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, 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 April 20, 2000
- ----------------------------- -----------------------------
Common Stock, par value $0.01 37,752,646
<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, 2000 (unaudited) and December 31, 1999 2
Consolidated Statements of Income for the Three Months
ended March 31, 2000 and 1999 (unaudited) 3
Consolidated Statements of Cash Flows for the Three Months
ended March 31, 2000 and 1999 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART II. OTHER INFORMATION
-----------------
Legal Proceedings 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)
March 31, December 31,
2000 1999
------------------ -----------------
<S> <C> <C>
Current Assets:
Cash $ 5,417 $ 2,586
Accounts receivable, less reserves of $826
and $1,091, respectively 67,820 63,246
Inventories 46,203 43,480
Prepaid expenses and other current assets 12,531 11,843
Deferred income taxes 10,223 10,130
------------------ -----------------
Total current assets 142,194 131,285
Property, plant and equipment - net 231,583 231,217
Excess of cost over fair value of net assets acquired, less accumulated
amortization of $50,356 and $49,071, respectively 156,324 157,609
Deferred income taxes, net of valuation allowance 29,986 29,894
Intangibles and other assets, less accumulated amortization of $13,868 and
$13,083, respectively 23,675 23,794
------------------ -----------------
TOTAL ASSETS $ 583,762 $ 573,799
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 35,080 $ 31,864
Accrued expenses 36,578 34,700
------------------ -----------------
Total current liabilities 71,658 66,564
Long-term debt 264,500 276,500
Deferred income taxes 29,052 28,608
Other non-current liabilities 68,696 70,745
------------------ -----------------
Total liabilities 433,906 442,417
------------------ -----------------
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 11,085 2,151
Retained earnings 145,765 136,231
Other stockholder's equity (7,371) (7,371)
------------------ -----------------
149,856 131,382
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 583,762 $ 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
------------------
March 31,
---------
2000 1999
---- ----
<S> <C> <C>
NET SALES $ 114,970 $ 96,961
--------- --------
OPERATING COSTS AND EXPENSES:
Cost of sales 80,437 72,477
Selling, general and administrative 12,664 10,963
Research and development 1,674 1,460
Amortization of excess of cost over fair value
of net assets acquired 1,285 1,286
----- -----
Total operating costs and expenses 96,060 86,186
------ ------
OPERATING INCOME 18,910 10,775
Other income (expense) - net 15 (58)
Interest expense-net (5,305) (5,048)
------ ------
INCOME BEFORE INCOME TAXES 13,620 5,669
Provision for income taxes (4,086) (1,417)
------ ------
NET INCOME $ 9,534 $ 4,252
======= =======
Weighted Average Shares Outstanding:
Basic 37,331 36,820
Diluted 49,612 36,844
Earnings per share:
Basic $ 0.26 $ 0.12
Diluted $ 0.23 $ 0.12
See notes to consolidated financial statements.
</TABLE>
<PAGE>
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------------
2000 1999
----------------- ----------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 9,534 $ 4,252
Adjustments to reconcile to net cash
from operating activities:
Depreciation and amortization 7,358 6,740
Changes in assets and liabilities:
Accounts receivable (4,574) (5,302)
Inventories (2,723) (2,953)
Prepaid expenses and other current assets (688) 78
Other non-current assets (158) 776
Deferred income taxes 258 1,308
Accounts payable and accrued expenses 6,697 (7,034)
Restructuring (370) (2,945)
Other non-current liabilities (2,049) 339
Other 691 (394)
----------------- ----------------
Net cash provided by (used in ) operating activities 13,976 (5,135)
----------------- ----------------
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (6,750) (6,787)
----------------- ----------------
Net cash used in investing activities (6,750) (6,787)
----------------- ----------------
FINANCING ACTIVITIES:
Net (repayments of) proceeds from revolving credit facilities (12,000) 11,000
Deferred financing fees (101) -
Exercise of stock options 7,706 -
----------------- ----------------
Net cash (used in) provided by financing activities (4,395) 11,000
----------------- ----------------
Increase (decrease) in cash and cash equivalents 2,831 (922)
----------------- ----------------
Cash and cash equivalents, beginning of period 2,586 3,225
----------------- ----------------
Cash and cash equivalents, end of period $ 5,417 $ 2,303
================= ================
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 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. 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 March 31,
2000, the results of its operations for the three months ended March 31, 2000
and 1999, and its cash flows for the three months ended March 31, 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 months ended March 31, 2000
and 1999. The results of operations for the three months ended March 31, 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:
March 31, 2000 December 31, 1999
-------------- -----------------
Raw materials $ 6,191 $ 5,657
Work in process 14,024 13,739
Finished goods 25,988 24,084
------ ------
$46,203 $43,480
======= =======
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's 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 $30.0 million at March 31, 2000 ($30.2 million at December 31, 1999).
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, an+ 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 months ended March 31,
2000 and 1999.
<TABLE>
<CAPTION>
Ended March 31, 2000 Ended March 31, 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 $ 9,534 37,331 $0.26 $4,252 36,820 $0.12
======= ====== ===== ====== ====== =====
Effect of Dilutive Securities
Options 1,188 24
Convertible debt 1,669 11,093 -- -
----- ------ ------ ------
Diluted EPS
Net income $11,203 49,612 $0.23 $4,252 36,844 $0.12
======= ====== ===== ====== ====== =====
</TABLE>
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 10K 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.
<PAGE>
<TABLE>
<CAPTION>
United
States Europe Far East China Corporate Consolidated
------ ------ -------- ----- --------- ------------
Three months ended March
31, 2000:
<S> <C> <C> <C> <C> <C> <C>
Net sales (a) ............ $61,920 $35,682 $17,368 $ - $ - $114,970
Intercompany transfers.... 35,816 42,011 40,244 13,172 (131,243) -
------ ------ ------ ------ -------- -------
Net sales................. 97,736 77,693 57,612 13,172 (131,243) $114,970
====== ====== ====== ====== ======== ========
Interest income........... - 4 10 5 13 32
Interest expense.......... - 52 14 - 5,271 5,337
Depreciation and
amortization expense.... 2,290 1,322 2,473 866 407 7,358
Earnings(loss) before
provision for
income taxes............ 6,936 4,119 1,611 954 - 13,620
Income tax expense........ $ 2,734 $ 1,369 $ (78) $ 61 $ - $ 4,086
Three months ended
March 31, 1999:
Net sales (a)............. $49,688 $32,921 $14,352 $ - $ - $ 96,961
Intercompany transfers.... 31,606 33,360 40,012 9,139 (114,117) -
------ ------ ------ ----- -------- -------
Net sales................. 81,294 66,281 54,364 9,139 (114,117) $ 96,961
====== ====== ====== ===== ======== ========
Interest income........... - 21 - 5 - 26
Interest expense.......... - 66 10 - 4,998 5,074
Depreciation and
amortization expense..... 2,349 1,346 2,239 806 - 6,740
Earnings(loss) before
provision for
income taxes............. (393) 631 4,067 1,364 - 5,669
Income tax expense........ $ (511) $ 460 $ 1,460 $ 8 $ - $ 1,417
</TABLE>
(a) Included in United States net sales are export sales as follows:
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
Taiwan $16,787 $13,827
China 10,146 8,532
------ -----
$26,933 $22,359
======= =======
Net sales, by destination, within the European geographic segment are:
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
France $ 3,122 $ 3,210
Germany 15,332 15,710
Italy 3,882 3,685
U.K. 4,698 3,189
Other 8,648 7,127
----- -----
$35,682 $32,921
======= =======
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
Ended March 31,
---------------
2000 1999
---- ----
Net sales............................................. 100.0% 100.0%
Cost of sales................. ....................... 70.0 74.8
---- ----
Gross profit.......................................... 30.0 25.2
Selling, general and administrative................... 11.0 11.3
Research and development.............................. 1.5 1.5
Amortization of excess of cost over
fair value of net assets acquired................... 1.1 1.3
--- ---
Operating income...................................... 16.4 11.1
Other income (expense)- net........................... - -
Interest expense - net................................ 4.6 5.2
--- ---
Income before income taxes............................ 11.8 5.9
Provision for income taxes............................ 3.5 1.5
--- ---
Net income............................................ 8.3% 4.4%
=== ===
EBITDA
- ------
EBITDA represents earnings from continuing operations before interest, taxes,
depreciation and amortization expense. EDITDA 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 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 March 31,
----------------------------
2000 1999
---- ----
Net income............................. $ 9,534 $ 4,252
Interest............................... 5,305 5,048
Taxes.................................. 4,086 1,417
Depreciation and amortization(1)....... 6,951 6,771
------- -------
EBITDA................................. $25,876 $17,488
======= =======
(1) Amortization of deferred financing fees is excluded from "Depreciation and
amortization" and included in "Interest".
RESULTS OF OPERATIONS:
- ----------------------
NET SALES
- ---------
Net sales of $115.0 million for the three months ended March 31, 2000 increased
$18.0 million from $97.0 million for the comparable prior year period. The
increase is primarily due to increased volume partly offset by an approximate
10% decline in average selling prices. In each of the three months ended March
31, 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 months ended March 31, 2000 of $80.4 million
compared to $72.5 million for the corresponding prior year period. Cost of sales
increased $7.9 million 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 months ended March 31, 2000 represents
30.0% of net sales compared with 25.3% in the comparable prior 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 $12.7 million for the three
months ended March 31, 2000 increased from $11.0 million for the comparable
prior year period. The $1.7 million increase is due primarily to higher variable
compensation and increased selling costs corresponding with higher revenues. The
current year also includes the effect of the Korea sales office which opened in
April, 1999.
NET INTEREST EXPENSE
- --------------------
Net interest expense increased to $5.3 million for the three months ended March
31, 2000 from $5.0 million for the corresponding prior year period. The $0.3
million increase relates primarily to the amortization of deferred financing
costs related to the convertible debt described below.
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
months ended March 31, 2000 increased to 30% from 25% for the three months ended
March 31, 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 $8.4 million increase in EBITDA for the three months ended March 31, 2000
compared with the corresponding prior year period is due primarily to increased
volume and improved factory performance offset by lower selling prices.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital at March 31, 2000 was $70.5 million compared to $64.7 million at
December 31, 1999. The working capital increase of $5.8 million resulted
primarily from increases in accounts receivable to support a higher revenue base
and increased inventory due to additional customer requested consignments partly
offset by an increase in accrued interest due to the convertible debt
outstanding. The current ratio is 2.0 to 1 at March 31, 2000 and December 31,
1999.
During each of the three month periods ended March 31, 2000 and 1999 the Company
invested approximately $6.8 million in property, plant and equipment. 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.
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 ($92.0
million at March 31, 2000) and to certain existing and future trade payable and
other liabilities of certain of our subsidiaries (approximately $65.6 million at
March 31, 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 March 31,
2000 and December 31, 1999, the Company was in compliance with all such amended
covenants.
The weighted average interest rate on the Company's long-term debt as of March
31, 2000 and 1999 was 6.7% and 6.6%, respectively.
At March 31, 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.
YEAR 2000
- ---------
The Company did not experience a material adverse effect on its products,
services, competitive position, financial condition or results of operations as
a result of the Year 2000 phenomenon. However, the Company can give no assurance
that the systems of other companies or government agencies on which the Company
relies have been converted on time or that a failure to convert by another
company or a conversion that is incompatible with the Company's systems will not
have a material adverse effect on the Company.
The disclosures contained herein constitute Year 2000 Readiness Statements
pursuant to the Year 2000 Information and Readiness Disclosure Act, Public Law
105-271.
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 6. Exhibits
--------
(a) Exhibits
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 February 4,
2000, to report under Item 5 of that Form that a press
release was issued on February 3, 2000 announcing earnings
for the year ended December 31, 1999. 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.
April 24, 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
GENERAL SEMICONDUCTOR, INC.
EXHIBIT 99 - FORWARD LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward looking statements. Our Form 10-K for the year ended December 31,
1999, our 1999 Annual Report to Stockholders, any Form 10-Q or Form 8-K of ours,
or any other oral or written statements made by or on behalf of General
Semiconductor, may include forward looking statements which reflect our 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. We undertake no
obligation to publicly update or revise any forward looking statements, whether
as a result of new information, future events or otherwise.
Our actual results 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
conditions in the United States, Taiwan (Republic of China), the People's
Republic of China, Ireland, Germany, France and other markets where we operate;
(b) changes in capital availability or costs, such as changes in interest rates,
market perceptions of the industry in which we operate, 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.
Our substantial indebtedness could restrict our operations and make us more
vulnerable to adverse economic conditions.
We have had and will continue to have a substantial amount of outstanding
indebtedness with significant debt service requirements. In the future, we may
incur additional indebtedness.
Our substantial current and future indebtedness could have important
consequences. For example, it could:
o impair our ability to obtain additional financing in the future;
o reduce funds available to us for other purposes, including working capital,
capital expenditures, research and development, strategic acquisitions and other
general corporate purposes;
o restrict our ability to introduce new products or exploit business
opportunities;
o increase our vulnerability to economic downturns and competitive pressures in
the industry in which we operate;
o increase our vulnerability to interest rate increases to the extent debt under
our credit facility is not hedged because the interest rates under our credit
facility are variable;
o limit our ability to dispose of assets;
o make it more difficult for us to satisfy our obligations with respect to the
notes; and
o place us at a competitive disadvantage.
We will require a significant amount of cash to service our debt. Our ability to
generate cash depends upon many factors beyond our control.
We will require a significant amount of cash to service our indebtedness and to
fund our operations. Based on our current level of operations, we believe that
our cash flow from operations and our available financing will be adequate to
meet our anticipated requirements for operating our business and servicing our
debt. Our ability to generate cash depends upon, among other things, our future
operating performance. To a large extent, this depends upon economic, financial,
competitive and other factors beyond our control. If we cannot generate enough
cash from operations to make payments on our indebtedness, we will need to
refinance our indebtedness, obtain additional financing or sell assets. We
cannot assure you that we would be able to do so or do so without additional
expense.
We operate in an industry that has recently experienced unusually large price
declines and future pricing declines may adversely affect our business, results
of operations and liquidity.
The discrete segment of the semiconductor industry has recently experienced
unusually large price declines and may experience such declines in the future.
During 1998 and the first quarter of 1999, average selling prices of our
products weakened at rates beyond those historically experienced due to
continued excess capacity in the industry. The excess capacity resulted from a
combination of factors, including industry capacity expansion in 1996, economic
difficulties in Southeast Asia, the economic slowdown in Japan and difficulties
in the computer and computer peripherals industry. During this period, our
production facilities were underutilized. The underutilization of our facilities
for an extended period in the future could result in production inefficiencies
and cause a reduction in our operating margins. We cannot assure you that our
industry will not experience future price declines which could have a material
adverse effect on our business, results of operations and liquidity.
We face significant competition in the discrete segment of the semiconductor
industry, which may adversely affect us.
We are 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 we do. Our 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 we believe that we enjoy certain technological and
other advantages over our competitors, realizing and maintaining such advantages
will require continued investment by us in engineering, research and
development, marketing and customer service and support. We cannot assure you
that we will have sufficient resources to continue to make such investments or
that we will be successful in maintaining our advantages.
Our business is subject to the economic and political risks of operating our
facilities and selling our products in foreign countries.
Almost all of our 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 risks inherent in situating operations
abroad, including risks with respect to currency exchange rates, economic and
political destabilization, restrictive actions by foreign governments,
nationalizations, natural events such as severe weather, floods and earthquakes,
the laws and policies of the United States affecting trade, foreign investment
and loans, and foreign tax laws. Our cost-competitive status could be adversely
affected if, relative to our competitors, we experience unfavorable movements in
foreign currency exchange rates.
In addition, international sales of our products generally represent
approximately 70% of our annual sales. Our financial performance in the future
may be adversely affected by international economic conditions.
We may not be able to successfully make acquisitions.
As part of our business strategy, we intend to make acquisitions. We may not be
able to complete any acquisition in the future or identify those candidates that
would result in a successful transaction. In addition, we may not be able to
complete future acquisitions at acceptable prices and terms, and increased
competition for acquisition candidates could result in fewer acquisition
opportunities and higher acquisition prices. The magnitude, timing and nature of
future acquisitions will depend upon various factors, including:
o the availability of suitable acquisition candidates;
o competition with others for suitable acquisitions;
o the negotiation of acceptable terms;
o our access to capital;
o the availability of skilled employees to manage and operate the acquired
companies; and
o general economic and business conditions.
We expect to finance acquisitions with cash on hand, through issuance of debt or
equity securities and through borrowings under credit arrangements, including
pursuant to our credit facility, subject to the restrictions set forth in the
credit facility. The ability to obtain debt or equity financing is subject to
market conditions and to limitations imposed on us by our credit facility.
Therefore, we may not be able to obtain additional financing in order to finance
future acquisitions. Our operating and financial flexibility could be
substantially limited if we use cash to complete acquisitions.
Potential environmental liabilities, including those relating to former
operations, may adversely impact our financial position.
We are subject to various federal, state, local and foreign laws and regulations
governing environmental matters, including the use, discharge and disposal of
hazardous materials. We are presently engaged in the remediation of sites
associated with eight discontinued operations in six states, and we are a
"potentially responsible party" at five hazardous waste sites in four states. We
have recorded a reserve for environmental matters of $30.0 million at March 31,
2000. While the ultimate outcome of these matters cannot be determined, we do
not believe that the final disposition of these matters will have a material
adverse effect on our financial position, results of operations or cash flows
beyond the amounts previously provided for in our financial statements.
Our present and past facilities have been in operation for many years, and, over
that time, these facilities have used substances which are or might be
considered hazardous, and we have generated and disposed of wastes which are or
might be considered hazardous. In addition, new environmental legislation or
regulations may be enacted in the future. Therefore, it is possible that
additional environmental issues may arise in the future which we cannot now
predict.
Year 2000
The Company did not experience a material adverse effect on its products,
services, competitive position, financial condition or results of operations as
a result of the Year 2000 phenomenon. However, the Company can give no assurance
that the systems of other companies or government agencies on which the Company
relies have been converted on time or that a failure to convert by another
company or a conversion that is incompatible with the Company's systems will not
have a material adverse effect on the Company.
The disclosures contained herein constitute Year 2000 Readiness Statements
pursuant to the Year 2000 Information and Readiness Disclosure Act, Public Law
105-271.
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