<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 March 31, 1999

                                       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 April 30, 1999, there were 172,614,224 shares of Common Stock
outstanding.


<PAGE>

                         GENERAL INSTRUMENT CORPORATION
                               INDEX TO FORM 10-Q

<TABLE>
<CAPTION>

                                                                           PAGES
                                                                           -----
<S>                                                                       <C>
PART I.          FINANCIAL INFORMATION
                 ---------------------

ITEM 1.  FINANCIAL STATEMENTS

             Consolidated Balance Sheets                                   3

             Consolidated Statements of Operations                         4

             Consolidated Statement of Stockholders' Equity                5

             Consolidated Statements of Cash Flows                         6

             Notes to Consolidated Financial Statements                    7-15

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS                           16-23

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
             MARKET RISK                                                   23


PART II.         OTHER INFORMATION
                 -----------------

ITEM 1.  Legal Proceedings                                                 24-25

ITEM 2.  Changes in Securities and Use of Proceeds                         26

ITEM 6.  Exhibits and Reports on Form 8-K                                  26

SIGNATURE                                                                  27

</TABLE>


<PAGE>

                                     PART I

                             FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                         GENERAL INSTRUMENT CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>

                                                                                                      (UNAUDITED)
                                                                                                       MARCH 31,       DECEMBER 31,
                                                                                                         1999              1998
                                                                                                      -----------      ------------
<S>                                                                                                 <C>              <C>
ASSETS

Cash and cash equivalents                                                                            $   424,700      $   148,675
Short-term investments                                                                                    10,850            4,865
Accounts receivable, less allowance for doubtful accounts of $3,311 and $3,833, respectively
(includes accounts receivable from related party of $59,704 and $81,075, respectively)                   291,169          340,039
Inventories                                                                                              261,481          281,451
Deferred income taxes                                                                                     89,339          100,274
Other current assets                                                                                      13,798           15,399
                                                                                                     -----------      -----------
     Total current assets                                                                              1,091,337          890,703

Property, plant and equipment, net                                                                       235,810          237,131
Intangibles, less accumulated amortization of $101,089 and $97,630, respectively                         494,237          497,696
Excess of cost over fair value of net assets acquired, less accumulated amortization of
$125,686 and $122,110, respectively                                                                      451,766          455,466
Deferred income taxes                                                                                      1,979            1,999
Investments and other assets                                                                             112,977          104,765
                                                                                                     -----------      -----------
TOTAL ASSETS                                                                                         $ 2,388,106      $ 2,187,760
                                                                                                     ===========      ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable                                                                                     $   237,327      $   267,565
Other accrued liabilities                                                                                170,692          186,113
                                                                                                     -----------      -----------
     Total current liabilities                                                                           408,019          453,678

Deferred income taxes                                                                                     14,118           15,913
Other non-current liabilities                                                                             69,277           67,998
                                                                                                     -----------      -----------
     Total liabilities                                                                                   491,414          537,589
                                                                                                     -----------      -----------
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; 180,894,275 and 173,393,275
shares issued, respectively                                                                                1,809            1,734
Additional paid-in capital                                                                             1,942,053        1,742,824
Note receivable from stockholder                                                                         (38,715)         (40,615)
Retained earnings                                                                                         64,702           36,214
Accumulated other comprehensive income, net of taxes of $471 and $1,020, respectively                      1,669            2,845
                                                                                                     -----------      -----------
                                                                                                       1,971,518        1,743,002

Less - Treasury Stock, at cost, 3,724,354 and 4,619,069 shares, respectively                             (74,826)         (92,831)
                                                                                                     -----------      -----------

Total stockholders' equity                                                                             1,896,692        1,650,171
                                                                                                     -----------      -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                           $ 2,388,106      $ 2,187,760
                                                                                                     ===========      ===========

</TABLE>

                 See notes to consolidated financial statements.


                                       3
<PAGE>

                         GENERAL INSTRUMENT CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
            (UNAUDITED - IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

<TABLE>
<CAPTION>

                                                                                      THREE MONTHS ENDED
                                                                                           MARCH 31,
                                                                                    1999               1998
                                                                                 ----------         ----------
<S>                                                                             <C>                <C>
NET SALES                                                                        $  519,061         $  416,920
Cost of sales                                                                       381,015            323,932
                                                                                 ----------         ----------
GROSS PROFIT                                                                        138,046             92,988
                                                                                 ----------         ----------
OPERATING EXPENSES:
    Selling, general and administrative                                              50,917             55,885
    Research and development                                                         40,985            115,903
    Amortization of excess of cost over fair value of net assets acquired             3,582              3,562
                                                                                 ----------         ----------
         Total operating expenses                                                    95,484            175,350
                                                                                 ----------         ----------

OPERATING INCOME (LOSS)                                                              42,562            (82,362)
Other expense - net (including equity interest in Partnership
   losses of $5,610 and $11,290, respectively)                                       (1,026)            (9,008)
Interest income (expense) - net                                                       3,683               (979)
                                                                                 ----------         ----------

INCOME (LOSS) BEFORE INCOME TAXES                                                    45,219            (92,349)
(Provision) benefit for income taxes                                                (16,731)            32,458
                                                                                 ----------         ----------
NET INCOME (LOSS)                                                                $   28,488         $  (59,891)
                                                                                 ==========         ==========

Earnings (Loss) Per Share - Basic                                                $     0.16         $    (0.40)
                                                                                 ==========         ==========

Earnings (Loss) Per Share - Diluted                                              $     0.15         $    (0.40)
                                                                                 ==========         ==========

Weighted-Average Shares Outstanding - Basic                                         175,204            149,666

Weighted-Average Shares Outstanding - Diluted                                       189,071            149,666

</TABLE>

                 See notes to consolidated financial statements.


                                       4
<PAGE>

                         GENERAL INSTRUMENT CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                           (UNAUDITED - IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                            NOTE                ACCUMULATED
                                                             ADDITIONAL  RECEIVABLE               OTHER       COMMON       TOTAL
                                             COMMON STOCK     PAID-IN       FROM      RETAINED COMPREHENSIVE STOCK IN  STOCKHOLDERS'
                                            SHARES   AMOUNT   CAPITAL    STOCKHOLDER  EARNINGS    INCOME     TREASURY      EQUITY
                                           --------  ------  ----------  -----------  -------- ------------- --------  -------------
<S>                                        <C>      <C>     <C>          <C>         <C>         <C>        <C>        <C>
BALANCE, JANUARY 1, 1999                    173,393  $1,734  $1,742,824   $ (40,615)  $ 36,214    $ 2,845    $(92,831)  $1,650,171
                                                                                                                       
Net income                                     --      --          --          --       28,488       --          --         28,488
Other comprehensive income, net-of-tax:                                                                                
  Unrealized losses on available-for-sale                                                                              
    securities                                 --      --          --          --         --         (858)       --           (858)
  Foreign currency translation adjustments     --      --          --          --         --         (318)       --           (318)
                                                                                                                        ----------
Comprehensive income                                                                                                        27,312
Exercise of stock options and related tax                                                                              
  benefit (895 shares issued from Treasury)    --      --         3,468        --         --         --        18,005       21,473
Issuances of shares                           7,501      75     187,425        --         --         --          --        187,500
Payment of note receivable from stockholder    --      --          --         1,900       --         --          --          1,900
Warrant costs related to customer purchases    --      --         8,336        --         --         --          --          8,336
                                           --------  ------  ----------   ---------   --------    -------    --------   ----------
BALANCE, MARCH 31, 1999                     180,894  $1,809  $1,942,053   $ (38,715)  $ 64,702    $ 1,669    $(74,826)  $1,896,692
                                           ========  ======  ==========   =========   ========    =======    ========   ==========

</TABLE>

                 See notes to consolidated financial statements.


                                       5
<PAGE>

                         GENERAL INSTRUMENT CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (UNAUDITED - IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                   THREE MONTHS ENDED
                                                                        MARCH 31,
                                                               ----------------------------
                                                                  1999              1998
                                                               ---------         ---------
<S>                                                           <C>               <C>
OPERATING ACTIVITIES:
 Net income (loss)                                             $  28,488         $ (59,891)
 Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
    Depreciation and amortization                                 21,221            18,266
    Warrant costs related to customer purchases                    8,336             3,137
    Gain on sale of short-term investment                         (5,035)           (3,025)
    Losses from asset sales and write-downs, net                   9,950             4,328
    Loss from equity investment                                    5,610            11,290
    Changes in assets and liabilities:
         Accounts receivable                                      48,870           (36,915)
         Inventories                                              13,870            20,369
         Prepaid expenses and other current assets                 1,601            (2,013)
         Deferred income taxes                                     9,709           (38,772)
         Non-current assets                                        3,272             1,246
         Accounts payable and other accrued liabilities          (38,516)           16,290
         Other non-current liabilities                             1,279              (764)
     Other                                                          (200)              (66)
                                                               ---------         ---------
Net cash provided by (used in) operating activities              108,455           (66,520)
                                                               ---------         ---------

INVESTING ACTIVITIES:
    Additions to property, plant and equipment                   (16,695)          (17,825)
    Investments in other assets                                  (24,500)           (1,995)
    Proceeds from sale of short-term investment                    5,035             3,025
                                                               ---------         ---------
Net cash used in investing activities                            (36,160)          (16,795)
                                                               ---------         ---------

FINANCING ACTIVITIES:
    Proceeds from stock option exercises                          14,330            34,802
    Proceeds from issuance of shares                             187,500              --
    Payment of note receivable from stockholder                    1,900              --
    Net borrowings under Credit Agreement                           --              40,000
                                                               ---------         ---------
Net cash provided by financing activities                        203,730            74,802
                                                               ---------         ---------

Change in cash and cash equivalents                              276,025            (8,513)
Cash and cash equivalents, beginning of period                   148,675            35,225
                                                               ---------         ---------

Cash and cash equivalents, end of period                       $ 424,700         $  26,712
                                                               =========         =========

</TABLE>


                See notes to consolidated financial statements.


                                       6
<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 provider of integrated
and interactive broadband access solutions and, with its strategic partners and
customers, is advancing the convergence of the Internet, telecommunications and
video entertainment industries. The Company is the world's leading supplier of
digital and analog set-top terminals and 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 provider of digital
satellite television systems for programmers, direct-to-home ("DTH") satellite
networks 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 next-generation broadband access solutions for
local telephone companies with the Partnership's NLevel3(R) Switched Digital
Access System ("NLevel3").

     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, at the Distributing Company's historical cost, 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"), at the
Distributing Company's historical cost, 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 "Distribution"). 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 the Company. The consolidated balance sheet as of March 31, 1999,
the consolidated statements of operations for the three months ended March 31,
1999 and 1998, the consolidated statement of stockholders' equity for the three
months ended March 31, 1999 and the consolidated statements of cash flows for
the three months ended March 31, 1999 and 1998 of the Company are unaudited and
reflect all adjustments of a normal recurring nature (except for those charges
disclosed in Notes 7, 8 and 10) 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 statements
should be read in conjunction with the accounting policies and notes to the
consolidated financial statements included in the Company's 1998 Annual Report
on Form 10-K.

3.  INVENTORIES

     Inventories consist of:

<TABLE>
<CAPTION>

                                          MARCH 31, 1999      DECEMBER 31, 1998
                                          --------------      -----------------
<S>                                         <C>                   <C>
                   Raw materials             $105,316              $103,807
                   Work in process             22,611                19,236
                   Finished goods             133,554               158,408
                                             --------              --------
                                             $261,481              $281,451
                                             ========              ========

</TABLE>


                                       7
<PAGE>

                         GENERAL INSTRUMENT CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                     (IN THOUSANDS, UNLESS OTHERWISE NOTED)


4. INVESTMENTS

    At March 31, 1999 and December 31, 1998, all of the Company's marketable
equity securities were classified as available-for-sale. Proceeds and the
related realized gains from the sales of available-for-sale securities for the
three months ended March 31, 1999 and 1998 were $5 million and $3 million
respectively. Realized gains were determined using the securities' cost.
Short-term investments consisted of the following at March 31, 1999 and 
December 31, 1998:

<TABLE>
<CAPTION>

                                       MARCH 31, 1999                              DECEMBER 31, 1998
                         -------------------------------------------   -------------------------------------------
                                      GROSS       GROSS                             GROSS       GROSS
                          FAIR     UNREALIZED   UNREALIZED    COST      FAIR     UNREALIZED   UNREALIZED    COST
                          VALUE       GAINS       LOSSES      BASIS     VALUE       GAINS       LOSSES      BASIS
                         -------   ----------   ----------   -------   -------   ----------   ----------   -------
<S>                     <C>         <C>          <C>        <C>       <C>         <C>           <C>       <C>
Marketable Equity
     Securities          $10,850     $ 3,550      $(1,092)   $ 8,392   $ 4,865     $ 3,865       $ --      $ 1,000
                         =======     =======      =======    =======   =======     =======       ====      =======

</TABLE>

5. COMMITMENTS AND CONTINGENCIES

    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
Distribution, by allegedly making false and misleading statements and failing to
disclose material facts about the Distributing Company's planned shipments in
1995 of its CFT2200 and Digicipher(R) 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
Distribution, 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. Both
actions seek unspecified damages and attorneys' fees and costs. The court
granted the defendants' motion 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 answered the amended consolidated complaint in the class actions,
denying liability, and filed a renewed motion to dismiss the derivative action.
On September 22, 1998, defendants' motion to dismiss the derivative action was
denied. In November 1998, the defendants filed an answer to the derivative
action, denying liability. On January 21, 1999, the plaintiffs in the class
actions filed their motion for class certification, including the defendants'
opposition. 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 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 filed a motion to dismiss parts of the amended
complaint and answered the balance of the amended complaint, denying liability.
On September 22, 1998, the district court dismissed with prejudice the portion
of the complaint alleging violations of Section 14(a) of the Exchange Act, and
denied the remainder of the defendants' motion to dismiss. In November, 1998,
the defendants filed an answer to the remaining parts of the amended complaint,
denying liability. The Company intends to vigorously contest this action.

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


                                       8
<PAGE>

                         GENERAL INSTRUMENT CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                     (IN THOUSANDS, UNLESS OTHERWISE NOTED)


    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. The complaint seeks damages in an unspecified amount. On April 9,
1998, the plaintiffs voluntarily dismissed their Securities Act claims. On May
5, 1998, the defendants moved to dismiss the remaining counts of the complaint.
That motion was denied on March 31, 1999 and defendants' answer is currently due
on June 4, 1999. The Company intends to vigorously contest this action.

    On March 5, 1998, an action entitled DSC COMMUNICATIONS CORPORATION AND DSC
TECHNOLOGIES CORPORATION V. NEXT LEVEL COMMUNICATIONS L.P., KK MANAGER, L.L.C.,
GENERAL INSTRUMENT CORPORATION AND SPENCER TRASK & CO., INC. was filed in the
Superior Court of the State of Delaware in and for New Castle County (the
"Delaware Action"). In that action, DSC Communications Corporation and DSC
Technologies Corporation (collectively, "DSC") alleged that in connection with
the formation of the Partnership and the transfer to it of NLC's switched
digital video technology, the Partnership and KK Manager, L.L.C. misappropriated
DSC's trade secrets; that the Company improperly disclosed trade secrets when it
conveyed such technology to the Partnership; and that Spencer Trask & Co., Inc.
conspired to misappropriate DSC's trade secrets. The plaintiffs sought actual
damages for the defendants' purported unjust enrichment, disgorgement of
consideration, exemplary damages and attorney's fees, all in unspecified
amounts. In April 1998, the Company and the other defendants filed an action in
the United States District Court for the Eastern District of Texas, requesting
that the federal court preliminarily and permanently enjoin DSC from prosecuting
the Delaware Action because by pursuing such action, DSC effectively was trying
to circumvent and relitigate the Texas federal court's November 1997 judgment in
a previous lawsuit involving DSC, pursuant to which NLC had paid over $140
million. On May 14, 1998, the Texas court granted a preliminary injunction
preventing DSC from proceeding with the Delaware Action. That injunction order
is now on appeal to the United States Court of Appeals for the Fifth Circuit
where the case has been briefed and argued and awaits determination. On July 6,
1998, the Delaware defendants filed a motion for summary judgment with the Texas
federal court requesting that the preliminary injunction be converted into a
permanent injunction preventing DSC from proceeding with this litigation. That
motion also has been briefed and awaits determination. As a result of the
preliminary injunction, the Delaware Action has been stayed in its entirety. The
Company intends to vigorously contest this action.

    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 (as specified below). The first
part of a bifurcated arbitration proceeding, relating to the Company's advanced
analog products, began on March 22, 1999 before an arbitration panel of the
American Arbitration Association in San Francisco, California. The Company
expects to receive a decision from the panel by late June, 1999. At the
arbitration proceeding, StarSight identified purported damages arising from the
sale by the Company of advanced analog set top boxes containing a native
electronic program guide. StarSight alleged that it is entitled to collect $52
million to $177 million in compensatory damages and an unspecified amount of
punitive damages. The Company has denied liability and presented evidence
disputing both StarSight's damages theories and amounts in the event that
liability were to be found. A separate hearing relating to certain of the
Company's digital set top boxes and satellite products is scheduled for
mid-September, 1999. The Company continues to vigorously contest this action.

    On November 30, 1998, an action entitled GEMSTAR DEVELOPMENT CORPORATION AND
INDEX SYSTEMS, INC. V. GENERAL INSTRUMENT CORPORATION was filed in the United
States District Court for the Northern District of California. The complaint
alleges infringement by the Company of two U.S. patents allegedly covering
electronic program guides. The complaint seeks unspecified damages and an
injunction. The plaintiffs sought to consolidate discovery for this action with
other program guide related patent infringement actions pending against Pioneer
Electronics Corp., Scientific-Atlanta, Inc., and Prevue Networks, Inc. On April
26, 1999, the Judicial Panel on Multidistrict Litigation ordered the transfer of
this action to the Northern District of Georgia for consolidated pretrial
proceedings with the Pioneer Electronics Corp. and Scientific-Atlanta, Inc.
actions. The Company denies that it infringes the subject patents and intends to
vigorously defend this action.


                                       9
<PAGE>

                         GENERAL INSTRUMENT CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                     (IN THOUSANDS, UNLESS OTHERWISE NOTED)


6. 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. Significant financial ratios include (i) maintenance of
consolidated net worth above $600 million adjusted for 50% of cumulative
positive quarterly net income subsequent to June 30, 1997; (ii) maintenance of
an interest coverage ratio based on EBITDA in comparison to net interest expense
of greater than 5 to 1; and (iii) maintenance of a leverage ratio comparing
total indebtedness to EBITDA of less than 3 to 1. 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, and as of March 31,
1999, the Company was in compliance with all financial and operating covenants
under the Credit Agreement. At March 31, 1999, the Company had available credit
of $500 million under the Credit Agreement. The Company had approximately $106
million of letters of credit outstanding at March 31, 1999.

7. RESTRUCTURINGS

    In the fourth quarter of 1997, with the change in senior management, the
Company undertook an effort to assess the future viability of its satellite
business. As the satellite business had been in a state of decline, management
of the Company made a decision to streamline the cost structure of its San
Diego-based satellite business by reducing this unit's headcount by 225. In
conjunction with the assessment of the satellite business, the Company also made
a strategic decision with respect to its worldwide consolidated manufacturing
operations that resulted in the closure of 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 also
decided to close its corporate office and move from Chicago, Illinois to
Horsham, Pennsylvania, which was completed during the first quarter of 1998.
Costs associated with the closure of facilities ("Facility Costs") include
vacated long-term leases which are payable through the end of the lease terms
which extend through the year 2008. As a result of the above actions, the
Company recorded a pre-tax charge of $36 million during the fourth quarter of
1997.

    As part of the restructuring plan, the Company recorded an additional $16
million of pre-tax charges in the first quarter of 1998 which primarily included
$8 million for severance and other employee separation costs, $3 million of
facility exit costs, including the early termination of a leased facility which
the Company decided to close in the quarter ended March 31, 1998, and $5 million
related to the write-down of fixed assets to their estimated fair values. Of
these charges, $9 million were recorded as cost of sales, $6 million as SG&A
expense and $1 million as R&D expense.

    On April 29, 1999, PRIMESTAR, Inc. ("PRIMESTAR") announced that it had
completed the previously announced sale of its direct broadcast satellite
("DBS") medium-power business and assets to Hughes Electronics Corporation
("Hughes"). Sales to PRIMESTAR accounted for 11% of the Company's sales in 1998.
The Company currently expects future PRIMESTAR purchases of medium-power
equipment from the Company to be minimal. Further, as a result of the previously
announced purchase by Hughes of PRIMESTAR's rights to acquire certain high-power
satellite assets, the Company does not expect to supply any high-power equipment
to PRIMESTAR. In the first quarter of 1999, in connection with the announcement
of the PRIMESTAR developments, the Company evaluated its overhead structure and
has taken steps to further consolidate its San Diego, California and Horsham,
Pennsylvania operations, including reducing headcount by approximately 200. The
Company recorded a pre-tax charge of approximately $15 million during the first
quarter of 1999 which primarily included $6 million for severance costs, $6
million for the write-down of PRIMESTAR related inventory to its lower of cost
or market, $2 million for the write-down of fixed assets used to manufacture
PRIMESTAR products to their estimated fair values and $1 million of facility
costs. Of these charges, $8 million were recorded as cost of sales and $7
million were recorded as SG&A expense.


                                       10
<PAGE>

                         GENERAL INSTRUMENT CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                     (IN THOUSANDS, UNLESS OTHERWISE NOTED)


    The following tabular reconciliation summarizes the restructuring activity
from January 1, 1998 through March 31, 1999:

<TABLE>
<CAPTION>

                                                 1998                                  1999
                              BALANCE AT  --------------------   BALANCE AT    -------------------  BALANCE AT
                              JANUARY 1,              AMOUNTS    DECEMBER 31,             AMOUNTS    MARCH 31,
                                 1998     ADDITIONS   UTILIZED       1998      ADDITIONS  UTILIZED     1999
                              ----------  ---------   --------  -------------  ---------  --------   ---------
                                                                (in millions)
<S>                            <C>          <C>       <C>            <C>         <C>       <C>         <C>
        Inventory (1)           $     --     $   --    $    --        $    --     $  6.1    $   --      $  6.1
        Property, Plant &
           Equipment (1)             7.8        4.6      (12.4)            --        2.2        --         2.2

        Facility Costs              10.5        3.3      (10.0)           3.8        0.8      (0.2)        4.4

        Severance                   19.9        7.6      (26.7)           0.8        5.7      (1.0)        5.5
                                --------     ------    -------        -------     ------    ------      ------

        Total                   $   38.2     $ 15.5    $ (49.1)       $   4.6     $ 14.8    $ (1.2)     $ 18.2
                                ========     ======    =======        =======     ======    ======      ======

</TABLE>

        (1)  The amount provided represents a direct reduction to the inventory
             and property, plant and equipment balances to reflect the
             identified impaired assets at their lower of cost or market and
             fair values, respectively. The amounts utilized reflect the
             disposition of such identified impaired assets.

8. OTHER CHARGES

    The Company incurred certain other pre-tax charges during the first quarter
of 1998 primarily related to management's decision to close a satellite
manufacturing facility due to reduced demand for the products manufactured by
that facility. Concurrent with this decision, the Company determined that the
carrying value of the inventory would not be recoverable and, accordingly, the
Company wrote down the inventory to its lower of cost or market. In addition,
the Company incurred moving costs associated with relocating certain fixed
assets to other facilities, shutdown expenses and legal fees. The above charges
totaled $25 million, of which $18 million are included in cost of sales and $7
million are included in SG&A expense. In addition, the Company incurred $8
million of charges, which are included in "other expense-net," related to costs
incurred by the Partnership, which the Company accounts for under the equity
method. Such costs are primarily related to a $5 million litigation settlement
and compensation expense related to key executives of an acquired company.

    The following tabular reconciliation summarizes the other charge activity
discussed above:

<TABLE>
<CAPTION>

                                                     1998                                1999
                               BALANCE AT    ---------------------      BALANCE AT     --------     BALANCE AT
                                JANUARY 1,                 AMOUNTS     DECEMBER 31,    AMOUNTS       MARCH 31,
                                  1998       ADDITIONS    UTILIZED         1998        UTILIZED         1999
                                ----------   ---------    --------     ------------    --------      ---------
                                                               (in millions)
<S>                               <C>          <C>        <C>             <C>         <C>            <C>
        Inventory (1)              $  43.3      $ 15.0     $ (43.3)        $  15.0     $  (4.4)       $  10.6
        Property, Plant &                                                                                     
           Equipment (1)               8.4          --        (1.1)            7.3        (7.3)            --
        Professional Fees &                                                                                   
           Other Costs                 3.2        10.1       (13.3)             --          --             --
        Partnership Related
           Costs                        --         8.4        (8.4)             --          --             --
                                   -------      ------     -------         -------     -------        -------
        Total                      $  54.9      $ 33.5     $ (66.1)        $  22.3     $ (11.7)       $  10.6
                                   =======      ======     =======         =======     =======        =======

</TABLE>

        (1)  These charges represent a direct reduction to the inventory and
             property, plant and equipment balances to reflect these assets at
             their lower of cost or market and fair values, respectively. The
             amounts utilized reflect the disposition of such identified assets.


                                       11
<PAGE>

                         GENERAL INSTRUMENT CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                     (IN THOUSANDS, UNLESS OTHERWISE NOTED)


9.  OTHER EXPENSE - NET

    Other expense-net for the three months ended March 31, 1999 primarily
includes $6 million related to the Company's share of the Partnership losses,
partially offset by $5 million related to gains on the sale of the Company's
remaining investment in Ciena Corporation. Other expense-net for the three
months ended March 31, 1998 primarily reflects $11 million related to the
Company's share of the Partnership losses, including the Company's share of a $5
million litigation settlement and compensation expense related to key executives
of an acquired company, partially offset by $3 million related to gains on the
sale of a portion of the Company's investment in Ciena Corporation.

10. THE PARTNERSHIP

    In January 1998, the Company transferred at historical cost the net assets,
the underlying NLC technology, and the management and workforce of NLC to a
newly formed limited partnership (the "Partnership") in exchange for
approximately an 89% limited partnership interest (subject to additional
dilution). Such transaction was accounted for at historical cost. The limited
partnership interest is included in "investments and other assets" in the
accompanying consolidated balance sheet at March 31, 1999. The operating general
partner, which was formed by Spencer Trask & Co., an unrelated third party, has
acquired approximately an 11% interest in the Partnership and has the potential
to acquire up to an additional 11% in the future. The Company does not have the
option to acquire the operating general partner's interest in the Partnership.
Net assets transferred to the Partnership of $45 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 and
a change in the limited partner's financial interests in the Partnership. The
Company can not remove the general partner, except for cause; however, it has
the right to approve a change in the general partner. 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, including the
execution of agreements on all material matters affecting the Partnership's
business, the Partnership's operating results have not been consolidated with
the operating results of the Company subsequent to the January 1998 transfer.

    The technology transferred to the Partnership related to in-process R&D,
which was originally purchased by the Company in connection with the acquisition
of NLC in September 1995, for the design and marketing of a highly innovative
next-generation telecommunication broadband access system for the delivery of
telephony, video and data from a telephone company central office to the home.
The in-process technology, at the date of the 1995 acquisition and at the date
of the transfer to the Partnership, had not reached technological feasibility
and had no alternative future use. The Company does not expect widespread
commercial deployment of this technology until the latter part of 1999 or early
in 2000; however, there can be no assurance that the development activities
currently being undertaken will result in successful commercial deployment.

    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 R&D expense during the
quarter ended March 31, 1998 to fully reserve for the Note concurrent with the
funding. The proceeds of the Note are being utilized to fund the R&D activities
of the Partnership to develop the aforementioned telecommunication technology
for widespread commercial deployment. During 1998, the Company agreed to make
additional equity investments in the Partnership, aggregating $50 million,
beginning in November 1998, to fund the Partnership's growth and assist the
Partnership in meeting its forecasted working capital requirements. Through
March 31, 1999, the Company has made $40 million of this $50 million investment
and expects to make the remaining equity investment during the second quarter of
1999.

    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 R&D activities will be offset
against the $75 million reserve discussed above. For the three months ended
March 31, 1999 and 1998, the Company's share of the Partnership's losses was $6
million and $11 million, respectively, (net of the Company's share of R&D
expenses of $10 


                                       12
<PAGE>

                         GENERAL INSTRUMENT CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                     (IN THOUSANDS, UNLESS OTHERWISE NOTED)


million and $9 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. The Company's net equity investment in the Partnership was
$54 million at March 31, 1999.

    The following summarized financial information is provided for the
Partnership for the three months ended March 31, 1999 and 1998:

<TABLE>
<CAPTION>

                                                          THREE MONTHS ENDED MARCH 31,
                                                          ----------------------------
                                                             1999              1998
                                                          ----------        ----------
<S>                                                        <C>               <C>
                Net sales                                   $  8,777          $  2,739
                Gross profit                                     572            (1,116)
                Loss before income taxes                     (19,057)          (24,310)
                Net cash used in operating activities        (15,680)          (22,270)

</TABLE>

11. RELATED PARTY TRANSACTIONS

    The Company entered into an Asset Purchase Agreement with two affiliates of
Tele-Communications, Inc. ("TCI"), which was consummated on July 17, 1998,
pursuant to which the Company acquired from TCI, in exchange for 21.4 million
shares of the Company's Common Stock, certain assets consisting primarily of a
license to certain intellectual property which will enable the Company to
conduct authorization services. Following the merger of a wholly-owned
subsidiary of AT&T Corp. with and into TCI, Liberty Media Corporation, a
wholly-owned subsidiary of TCI, became the beneficial owner of such 21.4 million
shares of the Company's Common Stock.

    TCI is a significant customer of the Company. Sales to TCI represented 33%
and 31% of total Company sales for the three months ended March 31, 1999 and the
year ended December 31, 1998, respectively. Management believes the transactions
with TCI are at arms length and are under terms no less favorable to the Company
than those with other customers. At March 31, 1999 and December 31, 1998
accounts receivable from TCI totaled $60 million and $81 million, respectively.


                                       13
<PAGE>

                         GENERAL INSTRUMENT CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                     (IN THOUSANDS, UNLESS OTHERWISE NOTED)


12. SEGMENT INFORMATION

    Selected information regarding the Company's reportable segments follows:

<TABLE>
<CAPTION>

                                                                      SATELLITE
                                                         BROADBAND   AND BROADCAST    CORPORATE
                                                         NETWORKS       NETWORK      UNALLOCATED          TOTAL
                                                          SYSTEMS       SYSTEMS       AND OTHER          COMPANY
                                                         ---------   -------------   -----------         -------
<S>                                                      <C>           <C>           <C>               <C>
    THREE MONTHS ENDED MARCH 31, 1999                                               
    -------------------------------------------------                               
    Net sales                                             $435,189      $83,872       $      --         $519,061
    Operating income (loss)                                 52,495       11,425         (21,358) (b)      42,562
    Other expense - net (including equity interest                                                                
    in Partnership losses of $5,610)                            --           --          (1,026)          (1,026)
    Interest income (expense) - net                             --           --           3,683            3,683
    Income (loss) before income taxes                           --           --          45,219           45,219
                                                                                    
    Segment assets (a)                                     622,198      154,140          12,122  (c)     788,460
                                                                                    
    THREE MONTHS ENDED MARCH 31, 1998                                               
    -------------------------------------------------                               
    Net sales                                             $310,134     $106,786       $      --         $416,920
    Operating income (loss)                                 38,408        5,257        (126,027) (b)     (82,362)
    Other expense - net (including equity interest                                  
    in Partnership losses of $11,290)                           --           --          (9,008)          (9,008)
    Interest income (expense) - net                             --           --            (979)            (979)
    Income (loss) before income taxes                           --           --         (92,349)         (92,349)
                                                                                    
    Segment assets (a)                                     570,302      252,844           22,648 (c)     845,794
                                                                                  
</TABLE>

    -------------------------------------------------

    (a)Segment assets include accounts receivable, inventories and property,
       plant and equipment. Other balance sheet items are not allocated to the
       segments.

    (b)Primarily reflects unallocated costs, including amortization of excess
       of cost over fair value of net assets acquired of $4 million for the
       three months ended March 31, 1999 and 1998, and restructuring and other
       charges of $15 million and $115 million for the three months ended March
       31, 1999 and 1998, respectively (see Notes 7 and 8). The remaining
       reconciling amounts reflect unallocated corporate selling, general and
       administrative expenses.

    (c)Primarily reflects non-trade accounts receivable of $4 million and $24
       million at March 31, 1999 and 1998, respectively, and certain unallocated
       property, plant and equipment balances of $16 million at March 31, 1999
       and 1998 offset by write-downs related to restructuring and other charges
       not allocated to the segments for internal management reporting purposes.

13. OTHER INFORMATION

    EARNINGS (LOSS) PER SHARE. For the three months ended March 31, 1999, the
calculation of diluted weighted-average shares outstanding included the dilutive
effects of stock options and warrants of 3,878 shares and 9,989 shares,
respectively. Since the computation of diluted loss per share is anti-dilutive
for the three months ended March 31, 1998, the amounts reported for basic and
diluted loss per share are the same.

    SHARE ACTIVITY. In January 1999 Sony Corporation of America purchased 7.5
million new shares of the Company's Common Stock for $188 million. In April
1999, the Company repurchased 5.3 million shares of its Common Stock from two
partnerships affiliated with Forstmann Little & Co. for $148 million.

    LICENSE AMORTIZATION. Intangible assets consist primarily of a license,
which is being amortized over its 20-year term based on the expected revenue
stream. The revenue earned from the license is solely dependent on the Company's
deployment of digital terminals and such deployment is expected to rise
significantly during the 20-year term. The Company believes the expected revenue
stream is a reliable measure of the future benefit of the license both in the
aggregate and in terms of the periods to which such benefit will be realized.
Accordingly, the Company believes this method of amortization is a more
appropriate method than straight-line. At each reporting date, the Company's
method of 


                                       14
<PAGE>

                         GENERAL INSTRUMENT CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                     (IN THOUSANDS, UNLESS OTHERWISE NOTED)


amortization requires the determination of a fraction, the numerator of which is
the actual revenues for the period and the denominator of which is the expected
revenues from the license during its 20-year term. Under the Company's method,
amortization for the three months ended March 31, 1999 was approximately $0.8
million and amortization for the period from July 17, 1998 to March 31, 1999 was
approximately $1.5 million.

    NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED. 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.


                                       15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

NET SALES

    Net sales for the three months ended March 31, 1999 were $519 million, an
increase of $102 million, or 24%, over net sales of $417 million for the three
months ended March 31, 1998. This increase in net sales for the three-month
period reflects higher sales of digital cable systems and transmission products,
partially offset by lower sales of analog cable products and satellite products.
Analog and digital products represented 36% and 64%, respectively, of total
sales for the three months ended March 31, 1999 compared to 51% and 49%,
respectively, of total sales for the three months ended March 31, 1998.

    Worldwide broadband sales (consisting of digital and analog cable and
wireless television systems and transmission network systems) of $435 million
for the three months ended March 31, 1999 increased $125 million, or 40%, from
the comparable 1998 period, primarily as a result of increased U.S. sales volume
of digital cable terminals and headends and transmission product sales,
partially offset by lower sales of analog cable systems. These sales reflect the
increasing commitment of cable television operators to deploy interactive
digital systems in order to offer advanced entertainment, interactive services
and Internet access to their customers. During the three months ended March 31,
1999 and 1998, broadband sales in the U.S. were 88% and 81%, respectively,
combined U.S. and Canadian sales were 90% and 83%, respectively, and all other
international sales were 10% and 17%, respectively, of total worldwide broadband
sales. The decrease in international sales from the first quarter of 1998 was
experienced primarily in the Latin American region and international sales are
not expected to return to historical levels in the near-term.

    Worldwide satellite sales of $84 million for the three months ended March
31, 1999 decreased $23 million from the comparable 1998 period, primarily as a
result of lower sales to PRIMESTAR, Inc. ("PRIMESTAR"), as described further
below. During the three months ended March 31, 1999 and 1998, satellite sales in
the U.S. were 77% and 93%, respectively, combined U.S. and Canadian sales were
94% and 99%, respectively, and all other international sales were 6% and 1%,
respectively, of total worldwide satellite sales.

    TCI accounted for approximately 33% of the Company's consolidated net sales
for the three months ended March 31, 1999. For the year ended December 31, 1998,
TCI and PRIMESTAR represented approximately 31% and 11%, respectively, of total
Company sales.

    On April 29, 1999, PRIMESTAR, Inc. ("PRIMESTAR") announced that it had
completed the previously announced sale of its direct broadcast satellite
("DBS") medium-power business and assets to Hughes Electronics Corporation
("Hughes"). The Company currently expects future PRIMESTAR purchases of
medium-power equipment from the Company to be minimal. Further, as a result of
the previously announced purchase by Hughes of PRIMESTAR's rights to acquire
certain high-power satellite assets, the Company does not expect to supply any
high-power equipment to PRIMESTAR.

GROSS PROFIT

    Gross profit was $138 million and $93 million for the three months ended
March 31, 1999 and 1998, respectively. Gross profit was 27% and 22% of sales for
the three months ended March 31, 1999 and 1998, respectively. Gross profit for
the three months ended March 31, 1999 included $8 million of restructuring
charges (see Note 7 and "Restructurings" below) primarily related to the
write-down of PRIMESTAR related inventory to its lower of cost or market and the
write-down of fixed assets used to manufacture PRIMESTAR products to their
estimated fair values. Gross profit for the three months ended March 31, 1998
included $9 million of restructuring charges (see Note 7 and "Restructurings"
below) and $18 million of other charges (see Note 8 and "Other Charges" below),
primarily related to severance and other employee separation costs, costs
associated with the closure of various facilities, the write-down of fixed
assets to their estimated fair values and the write-down of inventories to their
lower of cost or market.

SELLING, GENERAL AND ADMINISTRATIVE

    Selling, general & administrative ("SG&A") expense was $51 million and $56
million for the three months ended March 31, 1999 and 1998, respectively. SG&A
expense decreased as a percentage of sales to 10% for the three months ended
March 31, 1999 from 13% for the three months ended March 31, 1998. SG&A for the
three months ended March 31, 1999 included $7 million of restructuring charges
(see Note 7 and "Restructurings" below) primarily related to 

                                       16
<PAGE>
severance costs and facility costs recorded in connection with the announcement
of the PRIMESTAR developments. SG&A for the three months ended March 31, 1998
included $6 million of restructuring charges (see Note 7 and "Restructurings"
below) and $7 million of other charges (see Note 8 and "Other Charges" below)
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.

RESEARCH AND DEVELOPMENT

    Research and development ("R&D") expense was $41 million and $116 million
for the three months ended March 31, 1999 and 1998, respectively. R&D expense
for the three months ended March 31, 1998 included a $75 million charge to fully
reserve the Partnership Note (see Note 10). Proceeds of the Partnership Note are
being utilized by the Partnership to fund research and development activities to
develop, for widespread commercial deployment, the next-generation
telecommunications technology for the delivery of telephony, video, and data
from the telephone company central office to the home. Such widespread
deployment is not expected until the latter part of 1999 or early in 2000,
however, there can be no assurance that the development activities currently
being undertaken will result in successful commercial deployment. R&D spending
in 1999 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-net was $1 million and $9 million for the three months ended
March 31, 1999 and 1998, respectively. Other expense decreased in the first
quarter of 1999 from the comparable 1998 period primarily due to a reduction in
the Partnership's losses (see Note 10). Other expense-net for the three months
ended March 31, 1999 primarily includes $6 million related to the Company's
share of the Partnership losses, partially offset by $5 million related to gains
on the sale of the Company's remaining investment in Ciena Corporation. Other
expense-net for the three months ended March 31, 1998 primarily reflects $11
million related to the Company's share of the Partnership's losses (see Note
10), including the Company's share of a $5 million litigation settlement and
compensation expense related to key executives of an acquired company, partially
offset by $3 million related to gains on the sale of a portion of the Company's
investment in Ciena Corporation.

INTEREST INCOME (EXPENSE)--NET

    Net interest income was $4 million for the three months ended March 31, 1999
compared to net interest expense of $1 million for the three months ended March
31, 1998. The increase in interest income reflects the higher average cash
balance and debt free position during the three months ended March 31, 1999.

INCOME TAXES

    The Company recorded a provision for income taxes of $17 million and a
benefit for income taxes of $32 million for the three months ended March 31,
1999 and 1998, respectively. Excluding the restructuring and other charges
recorded during these periods, the effective tax rate was approximately 37% and
38% for the three months ended March 31, 1999 and 1998, respectively.

RESTRUCTURINGS

    In the fourth quarter of 1997, with the change in senior management, the
Company undertook an effort to assess the future viability of its satellite
business. As the satellite business had been in a state of decline, management
of the Company made a decision to streamline the cost structure of its San
Diego-based satellite business by reducing this unit's headcount by 225. In
conjunction with the assessment of the satellite business, the Company also made
a strategic decision with respect to its worldwide consolidated manufacturing
operations that resulted in the closure of 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 also
decided to close its corporate office and move from Chicago, Illinois to
Horsham, Pennsylvania, which was completed during the first quarter of 1998.
Costs associated with the closure of facilities include vacated long-term leases
which are payable through the end of the lease terms which extend through the
year 2008. As a result of the above actions, the Company recorded a pre-tax
charge of $36 million during the fourth quarter of 1997 (see Note 7). These
restructuring 

                                       17
<PAGE>

costs provided cost savings in certain satellite production processes; however,
declining demand for certain satellite products has substantially offset the
cost reductions.

    As part of the restructuring plan, the Company recorded an additional $16
million of pre-tax charges in the first quarter of 1998 which primarily included
$8 million for severance and other employee separation costs, $3 million of
facility exit costs, including the early termination of a leased facility which
the Company decided to close in the quarter ended March 31, 1998, and $5 million
related to the write-down of fixed assets to their estimated fair values (see
Note 7). Of these charges, $9 million were recorded as cost of sales, $6 million
as SG&A expense and $1 million as R&D expense.

    In the first quarter of 1999, in connection with the announcement of the
PRIMESTAR developments, the Company evaluated its overhead structure and has
taken steps to further consolidate its San Diego, California and Horsham,
Pennsylvania operations, including reducing headcount by approximately 200. The
Company recorded a pre-tax charge of approximately $15 million during the first
quarter of 1999 which primarily included $6 million for severance costs, $6
million for the write-down of PRIMESTAR related inventory to its lower of cost
or market, $2 million for the write-down of fixed assets used to manufacture
PRIMESTAR products to their estimated fair values and $1 million of facility
costs (see Note 7). Of these charges, $8 million were recorded as cost of sales
and $7 million were recorded as SG&A expense.

OTHER CHARGES

    The Company incurred certain other pre-tax charges during the first quarter
of 1998 primarily related to management's decision to close a satellite
manufacturing facility due to reduced demand for the products manufactured by
that facility. Concurrent with this decision, the Company determined that the
carrying value of the inventory would not be recoverable and, accordingly, the
Company wrote down the inventory to its lower of cost or market. In addition,
the Company incurred moving costs associated with relocating certain fixed
assets to other facilities, shutdown expenses and legal fees. The above charges
totaled $25 million, of which $18 million are included in cost of sales and $7
million are included in SG&A expense. In addition, the Company incurred $8
million of charges, which are included in "other expense-net," related to costs
incurred by the Partnership, which the Company accounts for under the equity
method. Such costs are primarily related to a $5 million litigation settlement
and compensation expense related to key executives of an acquired company. The
balance of these reserves was $11 million at March 31, 1999 and relates to
inventory (see Note 8).

LIQUIDITY AND CAPITAL RESOURCES

    For the three months ended March 31, 1999 and 1998, cash provided by
operations was $108 million and cash used in operations was $67 million,
respectively. Cash provided by operations in the first quarter of 1999 primarily
represents cash generated by the broadband business. Cash used in operations in
the first quarter of 1998 primarily reflects the funding provided to the
Partnership related to its R&D activities, payments related to the restructuring
and increased working capital requirements, partially offset by cash generated
by the broadband and satellite businesses.

    At March 31, 1999, working capital (current assets less current liabilities)
was $683 million compared to $437 million at December 31, 1998. The Company
believes that working capital levels are appropriate to support the growth of
the business; however, there can be no assurance that future industry-specific
developments or general economic trends will not alter the Company's working
capital requirements.

    During the three months ended March 31, 1999 and 1998, the Company invested
$17 million and $18 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 $90 million. The Company's R&D expenditures
were $41 million and $116 million (including the $75 million funding related to
the Partnership's R&D activities) during the first quarter of 1999 and 1998,
respectively. The Company expects total R&D expenditures to approximate $165
million for the year ending December 31, 1999.

    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. Significant financial ratios include (i) maintenance of consolidated net
worth above $600 million adjusted for 50% of cumulative positive quarterly net
income subsequent to June 30, 1997; (ii) maintenance of an interest coverage
ratio based on EBITDA in comparison to net interest expense of greater than 5 to
1; and (iii) maintenance of a leverage ratio comparing total indebtedness to
EBITDA of less than 3 to 1. None of the restrictions contained in the Credit


                                       18
<PAGE>

Agreement is expected to have a significant effect on the Company's ability to
operate. As of March 31, 1999, 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 1999 Sony Corporation of America purchased 7.5 million new shares
of the Company's Common Stock for $188 million. In April 1999, the Company
repurchased 5.3 million shares of its Common Stock from two partnerships
affiliated with Forstmann Little & Co. for $148.4 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. The technology transferred to the
Partnership related to in-process research and development for the design and
marketing of a highly innovative next-generation telecommunication broadband
access system for the delivery of telephony, video and data from a telephone
company central office to the home. 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 Partnership is a leading provider of next-generation integrated full
service digital loop carrier and fiber-to-the-curb systems that deliver
telephony, video and data for local telephone companies. The Partnership's
product, NLevel3(R), is designed to permit the cost effective delivery of a
suite of standard and advanced telephony services over twisted pair networks,
including high-speed data/Internet, distance learning, video services as well as
basic telephone services, to the home from a single access platform. The
Partnership has incurred net losses since inception and expects to continue to
operate at a loss through the year 2000 as the market for its products develops.
In order to position its products for mass commercial deployment, the
Partnership expects that product development efforts will continue to require
substantial investments. As such, during 1998, the Company agreed to make
additional equity investments in the Partnership, aggregating $50 million,
beginning in November 1998, to fund the Partnership's growth and assist the
Partnership in meeting its forecasted working capital requirements. Through
March 31, 1999, the Company has made $40 million of this $50 million investment
and expects to make the remaining equity investment during the second quarter of
1999. The Company accounts for its investment in the Partnership using the
equity method and records such investment in other assets. As of March 31, 1999,
the Company believes its recorded investment in the Partnership is recoverable.
Based on the Partnership's current cash flow projections for 1999, additional
capital will be required in the latter part of 1999 to fund its operations. The
Partnership has several alternatives to obtain the required capital, including
additional equity contributions from its partners, private placement financing
and/or an initial public offering.

    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 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, 


                                       19
<PAGE>

international markets where cable penetration is low and demand for
entertainment programming is growing. However, management expects that demand in
North America for its 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. For example, sales of analog cable products have been impacted
by a shift to digital deployment in North America.

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 during 1998, and there can be no assurance that international sales
will increase to historical levels in the near future.

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 is preparing for the impact of the arrival of the Year 2000 on
its business, as well as on the businesses of its customers, suppliers and
business partners. The "Year 2000 Issue" is a term used to describe the problems
created by systems that are unable to accurately interpret dates after December
31, 1999. These problems are derived predominantly from the fact that many
software programs have historically categorized the "year" in a two-digit
format. The Year 2000 Issue creates potential risks for the Company, including
potential problems in the Company's products as well as in the Information
Technology ("IT") and non-IT systems that the Company uses in its business
operations. The Company may also be exposed to risks from third parties with
whom the Company interacts who fail to adequately address their own Year 2000
Issues.

THE COMPANY'S STATE OF READINESS

    While the Company's Year 2000 efforts have been underway for several years,
the Company centralized its focus on addressing the Year 2000 Issue in 1998 by
forming a Year 2000 cross-functional project team of senior managers, chaired by
the Company's Vice President of Information Technology who reports directly to
the Company's Chief Executive Officer on this issue. The Audit Committee of the
Board of Directors is advised periodically on the status of the Company's Year
2000 compliance program.

    The Year 2000 project team has developed a phased approach to identifying
and remediating Year 2000 Issues, with many of these phases overlapping with one
another or conducted simultaneously.

    The first phase was to develop a corporate-wide, uniform strategy for
addressing the Year 2000 Issue and to assess the Company's current state of Year
2000 readiness. This included a review of all IT and non-IT systems, including
Company products and internal operating systems for potential Year 2000 Issues.
The Company completed this phase for its IT and non-IT systems prior to the end
of 1998. In addition, during this phase the Company developed its Year 2000
Policy Statement which was released to the Company's customers, suppliers and
business partners.

    The second phase of the Company's Year 2000 compliance program (begun
simultaneously with the first phase) was to define a Year 2000 "Compliance"
standard and to develop uniform test plans and test methodologies, building on
work already done by one of the Company's engineering groups. The Company
developed a comprehensive Year 2000 test plan and test methodologies for the
testing of its products, as well as third-party products. The Company has
adopted the following six compliance categories for its products: "Compliant,"
"Compliant with Upgrade," "Compliant with Minor Issues," "Not Compliant or End
of Life Product," "Testing to be Completed" and "Testing not Required." The
creation of these six categories has assisted the Company in communicating with
its customers, suppliers and business partners regarding the Year 2000 status of
the Company's products.


                                       20
<PAGE>

    To aid in communication with the Company's customers, suppliers and business
partners, the Company has developed an Internet web site that identifies the
current Year 2000 status for each of the Company's products in accordance with
the Company's Year 2000 compliance standard. The web site, which is updated
periodically, also identifies available upgrades, as well as the contemplated
completion date of testing and remediation for such products. In addition, the
Company has provided detailed, customer-specific inventory information to major
customers on a product-by-product basis in order to further assist such
customers with their own Year 2000 compliance programs. In furtherance of
providing information about its Year 2000 testing and remediation program, the
Company has disclosed its test plan and methodologies to certain of its
customers, strategic vendors and business partners. The Company is also
participating in industry-wide joint system testing efforts and has participated
in industry-wide forums with the Federal Communications Commission in order to
facilitate awareness in the industry of Year 2000 Issues.

    The Company has also undertaken a review of its internal IT and non-IT
systems to identify potential Year 2000 Issues. In 1996, the Company began the
process of implementing a uniform worldwide business and accounting information
system to improve internal reporting processes. The internal IT systems being
replaced include order entry systems, purchasing and inventory management
systems, and the Company's general financial systems. Based upon representations
from the manufacturer and the Company's own internal testing, the Company
believes that this uniform information system is Year 2000 compliant. The
Company also has plans to identify and replace and/or upgrade legacy business
systems that are not Year 2000 compliant and are not part of the uniform
worldwide business and accounting information system. In conjunction with the
Company's review of internal IT systems, the Company engaged an outside
consulting firm with Year 2000 consulting experience to perform an assessment of
the Company's test plans and test methodologies and to benchmark such plans and
methodologies against the practices of other companies. Based on these benchmark
comparisons, certain recommendations were made related to the test plans. The
Company is currently addressing these recommendations. In addition, the outside
consulting firm is continuing to provide assistance in monitoring the Company's
Year 2000 status and progress in areas such as: testing, internal and external
communication and contingency planning. With respect to non-IT systems, the
Company is actively analyzing its in-line manufacturing equipment in order to
assess any Year 2000 issues. To date, no material problems have been discovered,
and the Company will continue to review, test and remediate (if necessary) such
equipment. The Company is also evaluating its other critical non-IT facility and
internal systems with date sensitive operating controls for Year 2000 Issues.
While the Company believes that most of these systems will function without
substantial Year 2000 compliance problems, the Company will continue to review,
test and remediate (if necessary) such systems.

    The third phase of the Company's Year 2000 compliance program is the actual
testing and remediation (if necessary) of the Company's IT and non-IT products
and systems. The Company has prioritized its testing and remediation work,
focusing on products which the Company believes are more likely to be impacted
by Year 2000 Issues. The Company has completed the testing and remediation (as
necessary) of the majority of its products in accordance with its adopted test
plans and methodologies and is diligently working to complete testing and
remediation (if necessary) of the remainder of its products (except for end of
life products) by the end of the third quarter of 1999. As of March 31, 1999,
the Company estimates that it has completed approximately 95% of the Year 2000
readiness analysis required for its Advanced Network Systems, Digital Network
Systems and Transmission Network Systems products. As of March 31, 1999, the
Company estimates that it has completed approximately 60% of the Year 2000
readiness analysis for its Satellite and Broadcast Network Systems products. For
certain of the Company's satellite and broadcast products and the Company's
national authorization center, testing and remediation (if necessary) is
currently anticipated to be completed by the end of the third quarter of 1999.
The Company has completed testing and remediation of substantially all of its IT
and non IT internal systems, with the exception of certain minor systems which
the Company expects to complete by the end of the third quarter of 1999.

    The Company is presently evaluating each of its principal suppliers, service
providers and other business partners to determine each of such party's Year
2000 status. The Company has developed a questionnaire and a Year 2000
certification for use with such third parties, and, as of March 31, 1999, the
Company had contacted approximately 300 vendors about their Year 2000
compliance, including many of the vendors that the Company has identified as
critical vendors. The Company is currently focused on obtaining Year 2000
Certifications or assurances from approximately 150 of these suppliers. The
Company anticipates that this evaluation will be on-going through the remainder
of 1999.

    The Company is working jointly with customers, strategic vendors and
business partners to identify and resolve any Year 2000 issues that may impact
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 a
material adverse effect on the Company.


                                       21
<PAGE>

THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES

    The total cost associated with the Company's Year 2000 remediation is not
expected to be material to the Company's financial condition or results of
operations. The estimated total cost of the Company's Year 2000 remediation is
not expected to exceed $5 million. Through March 31, 1999, the Company has spent
approximately $2 million in connection with Year 2000 Issues. The cost of
implementing the uniform worldwide business and accounting information system
has not been included in this figure since the replacement of the previous
systems was not accelerated due to Year 2000 Issues. All Year 2000 expenditures
are made from the respective departments' budgets. The percentage of the IT
budget during 1998 used for Year 2000 remediation was less than 3% and is
expected to represent less than 3% of the IT budget for 1999. No IT projects
have been deferred due to Year 2000 efforts.

THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES

    There can be no assurance that the Company will be completely successful in
its efforts to address Year 2000 Issues. If some of the Company's products are
not Year 2000 compliant, the Company could suffer lost sales or other negative
consequences, including, but not limited to, diversion of resources, damage to
the Company's reputation, increased service and warranty costs and litigation,
any of which could materially adversely affect the Company's business operations
or financial statements.

    The Company is also dependent on third parties such as its customers,
suppliers, service providers and other business partners. If these or other
third parties fail to adequately address Year 2000 Issues, the Company could
experience a negative impact on its business operations or financial statements.
For example, the failure of certain of the Company's principal suppliers to have
Year 2000 compliant internal systems could impact the Company's ability to
manufacture and/or ship its products or to maintain adequate inventory levels
for production.

THE COMPANY'S CONTINGENCY PLANS

    The Company is evaluating the need for certain contingency plans to address
situations that may result if the Company or any of the third parties upon which
the Company is dependent is unable to achieve Year 2000 readiness. For example,
the Company is in the process of developing plans and procedures for its
customer service division to assist customers with the transition through the
Year 2000. Part of this plan will include processes and procedures recently used
by the Company in connection with a program to upgrade a substantial number of
analog addressable controllers to solve a date rollover issue prior to the year
1999. The Company is also evaluating the need for increasing inventory levels of
key components of its manufactured products. Since the Company's Year 2000
compliance program is ongoing, its ultimate scope, as well as the consideration
of additional contingency plans, will continue to be evaluated as new
information becomes available.

YEAR 2000 FORWARD-LOOKING STATEMENTS

    The foregoing Year 2000 discussion contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs and the dates by
which the Company expects to complete certain actions, are based on management's
best current estimates, which were derived utilizing numerous assumptions about
future events, including the continued availability of certain resources,
representations received from third parties and other factors. However, there
can be no guarantee that these estimates will be achieved, and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the ability to
identify and remediate all relevant IT and non-IT systems, results of Year 2000
testing, adequate resolution of Year 2000 Issues by businesses and other third
parties who are service providers, suppliers or customers of the Company,
unanticipated system costs, the adequacy of and ability to develop and implement
contingency plans and similar uncertainties. The "forward-looking statements"
made in the foregoing Year 2000 discussion speak only as of the date on which
such statements are made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events.

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 


                                       22
<PAGE>

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 capital spending, Year 2000
readiness, 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.


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
limit 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 March 31, 1999, a hypothetical 10% fluctuation in the exchange rate
of foreign currencies applicable to the Company, principally the Canadian
dollar, would result in a net $1 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.


                                       23
<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 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
Distribution, by allegedly making false and misleading statements and failing to
disclose material facts about the Distributing Company's planned shipments in
1995 of its CFT2200 and Digicipher(R) 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
Distribution, 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. Both
actions seek unspecified damages and attorneys' fees and costs. The court
granted the defendants' motion 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 answered the amended consolidated complaint in the class actions,
denying liability, and filed a renewed motion to dismiss the derivative action.
On September 22, 1998, defendants' motion to dismiss the derivative action was
denied. In November 1998, the defendants filed an answer to the derivative
action, denying liability. On January 21, 1999, the plaintiffs in the class
actions filed their motion for class certification, including the defendants'
opposition. 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 NLC, which
merged into a subsidiary of the Distributing Company 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 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 filed a motion to
dismiss parts of the amended complaint and answered the balance of the amended
complaint, denying liability. On September 22, 1998, the district court
dismissed with prejudice the portion of the complaint alleging violations of
Section 14(a) of the Exchange Act, and denied the remainder of the defendants'
motion to dismiss. In November, 1998, the defendants filed an answer to the
remaining parts of the amended complaint, denying liability. The Company intends
to vigorously contest this action.

    In connection with the Distribution, the Company has agreed to indemnify
General Semiconductor with respect to 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. The complaint seeks damages in an unspecified amount. On April 9,
1998, the plaintiffs voluntarily dismissed their Securities Act claims. On May
5, 1998, the defendants moved to dismiss the remaining counts of the complaint.
That motion was denied on March 31, 1999 and defendants' answer is currently due
on June 4, 1999. The Company intends to vigorously contest this action.


                                       24
<PAGE>

    On March 5, 1998, an action entitled DSC COMMUNICATIONS CORPORATION AND DSC
TECHNOLOGIES CORPORATION V. NEXT LEVEL COMMUNICATIONS L.P., KK MANAGER, L.L.C.,
GENERAL INSTRUMENT CORPORATION AND SPENCER TRASK & CO., INC. was filed in the
Superior Court of the State of Delaware in and for New Castle County (the
"Delaware Action"). In that action, DSC Communications Corporation and DSC
Technologies Corporation (collectively, "DSC") alleged that in connection with
the formation of the Partnership and the transfer to it of NLC's switched
digital video technology, the Partnership and KK Manager, L.L.C. misappropriated
DSC's trade secrets; that the Company improperly disclosed trade secrets when it
conveyed such technology to the Partnership; and that Spencer Trask & Co., Inc.
conspired to misappropriate DSC's trade secrets. The plaintiffs sought actual
damages for the defendants' purported unjust enrichment, disgorgement of
consideration, exemplary damages and attorney's fees, all in unspecified
amounts. In April 1998, the Company and the other defendants filed an action in
the United States District Court for the Eastern District of Texas, requesting
that the federal court preliminarily and permanently enjoin DSC from prosecuting
the Delaware Action because by pursuing such action, DSC effectively was trying
to circumvent and relitigate the Texas federal court's November 1997 judgment in
a previous lawsuit involving DSC, pursuant to which NLC had paid over $140
million. On May 14, 1998, the Texas court granted a preliminary injunction
preventing DSC from proceeding with the Delaware Action. That injunction order
is now on appeal to the United States Court of Appeals for the Fifth Circuit
where the case has been briefed and argued and awaits determination. On July 6,
1998, the Delaware defendants filed a motion for summary judgment with the Texas
federal court requesting that the preliminary injunction be converted into a
permanent injunction preventing DSC from proceeding with this litigation. That
motion also has been briefed and awaits determination. As a result of the
preliminary injunction, the Delaware Action has been stayed in its entirety. The
Company intends to vigorously contest this action.

    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 (as specified below). The first
part of a bifurcated arbitration proceeding, relating to the Company's advanced
analog products, began on March 22, 1999 before an arbitration panel of the
American Arbitration Association in San Francisco, California. The Company
expects to receive a decision from the panel by late June, 1999. At the
arbitration proceeding, StarSight identified purported damages arising from the
sale by the Company of advanced analog set top boxes containing a native
electronic program guide. StarSight alleged that it is entitled to collect $52
million to $177 million in compensatory damages and an unspecified amount of
punitive damages. The Company has denied liability and presented evidence
disputing both StarSight's damages theories and amounts in the event that
liability were to be found. A separate hearing relating to certain of the
Company's digital set top boxes and satellite products is scheduled for
mid-September, 1999. The Company continues to vigorously contest this action.

    On November 30, 1998, an action entitled GEMSTAR DEVELOPMENT CORPORATION AND
INDEX SYSTEMS, INC. V. GENERAL INSTRUMENT CORPORATION was filed in the United
States District Court for the Northern District of California. The complaint
alleges infringement by the Company of two U.S. patents allegedly covering
electronic program guides. The complaint seeks unspecified damages and an
injunction. The plaintiffs sought to consolidate discovery for this action with
other program guide related patent infringement actions pending against Pioneer
Electronics Corp., Scientific-Atlanta, Inc., and Prevue Networks, Inc. On April
26, 1999, the Judicial Panel on Multidistrict Litigation ordered the transfer of
this action to the Northern District of Georgia for consolidated pretrial
proceedings with the Pioneer Electronics Corp. and Scientific-Atlanta, Inc.
actions. The Company denies that it infringes the subject patents and intends to
vigorously defend this action.


                                       25
<PAGE>

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

The information required by Item 2(c) of this Report was included in Item 5 of
the Company's Current Report on Form 8-K dated January 22, 1999, and such
information is incorporated by reference in this Item.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         Exhibit 10.1*     Employment Agreement dated as of April 2, 1999, 
                           between General Instrument Corporation and Edward D. 
                           Breen

         Exhibit 27        Financial Data Schedule

         Exhibit 99        Forward-Looking Information

         * Management contract or compensatory plan.

(b)      Reports of Form 8-K

         The Company filed a Current Report on Form 8-K dated January 22, 1999,
         reporting in Item 5 of such report the sale by the Company to Sony
         Corporation of America of 7,500,000 shares of the Company's common
         stock for an aggregate cash purchase price of $187,500,000.

         The Company filed on April 2, 1999 a Current Report on Form 8-K 
         dated July 31, 1998, including in Item 7 of such report the 
         following financial statements related to an acquisition of certain 
         assets: (i) Hits Access and Control Division Combined Financial 
         Statements as of and for the years ended December 31, 1997 and 1996 
         and as of and for the six months ended June 30, 1998 and 1997; and 
         (ii) Unaudited Pro Forma Consolidated Financial Statements of the 
         Company to reflect the acquisition of certain assets of the Hits 
         Access and Control Division.

         The Company filed a Current Report on Form 8-K dated April 5, 1999,
         reporting in Item 5 of such report the signing of a definitive
         agreement to repurchase 5.3 million shares of the Company's common
         stock from two partnerships affiliated with Forstmann Little & Co for
         an aggregate cash purchase price of $148,400,000.


                                       26
<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, Financial Planning & Controller
                                 (Signing both in his capacity as Vice President
                                 on behalf of the Registrant and as chief 
                                 accounting officer of the Registrant)

May 13, 1999
------------
Date


                                       27
<PAGE>

                                INDEX TO EXHIBITS

EXHIBIT                                     DESCRIPTION

Exhibit 10.1      Employment Agreement dated as of April 2, 1999, between
                  General Instrument Corporation and Edward D. Breen

Exhibit 27        Financial Data Schedule

Exhibit 99        Forward-Looking Information


                                       28