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 March 31, 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 April 22, 1998
----- -----------------------------
Common Stock, par value $0.01 36,804,632
<PAGE>
GENERAL SEMICONDUCTOR, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGES
-----
PART I. FINANCIAL INFORMATION
---------------------
Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 1998 (unaudited) and December 31, 1997 2
Consolidated Statements of Operations for the Three
Months ended March 31, 1998 and 1997 (unaudited) 3
Consolidated Statements of Cash Flows for the
Three Months ended March 31, 1998 and 1997 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-12
PART II. OTHER INFORMATION
-----------------
Legal Proceedings 13
Exhibit 13
SIGNATURE 14
<PAGE>
PART I
FINANCIAL INFORMATION
GENERAL SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Stock Par Value)
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1998 1997 (1)
----------- ------------
Current Assets:
<S> <C> <C>
Cash ....................................................................... $ 1,527 $ 5,192
Accounts receivable, less allowance for doubtful accounts of $882
and $825, respectively ................................................ 62,997 54,077
Inventories ................................................................ 34,128 34,309
Prepaid expenses and other current assets .................................. 11,849 9,890
Deferred income taxes ...................................................... 13,970 14,263
--------- ---------
Total current assets .................................................. 124,471 117,731
Property, plant and equipment - net ........................................ 217,906 218,752
Excess of cost over fair value of net assets acquired, less accumulated
amortization of $40,070 and $38,784, respectively ...................... 166,608 167,895
Deferred income taxes, net of valuation allowance .......................... 25,817 26,509
Intangibles and other assets, less accumulated amortization of $9,696 and
$9,228, respectively ................................................... 19,087 19,418
--------- ---------
TOTAL ASSETS ............................................................... $ 553,889 $ 550,305
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ........................................................... $ 34,262 $ 38,332
Accrued expenses ........................................................... 52,415 58,352
Current portion of long-term debt .......................................... -- 4,310
--------- ---------
Total current liabilities ............................................. 86,677 100,994
Long-term debt ............................................................. 274,000 263,764
Deferred income taxes ...................................................... 21,800 21,710
Other non-current liabilities .............................................. 75,312 77,476
--------- ---------
Total liabilities ..................................................... 457,789 463,944
--------- ---------
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; 36,909
and 36,887 shares issued, respectively ................................ 369 369
Retained earnings .......................................................... 102,774 93,308
Other stockholders' equity ................................................. (7,043) (7,316)
--------- ---------
96,100 86,361
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................. $ 553,889 $ 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)
Three Months Ended
March 31,
----------------------
1998 1997
--------- ---------
NET SALES ............................................ $ 106,397 $ 85,369
--------- ---------
OPERATING COSTS AND EXPENSES:
Cost of sales .................................... 71,108 65,943
Selling, general and administrative .............. 12,964 11,167
Research and development ......................... 1,500 1,432
Amortization of excess of cost over fair value
of net assets acquired ........................ 1,286 1,285
--------- ---------
Total operating costs and expenses .......... 86,858 79,827
--------- ---------
OPERATING INCOME ..................................... 19,539 5,542
Other income (expense)-net ........................... (69) 51
Interest expense-net ................................. (4,907) (3,063)
--------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES .................................. 14,563 2,530
Provision for income taxes ........................... (5,097) (1,823)
--------- ---------
INCOME FROM CONTINUING OPERATIONS .................... 9,466 707
DISCONTINUED OPERATIONS
Income from discontinued operations, net of income tax
expense of $11,891 .................................. -- 16,976
--------- ---------
NET INCOME ........................................... $ 9,466 $ 17,683
========= =========
Weighted Average Shares Outstanding:
Basic .............................................. 36,791 34,231
Diluted ............................................ 36,904 34,348
Basic earnings per share:
Continuing operations ............................... $ 0.26 $ 0.02
Discontinued operations ............................. 0.50
--------- ---------
Net income .......................................... $ 0.26 $ 0.52
========= =========
Diluted earnings per share:
Continuing operations ............................... $ 0.26 $ 0.02
Discontinued operations ............................. 0.49
--------- ---------
Net income .......................................... $ 0.26 $ 0.51
========= =========
See notes to consolidated financial statements.
3
<PAGE>
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
-------- ---------
OPERATING ACTIVITIES:
<S> <C> <C>
Income from continuing operations ..................................................... $ 9,466 $ 707
Adjustments to reconcile to net cash
provided by continuing operating activities:
Depreciation and amortization ...................................................... 6,074 5,974
Changes in assets and liabilities:
Accounts receivable ........................................................... (8,920) (2,740)
Inventories ................................................................... 181 2,790
Prepaid expenses and other current assets ..................................... (1,959) (1,293)
Other non-current assets ...................................................... (137) 77
Deferred income taxes ......................................................... 1,075 (1,178)
Accounts payable and accrued expenses ......................................... (3,234) (9,042)
Other non-current liabilities ................................................. (2,164) (1,081)
Other .............................................................................. 120 (124)
-------- --------
Net cash provided by (used in) continuing operating activities ......................... 502 (5,910)
-------- --------
Cash (used in) provided by discontinued operations ..................................... (6,553) 8,784
-------- --------
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment ..................................... (3,797) (2,460)
Proceeds from sale of short-term investments ....................................... -- 24,972
-------- --------
Net cash (used in) provided by investing activities .................................... (3,797) 22,512
-------- --------
FINANCING ACTIVITIES:
Net proceeds from revolving credit facilities ...................................... 52,000 36,000
Principal repayment of debt ........................................................ (46,074) --
Exercise of stock options .......................................................... 257 369
-------- --------
Net cash provided by financing activities .............................................. 6,183 36,369
-------- --------
(Decrease) increase in cash and cash equivalents ....................................... (3,665) 61,755
-------- --------
Cash and cash equivalents, beginning of period ......................................... 5,192 20,252
-------- --------
Cash and cash equivalents, end of period ............................................... $ 1,527 $ 82,007
======== ========
</TABLE>
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 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 transistors amplify or switch low level currents. The
Company's products are primarily targeted for use in the computer, automotive,
telecommunications and consumer electronics industries.
The revenues, costs and expenses, assets and liabilities and cash flows of the
businesses transferred to the NextLevel Systems, Inc. ("NextLevel") and
CommScope, Inc.("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 and as "Cash flow from discontinued operations" for the three months ended
March 31, 1997. In this report, all share and per share amounts have been
retroactively restated to reflect the reverse stock split as discussed in Note 2
below. For the purpose of governing certain of the ongoing relationships among
General Semiconductor, NextLevel and CommScope after the Distribution, these
entities entered into various agreements that provide for an orderly transition,
the separation and distribution of the operating assets and liabilities and
pension plan assets and liabilities of General Instrument Corporation ("GI"), as
well as tax sharing, and other matters.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all necessary adjustments (consisting of normal
recurring adjustments) and present fairly the Company's financial position as of
March 31, 1998, the results of its operations for the three months ended March
31, 1998 and 1997, and its cash flows for the three months ended March 31, 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 three months ended March 31, 1998
and 1997 except for the charges discussed in Note 2 below. The results of
operations for the three months ended March 31, 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.
Certain reclassifications have been made to the prior year consolidated
financial statements to conform with the current year presentation.
2. DISCONTINUED OPERATIONS
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 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 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 Systems and CommScope began operating as
5
<PAGE>
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").
Net sales for the Discontinued Operations included in the Consolidated Statement
of Operations were $655.9 million for the three months ended March 31, 1997.
Discontinued operations also includes a charge of $2.0 million, net of
applicable income taxes, for the three months ended March 31, 1997, for
professional fees and certain other administrative 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 $7.3 million to cost of sales for
severance related to the separation of the Taiwan operations of GI and $0.1
million to selling, general and administrative expenses, during the three months
ended March 31, 1997.
3. INVENTORIES
Inventories consist of:
March 31, 1998 December 31, 1997
-------------- -----------------
Raw materials $ 5,458 $ 7,181
Work in process 11,807 12,052
Finished goods 16,863 15,076
------- -------
$34,128 $34,309
======= =======
4. LONG-TERM DEBT
Long-term debt consists of:
March 31, 1998 December 31, 1997
-------------- -----------------
Senior indebtedness:
Revolving credit facility $274,000 $222,000
Taiwan loan - 46,074
-------- --------
268,074
Less: current maturities - 4,310
-------- --------
$274,000 $263,764
======== ========
At December 31, 1997, the Company had a $60 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.
In September 1997 the Company entered into two interest rate swap transactions
pursuant to which it will pay 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. The agreements began on January 22, 1998 and
mature one year later.
6
<PAGE>
During February 1998, the Company purchased two interestrate caps each with a
notional amount of $50 million. The caps are 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. Net interest expense included
in the Consolidated Statements of Operations for the three months ended March
31, 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 three months ended March 31, 1998 and
1997 was computed utilizing the Company's expected annual effective income tax
rate and the tax effects of restructuring charges recorded during 1997 at the
applicable rates.
The tax effects of temporary differences that give rise to the deferred tax
assets at March 31, 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. The plaintiffs have moved for class certification and
7
<PAGE>
the Company has filed its opposition. 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.
An action entitled BKP Partners, L.P.v. General Instrument Corp. was brought in
February 1996 by shareholders of NextLevel Communications, which was merged into
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 complaint alleges that the GI Common Stock, which was received by
the plaintiffs as a result of the merger, was overpriced because of the matters
complained of in the class action and GI's failure to disclose information
concerning a significant reduction in its gross margins. On September 23, 1997
the district court dismissed the complaint, without prejudice, and the
plaintiffs were given until November 7, 1997 to amend their complaints. On
November 7, 1997, plaintiffs served the defendants with amended complaints,
which contain allegations substantially similar to those in the original
complaint. 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.
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. 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
8
<PAGE>
the applicable periods. Diluted earnings per share computations is 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 months ended March 31,
1998 and 1997.
For the Three Months Ended March 31, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
Income available to common stockholders $9,466 36,791 $0.26
====
Effect of Dilutive Securities
Options - 113
------ ------
Diluted EPS
Income available to common stockholders
plus assumed conversions $9,466 36,904 $0.26
====== ====== ====
For the Three Months Ended March 31, 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
Income from continuing operations
available to common stockholders $ 707 34,231 $0.02
====
Effect of Dilutive Securities
Options - 117
------ ------
Diluted EPS
Income from continuing operations
available to common stockholders
plus assumed conversions $ 707 34,348 $0.02
====== ====== ====
8. RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 130 "Reporting Comprehensive Income" in 1998. For
the three months ended March 31, 1998 and 1997 there are no items of other
comprehensive income as defined in the pronouncement.
9
<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
material changes in the Company's financial condition since December 31, 1997.
RESULTS OF OPERATIONS:
- ---------------------
NET SALES
- ---------
Net sales for the three months ended March 31, 1998 of $106.4 million increased
$21.0 million from $85.4 million for the comparable prior year period. The 24.6%
increase reflects increased volume shipments as well as the inclusion of small
signal product revenues (business acquired on October 1, 1997), partially offset
by lower average selling prices and unfavorable foreign exchange rate
fluctuations. Orders increased almost 18% for the three months ended March 31,
1998 over the comparable prior year period.
COST OF SALES
- -------------
Cost of sales of $71.1 million for the three months ended March 31, 1998
compares to $65.9 million for the corresponding prior year period. Excluding
pre-tax charges of $7.3 million for severance related to the separation of the
Taiwan operations of GI, cost of sales increased $12.4 million or 21.2%
principally due to increased volume. Cost of sales for the three months ended
March 31, 1998 represents 66.8% of net sales compared with 68.7% in the prior
period excluding the charges noted above. This improvement relates to better
factory utilization, continued cost controls and the effect of favorable foreign
exchange rate fluctuation primarily related to the New Taiwan Dollar.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses of $13.0 million for the three
months ended March 31, 1998 increased from $11.2 million for the comparable
prior year period. While in absolute dollars selling, general and administrative
expenses increased 16.1% from the prior year period, as a percentage of net
sales such expenses were reduced to 12.2% from 13.1%. The $1.8 million increase
relates primarily to higher selling costs and compensation expense associated
with increased revenues.
RESEARCH AND DEVELOPMENT EXPENSES
- ---------------------------------
Research and development expenses of $1.5 million for the three months ended
March 31, 1998 increased from $1.4 million for the comparable prior year period.
As a percentage of net sales, research and development expenses decreased to
1.4% for the three months ended March 31, 1998 compared with 1.6% for the three
months ended March 31, 1997 due to the proportionately higher increase in net
sales. The increased level of spending reflects the modification of existing
products as well as the continued development of new products.
NET INTEREST EXPENSE
- --------------------
Net interest expense increased to $4.9 million for the three months ended March
31, 1998 from $3.1 million for the corresponding prior year period. Net interest
expense for the three months ended March 31, 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 for the three months ended
March 31, 1997.
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INCOME TAXES
- ------------
The Company's effective tax rate for the three months ended March 31, 1998
decreased to 35% from 72% for the three months ended March 31, 1997. Excluding
the charges incurred in connection with the separation of GI's Taiwan
operations, the effective tax rate for the three months ended March 31, 1997
would have been 37%. The provision for income taxes for the three months ended
March 31, 1998 was computed utilizing the Company's expected annual effective
income tax rate of 35%. The decrease in the effective rate from 37%, (excluding
the charges noted above) for the comparable prior year period relates 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
(Loss) from discontinued operations". Discontinued operations also includes a
charge of $2.0 million, net of applicable income taxes, for the three months
ended March 31, 1997 for professional fees and certain other administrative
costs incurred directly related to the Distribution.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital at March 31, 1998 was $37.8 million compared to $16.7 million at
December 31, 1997. The working capital increase of $21.1 million resulted
primarily from an increase in accounts receivable associated with increased
revenues, reductions in amounts payable related to the Distribution resulting
from payments totaling $6.5 million, and the reclassification of current
maturities of long-term debt relating to the repayment of the Taiwan loan
discussed below. As a result, the current ratio increased to 1.4 to 1 at March
31, 1998 compared with 1.2 to 1 at December 31, 1997.
During the three months ended March 31, 1998, the Company invested $3.8 million
in property, plant and equipment compared with $2.5 million for the
corresponding prior year period. Capital expenditures reflect the expansion of
capacity to meet anticipated future production demands. The Company does not
have any material commitments for capital expenditures.
Debt was $274.0 million at March 31, 1998 compared to $268.1 million at December
31, 1997 including current maturities. 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 used cash during the three months ended March 31, 1998 primarily in
support of its operations and for payments in connection with the Distribution.
As of March 31, 1997, the Company had $82.0 million of cash and cash equivalents
primarily derived from the proceeds from the sale of short-term investments and
borrowings under its credit facilities. Maintenance of the higher cash balance
was a temporary requirement of the Taiwan government to be used in connection
with the separation of GI's Taiwan operations related to the Distribution.
The Company expects to make the remaining payments related to the Distribution
of approximately $19.0 million during the three months ended June 30, 1998.
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.
11
<PAGE>
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" and "scheduled" and similar expressions. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date the statement was made. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
Reference is made to the cautionary statements contained in Exhibit 99 to the
Company's Form 10-K for the year ended December 31, 1997 for a discussion of the
factors that may cause actual results to differ from the results discussed in
these forward looking statements.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
There have been no material developments in the legal proceedings reported
in Item 3 in the Company's Form 10-K for the year ended December 31, 1997.
Item 6. Exhibit
--------
(a) Exhibit
-------
27 Financial Data Schedule
(b) Report on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
three months ended March 31, 1998.
13
<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.
May 4, 1998 /s/Andrew M. Caggia
- ----------- --------------------
Date Andrew M. Caggia
Sr. Vice President and Chief Financial Officer
Signing both in his capacity as Sr. Vice President
on behalf of the Registrant and as Chief
Financial Officer of the Registrant
14
<PAGE>
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