Company and General Semiconductor.  Gross 
profit increases primarily reflect increased sales levels.

SELLING, GENERAL AND ADMINISTRATIVE

     Selling, general & administrative ("SG&A") expense was $46 million and $102
million for the Second Quarter 1998 and the six months ended June 30, 1998,
respectively, compared to $52 million and $95 million, respectively, for the
comparable 1997 periods.   SG&A expense as a percentage of sales was 9% and 11% 
for the Second Quarter 1998 and the six months ended June 30, 1998,
respectively, and 12% and 11%, respectively, for the 1997 periods.   SG&A
spending for the six months ended June 30, 1998 included $13 million of charges
primarily related to severance and other employee separation costs, costs
associated with the closure of various facilities, including moving costs and
costs associated with changing the Company's corporate name.  SG&A spending for
the Second Quarter 1997 and the six months ended June 30, 1997 included $6
million of charges primarily for legal and other professional fees directly
related to the Communications Distribution.  SG&A spending for the 1997 periods
also included SG&A expenses related to NLC.

RESEARCH AND DEVELOPMENT

     Research and development ("R&D") expense was $42 million and $158 million
for the Second Quarter 1998 and six months ended June 30, 1998, respectively,
compared to $50 million and $101 million, respectively, for the comparable 1997
periods.  R&D expense for the six months ended June 30, 1998 included a $75
million charge to fully reserve the Partnership Note (see Note 10).   R&D
spending in 1998 is focused on new product opportunities, including advanced
digital services, high-speed internet and data systems, and next generation
transmission network systems.  In addition, the Company is incurring R&D expense
to develop analog and digital products for international markets, reduce costs
and expand the features of its digital cable and satellite systems. 

OTHER EXPENSE - NET

     Other expense was $1 million and $10 million for the Second Quarter 1998
and the six months ended June 30, 1998, respectively, compared with $1 million
and $2 million, respectively, for the comparable 1997 periods. Other expense
increased in the first half of 1998 from the comparable 1997 period primarily
due to the Company's equity interest in the Partnership's loss (see Notes 8 and
10), which includes the BBT litigation settlement (see Note 5) and compensation
expense related to key executives of an acquired company, partially offset by a
gain on the sale of a portion of the Company's investment in Ciena Corporation
and settlement of an insurance claim.

INTEREST EXPENSE - NET

     Net interest expense for the three and six months ended June 30, 1997 
represents an allocation of interest expense from the Distributing Company 
and was allocated based upon the Company's net assets as a percentage of the 
total net assets of the Distributing Company for the period prior to the date 
of the Communications Distribution.  Net interest expense allocated to the 
Company was $6 million and $14 million for the Second Quarter 1997 and for 
the six months ended June 30, 1997, respectively.  Subsequent to July 25, 
1997, the date of the Communications Distribution, net interest represents 
actual net interest expense incurred by the Company.
 
     Pro forma interest expense for the Second Quarter 1997 and the six months
ended June 30, 1997 includes a reduction of interest expense of $5 million and
$10 million, respectively, to reflect an assumed net debt level of $100 million
at January 1, 1997.

INCOME TAXES

     Through the date of the Distributions, income taxes were determined as if
the Company 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 the Company's future tax elections.  The
Company recorded a provision


                                          18
<PAGE>

for income taxes of $18 million and a benefit for income taxes of $14 million
for the Second Quarter 1998 and  the six months ended June 30, 1998,
respectively, and a provision for income taxes of $4 million and $8 million,
respectively, for the comparable 1997 periods based upon the expected annual
effective tax rate. 

LIQUIDITY AND CAPITAL RESOURCES

     Prior to the Distributions, the Company participated in the Distributing
Company's cash management program.  To the extent the Company generated positive
cash, such amounts were remitted to the Distributing Company.  To the extent the
Company experienced temporary cash needs for working capital purposes or capital
expenditures, such funds were historically provided by the Distributing Company.
At the date of the Distributions, $125 million of cash was transferred to the
Company.

     For the six months ended June 30, 1998 and 1997, cash provided by
operations was $35 million and $66 million, respectively.  Cash provided by
operations in the first half of 1998 primarily reflects cash generated from
operations, partially offset by the funding provided to the Partnership related
to its R&D activities and payments related to the restructuring. Cash provided 
by operations in the first half of 1997 primarily represents cash generated 
by the broadband business, partially offset by increased inventory levels 
to support business growth.

     At June 30, 1998 and December 31, 1997, working capital was $453 million
and $436 million, respectively. The Company believes that working capital levels
are adequate to support the growth of the digital business, however, there can
be no assurance that future industry-specific developments or general economic
trends will not continue to alter the Company's working capital requirements. 

     During the six months ended June 30, 1998 and 1997, the Company invested
$40 million and $37 million, respectively, in equipment and facilities.  The
Company expects to continue to expand its capacity to meet increased current and
anticipated future demands for digital products, with capital expenditures for
the year expected to approximate $120 million.   The Company's R&D expenditures
were $158 million (including the $75 million funding related to the
Partnership's R&D activities) and $101 million during the first six months of
1998 the first six months of 1997, respectively.  The Company expects total R&D
expenditures to approximate $245 million (including the $75 million funding
related to the Partnership) for the year ending December 31, 1998.

     The Company has 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 the Company to choose between
two competitive interest rate options.  The Credit Agreement contains financial
and operating covenants, including limitations on guarantee obligations, liens
and the 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 June
30, 1998, the Company was in compliance with all financial and operating
covenants contained in the Credit Agreement and had available credit of  $500
million.  

     In January 1998, the Company announced that, subject to the completion of
definitive agreements, Sony Corporation of America will purchase 7.5 million new
shares of common stock of the Company for $188 million.

     In January 1998, the Company transferred the net assets, principally 
technology, and the management and workforce of NLC to a newly formed limited 
partnership in exchange for approximately an 89% (subject to additional 
dilution) limited partnership interest.  Additionally, the Company advanced 
to the Partnership $75 million, utilizing available operating funds and 
borrowings under its Credit Agreement, in exchange for the Note.  Since the 
repayment of the Note is solely dependent upon the results of the 
Partnership's research and development activities and the commercial success 
of its product development, the Company recorded a charge to fully reserve 
for the Note concurrent with the funding  (see Note 10).   The Company will 
make an additional $50 million equity investment in the Partnership in 
November, 1998 to fund the Partnership's growth and assist the Partnership in 
meeting its forecasted working capital requirements.  


                                          19
<PAGE>

     The Company's 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.   The Company's 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.  The Company believes that based upon its
analysis of its consolidated financial position and its expected operating cash
flows from future operations, along with available funding under the Credit
Agreement, cash flows will be adequate to fund operations, research and
development and capital expenditures. There can be no assurance, however, that
future industry-specific developments or general economic trends will not
adversely affect the Company's operations or its ability to meet its cash
requirements. 

NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

     SEGMENT REPORTING - In June 1997, SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," was issued and is effective for
fiscal periods beginning after December 15, 1997.  SFAS No. 131 establishes
standards for the reporting of information about operating segments, including
related disclosures about products and services, geographic areas and major
customers, and requires the reporting of selected information about operating
segments in interim financial statements.  The Company is currently evaluating
the disclosure requirements of this statement and will include the necessary
disclosures in the year-end financial statements as required in the initial year
of adoption.

     PENSION AND OTHER POSTRETIREMENT DISCLOSURES - In February 1998, the FASB
issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits - an amendment of FASB Statements No. 87, 88 and 106." 
This statement, which is effective for fiscal years beginning after December 15,
1997, requires revised disclosures about pension and other postretirement
benefit plans. 

     Since the above two statements only revise financial statement disclosures,
their adoption will not have any impact on the Company's consolidated financial
position, results of operations or cash flows.

     DERIVATIVE AND HEDGE ACCOUNTING - In June 1998, SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued and is effective
for fiscal years beginning after June 15, 1999.  SFAS No. 133 requires that all
derivative instruments be measured at fair value and recognized in the balance
sheet as either assets or liabilities.  The Company is currently evaluating the
impact this pronouncement will have on its consolidated financial statements.

NEW TECHNOLOGIES

     The Company operates in a dynamic and competitive environment in which its
success will be dependent upon numerous factors, including its ability to
continue to develop appropriate technologies and successfully implement
applications based on those technologies.  In this regard, the Company has made
significant investments to develop advanced systems and equipment for the cable
and satellite television, Internet/data delivery and local telephone access
markets.  Additionally, the future success of the Company will be dependent on
the ability of the cable and satellite television operators to successfully
market the services provided by the Company's advanced digital terminals to
their customers.  Furthermore, as a result of the higher costs of initial
production, digital products presently being shipped carry lower margins than
the Company's mature analog products.

     Management of the Company expects cable television operators in the United
States and abroad to continue to purchase analog products to upgrade their basic
networks and to develop, using U.S. architecture and systems, international
markets where cable penetration is low and demand for entertainment programming
is growing.  However, management expects that demand in North America for its
basic analog cable products will continue to decline.

     As the Company continues to introduce new products and technologies and
such technologies gain market acceptance, there can be no assurance that sales
of products based on new technologies will not affect the Company's product
sales mix and/or will not have an adverse impact on sales of certain of the
Company's other products.


                                          20
<PAGE>

INTERNATIONAL MARKETS

     Management of the Company believes that additional growth for the Company
will come from international markets, although the Company's international sales
decreased in the first half of 1998 in comparison to the prior year, and there
can be no assurance that international sales will increase to 1997 levels in the
near future.  In order to support the Company's international product and
marketing strategies, it is currently expected that the Company will add
operations in foreign markets in the following areas, among others:  customer
service, sales, finance, product warehousing and expansion of manufacturing
capacity at existing facilities.  Although no assurance can be given, management
expects that the expansion of international operations will not require
significant increased levels of capital expenditures.  

EFFECT OF INFLATION

     The Company continually attempts to minimize any effect of inflation on
earnings by controlling its operating costs and selling prices.  During the past
few years, the rate of inflation has been low and has not had a material impact
on the Company's results of operations.

READINESS FOR YEAR 2000

     The Company has identified and evaluated the changes to its computer 
systems and products necessary to achieve a year 2000 date conversion, and 
required conversion and testing efforts are currently underway and are 
expected to be completed by mid 1999.  The Company continues to communicate 
with its suppliers, customers and others with which it does business to 
understand the impact of any year 2000 issues on the Company.  However, there 
can be no assurance that the companies with which the Company does business 
will achieve a year 2000 conversion in a timely fashion, or that such failure 
to convert by another company will not have an adverse effect on the Company. 
The Company does not expect the cost of achieving year 2000 compliance will 
exceed $5 million.  Additionally, based on the current status of these 
efforts, the Company believes that it will be able to manage its total year 
2000 transition without any material adverse effect on its business 
operations, products or financial prospects. 

FORWARD-LOOKING INFORMATION

     The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements.  This Management's Discussion and
Analysis of Financial Condition and Results of Operations and other sections of
this Form 10-Q may include forward-looking statements concerning, among other
things, the Company's prospects, developments and business strategies.  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," "subject to" and "scheduled."  These
forward-looking statements are subject to certain uncertainties and other
factors that could cause actual results to differ materially from such
statements.  These risks include, but are not limited to, uncertainties relating
to general political and economic conditions, uncertainties relating to
government and regulatory policies, uncertainties relating to customer plans and
commitments, the Company's dependence on the cable television industry and cable
television spending, signal security, the pricing and availability of equipment,
materials and inventories, technological developments, the competitive
environment in which the Company operates, changes in the financial markets
relating to the Company's capital structure and cost of capital, the
uncertainties inherent in international operations and foreign currency
fluctuations and 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.  Reference is made
to Exhibit 99 in this Form 10-Q for a further discussion of such factors.
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.


                                          21
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     A significant portion of the Company's products are manufactured or
assembled in Taiwan and Mexico.  These foreign operations are subject to market
risk changes with respect to currency exchange rate fluctuations, which could
impact the Company's consolidated financial statements.  The Company monitors
its underlying exchange rate exposures on an ongoing basis and continues to
implement selective hedging strategies to reduce the market risks from changes
in exchange rates.  On a selective basis, the Company enters into contracts to
hedge the currency exposure of monetary assets and liabilities, contractual and
other firm commitments denominated in foreign currencies and the currency
exposure of anticipated, but not yet committed, transactions expected to be
denominated in foreign currencies.  The use of these derivative financial
instruments allows the Company to reduce its overall exposure to exchange rate
movements since the gains and losses on these contracts substantially offset
losses and gains on the assets, liabilities and transactions being hedged.

     Foreign currency exchange contracts are sensitive to changes in exchange
rates.  As of June 30, 1998, a hypothetical 10% fluctuation in the exchange rate
of foreign currencies applicable to the Company, principally the New Taiwan and
Canadian dollars, would result in a net $2 million gain or loss on the contracts
the Company has outstanding, which would offset the related net loss or gain on
the assets, liabilities and transactions being hedged. 

















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<PAGE>

                                       PART II


                                  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     On May 5, 1998, the action entitled BROADBAND TECHNOLOGIES, INC. V. GENERAL
INSTRUMENT CORP., pending in the United States District Court for the Eastern
District of North Carolina, was dismissed with prejudice.  In addition, on May
4, 1998, the action entitled NEXT LEVEL COMMUNICATIONS V. BROADBAND
TECHNOLOGIES, INC., was dismissed with prejudice.  These dismissals were entered
pursuant to a settlement agreement under which, among other things, the
Partnership has paid BroadBand Technologies $5 million and BroadBand
Technologies and the Partnership have entered into a perpetual cross-license of
patents applied for or issued currently or during the next five years. The
Company also has granted BroadBand Technologies a covenant not to sue on all
Company patents applied for or issued currently or during the next five years.

     On February 19, 1998, a consolidated securities class action complaint
entitled IN RE NEXTLEVEL SYSTEMS, INC. SECURITIES LITIGATION was filed in the
United States District Court for the Northern District of Illinois, Eastern
Division, naming the Company and certain former officers and directors as
defendants.  The complaint was filed on behalf of stockholders who purchased or
otherwise acquired stock of the Company between July 25, 1997 and October 15,
1997.  The complaint alleged that the defendants violated Sections 11 and 15 of
the Securities Act, and 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.  On April 9, 1998, the plaintiffs
voluntarily dismissed their Securities Act claims.  On May 5, 1998, the
defendants served upon the plaintiffs a motion to dismiss the remaining counts
of the complaint.

     On March 5, 1998, an action entitled DSC COMMUNICATIONS CORPORATION V. NEXT
LEVEL COMMUNICATIONS, L.P. was filed in the Superior Court of the State of
Delaware in and for New Castle County.  DSC alleged that the defendants 
misappropriated trade secrets relating to a switched digital video product, and
that the defendants  conspired to misappropriate the trade secrets.  The
plaintiffs sought monetary and exemplary damages and attorney fees.  On May 14,
1998, the United States District Court for the Eastern District of Texas issued
a preliminary injunction preventing DSC from proceeding with this litigation. 
DSC has filed a notice of appeal of that order.  On July 6, 1998, the defendants
filed a motion for summary judgment with the district court requesting a
permanent injunction preventing DSC from proceeding with this litigation.

     In May 1997, StarSight Telecast, Inc. ("StarSight") filed a Demand for
Arbitration against the Company alleging that the Company breached the terms of
a license agreement with StarSight by (a) developing a competing product that
wrongfully incorporates StarSight's technology and inventions claimed within a
certain StarSight patent, (b) failing to promote and market the StarSight
product as required by the license agreement, and (c) wrongfully using
StarSight's technical information, confidential information and StarSight's
graphical user interface in breach of the license agreement.  StarSight is
seeking injunctive relief as well as damages. The Company has denied StarSight's
allegations and is vigorously defending the arbitration action.  The arbitration
proceeding was originally scheduled to begin before an arbitration panel of the
American Arbitration Association in San Francisco, California in July 1998.  Due
to the resignation of one of the panel members two days before the arbitration
proceeding was expected to begin, the proceeding has been postponed until a
third arbitrator is selected and a new scheduling order is issued.  The Company
currently anticipates the proceeding to begin in 1999.


                                          23
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

     The following matters were voted upon at the Annual Meeting of Stockholders
of General Instrument Corporation held in Philadelphia, Pennsylvania on May 27,
1998: 

(a) On the election of the following nominees as directors of the Company to 
serve until the 2001 Annual Meeting of Stockholders: 

                           NUMBER OF VOTES

                         FOR            WITHHELD

Edward D. Breen          136,191,596    2,021,456
Alex J. Mandl            136,306,825    1,906,227

(b)  To approve the General Instrument Corporation Amended and Restated 1997 
Long-Term Incentive Plan:

                           NUMBER OF VOTES

FOR                 AGAINST        ABSTENTIONS    BROKER NON-VOTES

111,727,591         26,148,723     336,738               -

(c)  To approve the General Instrument Corporation Annual Incentive Plan:

                           NUMBER OF VOTES

FOR            AGAINST        ABSTENTIONS         BROKER NON-VOTES

116,549,582    2,173,181      356,508             19,133,781

(d)  To ratify the appointment by the Board of Directors of Deloitte & Touche 
LLP as independent auditor for the 1998 fiscal year:

                           NUMBER OF VOTES

FOR            AGAINST        ABSTENTIONS         BROKER NON-VOTES

138,016,481    93,445         103,126                    -


ITEM 5. OTHER INFORMATION

     Pursuant to an Asset Purchase Agreement, dated as of June 17, 1998 (the 
"Asset Purchase Agreement"), among the Company and two affiliates of 
Tele-Communications, Inc., TCIVG-GIC, Inc. ("TCIVG") and NDTC Technology, 
Inc. ("NDTC Technology" and, collectively with TCIVG, "TCI"), the Company 
issued on July 17, 1998, 21,356,000 shares of Common Stock (the "Transaction
Shares") to TCIVG as consideration for the acquisition by the Company of assets 
and a license relating to TCIVG's authorization business that controls the 
receipt of cable programming services delivered to subscribers by TCI's Headend
In The Sky-Registered Trademark- (HITS).  In exchange for the Transaction 
Shares, the Company received certain physical assets (the "Authorization 
Center"), and a license from NDTC Technology to the Company of associated 
intellectual property (the "License"). 


                                          24
<PAGE>

     The Authorization Center provides services for authorizing and
de-authorizing individual set-top terminals throughout the United States for the
decoding and receipt of premium and pay-per-view programming signals from HITS. 
NDTC Technology has agreed to operate the Authorization Center for the Company,
for an annual fee, pursuant to a services agreement with the Company.  If annual
gross revenues of the Authorization Center are below a specified amount for each
of the first nine years following the acquisition, TCI is obligated to pay the
Company the difference between the actual gross revenues received and the
specified amount.  In addition, TCIVG will pay to the Company $50,000,000 over
the first five years following the closing in equal monthly installments.

     The number of shares to be issued to TCIVG as consideration under the 
Asset Purchase Agreement was established based upon the closing price of the 
Common Stock on December 16, 1997 (the date on which the Company executed a 
letter of intent with respect to the transaction).  The issuance of the 
Transaction Shares to TCIVG was exempt from registration under Section 4(2) 
of the Securities Act of 1933 as a transaction by an issuer not involving a 
public offering.  TCIVG is entitled to specified demand and piggyback 
registration rights for the Transaction Shares and has agreed to certain 
transfer restrictions.

     Tele-Communications, Inc. and its affiliates may in the ordinary course of
their business be customers of the Company.  In connection with an agreement to
purchase digital set-top terminals from the Company, the Company issued National
Digital Television Center, Inc., a wholly-owned subsidiary of
Tele-Communications, Inc., warrants to purchase shares of Company Common Stock. 
Such warrants are not presently exercisable. A description of this transaction
and the issuance of the warrants is contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 under Item 1. Business - Recent
Developments and under Note 14. Stockholders' Equity in the Notes to
Consolidated Financial Statements contained in Item 8. Financial Statements and
Supplementary Data.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits 

Exhibit 3.1    Restated Certificate of Incorporation of the Company

Exhibit 3.2    Certificate of Designation, Preferences and Rights of Series A 
               Junior Participating Preferred Stock

Exhibit 3.3    Amended and Restated By-Laws of the Company

Exhibit 10.1   Asset Purchase Agreement among TCIVG-GIC, Inc., NDTC Technology,
               Inc. and General Instrument Corporation dated as of June 17, 1998

Exhibit 10.2   License Agreement by and between NDTC Technology, Inc. and
               General Instrument Corporation dated as of  July 17, 1998.

Exhibit 27     Financial Data Schedule

Exhibit 99     Forward-Looking Information

(b)  Reports on Form 8-K

None






                                          25
<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.


                                   GENERAL INSTRUMENT CORPORATION


                                   /s/ Marc E. Rothman
                                   --------------------------------------
                                   Marc E. Rothman
                                   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)

JULY 31, 1998
-------------
Date


                                          26
<PAGE>

INDEX TO EXHIBITS

EXHIBIT                       DESCRIPTION

Exhibit 3.1    Restated Certificate of Incorporation of the Company

Exhibit 3.2    Certificate of Designation, Preferences and Rights of Series A 
               Junior Participating Preferred Stock

Exhibit 3.3    Amended and Restated By-Laws of the Company

Exhibit 10.1   Asset Purchase Agreement among TCIVG-GIC, Inc., NDTC Technology,
               Inc. and General Instrument Corporation dated as of June 17, 1998

Exhibit 10.2   License Agreement by and between NDTC Technology, Inc. and
               General Instrument Corporation dated as of  July 17, 1998.

Exhibit 27     Financial Data Schedule

Exhibit 99     Forward-Looking Information



                                       27