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, 2000
--------------------------------------------
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)
(631) 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 20, 2000
----------------------------- ----------------------------
Common Stock, par value $0.01 37,814,857
<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, 2000 (unaudited) and December 31, 1999 2
Consolidated Statements of Income for the Three and
Six Months ended June 30, 2000 and 1999 (unaudited) 3
Consolidated Statements of Cash Flows for the
Six Months ended June 30, 2000 and 1999 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5-10
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-14
PART II. OTHER INFORMATION
-----------------
Legal Proceedings 15
Submission of Matters to a Vote of Stockholders 15
Exhibits 15
SIGNATURE 16
<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,
2000 1999
------------------ -----------------
<S> <C> <C>
Current Assets:
Cash $ 3,831 $ 2,586
Accounts receivable, less reserves of $911 and $1,091, respectively 74,793 63,246
Inventories 47,120 43,480
Prepaid expenses and other current assets 13,899 11,843
Deferred income taxes 10,749 10,130
------------------ -----------------
Total current assets 150,392 131,285
Property, plant and equipment - net 232,150 231,217
Excess of cost over fair value of net assets acquired, less accumulated
amortization of $51,642 and $49,071, respectively 155,038 157,609
Deferred income taxes, net of valuation allowance 28,414 29,894
Intangibles and other assets, less accumulated amortization of $14,705 and
$13,083, respectively 22,571 23,794
------------------ -----------------
TOTAL ASSETS $ 588,565 $ 573,799
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 37,113 $ 31,864
Accrued expenses 40,011 34,700
------------------ -----------------
Total current liabilities 77,124 66,564
Long-term debt 252,500 276,500
Deferred income taxes 28,896 28,608
Other non-current liabilities 67,674 70,745
------------------ -----------------
Total liabilities 426,194 442,417
------------------ -----------------
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; 37,752 and
37,069 shares issued, respectively 377 371
Additional paid-in capital 11,507 2,151
Retained earnings 157,858 136,231
Other stockholder's equity (7,371) (7,371)
------------------ -----------------
162,371 131,382
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 588,565 $ 573,799
================== =================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited - In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 128,318 $ 101,583 $243,288 $198,544
--------- --------- -------- --------
OPERATING COSTS AND EXPENSES:
Cost of sales 88,810 75,020 169,247 147,497
Selling, general and administrative 14,357 11,583 27,021 22,546
Research and development 1,761 1,659 3,435 3,119
Amortization of excess of cost over fair value
of net assets acquired 1,286 1,285 2,571 2,571
---------- --------- -------- --------
Total operating costs and expenses 106,214 89,547 202,274 175,733
---------- --------- -------- --------
OPERATING INCOME 22,104 12,036 41,014 22,811
Other income (expense) - net (22) 47 (7) (11)
Interest expense-net (4,808) (5,273) (10,113) (10,321)
---------- --------- -------- --------
INCOME BEFORE INCOME TAXES 17,274 6,810 30,894 12,479
Provision for income taxes (5,181) (1,702) (9,267) (3,119)
---------- --------- -------- --------
NET INCOME $ 12,093 $ 5,108 $ 21,627 $ 9,360
========== ========= ======== ========
Weighted Average Shares Outstanding:
Basic 37,671 36,820 37,501 36,820
Diluted 49,945 36,902 49,779 36,873
Earnings per share:
Basic $ 0.32 $ 0.14 $ 0.58 $ 0.25
Diluted $ 0.28 $ 0.14 $ 0.50 $ 0.25
See notes to consolidated financial statements.
</TABLE>
<PAGE>
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------------
2000 1999
----------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 21,627 $ 9,360
Adjustments to reconcile to net cash
from operating activities:
Depreciation and amortization 14,729 13,632
Changes in assets and liabilities:
Accounts receivable (11,547) (1,475)
Inventories (3,640) (3,869)
Prepaid expenses and other current assets (2,056) 6
Other non-current assets 194 (229)
Deferred income taxes 1,149 2,245
Accounts payable and accrued expenses 12,551 (10,028)
Restructuring (716) (4,372)
Other non-current liabilities (3,071) (1,167)
Other 616 107
----------------- ----------------
Net cash provided by operating activities 29,836 4,210
----------------- ----------------
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (13,270) (11,727)
----------------- ----------------
Net cash used in investing activities (13,270) (11,727)
----------------- ----------------
FINANCING ACTIVITIES:
Net (repayments of) proceeds from revolving credit facilities (24,000) 9,000
Deferred financing fees 593 -
Exercise of stock options 8,086 -
----------------- ----------------
Net cash (used in) provided by financing activities (15,321) 9,000
----------------- ----------------
Increase in cash and cash equivalents 1,245 1,483
----------------- ----------------
Cash and cash equivalents, beginning of period 2,586 3,225
----------------- ----------------
Cash and cash equivalents, end of period $ 3,831 $ 4,708
================= ================
See notes to consolidated financial statements.
</TABLE>
<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. ("General Semiconductor" or the "Company") is a
market leader in the discrete segment of the semiconductor industry. The Company
designs, manufactures and sells a broad array of power management products
including low-to medium-power rectifiers, transient voltage suppressors ("TVS"),
small signal transistors, diodes and MOSFETs. Power rectifiers, small signal
devices, TVS products and MOSFETs 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. MOSFETs are devices that switch and/or
amplify current. The Company's products are primarily targeted for use in the
computer, automotive, telecommunications, lighting and consumer electronics
industries and are sold primarily to original equipment manufacturers,
electronic distributors and contract equipment manufacturers.
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 (the "Stock Split"). On February 2, 1998
NextLevel changed its name to General Instrument Corporation ("General
Instrument").
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, 2000, the results of its operations for the three and six months ended
June 30, 2000 and 1999, and its cash flows for the six months ended June 30,
2000 and 1999 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 and six months
ended June 30, 2000 and 1999. The results of operations for the three and six
months ended June 30, 2000 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 General Semiconductor's
Annual Report on Form 10-K for the year ended December 31, 1999.
2. INVENTORIES
Inventories consist of:
June 30, 2000 December 31, 1999
------------- -----------------
Raw materials $ 7,741 $ 5,657
Work in process 13,366 13,739
Finished goods 26,013 24,084
------- -------
$47,120 $43,480
======= =======
<PAGE>
3. LITIGATION
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 as described below. Management is of the
opinion that such litigation or claims will not have a material adverse effect
on the Company' consolidated financial position, results of operations or cash
flows.
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 Exchange Act
of 1934, as amended (the "Exchange Act"), 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 had
breached their fiduciary duties by reason of the matter complained of in the
class action and the defendants' alleged use of material non-public information
to sell shares of GI common stock for personal gain.
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.
In connection with the Distribution, General Instrument (formerly
"NextLevel Systems, Inc.") 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), and the BKP
Partners, L.P. v. General Instrument Corp. litigation. General Instrument was
acquired by Motorola Inc. in January 2000. 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.
4. 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 its discontinued operations and its status as a "potentially
responsible party." The Company is presently engaged in the remediation of eight
sites relating to discontinued operations in six states, and is a "potentially
responsible party" at five hazardous waste sites in four 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
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 a reserve recorded for environmental
matters of $29.8 million at June 30, 2000 ($30.2 million at December 31, 1999).
<PAGE>
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.
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.
5. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding during the applicable periods. In
2000, the diluted earnings per share computation is based on net income adjusted
for interest and amortization of debt issuance costs related to convertible
debt, if dilutive, divided by the weighted average number of common shares
outstanding adjusted for the dilutive effect of stock options and convertible
securities. In 1999, the diluted earnings per share computation is based on net
income divided by the weighted average number of common shares outstanding
adjusted for the dilutive effect of stock options. 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, 2000 and 1999.
<TABLE>
<CAPTION>
For the Three Months For the Three Months
Ended June 30, 2000 Ended June 30, 1999
------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Basic EPS
Net income $12,093 37,671 $0.32 $5,108 36,820 $0.14
===== =====
Effect of Dilutive Securities
Options 1,181 82
Convertible debt 1,698 11,093 -- -
------- ------ ------ ------
Diluted EPS
Net income $13,791 49,945 $0.28 $5,108 36,902 $0.14
======= ====== ===== ====== ====== =====
For the Six Months For the Six Months
Ended June 30, 2000 Ended June 30, 1999
------------------- -------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Basic EPS
Net income $21,627 37,501 $0.58 $9,360 36,820 $0.25
===== =====
Effect of Dilutive Securities
Options 1,185 53
Convertible debt 3,367 11,093 -- -
------- ------ ------ ------
Diluted EPS
Net income $24,994 49,779 $0.50 $9,360 36,873 $0.25
======= ====== ===== ====== ====== =====
</TABLE>
<PAGE>
6. GEOGRAPHIC SEGMENT INFORMATION
General Semiconductor is engaged in one industry segment, specifically, the
design, manufacture and sale of discrete semiconductors. The Company manages its
business on a geographic basis. Summarized financial information for the
Company's reportable geographic segments is presented in the following table.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999. Net sales by reportable
geographic segment reflect the originating source of the unaffiliated sale.
Intercompany transfers represent the originating geographic source of the
transfer and principally reflect product assembly which is accounted for at cost
plus a nominal profit. In determining earnings before provision for income taxes
for each geographic segment, sales and purchases between areas have been
accounted for on the basis of internal transfer prices set by the Company.
<TABLE>
<CAPTION>
United
States Europe Far East China Corporate Consolidated
------ ------ -------- ----- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Three months ended
June 30, 2000:
Net sales (a) ............ $ 68,882 $39,159 $20,277 $ - $ - $128,318
Intercompany transfers.... 36,297 44,489 41,918 13,951 (136,655) -
-------- ------- ------- ------- -------- --------
Net sales................. 105,179 83,648 62,195 13,951 (136,655) $128,318
======== ======= ======= ======= ========= ========
Interest income........... 13 11 14 2 - 40
Interest expense.......... 4,774 52 22 - - 4,848
Depreciation and
Amortization expense.... 2,723 1,386 2,398 864 - 7,371
Earnings before
Provision for
Income taxes............ 4,874 5,325 4,874 2,201 - 17,274
Income tax expense........ $ 2,542 $ 1,740 $ 535 $ 364 $ - $ 5,181
Three months ended
June 30, 1999:
Net sales (a)............. $ 54,143 $32,928 $14,512 $ - $ - $101,583
Intercompany transfers.... 31,936 34,606 42,299 9,789 (118,630) -
-------- ------- ------- ------- ---------- --------
Net sales................. 86,079 67,534 56,811 9,789 (118,630) $101,583
======== ======= ======= ======= ========== ========
Interest income........... - (4) 9 3 7 15
Interest expense.......... - 68 10 - 5,210 5,288
Depreciation and
Amortization expense.... 2,499 1,365 2,208 820 - 6,892
Earnings before
Provision for
Income taxes............ 2,523 515 2,326 1,446 - 6,810
Income tax expense........ $ 1,776 $ (336) $ 258 $ 4 $ - $ 1,702
<PAGE>
United
States Europe Far East China Corporate Consolidated
------ ------ -------- ----- --------- ------------
Six months ended
June 30, 2000:
Net sales (a) ............ $130,803 $ 74,840 $ 37,645 $ - $ - $243,288
Intercompany transfers.... 72,113 86,501 82,162 27,122 (267,898) -
-------- -------- -------- ------- ---------- --------
Net sales................. 202,916 161,341 119,807 27,122 (267,898) $243,288
======== ======== ======== ======= ========== ========
Interest income........... 25 15 24 7 - 71
Interest expense.......... 10,044 104 36 - - 10,184
Depreciation and
Amortization expense.... 5,422 2,707 4,870 1,730 - 14,729
Earnings before
Provision for
Income taxes............ 11,812 9,444 6,484 3,154 - 30,894
Income tax expense........ $ 5,276 $ 3,110 $ 457 $ 424 $ - $ 9,267
Six months ended
June 30, 1999:
Net sales (a)............. $103,830 $ 65,849 $ 28,865 $ - $ - $198,544
Intercompany transfers.... 63,542 67,965 82,312 18,928 (232,747) -
-------- -------- -------- ------- ---------- --------
Net sales................. 167,372 133,814 111,177 18,928 (232,747) $198,544
======== ======== ======== ======= ========== ========
Interest income........... - 17 10 8 6 41
Interest expense.......... - 134 20 - 10,208 10,362
Depreciation and
Amortization expense.... 4,848 2,711 4,447 1,626 - 13,632
Earnings before
Provision for
Income taxes............ 2,131 1,146 6,393 2,809 - 12,479
Income tax expense........ $ 1,265 $ 125 $ 1,717 $ 12 $ - $ 3,119
</TABLE>
(a) Included in United States net sales are export sales as follows:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
Taiwan $18,823 $15,890 $35,610 $29,717
China 12,534 8,913 22,680 17,445
------- ------- ------- -------
$31,357 $24,803 $58,290 $47,162
======= ======= ======= =======
Net sales, by country, within the European geographic segment are:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
France $ 3,404 $ 3,319 $ 6,526 $ 6,529
Germany 16,298 13,387 31,630 29,097
Italy 4,162 3,581 8,044 7,266
U.K. 6,152 4,744 10,850 7,933
Other 9,143 7,897 17,790 15,024
------- ------- ------- -------
$39,159 $32,928 $74,840 $65,849
======= ======= ======= =======
<PAGE>
7. RECENT ACCOUNTING PRONOUNCEMENTS
During 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities". 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. As amended by SFAS 137,
SFAS 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. The Company is evaluating the impact SFAS 133 will have on its
financial statements.
<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, 1999.
The following table sets forth items included in the statements of income as a
percentage of net sales:
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
Net sales............................. 100.0% 100.0% 100.0% 100.0%
Cost of sales......................... 69.2 73.9 69.6 74.3
----- ----- ----- -----
Gross profit.......................... 30.8 26.1 30.4 25.7
Selling, general and administrative... 11.2 11.4 11.1 11.4
Research and development.............. 1.4 1.6 1.4 1.6
Amortization of excess of cost over
fair value of net assets acquired... 1.0 1.3 1.1 1.3
----- ----- ----- -----
Operating income...................... 17.2 11.8 16.9 11.5
Other income (expense) - net.......... - - - -
Interest expense - net................ 3.7 5.2 4.2 5.2
----- ----- ----- -----
Income before income taxes............ 13.5 6.7 12.7 6.3
Provision for income taxes............ 4.0 1.7 3.8 1.6
----- ----- ----- -----
Net income............................ 9.4% 5.0% 8.9% 4.7%
===== ===== ===== =====
EBITDA
------
EBITDA represents earnings from continuing operations before interest, taxes,
depreciation and amortization expense. EBITDA is presented because the Company
believes it is frequently used by securities analysts, investors and other
interested parties in the evaluation of companies in our industry. However,
other companies in our industry may calculate EBITDA differently than we do.
EBITDA is not a measurement of financial performance under generally accepted
accounting principles and should not be considered as an alternative to cash
flow from operating activities or as a measure of liquidity or as an alternative
to net income or as an indicator of the Company's operating performance or any
other measures of performance derived in accordance with generally accepted
accounting principles.
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
Net income............. $12,093 $ 5,108 $21,627 $ 9,360
Interest............... 4,808 5,273 10,113 10,321
Taxes.................. 5,181 1,702 9,267 3,119
Depreciation and
amortization(1)...... 6,911 6,794 13,861 13,565
------- ------- ------- -------
EBITDA................. $28,993 $18,877 $54,868 $36,365
======= ======= ======= =======
(1) Amortization of deferred financing fees is excluded from "Depreciation and
amortization" and included in "Interest".
<PAGE>
RESULTS OF OPERATIONS
---------------------
NET SALES
---------
Net sales of $128.3 million for the three months ended June 30, 2000 increased
$26.7 million from $101.6 million for the comparable prior year period. The
26.3% increase is primarily due to increased volume partly offset by an
approximate 4% decline in average selling prices. For the six months ended June
30, 2000 net sales increased $44.7 million to $243.3 million from $198.5 million
for the corresponding prior year period. The 22.5% increase relates to increased
volume partly offset by an approximate 6% decline in average selling prices. In
each of the three and six months ended June 30, 2000 and 1999, sales to
customers in North America, Europe and Southeast Asia each represented
approximately 30% of net sales.
COST OF SALES
-------------
Cost of sales for the three and six months ended June 30, 2000 of $88.8 million
and $169.2 million compared to $75.0 million and $147.5 million for the
corresponding prior year periods. Cost of sales increased $13.8 million for the
three months and $21.7 million for the six months principally due to an increase
in unit volume and to higher costs due to a strengthened New Taiwan Dollar.
Accordingly, gross margin for the three and six months ended June 30, 2000
represents 30.8% and 30.4% of net sales, respectively, compared with 26.1% and
25.7% in the comparable prior year period. This increase relates to improved
capacity utilization and factory absorptions and continued cost controls partly
offset by a decline in worldwide average selling prices, a change in the mix of
products sold, higher material and vendor costs and the strengthened New Taiwan
Dollar.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
Selling, general and administrative expenses of $14.4 million and $27.0 million
for the three and six months ended June 30, 2000 increased from $11.6 million
and $22.5 million for the comparable prior year periods. The $2.8 million and
$4.5 million increase for the three and six months, respectively, over the
corresponding prior year periods is due primarily to higher variable
compensation and increased selling costs corresponding with higher revenues. The
current year also includes the full year effect of the Korea sales office which
opened in April 1999. As a percentage of net sales, selling, general and
administrative expenses have improved to 11.2% and 11.1% for the three and six
months ended June 30, 2000 from 11.4% in the comparable prior year periods.
RESEARCH AND DEVELOPMENT EXPENSES
---------------------------------
Research and development expenses of $1.8 million and $3.4 million for the three
and six months ended June 30, 2000 increased from $1.7 million and $3.1 million
for the comparable prior year periods due to costs incurred related to the
introduction of power MOSFETs and development of power management products.
Research and development spending reflects the modification of existing products
as well as the continued development of new products. As a percentage of net
sales, research and development expenses represent 1.4% for the three and six
months ended June 30, 2000 compared with 1.6% for the comparable prior year
periods due to the proportionately higher increase in net sales. The Company
plans to accelerate research and development spending during the second half of
2000.
NET INTEREST EXPENSE
--------------------
Net interest expense decreased to $4.8 million and $10.1 million for the three
and six months ended June 30, 2000 from $5.3 million and $10.3 million for the
corresponding prior year periods. This decrease relates to a lower average debt
balance outstanding, reduced borrowing rate on floating rate debt and the
issuance of the convertible debt described below partly offset by the
amortization of deferred financing costs related to the convertible debt.
<PAGE>
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 six
months ended June 30, 2000 increased to 30% from 25% for the six months ended
June 30, 1999 due primarily to a decrease in the percentage of the Company's
income from foreign subsidiaries taxed at rates lower than the U.S. rate.
EBITDA
------
The $10.1 million and $18.5 million increase in EBITDA for the three and six
months ended June 30, 2000, respectively, compared with the corresponding prior
year periods is due primarily to increased volume and improved factory
performance partly offset by lower selling prices.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Working capital at June 30, 2000 was $73.3 million compared to $64.7 million at
December 31, 1999. The working capital increase of $8.6 million resulted
primarily from increases in accounts receivable to support a higher revenue base
and increased inventory partly offset by increases in accrued expenses and
income taxes payable. The current ratio is 2.0 to 1 at June 30, 2000 and
December 31, 1999.
During the six months ended June 30, 2000 the Company invested approximately
$13.3 million in property, plant and equipment primarily for capacity expansion
compared with $11.7 million for the corresponding prior year period. The Company
currently plans to invest approximately $35.0 to $40.0 million in capital
expenditures for the year ended December 31, 2000 principally for certain
capacity expansions and automation. Such capital spending is largely dependent
upon the manufacturers capability to deliver equipment ordered.
In December 1999, the Company issued $172.5 million principal amount of 5.75%
convertible subordinated notes (the"Convertible Notes") due December 15, 2006.
Interest on the Convertible Notes is payable semi-annually on June 15 and
December 15 of each year, commencing in June, 2000. The Convertible Notes are
convertible into 11.1 million shares of the Company's common stock, at the
option of the holder, at a conversion price of $15.55 per share. The Convertible
Notes are redeemable at the Company's option, in whole or in part, at any time
on or after December 15, 2002 at a premium of 103.286% of par value declining
annually to 100.821% at December 15, 2005 and thereafter. The Convertible Notes
are subordinated to the Company's existing and future senior indebtedness ($80.0
million at June 30, 2000) and to certain existing and future trade payable and
other liabilities of certain of our subsidiaries (approximately $73.6 million at
June 30, 2000). The holders of the Convertible Notes may require the Company to
repurchase the notes at par value, plus interest and liquidated damages, if any,
upon a change in control of the Company. Proceeds from the Convertible Notes
were used to repay outstanding indebtedness under the Company's credit facility
described below.
In July 1997, the Company entered into a bank credit agreement, which was
amended in December 1998 and in June 1999 (as amended the "Credit Agreement")
which provides for a $350.0 million secured revolving credit facility that
matures on December 31, 2002. In December 1999 the commitment amount under the
Credit Agreement was permanently reduced by $86.3 million (50% of the gross
proceeds from issuance of the Convertible Notes) to $263.8 million. The Credit
Agreement requires the Company to pay a facility fee on the total commitment.
The Credit Agreement permits the Company to choose between two interest rate
options: the Adjusted Base Rate (as defined in the Credit Agreement), or a
Eurodollar rate (LIBOR) plus a margin which varies based on the Company's ratio
of indebtedness to earnings before interest, taxes, depreciation and
amortization as defined in the Credit Agreement. The facility fee also varies
based on that ratio. The Company is also able to set interest rates through a
competitive bid procedure. The Credit Agreement contains financial and operating
covenants, including limitations on guarantee obligations, liens, sale of
assets, indebtedness, investments, capital expenditures, payment of dividends
and leases, and requires the maintenance of certain financial ratios. In
addition, certain changes in control of the Company would cause an event of
default under the Credit Agreement. The December 1998 and June 1999 amendments
revised certain covenant compliance calculations to provide the Company with
greater flexibility. As required by the Credit Agreement, the Company entered
into a guarantee and collateral agreement in August 1999 under which
substantially all of the domestic assets and a portion of the capital stock of
its foreign subsidiaries were pledged as security to the lenders. At June 30,
2000 and December 31, 1999, the Company was in compliance with all such amended
covenants.
<PAGE>
The weighted average interest rate on the Company's long-term debt as of June
30, 2000 and 1999 was 6.7% and 6.9%, respectively.
At June 30, 2000 there were $11.0 million of letters of credit outstanding that
reduce the amount that can be borrowed against the Company's $263.8 million
credit facility.
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.
NEW EUROPEAN CURRENCY
---------------------
A new European currency (Euro) was introduced in January 1999 to replace the
separate currencies of eleven individual countries. The Company will need to
modify its payroll, benefits and pension systems, contracts with suppliers and
customers, and internal financial reporting systems to be able to process
transactions in the new currency. A three-year transition period is given during
which transactions may be made in the old currencies. This may require dual
currency processes until the conversion is complete. The Company is identifying
the issues involved and intends to develop and implement solutions. The cost of
this effort is not expected to be material and will be expensed as incurred.
There can be no assurance, however, that all problems will be foreseen and
corrected, or that no material disruption of the Company's business will occur.
The conversion to the Euro may have competitive implications on our pricing and
marketing strategies; however, any such impact is not known at this time.
Currently, the Company has not experienced any material negative impact to date
as a result of the introduction of the Euro.
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, 1999, the Company's 1999 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.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
See Part I, Note 3 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 10, 2000.
1. The stockholders approved the election of six directors.
The votes cast for each nominee were as follows:
FOR WITHHELD
--- --------
C. Scott Kulicke 35,239,325 14,989
Ronald A. Ostertag 35,241,910 12,404
Ronald Rosenzweig 35,241,785 12,529
Peter A. Schwartz 35,240,735 13,579
Samuel L. Simmons 35,236,655 17,659
Prof. Gerard T. Wrixon 35,240,498 13,816
2. The stockholders ratified the appointment of Deloitte &
Touche LLP as independent auditor for the Company for the 2000
fiscal year by a vote of 35,245,429 shares in favor of the
appointment; 8,120 shares against the appointment and 765 shares
abstaining.
Item 6. Exhibits
--------
(a) Exhibits
--------
10.8.2 First Amendment to the Supplemental Executive Retirement Plan
27 Financial Data Schedule
99 Forward Looking Information
(b) Reports on Form 8-K
-------------------
The Company filed a Form 8-K with the SEC, dated
April 20, 2000, to report under Item 5 of that Form that a
press release was issued on April 20, 2000 announcing
earnings for the thee months ended March 31, 2000. A copy
of the press release was filed as an exhibit to the Form 8-K.
<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.
July 26, 2000 /s/Robert J. Gange
------------- ----------------------------------
Date Robert J. Gange
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
