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 September 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 October 25, 2000
----- -------------------------------
Common Stock, par value $0.01 37,815,684
<PAGE>
GENERAL SEMICONDUCTOR, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGES
_____
PART I. FINANCIAL INFORMATION
---------------------
Financial Statements
Condensed Consolidated Balance Sheets at
September 30, 2000 (unaudited) and December 31, 1999 2
Consolidated Statements of Income for the Three and
Nine Months ended September 30, 2000 and 1999 (unaudited) 3
Consolidated Statements of Cash Flows for the Nine Months
ended September 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
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)
September 30, December 31,
2000 1999
--------------------- --------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,789 $ 2,586
Accounts receivable, less reserves of $765 and $1,091, respectively 74,788 63,246
Inventories 48,764 43,480
Prepaid expenses and other current assets 14,221 11,843
Deferred income taxes 10,924 10,130
--------------------- --------------------
Total current assets 152,486 131,285
Property, plant and equipment - net 233,098 231,217
Excess of cost over fair value of net assets acquired, less accumulated
amortization of $52,926 and $49,071, respectively 153,754 157,609
Deferred income taxes, net of valuation allowance 28,420 29,894
Intangibles and other assets, less accumulated amortization of $15,526 and
$13,083, respectively 22,004 23,794
--------------------- --------------------
TOTAL ASSETS $ 589,762 $ 573,799
===================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 39,899 $ 31,864
Accrued expenses 48,428 34,700
--------------------- --------------------
Total current liabilities 88,327 66,564
Long-term debt 230,500 276,500
Deferred income taxes 28,873 28,608
Other non-current liabilities 65,332 70,745
--------------------- --------------------
Total liabilities 413,032 442,417
--------------------- --------------------
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; 37,711 and
37,069 shares issued, respectively 377 371
Additional paid-in capital 11,893 2,151
Retained earnings 171,831 136,231
Other stockholder's equity (7,371) (7,371)
--------------------- --------------------
176,730 131,382
--------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 589,762 $ 573,799
===================== ====================
See notes to consolidated financial statements.
</TABLE>
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited - In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 130,521 $ 105,756 $373,809 $304,300
Cost of sales 89,377 76,921 258,624 224,418
------ ------ ------- -------
GROSS PROFIT 41,144 28,835 115,185 79,882
------ ------ ------- ------
Selling, general and administrative 14,433 10,996 41,454 33,542
Research and development 1,982 1,789 5,417 4,908
Amortization of excess of cost over fair value
of net assets acquired 1,284 1,285 3,855 3,856
----- ----- ----- -----
OPERATING INCOME 23,445 14,765 64,459 37,576
------ ------ ------ ------
Other income (expense) - net (18) 69 (25) 58
Interest expense-net (4,531) (6,555) (14,644) (16,876)
------ ------- -------- -------
INCOME BEFORE INCOME TAXES 18,896 8,279 49,790 20,758
Provision for income taxes (4,923) (2,071) (14,190) (5,190)
------- ------ -------- ------
NET INCOME $ 13,973 $ 6,208 $ 35,600 $ 15,568
======== ======= ======== ========
Weighted Average Shares Outstanding:
Basic 37,709 36,822 37,570 36,821
Diluted 49,601 37,056 49,720 36,934
Earnings per share:
Basic $ 0.37 $ 0.17 $ 0.95 $ 0.42
Diluted $ 0.32 $ 0.17 $ 0.82 $ 0.42
See notes to consolidated financial statements.
</TABLE>
<PAGE>
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 35,600 $ 15,568
Adjustments to reconcile to net cash
from operating activities:
Depreciation and amortization 22,268 20,534
Changes in assets and liabilities:
Accounts receivable (11,542) (2,817)
Inventories (5,284) (1,122)
Prepaid expenses and other current assets (2,378) (670)
Other non-current assets 13 573
Deferred income taxes 945 5,940
Accounts payable and accrued expenses 23,886 (10,462)
Restructuring (835) (5,265)
Other non-current liabilities (5,426) (1,934)
Other 710 (624)
-------------- --------------
Net cash provided by operating activities 57,957 19,721
-------------- --------------
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (19,880) (19,492)
-------------- --------------
Net cash used in investing activities (19,880) (19,492)
-------------- --------------
FINANCING ACTIVITIES:
Net (repayments of) proceeds from revolving credit facilities (46,000) 4,000
Deferred financing fees 668 (1,709)
Exercise of stock options 8,458 102
-------------- --------------
Net cash (used in) provided by financing activities (36,874) 2,393
-------------- --------------
Increase in cash and cash equivalents 1,203 2,622
-------------- --------------
Cash and cash equivalents, beginning of period 2,586 3,225
-------------- --------------
Cash and cash equivalents, end of period $ 3,789 $ 5,847
============== ==============
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 September
30, 2000, the results of its operations for the three and nine months ended
September 30, 2000 and 1999, and its cash flows for the nine months ended
September 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 nine months ended September 30, 2000 and 1999. The results of operations for
the three and nine months ended September 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:
September 30, 2000 December 31, 1999
------------------ -----------------
Raw materials $ 8,279 $ 5,657
Work in process 13,113 13,739
Finished goods 27,372 24,084
------ ------
$48,764 $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'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 seven
sites relating to discontinued operations in five 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
<PAGE>
matters of $28.2 million at September 30, 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, 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 nine months ended
September 30, 2000 and 1999.
<TABLE>
<CAPTION>
For the Three Months For the Three Months
Ended September 30, 2000 Ended September 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 $13,973 37,709 $0.37 $6,208 36,822 $0.17
==== =====
Effect of Dilutive Securities
Options 799 234
Convertible debt 1,698 11,093 -- -
----- ------ ----- ------
Diluted EPS
Net income $15,671 49,601 $0.32 $6,208 37,056 $0.17
======= ====== ===== ====== ====== =====
For the Nine Months For the Nine Months
Ended September 30, 2000 Ended September 30, 1999
------------------------ ------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Basic EPS
Net income $35,600 37,570 $0.95 $15,568 36,821 $0.42
===== =====
Effect of Dilutive Securities
Options 1,057 113
Convertible debt 5,065 11,093 -- --
----- ------ ------ ------
Diluted EPS
Net income $40,665 49,720 $0.82 $15,568 36,934 $0.42
======= ====== ===== ======= ====== =====
</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
September 30, 2000:
Net sales (a) ............ $ 70,601 $ 37,829 $ 22,091 $ - $ - $130,521
Intercompany transfers.... 38,705 49,226 44,001 14,559 (146,491) -
------ ------ ------ ------ -------- -------
Net sales................. 109,306 87,055 66,092 14,559 (146,491) 130,521
======= ====== ====== ====== ======== =======
Interest income........... - 18 1 7 13 39
Interest expense.......... - 52 17 - 4,501 4,570
Depreciation and
Amortization expense.... 2,799 1,432 2,408 902 - 7,541
Earnings before
Provision for
Income taxes............ 3,418 8,087 5,535 1,856 - 18,896
Income tax expense........ $ 1,660 $ 1,885 $ 1,240 $ 138 $ - $ 4,923
Three months ended
September 30, 1999:
Net sales (a)............. $ 55,596 $ 32,063 $ 18,097 $ - $ - $105,756
Intercompany transfers.... 33,721 35,998 41,907 11,852 (123,478) -
------ ------ ------ ------ -------- -------
Net sales................. 89,317 68,061 60,004 11,852 (123,478) 105,756
====== ====== ====== ====== ======== =======
Interest income........... - 9 - 2 7 18
Interest expense.......... - 53 10 - 6,510 6,573
Depreciation and
Amortization expense.... 2,227 1,536 2,288 850 - 6,901
Earnings before
Provision for
Income taxes............ (452) 2,553 4,669 1,509 - 8,279
Income tax expense........ $ 1,390 $ 374 $ 288 $ 19 $ - $ 2,071
<PAGE>
United
States Europe Far East China Corporate Consolidated
------ ------ -------- ----- --------- ------------
Nine months ended
September 30, 2000:
Net sales (a) ............ $201,404 $112,669 $ 59,736 $ - $ - $373,809
Intercompany transfers.... 110,818 135,726 126,163 41,682 (414,389) -
------- ------- ------- ------ -------- -------
Net sales................. 312,222 248,395 185,899 41,682 (414,389) 373,809
======= ======= ======= ====== ======== =======
Interest income........... - 33 25 14 39 111
Interest expense.......... - 156 54 - 14,545 14,755
Depreciation and
Amortization expense.... 8,217 4,140 7,279 2,632 - 22,268
Earnings before
Provision for
Income taxes............ 15,230 17,531 12,019 5,010 - 49,790
Income tax expense........ $ 6,937 $ 4,994 $ 1,697 $ 562 $ - $ 14,190
Nine months ended
September 30, 1999:
Net sales (a)............. $159,425 $ 97,913 $ 46,962 $ - $ - $304,300
Intercompany transfers.... 97,263 103,963 124,192 30,806 (356,224) -
------ ------- ------- ------ -------- -------
Net sales................. 256,688 201,876 171,154 30,806 (356,224) 304,300
======= ======= ======= ====== ======== =======
Interest income........... - 27 10 9 13 59
Interest expense.......... - 187 31 - 16,717 16,935
Depreciation and
Amortization expense.... 7,075 4,248 6,735 2,476 - 20,534
Earnings before
Provision for
Income taxes............ 1,677 3,699 11,072 4,310 - 20,758
Income tax expense........ $ 2,655 $ 499 $ 2,005 $ 31 $ - $ 5,190
</TABLE>
(a) Included in United States net sales are export sales as follows:
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
---- ---- ---- ----
Taiwan $18,471 $15,690 $54,081 $45,407
China 16,925 10,682 39,606 28,127
------- ------- ------- -------
$35,396 $26,372 $93,687 $73,534
======= ======= ======= =======
Net sales, by country, within the European geographic segment are:
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
---- ---- ---- ----
France $ 3,087 $ 3,013 $ 9,613 $ 9,542
Germany 16,326 13,595 47,955 42,692
Italy 3,462 2,476 11,506 9,742
U.K. 4,935 5,005 15,785 12,940
Other 10,019 7,974 27,810 22,997
------- ------- -------- -------
$37,829 $32,063 $112,669 $97,913
======= ======= ======== =======
<PAGE>
7. RELATED PARTY TRANSACTION
Included in intangibles and other assets at September 30, 2000 is a $500,000
secured, promissory note due from an officer of the Company. This note, which
was issued in connection with the relocation of the officer, bears interest at
an annual rate of 6.23% and is subject to voluntary and mandatory prepayment.
The outstanding principal and all unpaid interest accrued on the note are due
upon maturity of the note on September 1, 2007.
8. RECENT ACCOUNTING PRONOUNCEMENTS
During 1998 the Financial Accounting Standards Board ("FASB") 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. Additionally, in June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,
an Amendment to SFAS No. 133". The Company is evaluating the impact SFAS 133
and 138 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 Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
Net sales............................. 100.0% 100.0% 100.0% 100.0%
Cost of sales......................... 68.5 72.7 69.2 73.7
----- ----- ----- -----
Gross profit.......................... 31.5 27.3 30.8 26.3
Selling, general and administrative... 11.0 10.4 11.1 11.0
Research and development.............. 1.5 1.7 1.5 1.6
Amortization of excess of cost over
fair value of net assets acquired... 1.0 1.2 1.0 1.3
----- ----- ----- -----
Operating income...................... 18.0 14.0 17.2 12.4
Other income (expense) - net.......... - - - -
Interest expense - net................ 3.5 6.2 3.9 5.6
----- ----- ----- -----
Income before income taxes............ 14.5 7.8 13.3 6.8
Provision for income taxes............ 3.8 2.0 3.8 1.7
----- ----- ----- -----
Net income............................ 10.7% 5.8% 9.5% 5.1%
===== ===== ===== =====
EBITDA
------
EBITDA represents earnings from 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, as a measure of liquidity, 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 Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
Net income......................... $13,973 $ 6,208 $35,600 $15,568
Interest........................... 4,531 6,555 14,644 16,876
Taxes.............................. 4,923 2,071 14,190 5,190
Depreciation and amortization(1)... 7,098 6,692 20,957 20,257
------- ------- ------- -------
EBITDA............................. $30,525 $21,526 $85,391 $57,891
======= ======= ======= =======
(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 $130.5 million for the three months ended September 30, 2000
increased $24.7 million from $105.8 million for the comparable prior year
period. The 23.3% increase is primarily due to increased volume and new product
revenues partly offset by an approximate 2% decline in average selling prices.
For the nine months ended September 30, 2000 net sales increased $69.5 million
to $373.8 million from $304.3 million for the corresponding prior year period.
The 22.8% increase relates to increased volume and new product revenues partly
offset by an approximate 5% decline in average selling prices. In each of the
three and nine months ended September 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 nine months ended September 30, 2000 of $89.4
million and $258.6 million compared to $76.9 million and $224.4 million for the
corresponding prior year periods. Cost of sales increased $12.5 million for the
three months and $34.2 million for the nine months principally due to an
increase in unit volume and to higher variable compensation costs.
Accordingly, gross margin for the three and nine months ended September 30, 2000
represents 31.5% and 30.8% of net sales, respectively, compared with 27.3% and
26.3% in the comparable prior year period. This increase relates to improved
capacity utilization and factory absorptions, continued cost controls and a
change in the mix of products sold, partly offset by a decline in worldwide
average selling prices, higher material and vendor costs, higher variable
compensation and the strengthened New Taiwan Dollar.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
Selling, general and administrative expenses of $14.4 million and $41.5 million
for the three and nine months ended September 30, 2000 increased from $11.0
million and $33.5 million for the comparable prior year periods. The $3.4
million and $8.0 million increase for the three and nine 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 increased to 11.0% and 11.1% for the three and nine
months ended September 30, 2000 from 10.4% and 11.0% in the comparable prior
year periods.
RESEARCH AND DEVELOPMENT EXPENSES
---------------------------------
Research and development expenses of $2.0 million and $5.4 million for the three
and nine months ended September 30, 2000 increased from $1.8 million and $4.9
million for the comparable prior year periods due to costs incurred related to
the introduction of power MOSFETs and development of power management products
including analog I/C's. 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 1.5% for the three and nine months ended September 30, 2000 compared
with 1.7% and 1.6% for the comparable prior year periods due to the
proportionately higher increase in net sales.
NET INTEREST EXPENSE
--------------------
Net interest expense decreased to $4.5 million and $14.6 million for the three
and nine months ended September 30, 2000 from $6.6 million and $16.9 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 nine
months ended September 30, 2000 increased to 28.5% from 25% for the nine months
ended September 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 $9.0 million and $27.5 million increase in EBITDA for the three and nine
months ended September 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 September 30, 2000 was $64.2 million compared to $64.7
million at December 31, 1999. The working capital decrease of $0.5 million
resulted primarily from increases in accounts receivable to support a higher
revenue base and increased inventory offset by increases in accrued expenses and
income taxes payable. The current ratio is 1.7 to 1 at September 30, 2000 and
2.0 to 1 at December 31, 1999.
During the nine months ended September 30, 2000 the Company invested
approximately $19.9 million in property, plant and equipment primarily for
capacity expansion compared with $19.5 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 ($58.0
million at September 30, 2000) and to certain existing and future trade payable
and other liabilities of certain of our subsidiaries (approximately $80.8
million at September 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 September
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
September 30, 2000 and 1999 was 6.5% and 8.5%, respectively.
At September 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, and internal financial
reporting systems to be able to process transactions in the new currency.
Necessary modifications to contracts with suppliers and customers have been made
to reflect the new Euro 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.
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
--------
10.14 Promissory Note, dated as of September 1, 2000 between
W. John Nelson and Paola Nelson ("Borrowers") and General
Semiconductor, Inc. ("Lender").
27 Financial Data Schedule
99 Forward Looking Information
(b) Reports on Form 8-K
-------------------
1) On July 20, 2000, the Company filed a report on Form 8-K
with the SEC, to report under Item 5 of that Form that a
press release was issued on July 20, 2000 announcing
earnings for the three and six months ended June 30, 2000.
A copy of the press release was filed as an exhibit to the
Form 8-K.
2) On September 13, 2000, the Company filed a report on
Form 8-K with the SEC, to report under Item 5 of that Form
that press releases were issued on September 13, 2000
confirming the Company's earnings estimates for year 2000.
Copies of the press releases were filed as exhibits 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.
October 27, 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
