UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _______ from to ______
Commission file number 1-5442
General Semiconductor, Inc.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3575653
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Melville Park Road, Melville, New York 11747
-----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(516) 847-3000
--------------
(Registrant's telephone number, including area code)
----------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report.
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1998
----- -----------------------------
Common Stock, par value $0.01 36,819,898
<PAGE>
GENERAL SEMICONDUCTOR, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGES
-----
PART I. FINANCIAL INFORMATION
---------------------
Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 1998 (unaudited) and December 31, 1997 2
Consolidated Statements of Operations for the Three and
Six Months ended June 30, 1998 and 1997 (unaudited) 3
Consolidated Statements of Cash Flows for the
Six Months ended June 30, 1998 and 1997 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5-10
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-13
PART II. OTHER INFORMATION
-----------------
Legal Proceedings 14
Submission of Matters to a Vote of Stockholders 14
Exhibits 14
SIGNATURE 15
<PAGE>
PART I
FINANCIAL INFORMATION
GENERAL SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Stock Par Value)
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1998 1997 (1)
----------- -----------
Current Assets:
<S> <C> <C>
Cash ....................................................................... $ 6,378 $ 5,192
Accounts receivable, less reserves of $916
and $825, respectively ................................................ 53,498 54,077
Inventories ................................................................ 37,872 34,309
Prepaid expenses and other current assets .................................. 12,303 9,890
Deferred income taxes ...................................................... 10,720 14,263
--------- ---------
Total current assets .................................................. 120,771 117,731
Property, plant and equipment - net ........................................ 218,709 218,752
Excess of cost over fair value of net assets acquired, less accumulated
amortization of $41,357 and $38,784, respectively ...................... 165,322 167,895
Deferred income taxes, net of valuation allowance .......................... 29,172 26,509
Intangibles and other assets, less accumulated amortization of $10,163 and
$9,228, respectively ................................................... 19,153 19,418
--------- ---------
TOTAL ASSETS ............................................................... $ 553,127 $ 550,305
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ........................................................... $ 26,946 $ 38,332
Accrued expenses ........................................................... 34,884 58,352
Current portion of long-term debt .......................................... -- 4,310
--------- ---------
Total current liabilities ............................................. 61,830 100,994
Long-term debt ............................................................. 292,000 263,764
Deferred income taxes ...................................................... 20,172 21,710
Other non-current liabilities .............................................. 76,002 77,476
--------- ---------
Total liabilities ..................................................... 450,004 463,944
--------- ---------
Commitments and contingencies
Stockholders' Equity:
Preferred Stock, $0.01 par value; 20,000 shares authorized; no shares issued -- --
Common Stock, $0.01 par value; 400,000 shares authorized; 36,924
and 36,887 shares issued, respectively ................................ 369 369
Retained earnings .......................................................... 109,619 93,308
Other stockholders' equity ................................................. (6,865) (7,316)
--------- ---------
103,123 86,361
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................. $ 553,127 $ 550,305
========= =========
</TABLE>
(1) The consolidated balance sheet as of December 31, 1997 has been derived
from the audited financial statements at that date and condensed.
See notes to consolidated financial statements.
2
<PAGE>
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES ............................................ $ 98,762 $ 95,511 $ 205,159 $ 180,880
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES:
Cost of sales .................................... 70,115 88,596 141,223 154,539
Selling, general and administrative .............. 10,286 11,410 23,250 22,577
Research and development ......................... 1,463 1,818 2,963 3,250
Amortization of excess of cost over fair value
of net assets acquired ........................ 1,286 1,286 2,572 2,571
--------- --------- --------- ---------
Total operating costs and expenses .......... 83,150 103,110 170,008 182,937
--------- --------- --------- ---------
OPERATING INCOME (LOSS) .............................. 15,612 (7,599) 35,151 (2,057)
Other income (expense)-net ........................... (12) (40) (81) 11
Interest expense-net ................................. (5,067) (2,277) (9,974) (5,340)
---------- ---------- ---------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES ....................... 10,533 (9,916) 25,096 (7,386)
Provision for income taxes ........................... (3,687) 500 (8,785) (1,323)
---------- ---------- ---------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS ............. 6,846 (9,416) 16,311 (8,709)
DISCONTINUED OPERATIONS
Income from discontinued operations, net of income tax
expense of $11,443 and $23,331 in 1997 .............. -- 1,234 -- 18,210
---------- ---------- ---------- ---------
NET INCOME (LOSS) .................................... $ 6,846 $ (8,182) $ 16,311 $ 9,501
========== ========== ========== =========
Weighted Average Shares Outstanding:
Basic ............................................... 36,813 34,267 36,802 34,248
Diluted ............................................. 36,965 34,267 36,934 34,248
Basic earnings (loss) per share:
Continuing operations ............................... $ 0.19 $ (0.27) $ 0.44 $ (0.25)
Discontinued operations ............................. 0.03 0.53
----------- ---------- ---------- ---------
Net income (loss) ................................... $ 0.19 $ (0.24) $ 0.44 $ 0.28
=========== ========== ========== =========
Diluted earnings (loss) per share:
Continuing operations ............................... $ 0.19 $ (0.27) $ 0.44 $ (0.25)
Discontinued operations ............................. 0.03 0.53
---------- ---------- ---------- ---------
Net income (loss) ................................... $ 0.19 $ (0.24) $ 0.44 $ 0.28
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In Thousands)
Six Months Ended
June 30,
---------------------
1998 1997
-------- ---------
OPERATING ACTIVITIES:
Income (loss) from continuing operations .......... $ 16,311 $ (8,709)
Adjustments to reconcile to net cash
provided by continuing operating activities:
Depreciation and amortization .................. 12,116 12,106
Changes in assets and liabilities:
Accounts receivable ....................... 579 (9,749)
Inventories ............................... (3,563) 2,059
Prepaid expenses and other current assets . (2,413) (2,670)
Other non-current assets .................. (669) (681)
Deferred income taxes ..................... (658) (135)
Accounts payable and accrued expenses ..... (9,494) 14,236
Other non-current liabilities ............. (1,474) 5,355
Other .......................................... 26 (220)
-------- --------
Net cash provided by continuing operating activities 10,761 11,592
-------- --------
Cash used in discontinued operations ............... (25,130) (1,256)
-------- --------
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment . (8,794) (10,454)
Proceeds from sale of short-term investments ... -- 24,972
-------- --------
Net cash (used in) provided by investing activities (8,794) 14,518
-------- --------
FINANCING ACTIVITIES:
Net proceeds from revolving credit facilities .. 70,000 (20,000)
Principal repayment of debt .................... (46,074) (2,155)
Exercise of stock options ...................... 423 14,399
-------- --------
Net cash provided by (used in) financing activities 24,349 (7,756)
-------- --------
Increase in cash and cash equivalents .............. 1,186 17,098
-------- --------
Cash and cash equivalents, beginning of period ..... 5,192 20,252
-------- --------
Cash and cash equivalents, end of period ........... $ 6,378 $ 37,350
======== ========
See notes to consolidated financial statements.
4
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(All amounts in thousands, except per share data)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
General Semiconductor, Inc. (the "Company" or "General Semiconductor") is a
world leader in the discrete segment of the semiconductor industry. The Company
designs, manufactures and sells low-to-medium-power rectifiers, small signal
transistors and transient voltage suppression ("TVS") components in axial,
bridge, surface mount and array packages. Power rectifiers, small signal devices
and TVS products are semiconductors that are essential components of most
electronic devices and systems. Rectifiers convert alternating current (AC) into
direct current (DC) which can be utilized by electronic equipment. TVS devices
provide protection from electrical surges, ranging from electrostatic discharge
to induced lightning. Small signal devices amplify or switch low level currents.
The Company's products are primarily targeted for use in the computer,
automotive, telecommunications, lighting and consumer electronics industries.
General Instrument Corporation ("GI") (i) transferred all the assets and
liabilities relating to the manufacture and sale of broadband communications
products used in the cable television, satellite, and telecommunications
industries and all rights to the related GI trademarks to its wholly-owned
subsidiary NextLevel Systems, Inc. ("NextLevel") and all the assets and
liabilities relating to the manufacture and sale of coaxial, fiber optic and
other electric cable used in the cable television, satellite and other
industries to its wholly-owned subsidiary CommScope, Inc. ("CommScope") and (ii)
distributed all of the outstanding shares of capital stock of each of NextLevel
and CommScope to its stockholders on a pro rata basis as a dividend (the
"Distribution") in a transaction that was finalized on July 28, 1997 (the
"Distribution Date"). On the Distribution Date, NextLevel and CommScope began
operating as independent entities with publicly traded common stock. GI retained
no ownership interest in either NextLevel or CommScope. Concurrent with the
Distribution, GI changed its name to General Semiconductor, Inc. and effected a
one for four reverse stock split. On February 2, 1998, NextLevel changed its
name to General Instrument Corporation ("General Instrument").
The revenues, costs and expenses, assets and liabilities and cash flows of the
businesses transferred to the General Instrument and CommScope segments (the
"Discontinued Operations"), (See Note 2 below), have been excluded from the
respective captions in the Consolidated Statements of Operations and
Consolidated Statements of Cash Flows and have been reported as "Income from
discontinued operations", net of applicable income taxes, for the three and six
months ended June 30, 1997 and as "Cash used in discontinued operations" for the
six months ended June 30, 1998 and 1997. In this report, all share and per share
amounts have been retroactively restated to reflect the reverse stock split. For
the purpose of governing certain of the ongoing relationships among General
Semiconductor, General Instrument and CommScope after the Distribution, these
entities entered into various agreements that provided for an orderly
transition, the separation and distribution of the operating assets and
liabilities and pension plan assets and liabilities of GI, as well as tax
sharing, and other matters.
In the opinion of management, the accompanying unaudited consolidated financial
statements include all necessary adjustments (consisting of normal recurring
adjustments) and present fairly the Company's financial position as of June 30,
1998, the results of its operations for the three and six months ended June 30,
1998 and 1997, and its cash flows for the six months ended June 30, 1998 and
1997 in conformity with generally accepted accounting principles for interim
financial information applied on a consistent basis. There were no adjustments
of a non-recurring nature recorded during the six months ended June 30, 1998 and
1997 except for the charges discussed in Note 2 below. The results of operations
for the three and six months ended June 30, 1998, are not necessarily indicative
of the results to be expected for the full year. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
General Semiconductor Annual Report on Form 10-K for the year ended December 31,
1997.
5
<PAGE>
2. DISCONTINUED OPERATIONS
Net sales for the Discontinued Operations included in the statement of
operations were $609.7 million and $1,165.6 million for the three and six months
ended June 30, 1997. Discontinued operations also includes charges of $28.0
million and $32.1 million, net of applicable income taxes, for the three and six
months ended June 30, 1997, respectively, for costs incurred primarily related
to severance and the separation of the Taiwan operations of GI between General
Semiconductor and General Instrument and for professional fees and certain other
costs incurred directly related to the Distribution.
In connection with the Distribution, the Company also recorded in income from
continuing operations pre-tax charges of $25.4 million and $32.7 million to cost
of sales and $1.0 million and $1.1 million to selling, general and
administrative expenses during the three and six months ended June 30, 1997,
respectively, incurred principally in connection with the separation of the
Taiwan operations between General Semiconductor and General Instrument.
3. INVENTORIES
Inventories consist of:
June 30, 1998 December 31, 1997
------------- ------------------
Raw materials $ 5,827 $ 7,181
Work in process 13,553 12,052
Finished goods 18,492 15,076
------ ------
$37,872 $34,309
====== ======
4. LONG-TERM DEBT
Long-term debt consists of:
June 30, 1998 December 31, 1997
------------- -----------------
Senior indebtedness:
Revolving credit facility $292,000 $222,000
Taiwan loan - 46,074
-------- --------
292,000 268,074
Less: current maturities - 4,310
-------- --------
$292,000 $263,764
======= =======
At December 31, 1997, the Company had a $60.0 million loan agreement with a
consortium of banks in Taiwan. On February 26, 1998, the Company consolidated
its debt and refinanced the entire Taiwan loan balance of $46.1 million with
proceeds from borrowings under its $350.0 million credit facility which matures
on December 31, 2002.
The Company entered into two interest rate swap transactions with a term of one
year beginning on January 22, 1998 pursuant to which it pays a fixed interest
rate averaging 5.96% on a notional amount of $100 million. The Company began
receiving interest on the $100 million notional amount based on a three month
LIBOR rate set quarterly beginning on January 22, 1998. During February 1998,
the Company purchased two interest rate caps each with a notional amount of $50
million. The caps became effective on April 27, 1998 and June 29, 1998 with
terms of nine months and six months, respectively. Under the terms of the caps,
the Company will receive from the counterparties the incremental amount, if any,
associated with the three month LIBOR rate in excess of 6% on the notional
amounts. The cost of the caps were immaterial.
The effect of the swap agreements and the caps to the Company is to reduce its
amount of debt subject to floating interest rates.
6
<PAGE>
Net interest expense included in the Consolidated Statements of Operations for
the three and six months ended June 30, 1997 represents an allocation based upon
General Semiconductor's net assets as a percentage of total assets of GI.
5. INCOME TAXES
General Semiconductor, General Instrument and CommScope entered into a tax
sharing agreement (the "Tax Sharing Agreement") that defines the parties' rights
and obligations with respect to federal, state and other income or franchise
taxes relating to the businesses of GI for tax periods prior to, including and
following the Distribution and with respect to certain other tax matters.
General Instrument is responsible for consolidated federal income taxes,
consolidated or combined state income taxes and separate state income taxes of
GI and its subsidiaries and preparation and filings of the applicable returns
through July 25, 1997. Such liability will be determined assuming a closing of
the books on July 25, 1997. Liability for foreign income taxes and other taxes
will generally be allocated to the legal entity on which such taxes are imposed
except that liability for taxes relating to the transferred businesses (as
defined in the Tax Sharing Agreement) will generally be allocated to General
Instrument.
Notwithstanding the above, each of General Instrument, CommScope and General
Semiconductor is responsible for any such taxes to the extent that such taxes
are attributable to action taken by that entity or its affiliates after the
Distribution that is inconsistent with the tax treatment contemplated in the tax
ruling received from the Internal Revenue Service. The Company believes that the
Tax Sharing Agreement is fair to each of the parties and contains terms which
generally are comparable to those which would have been reached at arms-length
negotiations with unaffiliated parties.
The provision for income taxes for the six months ended June 30, 1998 and 1997
was computed utilizing the Company's expected annual effective income tax rate
and, for 1997, the tax effects of restructuring charges recorded that year at
the applicable rates.
The tax effects of temporary differences that give rise to the deferred tax
assets at June 30, 1998 and December 31, 1997 consist principally of accrued
employee benefits and environmental liabilities. Deferred tax liabilities for
the periods presented primarily relate to foreign tax withholding liabilities.
6. LITIGATION
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 GI common stock during the period
March 21, 1995 through October 18, 1995. The complaint alleges that prior to the
Distribution, GI 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 and Exchange Act of 1934, as
amended, by allegedly making false and misleading statements and failing to
disclose material facts about GI's planned shipments in 1995 of its CFT-2200 and
DigiCipher II products. Also pending in the same court, under the same name, is
a derivative action brought on behalf of GI. The derivative action alleges that
the members of GI'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 GI common stock for
personal gain. The court had granted the defendants motions to dismiss the
original complaints in both of these actions, but allowed the plaintiffs in each
action an opportunity to file amended complaints. Amended complaints were filed
on November 7, 1997. The defendants have answered the amended consolidated
complaint in the class actions, denying liability, and have filed a renewed
motion to dismiss the derivative action.
7
<PAGE>
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 was merged into a subsidiary of GI 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 GI. Plaintiffs seek, among other things, unspecified
compensatory and punitive damages and attorney's fees and costs. On September
23, 1997 the district court dismissed the complaint, without prejudice, and the
plaintiffs were given until November 7, 1997 to amend their complaint. On
November 7, 1997, plaintiffs served the defendants with amended complaints,
which contain allegations substantially similar to those in the original
complaint. The defendants have filed a motion to dismiss parts of the amended
complaint and have answered the balance of the amended compliant, denying
liability.
An action entitled BroadBand Technologies, Inc. v. General Instrument Corp. was
brought in March 1997 in the United States District Court for the Eastern
District of North Carolina. The complaint alleges that GI infringes BroadBand
Technologies, Inc.'s ("BBT") U.S. Patent No. 5,457,560, covering an electronic
communications system which delivers television signals, and seeks monetary
damages and injunctive relief. On June 13, 1997, GI's motion to dismiss the
complaint for lack of jurisdiction was denied. In March 1998, General Instrument
filed motions with the district court for summary judgement on the issues of
patent invalidity and non-infringement of the BBT patent and BBT filed a motion
of partial summary judgement on the issue of infringement. On May 5, 1998, the
action was dismissed with prejudice. The dismissal was entered into pursuant to
a settlement agreement which does not impose any monetary or other obligation on
the Company.
In connection with the Distribution, General Instrument agreed to indemnify the
Company with respect to its obligations, if any, arising out of or relating to
In Re General Instrument Corporation Securities Litigation (including the
derivative action), the BKP Partners, L.P. v. General Instrument Corp.
litigation and the action entitled BroadBand Technologies, Inc. v. General
Instrument Corp. Therefore, management is of the opinion that the resolution of
these matters will have no effect on the Company's consolidated financial
position, results of operations or cash flows.
General Semiconductor is not a party to any pending legal proceedings other than
various claims and lawsuits arising in the normal course of business and those
for which they are indemnified. Management is of the opinion that such
litigation or claims will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
7. COMMITMENTS AND CONTINGENCIES
The Company is subject to various federal, state, local and foreign laws and
regulations governing environmental matters, including the use, discharge and
disposal of hazardous materials. The Company's manufacturing facilities are
believed to be in substantial compliance with current laws and regulations.
Complying with current laws and regulations has not had a material adverse
effect on the Company's financial condition. In connection with the
Distribution, the Company retained the obligations with respect to environmental
matters relating to the Company's discontinued operations and its status as a
"potentially responsible party." The Company is involved in remediation
programs, principally with respect to former manufacturing sites, which are
proceeding in connection with federal and state regulatory oversight.
Accordingly, the Company is currently named as a "potentially responsible party"
with respect to the disposal of wastes at nine hazardous waste sites located in
six states.
The Company has engaged independent consultants to assist management in
evaluating potential liabilities related to environmental matters. Management
assesses the input from these independent consultants along with other
information known to the Company in its effort to continually monitor these
potential liabilities. Management assesses its environmental exposure on a
site-by-site basis, including those sites where the Company has been named as a
"potentially responsible party". Such assessments include the Company's share of
8
<PAGE>
remediation costs, information known to the Company concerning the size of the
hazardous waste sites, their years of operation and the number of past users and
their financial viability. The Company has recorded a reserve for environmental
matters of $32.9 million at June 30, 1998 ($34.9 million at December 31, 1997).
While the ultimate outcome of these matters cannot be determined, management
does not believe that the final disposition of these matters will have a
material adverse effect on the Company's financial position, results of
operations or cash flows beyond the amounts previously provided for in the
financial statements.
Based on the factors discussed above, capital expenditures and expenses for the
Company's remediation programs, and the proportionate share of the cost of the
necessary investigation and eventual remedial work that may be needed to be
performed at the sites for which the Company has been named as a "potentially
responsible party", are not expected to have a material adverse effect on the
Company's financial position, results of operations or cash flows. The Company's
present and past facilities have been in operation for many years, and over that
time in the course of those operations, the Company's facilities have used
substances which are or might be considered hazardous, and the Company has
generated and disposed of wastes which are or might be considered hazardous.
Therefore, it is possible that additional environmental issues may arise in the
future, which the Company cannot now predict.
8. EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings per Share" during 1997. In accordance with this pronouncement, the
Company retroactively adopted this standard and restated all historical earnings
per share data contained in this report. SFAS 128 requires presentations of
"basic" and "diluted" earnings per share.
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding during
the applicable periods. Diluted earnings per share computations are based on net
income adjusted for interest and amortization of debt issuance costs related to
convertible debt, if dilutive, and the weighted average number of common shares
outstanding adjusted for the dilutive effect of stock options and convertible
securities. The diluted earnings per share calculation assumes the exercise of
stock options using the treasury stock method.
Set forth below are reconciliations of the numerators and denominators of the
basic and diluted per share computations for the three and six months ended June
30, 1998. The effect of outstanding options and Convertible Junior Subordinated
Notes (the "Notes") for the three and six months ended June 30, 1997 was
anti-dilutive and, therfore, not included.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, 1998 Ended June 30, 1998
------------------- -------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator)(Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common stockholders ......... $ 6,846 36,813 $ 0.19 $16,311 36,802 $ 0.44
Effect of Dilutive Securities
Options ................... 152 132
------- ------
Diluted EPS
Income available to
common stockholders
plus assumed conversions .... $ 6,846 36,965 $ 0.19 $16,311 36,934 $ 0.44
</TABLE>
9
<PAGE>
9. RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 130 "Reporting Comprehensive Income" in 1998. For
the six months ended June 30, 1998 and 1997 there are no items of other
comprehensive income as defined in the pronouncement.
During 1998 the Financial Accounting Standards Board issued SFAS No.'s 132
"Employers' Disclosures about Pensions and other Postretirement Benefits" and
133 "Accounting for Derivative Instruments and Hedging Activities." SFAS 132
standardizes the disclosure requirements for pensions and other postretirement
benefits and requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis and is effective for fiscal years beginning after December 15, 1997.
The Company will implement SFAS 132 as of December 31, 1998. SFAS 133
establishes accounting and reporting standards for derivative instruments and
hedging activities and requires that an entity recognize all derivatives as
either assets or liabilities and measure those instruments at fair value. SFAS
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. The Company is evaluating the impact SFAS 133 will have on its
financial statements.
10
<PAGE>
GENERAL SEMICONDUCTOR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis pertains to the continuing
operations of General Semiconductor, Inc., unless otherwise noted, and describes
changes in the Company's financial condition since December 31, 1997.
During the second quarter the Company, like many of its competitors, experienced
a reduction in new orders in all geographic areas due partly to continuing
economic weakness in the Far East, as well as reduced end-market demand in the
computer, computer peripheral and related industries. These conditions are
exacerbated by industry wide excess capacity which has resulted in significant
competitive pricing pressures. Earnings for the second half of 1998 are expected
to decrease from that reported in the first half.
RESULTS OF OPERATIONS:
- ---------------------
NET SALES
- ---------
Net sales for the three months ended June 30, 1998 increased 3.5% to $98.8
million from $95.5 million for the comparable prior year period due to the
inclusion of small signal product revenues (business acquired on October 1,
1997) primarily in Europe, partly offset by lower worldwide average selling
prices and unfavorable foreign exchange rate fluctuations in Europe and Japan.
For the six months ended June 30, 1998 net sales increased 13.4% to $205.2
million from $180.9 million for the comparable prior year period due to the
inclusion of small signal product revenues described above and higher volume in
the base business. The increase was partly offset by lower worldwide average
selling prices and unfavorable foreign exchange rate fluctuations in Europe and
Japan. Orders decreased almost 18% for the six months ended June 30, 1998 from
the comparable prior year period.
COST OF SALES
- -------------
Cost of sales of $70.1 million and $141.2 million for the three and six months
ended June 30, 1998 compares to $88.6 million and $154.5 million for the
corresponding prior year periods. Excluding pre-tax charges of $25.4 million and
$32.7 million for the three and six months ended June 30, 1997 for severance and
costs related to the separation of the Taiwan operations of GI, cost of sales
increased $6.9 million (10.9%) and $19.4 million (15.9%) principally due to
increased sales.
Accordingly, gross margin for the three and six months ended June 30, 1998
represents 29.0% and 31.2% of net sales, respectively, compared with 33.8% and
32.7% in the comparable prior periods, excluding the charges noted above. This
decrease relates to a change in the mix of the products sold and erosion of
average selling prices partially offset by continued cost controls and the
effect of favorable foreign exchange rate fluctuations primarily related to the
New Taiwan Dollar.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses of $10.3 million for the three
months ended June 30, 1998 remained relatively stable compared with the three
months ended June 30, 1997 of $10.4 million, excluding a $1.0 million pre-tax
charge recorded in June, 1997 for transaction costs related to the Distribution.
Higher operating costs to support increased revenues were offset by lower
variable compensation expenses. For the six months ended June 30, 1998 selling,
general and administrative expenses of $23.2 million increased 7.4% from $21.6
million, excluding the $1.0 million pre-tax charge noted above, due primarily to
higher operating costs to support increased revenues. As a percentage of
revenue, selling, general and administrative expenses for the three and six
months ended June 30, 1998 decreased to 10.4% and 11.3%, respectively, from
10.9% and 11.9% for the comparable prior year periods due to proportionately
higher net sales.
11
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES
- ---------------------------------
Research and development expenses of $1.5 million and $3.0 million for the three
and six months ended June 30, 1998 decreased from $1.8 million and $3.3 million
for the comparable prior year periods. As a percentage of net sales, research
and development expenses decreased approximately to 1.5% for the three and six
month periods ended June 30, 1998 compared with approximately 1.8% for the
comparable prior year periods due to decreased spending and proportionately
higher net sales. Research and development spending reflects the modification of
existing products as well as the continued development of new products.
NET INTEREST EXPENSE
- --------------------
Net interest expense increased to $5.1 million and $10.0 million for the three
and six months ended June 30, 1998 from $2.3 million and $5.3 million for the
corresponding prior year periods. Net interest expense for the three and six
months ended June 30, 1997 represents an allocation based upon General
Semiconductor's net assets as a percentage of total assets of GI. Pro forma net
interest expense, assuming a net debt level of $275.0 million through the
Distribution Date and amortization of debt issuance costs associated with the
new borrowings, would have been $4.9 million and $9.8 million, respectively for
the three and six months ended June 30, 1997.
INCOME TAXES
- ------------
The provision for income taxes is computed utilizing the Company's expected
annual effective income tax rate. The Company's effective tax rate for the three
and six months ended June 30, 1998 decreased to 35% from 37% for the three and
six months ended June 30, 1997, excluding the charges incurred in connection
with the separation of GI's Taiwan operations, due primarily to increased income
of foreign subsidiaries taxed at rates lower than the U.S. rate.
DISCONTINUED OPERATIONS
- -----------------------
The net operating results of the businesses transferred to General Instrument
and CommScope have been reported, net of applicable income taxes, as "Income
from discontinued operations". Discontinued operations also includes charges of
$28.0 million and $32.1 million, net of applicable income taxes, for the three
and six months ended June 30, 1997, respectively, for costs incurred primarily
related to severance and the separation of the Taiwan operations of GI and for
professional fees and certain other costs incurred directly related to the
Distribution.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital at June 30, 1998 was $58.9 million compared to $16.7 million at
December 31, 1997. The working capital increase of $42.2 million resulted
primarily from payments of the remaining liabilities related to the Distribution
totaling $25.2 million, the refinancing of the Taiwan loan discussed below and
payment of year-end incentives. As a result, the current ratio increased to 2.0
to 1 at June 30, 1998 compared with 1.2 to 1 at December 31, 1997.
During the six months ended June 30, 1998, the Company invested $8.8 million in
property, plant and equipment compared with $10.5 million for the corresponding
prior year period. While the Company does not have any material commitments for
capital expenditures it does expect to invest approximately $ 20.0 million in
capital expenditures during the six months ended December 31, 1998 principally
directed to strategic initiatives and automation.
Debt increased to $292.0 million at June 30, 1998 compared to $268.1 million at
December 31, 1997 including current maturities primarily to fund the remaining
payments related to the Distribution of $25.2 million made during the six months
ended June 30, 1998. On February 26, 1998, the Company consolidated its debt and
refinanced the entire Taiwan loan balance of $46.1 million with proceeds from
borrowings under its $350.0 million credit facility which matures on December
31, 2002.
12
<PAGE>
General Semiconductor's primary cash needs on both a short and long-term basis
are for capital expenditures and other general corporate purposes. The Company
believes that it has adequate liquidity to meet its current and anticipated
needs from the results of its operations, working capital and the existing
credit facility. 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.
YEAR 2000
- ---------
The Company recognizes the importance of ensuring that neither its customers nor
its business operations are disrupted as a result of Year 2000 software
failures. The Company, with the assistance of outside consulting resources, is
centrally coordinating the identification, evaluation and implementation
activities associated with our global operating infrastructure. The primary
areas of potential business impact have been identified and conversion projects
are proceeding.
In 1996 the Company began an upgrade of its business applications software which
includes the implementation of the full suite of JD Edwards ("JDE") financial,
distribution and manufacturing applications. The JDE software was selected to
add worldwide functionality and efficiency to the business processes of the
Company in the normal course of upgrading its systems to address its business
needs. Since the suite of applications being installed is Year 2000 compliant,
incremental costs beyond the scope of this project are not currently expected to
have a material effect on the Company's results of operations and are being
expensed as incurred. The Company expects to achieve Year 2000 compliance by the
beginning of the third quarter of 1999.
The Company is also communicating with suppliers, financial institutions,
government agencies and other vendors with which it does business to coordinate
Year 2000 conversion efforts. At the present time, the Company does not expect
Year 2000 issues to materially affect its products, services, competitive
position or financial performance. However, the Company can give no assurance
that the systems of other companies on which the Company relies will be
converted on time or that a failure to convert by another company or a
conversion that is incompatible with the Company's systems would not have a
material adverse effect on the Company.
FORWARD-LOOKING STATEMENTS
- --------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. The Company's Form 10-K for the year ended
December 31, 1997, the Company's 1997 Annual Report to Stockholders, this and
any other Form 10-Q or Form 8-K of the Company, or any oral or written
statements made by or on behalf of the Company, may include forward-looking
statements which reflect the Company's current views with respect to future
events and financial performance. These forward-looking statements are
identified by their use of such terms and phrases as "intends," "intend,"
"intended," "goal," "estimate," "estimates," "expects," "expect," "expected,"
"project," "projects," "projected," "projections," "plans," "anticipates,"
"anticipated," "should," "designed to," "foreseeable future," "believe,"
"believes", "scheduled" and similar expressions. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date the statement was made. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
Reference is made to the cautionary statements contained in Exhibit 99 to this
Form 10-Q for a discussion of the factors that may cause actual results to
differ from the results discussed in these forward-looking statements.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
See Part I, Note 6 to the Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Stockholders
-----------------------------------------------
General Semiconductor held an Annual Meeting of Stockholders on May
21, 1998.
1. The stockholders approved the election of six directors. The
votes cast for each nominee were as follows:
FOR WITHHELD
--- --------
Steven B. Klinsky 34,487,300 316,517
Ronald A. Ostertag 34,497,144 306,673
Ronald Rosenzweig 34,523,445 280,372
Peter A. Schwartz 34,524,586 279,231
Samuel L. Simmons 34,519,700 284,117
Dr. Gerard T. Wrixon 34,494,959 308,858
2. The stockholders approved the adoption of the General
Semiconductor 1998 Long-Term Incentive Plan by a vote of:
21,529,620 shares in favor of the plan; 10,979,887 shares
against the plan; and 27,066 shares abstaining.
3. The stockholders ratified the appointment of Deloitte & Touche
LLP as independent auditor for the Company for the 1998 fiscal
year by a vote of: 34,779,481 shares in favor of the
appointment; 12,854 shares against the appointment; and 11,457
shares abstaining.
Item 6. Exhibits
--------
(a) Exhibits
10.1 General Semiconductor, Inc. 1998 Long-Term
Incentive Plan*
27 Financial Data Schedule
27.1 Restated Financial Data Schedules
99 Forward-Looking Information
* Incorporated herein by reference to the Company's
Registration Statement on Form S-8 filed with the
Securities and Exchange Commission on July 20, 1998
(Reg. No. 333-22861).
(b) Reports on Form 8-K
The Company filed a Form 8-K with the Securities and Exchange
Commission ("SEC"), dated July 1, 1998, to report under Item 5
of that Form that a press release was issued to the public on
June 29, 1998 regarding the Company's sales and earnings. A
copy of the press release was filed as an exhibit to the Form
8-K.
The Company filed a Form 8-K with the SEC, dated July 22,
1998, to report under Item 5 of that Form that a press release
was issued to the public on July 22, 1998 regarding the
Company's sales and earnings. A copy of the press release was
filed as an exhibit to the Form 8-K.
14
<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 SEMICONDUCTOR, INC.
August 7, 1998 /s/Andrew M.Caggia
- -------------- ------------------
Date Andrew M. Caggia
Senior Vice President and Chief Financial Officer
Signing both in his capacity as Senior Vice President
on behalf of the Registrant and as Chief
Financial Officer of the Registrant
15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000040656
<NAME> GENERAL SEMICONDUCTOR, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,378
<SECURITIES> 0
<RECEIVABLES> 53,498
<ALLOWANCES> 916
<INVENTORY> 37,872
<CURRENT-ASSETS> 120,771
<PP&E> 218,709
<DEPRECIATION> 0
<TOTAL-ASSETS> 553,127
<CURRENT-LIABILITIES> 61,830
<BONDS> 0
0
0
<COMMON> 369
<OTHER-SE> 102,754
<TOTAL-LIABILITY-AND-EQUITY> 553,127
<SALES> 205,159
<TOTAL-REVENUES> 205,159
<CGS> 141,223
<TOTAL-COSTS> 170,008
<OTHER-EXPENSES> 81
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,974
<INCOME-PRETAX> 25,096
<INCOME-TAX> 8,785
<INCOME-CONTINUING> 16,311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,311
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000040656
<NAME> GENERAL SEMICONDUCTOR, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,192
<SECURITIES> 0
<RECEIVABLES> 54,077
<ALLOWANCES> 825
<INVENTORY> 34,309
<CURRENT-ASSETS> 117,731
<PP&E> 218,752
<DEPRECIATION> 0
<TOTAL-ASSETS> 550,305
<CURRENT-LIABILITIES> 100,994
<BONDS> 0
0
0
<COMMON> 369
<OTHER-SE> 85,992
<TOTAL-LIABILITY-AND-EQUITY> 550,305
<SALES> 380,038
<TOTAL-REVENUES> 380,038
<CGS> 289,313
<TOTAL-COSTS> 345,122
<OTHER-EXPENSES> 42
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,353
<INCOME-PRETAX> 20,521
<INCOME-TAX> 11,649
<INCOME-CONTINUING> 8,872
<DISCONTINUED> (2,939)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,933
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000040656
<NAME> GENERAL SEMICONDUCTOR, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 14,649
<SECURITIES> 0
<RECEIVABLES> 54,036
<ALLOWANCES> 763
<INVENTORY> 29,278
<CURRENT-ASSETS> 120,359
<PP&E> 208,118
<DEPRECIATION> 0
<TOTAL-ASSETS> 542,259
<CURRENT-LIABILITIES> 101,450
<BONDS> 0
0
0
<COMMON> 369
<OTHER-SE> 77,289
<TOTAL-LIABILITY-AND-EQUITY> 542,259
<SALES> 276,448
<TOTAL-REVENUES> 276,448
<CGS> 219,445
<TOTAL-COSTS> 261,093
<OTHER-EXPENSES> (76)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,316
<INCOME-PRETAX> 6,115
<INCOME-TAX> 6,318
<INCOME-CONTINUING> (203)
<DISCONTINUED> (2,939)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,142)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000040656
<NAME> GENERAL SEMICONDUCTOR, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 37,350
<SECURITIES> 0
<RECEIVABLES> 50,491
<ALLOWANCES> 905
<INVENTORY> 29,492
<CURRENT-ASSETS> 135,952
<PP&E> 204,616
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,060,214
<CURRENT-LIABILITIES> 85,733
<BONDS> 0
0
0
<COMMON> 345
<OTHER-SE> 1,216,979
<TOTAL-LIABILITY-AND-EQUITY> 2,060,214
<SALES> 180,880
<TOTAL-REVENUES> 180,880
<CGS> 154,539
<TOTAL-COSTS> 182,937
<OTHER-EXPENSES> (11)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,340
<INCOME-PRETAX> (7,386)
<INCOME-TAX> 1,323
<INCOME-CONTINUING> (8,709)
<DISCONTINUED> 18,210
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,501
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000040656
<NAME> GENERAL SEMICONDUCTOR, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 82,007
<SECURITIES> 0
<RECEIVABLES> 43,482
<ALLOWANCES> 924
<INVENTORY> 28,761
<CURRENT-ASSETS> 0
<PP&E> 200,738
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,709,377
<CURRENT-LIABILITIES> 60,270
<BONDS> 0
0
0
<COMMON> 1,372
<OTHER-SE> 2,708,005
<TOTAL-LIABILITY-AND-EQUITY> 2,709,377
<SALES> 85,369
<TOTAL-REVENUES> 85,369
<CGS> 65,943
<TOTAL-COSTS> 79,827
<OTHER-EXPENSES> 51
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,063
<INCOME-PRETAX> 2,530
<INCOME-TAX> 1,823
<INCOME-CONTINUING> 707
<DISCONTINUED> 16,976
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,683
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000040656
<NAME> GENERAL SEMICONDUCTOR, INC.
<CURRENCY> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<CASH> 20,252
<SECURITIES> 49,946
<RECEIVABLES> 49,629
<ALLOWANCES> 866
<INVENTORY> 31,551
<CURRENT-ASSETS> 169,407
<PP&E> 202,281
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,057,162
<CURRENT-LIABILITIES> 99,794
<BONDS> 0
0
0
<COMMON> 343
<OTHER-SE> 1,172,810
<TOTAL-LIABILITY-AND-EQUITY> 2,057,162
<SALES> 361,891
<TOTAL-REVENUES> 361,891
<CGS> 230,687
<TOTAL-COSTS> 284,273
<OTHER-EXPENSES> 51
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,396
<INCOME-PRETAX> 67,171
<INCOME-TAX> 27,407
<INCOME-CONTINUING> 39,764
<DISCONTINUED> (41,628)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,864)
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000040656
<NAME> GENERAL SEMICONDUCTOR, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 42,778
<SECURITIES> 0
<RECEIVABLES> 44,266
<ALLOWANCES> 863
<INVENTORY> 30,166
<CURRENT-ASSETS> 135,912
<PP&E> 192,068
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,959,606
<CURRENT-LIABILITIES> 63,985
<BONDS> 0
0
0
<COMMON> 1,371
<OTHER-SE> 1,188,585
<TOTAL-LIABILITY-AND-EQUITY> 1,959,606
<SALES> 282,554
<TOTAL-REVENUES> 282,554
<CGS> 174,662
<TOTAL-COSTS> 211,514
<OTHER-EXPENSES> 65
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,722
<INCOME-PRETAX> 63,253
<INCOME-TAX> 25,744
<INCOME-CONTINUING> 37,509
<DISCONTINUED> (22,310)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,199
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.08
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000040656
<NAME> GENERAL SEMICONDUCTOR, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 32,875
<SECURITIES> 0
<RECEIVABLES> 46,853
<ALLOWANCES> 868
<INVENTORY> 30,358
<CURRENT-ASSETS> 140,286
<PP&E> 182,444
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,883,545
<CURRENT-LIABILITIES> 73,641
<BONDS> 0
0
0
<COMMON> 1,369
<OTHER-SE> 1,142,404
<TOTAL-LIABILITY-AND-EQUITY> 1,883,545
<SALES> 197,904
<TOTAL-REVENUES> 197,904
<CGS> 120,625
<TOTAL-COSTS> 147,452
<OTHER-EXPENSES> (25)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,202
<INCOME-PRETAX> 45,225
<INCOME-TAX> 18,407
<INCOME-CONTINUING> 26,818
<DISCONTINUED> 52,742
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,924)
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.78
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000040656
<NAME> GENERAL SEMICONDUCTOR, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 36,382
<SECURITIES> 0
<RECEIVABLES> 58,819
<ALLOWANCES> 1,063
<INVENTORY> 23,524
<CURRENT-ASSETS> 132,726
<PP&E> 156,714
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,799,387
<CURRENT-LIABILITIES> 88,601
<BONDS> 0
0
0
<COMMON> 306
<OTHER-SE> 676,872
<TOTAL-LIABILITY-AND-EQUITY> 1,799,387
<SALES> 414,269
<TOTAL-REVENUES> 414,269
<CGS> 254,991
<TOTAL-COSTS> 316,493
<OTHER-EXPENSES> 272
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,461
<INCOME-PRETAX> 88,043
<INCOME-TAX> 30,727
<INCOME-CONTINUING> 57,316
<DISCONTINUED> 66,466
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 123,782
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 1.68
</TABLE>
Exhibit 99
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. The Company's Form 10-K for the year ended
December 31, 1997, the Company's 1997 Annual Report to Stockholders, this and
any other Form 10-Q or Form 8-K of the Company, or any oral or written
statements made by or on behalf of the Company, may include forward-looking
statements which reflect the Company's current views with respect to future
events and financial performance. These forward-looking statements are
identified by their use of such terms and phrases as "intends," "intend,"
"intended," "goal," "estimate," "estimates," "expects," "expect," "expected,"
"project," "projects," "projected," "projections," "plans," "anticipates,"
"anticipated," "should," "designed to," "foreseeable future," "believe,"
"believes", "scheduled" and similar expressions. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date the statement was made. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
The actual results of the Company may differ significantly from the results
discussed in forward-looking statements. Factors that might cause such a
difference include, but are not limited to, (a) the general political, economic
and competitive condictions in the United States, Taiwan (Republic of China),
the People's Republic of China, Ireland, Germany, France and other markets where
the Company operates; (b) changes in capital availability or costs, such as
changes in interest rates, market perceptions of the industry in which the
Company operates, or security ratings; (c) uncertainties relating to customer
plans and commitments; (d) employee workforce factors; (e) authoritative
generally accepted accounting principles or policy changes from such standard-
setting bodies as the Financial Accounting Standards Board and the Securities
and Exchange Commission and the factors set forth below.
Factors Relating to the Distribution
On January 7, 1997, the Board of Directors of General Instrument Corporation
("GI") approved a plan to divide GI into three separate public companies. To
effect the transaction, GI (i) transferred all the assets and liabilities
relating to the manufacture and sale of broadband communications products used
in the cable television, satellite, and telecommunications industries and all
rights to the related GI trademarks to its wholly-owned subsidiary NextLevel
Systems, Inc. ("NextLevel Systems") and all the assets and liabilities relating
to the manufacture and sale of coaxial, fiber optic and other electric cable
used in the cable television, satellite and other industries to its wholly-owned
subsidiary CommScope, Inc. ("CommScope") and (ii) then distributed all of the
ordinary shares of capital stock of each of NextLevel Systems and CommScope to
its stockholders on a pro rata basis as a dividend (the "Distribution"), in a
transaction that was consummated on July 28, 1997 (the "Distribution Date"). The
Company retained all the assets and liabilities relating to the manufacture and
sale of discrete power rectifiers and transient voltage suppression components
used in telecommunications, automotive and consumer electronics products. On the
Distribution Date, NextLevel Systems and CommScope began operating as
independent entities with publicly traded common stock. GI retained no ownership
interest in either NextLevel Systems or CommScope. Concurrently with the
Distribution, GI changed its name to General Semiconductor, Inc. and effected a
one for four reverse stock split. On February 2, 1998, NextLevel Systems changed
its name to General Instrument Corporation.
The Distribution Agreement dated as of June 12, 1997, among GI, General
Instrument Corporation, and CommScope (the "Distribution Agreement") and certain
other agreements executed in connection with the Distribution (collectively, the
"Ancillary Agreements") allocate among the Company, General Instrument
Corporation and CommScope, and their respective subsidiaries, responsibility for
various indebtedness, liabilities and obligations. It is possible that a court
would disregard this contractual allocation of indebtedness, liabilities and
obligations among the parties and require the Company or its subsidiaries to
assume responsibility for obligations allocated to another party, particularly
if such other party were to refuse or was unable to pay or perform any of its
allocated obligations.
Pursuant to the Distribution Agreement and certain of the Ancillary Agreements,
the Company has agreed to indemnify the other parties (and certain related
persons) from and after consummation of the Distribution with respect to certain
indebtedness, liabilities and obligations, which indemnification obligations
could be significant.
17
<PAGE>
Although GI has received a favorable ruling from the Internal Revenue Service,
if the Distribution were not to qualify as a tax free spin-off (either because
of the nature of the Distribution or because of events occurring after the
Distribution) under Section 355 of the Internal Revenue Code of 1986, as
amended, then, in general, a corporate tax would be payable by the consolidated
group of which the Company was the common parent based upon the difference
between the fair market value of the stock distributed and the distributing
corporation's adjusted basis in such stock. The corporate level tax would be
payable by the Company and could substantially exceed the net worth of the
Company. However, under certain circumstances, General Instrument Corporation
and CommScope have agreed to indemnify the Company for such tax liability. In
addition, under the consolidated return rules, each member of the consolidated
group (including General Instrument Corporation and CommScope) is severally
liable for such tax liability.
Leverage; Certain Restrictions Under Credit Facilities
The Company is substantially more leveraged than GI was prior to the
Distribution. The degree to which the Company is leveraged could have important
consequences, including the following: (i) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
product development, acquisitions, general corporate purposes or other purposes
may be impaired; (ii) a portion of the Company's and its subsidiaries' cash flow
from operations must be dedicated to the payment of the principal of and
interest on its indebtedness; (iii) the Credit Agreement, dated as of July 23,
1997, among the Company, certain banks, and The Chase Manhattan Bank, as
Administrative Agent, contains certain restrictive financial and operating
covenants, including, among others, requirements that the Company satisfy
certain financial ratios; (iv) a significant portion of the Company's borrowings
will be at floating rates of interest, causing the Company to be vulnerable to
increases in interest rates; (v) the Company's degree of leverage may make it
more vulnerable to a downturn in general economic conditions; and (vi) the
Company's degree of leverage may limit its flexibility in responding to changing
business and economic conditions.
In addition, in a lawsuit by an unpaid creditor or representative of creditors,
such as a trustee in bankruptcy, a court may be asked to void the Distribution
(in whole or in part) as a fraudulent conveyance and to require that the
stockholders return the special dividend (in whole or in part) to the Company or
require the Company to fund certain liabilities of General Instrument
Corporation and CommScope for the benefit of creditors.
Competition
The Company operates in the discrete segment of the semiconductor business. Its
products are commodity-like in nature and are subject to cyclical variations in
pricing and capacity utilization levels. The Company is subject to competition
from a substantial number of foreign and domestic companies, some of which have
greater financial, engineering, manufacturing and other resources, or offer a
broader product line, than the Company. The Company's competitors can be
expected to continue to improve the design and performance of their products and
to introduce new products with competitive price and performance
characteristics. Although the Company believes that it enjoys certain
technological and other advantages over its competitors, realizing and
maintaining such advantages will require continued investment by the Company in
engineering, research and development, marketing and customer service and
support. There can be no assurance that the Company will have sufficient
resources to continue to make such investments or that the Company will be
successful in maintaining such advantages.
International Operations
A significant portion of the Company's products are manufactured or assembled in
Taiwan (Republic of China), the People's Republic of China, Ireland, Germany,
and France. These foreign operations are subject to the usual risks inherent in
situating operations abroad, including risks with respect to currency exchange
rates, economic and political destabilization, restrictive actions by foreign
governments, nationalizations, the laws and policies of the United States
affecting trade, foreign investment and loans, and foreign tax laws. The
Company's cost-competitive status relative to other competitors could be
adversely affected if the Company experiences unfavorable movements in foreign
currency rates. In addition, a substantial portion of the annual sales of the
Company's business are outside of the United States.
18
<PAGE>
Sales to the Asia Pacific region accounted for approximately 40% of the
Company's worldwide sales for the year ended December 31, 1997. Recent order
trends and average selling prices have weakened significantly reflecting the
current economic and currency difficulties in Southeast Asia, the economic
slowdown in Japan and the difficulties in the computer and computer peripherals
industries. However, approximately 50% of the Company's production is currently
in Taiwan, the cost of which has benefited from the weakened New Taiwan Dollar
in relation to the U.S. dollar. Additionally, extended underutilization of the
Company's manufacturing facilities, resulting in production inefficiency, could
result in further margin deterioration. There can be no assurance as to the
extent or duration of the impact of these events on the Company.
Environment
The Company is subject to various federal, state, local and foreign laws and
regulations governing environmental matters, including the use, discharge and
disposal of hazardous materials. The Company's manufacturing facilities are
believed to be in substantial compliance with current laws and regulations.
Complying with current laws and regulations has not had a material adverse
effect on the Company's financial condition. In connection with the
Distribution, the Company retained the obligations with respect to environmental
matters relating to the Company's discontinued operations and its status as a
"potentially responsible party." The Company is involved in remediation
programs, principally with respect to former manufacturing sites, which are
proceeding in connection with federal and state regulatory oversight.
Accordingly, the Company is currently named as a "potentially responsible party"
with respect to the disposal of hazardous wastes at nine hazardous waste sites
located in six states.
The Company has engaged independent consultants to assist management in
evaluating potential liabilities related to environmental matters. Management
assesses the input from these independent consultants along with other
information known to the Company in its effort to continually monitor these
potential liabilities. Management assesses its environmental exposure on a
site-by-site basis, including those sites where the Company has been named a
"potentially responsible party." Such assessments include the Company's share of
remediation costs, information known to the Company concerning the size of the
hazardous waste sites, their years of operation and the number of past users and
their financial viability. The Company has recorded a reserve for environmental
matters of $32.9 million at June 30, 1998($34.9 million at December 31, 1997).
While the ultimate outcome of these matters cannot be determined, management
does not believe that the final disposition of these matters will have a
material adverse affect on the Company's financial position, results of
operations or cash flows beyond the amounts previously provided for in the
financial statements.
The Company's present and past facilities have been in operation for many years,
and over that time in the course of those operations, such facilities have used
substances which are or might be considered hazardous, and the Company has
generated and disposed of wastes which are or might be considered hazardous.
Therefore, it is possible that additional environmental issues may arise in the
future which the Company cannot now predict.
Year 2000
The Company recognizes the importance of ensuring that neither its customers nor
its business operations are disrupted as a result of Year 2000 software
failures. The Company, with the assistance of outside consulting resources, is
centrally coordinating the identification, evaluation and implementation
activities associated with our global operating infrastructure. The primary
areas of potential business impact have been identified and conversion projects
are proceeding.
19
<PAGE>
In 1996 the Company began an upgrade of its business applications software which
includes the implementation of the full suite of JD Edwards ("JDE") financial,
distribution and manufacturing applications. The JDE software was selected to
add worldwide functionality and efficiency to the business processes of the
Company in the normal course of upgrading its systems to address its business
needs. Since the suite of applications being installed is Year 2000 compliant,
incremental costs beyond the scope of this project are not currently expected to
have a material effect on the Company's results of operations and are being
expensed as incurred. The Company expects to achieve Year 2000 compliance by the
beginning of the third quarter of 1999.
The Company is also communicating with suppliers, financial institutions,
government agencies and other vendors with which it does business to coordinate
Year 2000 conversion efforts. At the present time, the Company does not expect
Year 2000 issues to materially affect its products, services, competitive
position or financial performance. However, the Company can give no assurance
that the systems of other companies on which the Company relies will be
converted on time or that a failure to convert by another company or a
conversion that is incompatible with the Company's systems would not have a
material adverse effect on the Company.
20
