1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 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) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (631) 847-3000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $587.5 million as of February 29, 2000 (based on the closing price of the Common Stock on the New York Stock Exchange on that date). For purposes of this computation, shares held by affiliates and by directors and officers of the registrant have been excluded. Such exclusion of shares to be held by directors and officers is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant. Number of shares of Common Stock, par value $.01 per share, outstanding as of February 29, 2000: 37,475,758. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Proxy Statement to be used in conjunction with the Annual Meeting of Stockholders to be held on May 10, 2000 are incorporated by reference in Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM I. BUSINESS On July 28, 1997, General Instrument Corporation spun-off to its shareholders NextLevel Systems, Inc., its broadband communication business, and CommScope, Inc., its coaxial and other cable business, as two independent public companies. At the time of the spin-off, General Instrument Corporation changed its name to General Semiconductor, Inc. and effected a one-for-four reverse stock split. After the spin-off, NextLevel Systems, Inc. changed its name to General Instrument Corporation. Unless the context otherwise requires, references in this Form 10-K to "General Semiconductor," the "Company," "we," "us," or "our" are to General Semiconductor, Inc. and its direct and indirect subsidiaries on a consolidated basis since the spin-off and to the business conducted by the Power Semiconductor Division of General Instrument Corporation prior to the spin-off. This Form 10-K includes statistical data regarding the discrete semiconductor industry and other industries which was obtained from industry publications, including reports of Worldwide Semiconductor Trade Statistics ("WSTS"), which are published by the Semiconductor Industry Association ("SIA"), and reports published by International Data Corporation ("IDC"). These industry publications generally indicate that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. While we believe these industry publications to be reliable, we have not independently verified their data, and we do not guarantee the accuracy or completeness of the information, nor can we provide any assurance that our future performance will follow industry projections. GENERAL We are a market leader in the discrete segment of the semiconductor industry. We design and manufacture a broad array of discrete semiconductors, including power rectifiers, transient voltage suppressors, small signal transistors and small signal diodes. We are a world leader in the power rectifier and transient voltage suppressor markets, which products represented 87% of our 1999 net sales, with an approximate 15% market share as measured by net sales in 1999. Our products condition current and voltage, protect electrical circuits from power surges, amplify and switch small electrical signals and regulate voltage levels in circuits. Our products are essential components of most electronic devices and systems and are used throughout a wide range of industries, including the computer, automotive, telecommunications and consumer electronics industries. We operate six production facilities located in China, France, Germany, Ireland, Taiwan and New York, and we produce an average of 35 million units per day. During our 39 years of operation, we have focused on the design and manufacture of discrete semiconductors. Our discrete semiconductor products are different from integrated circuit semiconductor products because discrete semiconductors are single function products and are generally characterized by: - longer product life cycles; - lower research and development investment requirements; - a less complex and less costly fabrication process; and - lower capital needs. We believe the characteristics of the discrete semiconductor market and our competitive strengths contribute to our stable and consistent operating income. In 1999, 63% of our net sales were derived from the sale of four product families, each of which we first introduced more than 20 years ago. Worldwide semiconductor market revenue was $149.4 billion in 1999, according to WSTS. The discrete segment of this market accounted for $13.4 billion, or approximately 9.0%, of the total semiconductor market and the sectors in which we compete accounted for $9.0 billion of this market. The following charts illustrate 1 3 the principal sectors of the semiconductor market and the discrete segment by product category and highlight the areas in which we compete: 1999 DISCRETE MARKET -- $13.4 BILLION [PIE CHART] Microcomponents............................................. 34% Memory...................................................... 21% Logic ICs................................................... 16% Analog ICs.................................................. 15% Discretes................................................... 9% Optical ICs................................................. 4% Bipolar ICs................................................. 1% 1999 SEMICONDUCTOR MARKET -- $149.4 BILLION [PIE CHART] Power Transistors........................................... 23% Small Signal Transistors.................................... 21% MOSFETs..................................................... 17% Rectifiers.................................................. 16% Diodes...................................................... 14% Thyristors.................................................. 5% Other Discrete.............................................. 4% Source: WSTS (December 1999). COMPANY STRENGTHS We believe the characteristics of the discrete semiconductor market and our competitive strengths contribute to our stable and consistent operating income. Long-Standing Relationships with Diverse, Blue Chip Customers. During our 39-year operating history, we have developed long-standing relationships with many customers. We serve more than 500 customers worldwide, with no single customer accounting for more than 5% of our 1999 net sales. Each of our ten largest customers has been our customer for more than 25 years. Customers in our end-use markets include leading global manufacturers such as Robert Bosch Corporation, Ford Motor Company, General Motors Corporation, Lucent Technologies, Matsushita Electric Industrial Co., Ltd., Motorola Inc., Nokia Corp., Phillips NV, Siemens AG, Samsung Electronics Co. Ltd. and Sony Corporation. Global, Low Cost Operations. We presently operate six production facilities and 13 sales offices located in North America, Europe and Asia. We believe that our global operations permit us to maintain our position as a low cost, high quality manufacturer. All of our facilities have achieved ISO 9001 or ISO 9002 certification status as to quality and our five facilities that manufacture products for the automotive industry have received the automotive industry's QS 9000 certification. QS 9000 certification is a more stringent quality system developed by Ford, Chrysler and General Motors to recognize the outstanding overall performance of selected suppliers. Our Macroom, Ireland facility has received ISO 14001 certification. ISO 14001 is an international certification awarded after extensive site audits demonstrate compliance to the Environmental Management System Standards. We are continuously engaged in cost reduction programs, primarily through reduced pricing of our raw materials, improved material utilization, increased use of automation and other manufacturing efficiencies. All of our assembly sites that produce orders for the automotive industry have also received AEC A 101, a discrete semiconductor supplement, awarded by the Automotive Electronic Council, which requires the QS 9000 award as a step in qualification. High Quality Customer Service. Because we are an independent company focused on the discrete segment of the semiconductor industry, all of our service and support efforts are tailored to meet our customers' needs. We employ approximately 200 sales, marketing and field applications engineers in 13 offices throughout North America, Europe and Asia. We target high growth end-use markets and focus our sales 2 4 efforts on our customers' design engineers and purchasing managers in the automotive, computer, consumer and telecommunications markets. Because we work closely with our original equipment manufacturer customers in the design of their products, our products are frequently "designed in" to the specifications of new products. We believe these close relationships provide us with a substantial competitive advantage and further strengthen our long-term customer relationships. Our customers require a high quality, reliable source of supply, often in high volumes and with short lead times. They also demand quick responses to technical questions and seek support in designing new applications which will use our products. Diverse End-Use Markets. We have a diversified customer base in terms of both geography and end use markets. The following charts illustrate our 1999 net sales by geographic area and by end-use market: 1999 NET SALES BY GEOGRAPHIC AREA 1999 NET SALES BY END-USE MARKET(1) [Pie Chart] [Pie Chart] Europe 31% Distributor(1) 26% North America 28% Computer/Power Supply 26% Southeast Asia 23% Automotive 19% China 10% Consumer 14% Japan 8% Telecom 5% Lighting/Ballast 4% Industrial 3% Contract Manufacturer 2% Other 1% - --------------- (1) Distributors sell our products to diverse end-use markets, including all those shown in the chart. We believe that this diversity minimizes the impact of a potential loss of sales due to an economic slowdown in any geographic area or end-use market. Experienced, Committed Management Team. Our senior management team consists of nine individuals who have an average of 14 years of experience with us and 19 years of experience in the semiconductor industry. Ronald A. Ostertag, our Chairman, President and Chief Executive Officer, has been with us for 21 years and has 27 years of experience in the semiconductor industry. BUSINESS STRATEGY Our objective is to maintain and strengthen our position as a leading supplier of discrete semiconductors and achieve growth in net sales and earnings. To accomplish our objective, the principal elements of our strategy are: Broaden Product Base through New Product Introductions. We seek to build on our base of long-lived, well established products to introduce new products that meet our customers' needs. We employ approximately 60 full-time personnel in our research and development laboratories in Ireland, Taiwan, New York and California. A number of new products were introduced in 1999 to better serve the power management and circuit protection needs of our customers. The most significant has been the introduction of our new line of power MOSFETs, which is discussed below. Other products introduced near the end of 1999, which we believe have significant growth potential in power management applications include 100V Schottky rectifiers and "rugged" UltraFast rectifiers. Both these product families find use in high-speed switching power supplies that are 3 5 widely used in the computer industry. A low-voltage bi-directional Zener diode, introduced in 1999, has been very successful and shows significant revenue growth potential in the application of Christmas tree lights. These diodes prevent an entire string of lights from going out when a bulb in the string burns out. In the area of circuit protection we have extended the voltage range of our TRANSZORB(TM) transient voltage suppressors to have the widest range in the industry. To further broaden our product base, we recently opened a design center for power MOSFET products with experienced MOSFET engineers. MOSFETs are semiconductor devices that switch and/or amplify current and are used principally by our computer, automotive and telecommunications customers. Our strategy is to use a "fabless" approach, in which we will outsource the wafer fabrication process, to manufacture this product. We recently entered into manufacturing agreements with established foundries in Asia, which we believe will enable us to enter the power MOSFET market more quickly than we otherwise would be able to and with minimal capital requirements. We expect to address this $2.0 billion market by combining our design expertise and customer service orientation with this fabless manufacturing process. Although we believe that sales from this product will be relatively small initially, we anticipate that power MOSFET sales could be an important component of our future growth. In 1998 we introduced a number of new products to better meet our customers' needs, including the surface mount high energy automotive transient voltage suppressor device, the fast recovery mini-bridge and the high voltage transient voltage suppressor products. The new surface mount high energy automotive transient voltage suppressor device is designed to protect automotive electronic systems from high energy surges. These products use our patented PAR(TM) construction that ensures superior high temperature operation, which is critical for automotive applications. The fast recovery mini-bridge is a low-current surface mount bridge rectifier with fast switching characteristics. This device saves space on printed circuit boards when compared to standard bridges. The fast recovery time of this device reduces energy losses for fast switching power supply applications. We have extended the voltage range of our TRANSZORB(TM) transient voltage suppressor devices up to 550 volts, which is the highest avalanche voltage currently offered in the industry. This new product was specially designed to work in conjunction with newly developed integrated circuits that provide much greater efficiencies to computer products. See "Research and Development." Make Strategic, Synergistic Acquisitions. We continually evaluate candidates for strategic acquisitions and joint ventures that will permit us to broaden our product offerings and increase our presence in our existing product lines. Acquisitions will also permit us to leverage our existing sales and distribution channels, including a sales force of more than 1,000 worldwide, comprised of sales representatives, distributors, and approximately 200 direct sales and technical personnel. For example, we acquired the small signal products business of ITT Industries, Inc. in October 1997 for $9.0 million, including direct acquisition costs. This business contributed $53.5 million to our sales in 1999. It also provided us entry to the small signal transistor, zener diode and small signal diode sectors of the discrete products market, collectively a $4.6 billion market in 1999. Continue to Achieve Cost Savings. We are committed to being a low-cost producer of our products. In order to achieve this, we continuously engage in cost reduction programs. These cost reduction programs are made possible in part by technological advancements in material sciences, wafer production processes and packaging techniques. As a result of these advancements and through various investments, we have been able to reduce costs in a number of ways, including, but not limited to: - automating production lines to reduce labor costs and increase product quality; - improving production processes to increase production yields; - modifying product designs to reduce the amount of raw material required to produce products; - reducing raw material costs through negotiations with our vendors; and - moving higher labor cost processes to lower labor cost locations. Our ability to reduce our costs has allowed us to maintain our earnings and competitive position while satisfying our customers' requirements for low-cost, high-quality products. 4 6 PRODUCTS AND CUSTOMERS The table below identifies our end markets and the percentage of our 1999 net sales attributable to each, and the principal products, representative applications and major customers for those end markets. END MARKETS COMPUTER AUTOMOTIVE CONSUMER TELECOMMUNICATIONS LIGHTING DISTRIBUTORS % OF NET SALES(1) 26% 19% 14% 5% 4% 26% PRODUCTS Bridge Rectifiers Superectifiers Bridge Rectifiers Fast Efficient Bridge Rectifiers All Fast Efficient Small Signal Fast Efficient Rectifiers Fast Efficient Rectifiers Diodes Rectifiers Small Signal Rectifiers Schottky Small Signal Small Signal Diodes Superectifiers Rectifiers Transistors Diodes Small Signal Small Signal Transient Voltage Small Signal Transistors Diodes Suppressors Transistors Superectifiers Zener Diodes Zener Diodes Transient Voltage Suppressors REPRESENTATIVE CD ROM drive ABS Brake Cable Boxes Cordless Phone Compact All APPLICATIONS Computer System CD Player Internet Line Fluorescent Battery Active DVD Card Lamp Charger Suspension Entertainment ISDN Board Electronic Disk Drive Airbag Module Center Mobile Phone Ballast Monitor Collision Home Modems Energy Saving Motherboard Warning/ Appliances/ Pager Ballast PC Scanner Avoidance White Goods Satellite HID Ballast Printer System Home Satellite Transmission Inverter Light Switch Mode Cruise Control Dish Switching Ballast Power Supply Module Microwave Systems Neon Light Engine Playstation/ Projector Management Nintendo Ballast Entertainment TV Module GPS Navigation Systems MAJOR SECTOR Acer Bosch BOSE Alcatel Delta Arrow/Spoerle CUSTOMERS API Delphi Braun Ericsson MagneTek Array Astec Ford Daewoo Hughes Motorola Avnet Delta Hella Motorola Lucent Philips Distrel LG Mitsubishi LG Motorola Siemens/Osram Eurodis Phihong Motorola AIEG Matsushita Nokia Future Philips Nadex Philips Nortel Nadex Samsung Nippon Denso/ Ryoden Networks Rutronik SCI Denso Samsung Sagem Ryoden SONY Siemens SONY Siemens Taitron Valeo - --------------- (1) These products do not equal 100% of our net sales because we also sell miscellaneous products to various other end markets equal to approximately 5% of our net sales. 5 7 PRINCIPAL PRODUCTS We design, manufacture and sell a broad array of discrete semiconductors, including: - low- to medium-power rectifiers; - transient voltage suppressors; - small signal diodes and transistors; and - zener diodes. We manufacture these products in a variety of packages, including axial, bridge, power and surface mount packages. Rectifiers. Rectifiers conduct electricity in one direction and block it in the "reverse" direction. They are used to convert alternating current (AC) into direct current (DC) which is used to power electronic equipment. The current carried over power lines and into homes, offices and factories is alternating current; however, most electronic equipment requires direct current to operate. We offer a wide selection of rectifier products including bridge rectifiers, fast efficient rectifiers, glass-passivated rectifiers, plastic rectifiers, Schottky rectifiers and SUPERECTIFIER(R) rectifiers. Bridge rectifiers are essential for the vast majority of electronic equipment that plugs into an electrical outlet. A bridge rectifier is comprised of four separate rectifier components configured into a single package that converts alternating current into full wave direct current. We manufacture a complete line of bridge rectifiers that meet the power and case style requirements of most electronic equipment. The SUPERECTIFIER(R) rectifier is a highly reliable and cost effective component that incorporates several of our unique technologies. The SUPERECTIFIER(R) rectifier glass-plastic construction combines the superior reliability of spherical glass constructed rectifiers with plastic cases that allow easier mass handling as well as lower costs. The automotive and computer peripheral markets are the principal markets for this product. Our Schottky rectifier is designed for use in high-speed applications such as computer and computer related products. Its design results in nearly zero reverse recovery times (the speed at which the device can go from a state of conducting current to a blocking mode) and very low forward voltage drop which allows for low power losses. Our manufacturing process creates a highly reliable Schottky product. Fast efficient rectifiers are an extension of our Schottky product portfolio. These products offer reverse recovery times as low as 15 nanoseconds at voltage levels as high as 1,000 Volts while maintaining the efficiencies of a lower forward voltage loss. Fast efficient rectifiers are principally used for computer and computer related applications. Transient Voltage Suppressors. Transient voltage suppressors protect electronic circuits by limiting voltage at a safe level. Under normal circumstances they do not have to be reset or replaced. They are silicon-based semiconductors designed to provide protection against all types of transient threats, ranging from electrostatic discharge to induced lightning. These voltage clamping devices absorb large amounts of energy for short periods of time. We offer a broad range of state-of-the-art transient voltage suppressor devices for use in most modern electronic equipment. In 1998, we introduced a line of patented transient voltage suppressor devices specifically designed for automotive applications which include a surface mount high-energy "load dump" transient voltage suppressor device. Small Signal Diodes. Small signal diodes perform various functions such as signal blocking, routing and switching at lower current levels. These components are used in a variety of products, including telecommunications equipment, personal computer motherboards, automotive systems, power supplies and consumer electronics. Small Signal Transistors. Small signal transistors deliver amplification and switching functions that are essential to most modern electronic systems. These products are sold in both thru-hole and surface mount packages. 6 8 Zener Diodes. Zener product lines provide a wide variety of specialized functions for complex electronic circuits. These devices are used as voltage regulators, voltage reference and voltage suppressors against electrostatic discharge threats. Zener diodes are also used in most modern electronic systems and end use markets. MARKETS AND CUSTOMERS Our customer base is diverse, both geographically and by end use of our products. We target our products primarily for use in the automotive, computer, consumer electronics, telecommunications and lighting industries. Automotive. Our discrete components are found in critical and "creature comfort" systems throughout automotive design. Automotive customers seek highly reliable components. Our components are used in many automotive applications including airbag modules, global positioning satellite navigation systems, catalytic converter heaters, climate control modules, engine cooling systems and ignition modules. Computer. All computers and their associated peripherals require sophisticated, controlled electrical energy. We provide the power rectifying element for all computer electronic systems to transform unmanaged, raw electric power into the controlled energy source modern digital systems require. Our products also protect computer systems from transient threats, such as electrostatic discharge and induced lightning. Our products are sold to computer and computer component manufacturers in numerous applications, including switch mode power supplies, computer battery chargers, modem cards, P.C.A. boards, logic boards, laser printers, computer processors and monitors. Consumer electronics. Consumer appliances that plug into a wall outlet or transmit a signal generally require discrete semiconductors. Our products are placed in a broad range of consumer products, including refrigerators, garage door openers, home satellite systems, washers, dryers and microwaves. Telecommunications. Our products perform various functions for the telecommunications market. Because of the often critical nature of telecommunications applications and the increasing demand for portability, these applications require a very high degree of reliability and small size. Also, device efficiencies are very important in battery operated products to minimize power drain on batteries and maximize run time. For this reason, customers pay a premium for components that operate with the least amount of energy loss. Applications using our products include cordless phones, pagers, cellular base stations, Integrated Services Digital Network (ISDN) boards and satellite dishes. Lighting. New electronic ballast systems, which have been replacing older magnetic ballast systems and incandescent bulbs, provide greater efficiency and significantly reduce operating costs. Most light fixtures require alternating current (AC) to be converted into direct current (DC) in order to function. Historically, this has been achieved through an array of twisted copper wires known as a magnetic ballast. Recently, as a result of the demand for more efficient light fixtures, magnetic ballasts have been replaced in many applications by electronic ballasts which use discrete semiconductors. Because the new electronic ballast systems typically are priced at a relative premium, these systems must be extremely reliable in order to justify the higher initial cost. In addition to a high degree of reliability, electronic ballast manufacturers require their components to be priced affordably and be compact. We sell to all major applications within this end use market. Distributors. Distributors meet the needs of customers with lower volume requirements. Distributors serve all of our markets in all of our regions, but our primary distributor sales are in North America and Europe. Sales channels. Our products are sold through a direct sales force, distributors and sales representatives. In each of the years ended December 31, 1999, 1998 and 1997, sales to customers in North America, Europe and Southeast Asia each represented approximately 30% of our net sales. Sales to customers in Japan represented the majority of the balance. Our customer base incorporates a wide array of the world's largest manufacturers. No single customer accounted for 5% or more of our sales during the years ended December 31, 1999, 1998 or 1997. 7 9 We have a sales force of more than 1,000 worldwide, comprised of sales representatives, distributors and approximately 200 direct sales and technical personnel to support our worldwide sales and distribution efforts. We maintain 13 sales offices located in Melville, New York; Carlsbad, California; Arlington Heights, Illinois; Duluth, Georgia; Paris, France; Munich, Germany; Tokyo and Osaka, Japan; Seoul, Korea; Taipei, Taiwan; Singapore; and Shanghai and Hong Kong, China. Additionally, we use information technology to develop and maintain strong customer relationships. For example, electronic data interchange is used by many of our major customers to facilitate the order through delivery process. In addition to electronic data interchange, we intend to expand upon the scope of services provided through the Internet, extranets and other electronic means to provide broader services to the marketplace. We expect that these services will provide improved technical support, on-line order access and e-commerce capability. The use of improved information technology, combined with strong technical marketing and broad sales channels has helped us obtain new product approvals and increase our market share with many of our major customers. MANUFACTURING Semiconductor manufacturing involves two phases of production: wafer fabrication and assembly (or packaging). Wafer fabrication subjects silicon wafers to various thermal, metallurgical and chemical process steps that change their electrical and physical properties. These process steps define cells or circuits within numerous individual devices (termed "dies" or "chips") on each wafer. Assembly is the sequence of production steps that divide the wafer into individual chips and enclose the chips in structures (termed "packages") that make them usable in a circuit. Both wafer fabrication and assembly phases incorporate wafer level and device level electrical testing to ensure that device design integrity has been achieved. Discrete semiconductors generally use process technology and equipment already proven in the manufacturing of integrated circuits. The cost of discrete semiconductor wafer fabrication facilities varies greatly, depending upon the number and sophistication of the process steps required to produce the desired electrical performance and functions. While Schottky and transistor products require complex and technically sophisticated process flows, the capital requirements of these products are significantly less than for integrated circuits. This is due, in part, to the fewer number of process steps required to manufacture discrete semiconductor wafers and, therefore, the requirement of less process equipment. Additionally, because the discrete semiconductor manufacturing process is based on well established technology, less expensive process equipment is required. The entire manufacturing process has evolved over time, and labor intensive processes have given way to more reliable automated processes. The change to automated procedures has, in part, allowed us to reduce our manufacturing costs, significantly improve product quality and reduce the impact of declining prices. We own or lease six production facilities in China, Taiwan, Ireland, Germany, France and New York. In addition, we have manufacturing supply agreements with various companies located in Asia. Our facilities are as follows: LOCATION PRODUCTS - -------- -------- Wafer Fabrication Only: Freiburg, Germany Small signal products Westbury, New York Epitaxial wafers Wafer Fabrication and Assembly: Taipei, Taiwan Standard rectifiers Schottky rectifiers Fast efficient rectifiers Transient voltage suppressors 8 10 LOCATION PRODUCTS - -------- -------- Macroom, Ireland Transient voltage suppressors Bridges Standard rectifiers Fast efficient rectifiers Assembly Only: Tianjin, China Rectifiers Bridges Colmar, France Small signal products All factories have received the quality certification designations ISO 9001 or ISO 9002 and all factories except the factory located in Westbury, New York, which does not manufacture end products for the automotive industry, have received the quality certification designation QS 9000. Our Macroom, Ireland facility has received ISO 14001 certification. ISO 14001 is an international certification awarded after extensive site audits demonstrate compliance to the Environmental Management System Standards. RESEARCH AND DEVELOPMENT We plan to use the technology found in our long-lived, well-established products to introduce new products that meet our customers' needs. We employ approximately 60 full-time personnel in our research and development laboratories in Ireland, Taiwan, Fremont, California and Westbury, New York. The research and development laboratories in Ireland and Taiwan focus primarily on the development of new packaging technology, and the development laboratory in Westbury, New York focuses on applied material sciences. We recently opened a design center in Fremont, California for power MOSFET products with experienced senior MOSFET engineers, and have entered into related manufacturing agreements with two established foundries in China and Taiwan. MOSFETs are semiconductor devices that switch and/or amplify current through changes in voltage. Research and development expenditures totaled $6.9 million in 1999, $6.1 million in 1998 and $6.0 million in 1997. Research and development expenditures reflect continued development and the advancement of new product and packaging technologies targeted for the automotive, telecommunications and computer end-use market applications. A number of new products were introduced in 1999 to better serve the power management and circuit protection needs of our customers. The most significant has been the introduction of our new line of power MOSFETs. Other products introduced near the end of 1999, which we believe have significant growth potential in power management applications include 100V Schottky rectifiers and "rugged" UltraFast rectifiers. Both these product families find use in high-speed switching power supplies that are widely used in the computer industry. A low-voltage bi-directional Zener diode, introduced in 1999, has been very successful and shows significant revenue growth potential in the application of Christmas tree lights. These diodes prevent an entire string of lights from going out when a bulb in the string burns out. In the area of circuit protection we have extended the voltage range of our TRANSZORB(TM) transient voltage suppressors to have the widest range in the industry. In 1998 we introduced the surface mount high energy automotive transient voltage suppressor device, the fast recovery mini-bridge and the high voltage transient voltage suppressor products. The new surface mount high energy automotive transient voltage suppressor device is designed to protect automotive electronic systems from high energy surges. These products use our patented PAR(TM) construction that ensures superior high temperature operation, which is critical for automotive applications. The fast recovery mini-bridge is a low current surface mount bridge rectifier with fast switching characteristics. This device saves space on printed circuit boards when compared to standard bridges. The fast recovery time of this device reduces energy losses for fast switching power supply applications. We have extended the voltage range of our TRANSZORB(TM) transient voltage suppressor devices up to 550 volts, which is the highest avalanche voltage currently 9 11 offered in the industry. This new product was specially designed to work in conjunction with newly developed integrated circuits that provide much greater efficiencies to computer products. PATENTS We actively seek patents for new products and designs. At December 31, 1999, we held 55 U.S. patents. Although we believe our patents provide a competitive advantage, no single patent is material to our business. We also rely on our proprietary knowledge and continuing technological innovation to develop and maintain our competitive position. BACKLOG At December 31, 1999, we had an order backlog of approximately $143.7 million compared with $121.8 million at December 31, 1998. Order backlog includes only orders for products scheduled to be shipped within six months. Orders may be revised or canceled, either pursuant to their terms or as a result of negotiations. Therefore, it is impossible to predict accurately the amount of backlog orders that will result in sales. Our backlog at any particular date may not be representative of actual sales for any succeeding period. The lead times for the release of purchase orders depend upon the scheduling practices of individual customers. The delivery times of new or non-standard products can be affected by scheduling factors and other manufacturing considerations. The rate of booking new orders can also vary significantly and there is the possibility of customer changes in delivery schedules or order cancellations. COMPETITION The discrete semiconductor industry is highly competitive. We compete with companies worldwide, some of which have greater financial, marketing and management resources than we do. We believe that our principal competitors include ON Semiconductor, Philips Electronics N.V., ST Microelectronics N.V., Fairchild Semiconductor Corporation, Shindengen Electric Manufacturing Co., Ltd., Sanken Electric Co., Ltd. and a number of Taiwanese and Japanese manufacturers. EMPLOYEES At December 31, 1999, we employed approximately 5,300 people worldwide. We believe that our relations with both our union and non-union employees are satisfactory. RAW MATERIALS Silicon ingots, molding compound and lead frames typically account for approximately two-thirds of our raw material expense. We believe that our relations with our suppliers are good, and we do not anticipate any supply shortages in the foreseeable future. We believe that the loss of any supplier would not have a long-term material negative effect on our business because components and supplies are generally available from a variety of sources. However, we could have set-up costs and delays if we change suppliers. In the past, delays in delivery of components have not had a material negative effect on shipments of our products. ENVIRONMENT We are committed to operate worldwide in a manner which respects and protects the environment. We use hazardous substances and generate solid and hazardous waste in the ordinary course of our business. As a result, 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. Because of the nature of our business, we incur costs to comply with environmental laws. Although we believe we are in substantial compliance with environmental requirements, we cannot assure you that our costs to comply with environmental requirements will not increase in the future. We cannot predict the kind of legislation or regulations that 10 12 may be adopted in the future with respect to environmental protection and waste disposal. To date, our compliance with existing legislation and regulations has not had a material negative effect on us and we do not expect future compliance to have a material negative effect on our financial position, results of operations or cash flows. In connection with the spin-off in 1997, we retained the obligations with respect to environmental matters relating to our discontinued operations and their status as a "potentially responsible party" with respect to the offsite disposal of wastes. We are engaged in the remediation of eight sites relating to discontinued operations in six states, and are a "potentially responsible party" at five hazardous waste sites in four states. Based on several factors, including capital expenditures and expenses for our remediation programs, and the proportionate share of the cost of the necessary investigation and eventual remedial work that may be needed to be performed at the sites for which we have been named as a "potentially responsible party," these matters are not expected to have a material adverse effect on our financial position, results of operations or cash flows. Our present and past facilities have been in operation for many years, and over that time in the course of those operations, these facilities have used substances which are or might be considered hazardous. Additionally, we have 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 we cannot predict. Reference is made to Note 9 to the Consolidated Financial Statements included in Part II of this Form 10-K and to the cautionary statements contained in Exhibit 99 to this Form 10-K for further information regarding environmental matters. INTERNATIONAL OPERATIONS We manufacture or assemble most of our products in Taiwan (Republic of China), the People's Republic of China, Ireland, Germany and France. These foreign operations are subject to the usual risks inherent in operating overseas, including risks with respect to fluctuations in currency exchange rates, economic and political destabilization, restrictive actions by foreign governments, nationalizations, the laws and policies of the United States affecting trade, foreign investment and loans and foreign tax laws. Our cost-competitive status could be negatively affected if, relative to our competitors, we experience unfavorable movements in foreign currency exchange rates such as the appreciation of the New Taiwan dollar in relation to the U.S. dollar. International sales represent approximately 70% of our sales. Sales to the Asia/Pacific region accounted for approximately 40% of our worldwide sales in 1999. In the first half of 1999, we benefited from improving economic conditions in Southeast Asia, but conditions in Europe softened. Additionally, approximately 50% of our production is located in Taiwan, the cost of which increased from the strengthened New Taiwan Dollar in relation to the U.S. dollar in 1999. In the second half of 1999 we saw significant improvement in the business including improved sales, pricing and capacity utilization. We cannot assure you as to the extent or duration of the impact of these events on our financial position, results of operations or cash flows. For detailed financial information concerning foreign and domestic operations and export sales, reference is made to Note 14 to the Consolidated Financial Statements included in Part II of this Form 10-K. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below is certain information with respect to the executive officers of the Company as of December 31, 1999. NAME AND TITLE AGE BUSINESS EXPERIENCE -------------- --- ------------------- Ronald A. Ostertag.................. 59 Ronald A. Ostertag has been our Chairman, President Chairman, President and and Chief Executive Officer since the spin-off. Previously, Chief Executive Officer he held the position of Vice President of General Instrument Corporation since February 1989 and President of General Instrument Corporation's Power Semiconductor Division since September 1990. 11 13 NAME AND TITLE AGE BUSINESS EXPERIENCE -------------- --- ------------------- Andrew M. Caggia(1)................. 51 Andrew M. Caggia has been our Senior Vice President Senior Vice President and and Chief Financial Officer since the spin-off. Previously, Chief Financial Officer he held the position of Senior Vice President of Finance at General Instrument Corporation's Power Semiconductor Division since September 1990. Robert J. Gange(1).................. 44 Robert J. Gange has been our Vice President and Vice President and Controller since the spin-off and Vice President and Controller Controller of General Instrument Corporation's Power Semiconductor Division since May 1997. From 1995 to 1997, he was Director of Finance and from 1993 to 1995, Assistant Controller of General Instrument Corporation's Power Semiconductor Division. Vincent M. Guercio.................. 46 Vincent M. Guercio has been our Senior Vice Senior Vice President, e-commerce President, e-commerce since November 1998. From the spin-off to November 1998 he was Senior Vice President, Worldwide Sales and Marketing. Previously, he had been responsible for this function at General Instrument Corporation's Power Semiconductor Division since January 1992. W. John Nelson(2)................... 45 W. John Nelson has been our President, Asia/Pacific President Operations since November 1998. From the spin-off to Asia/Pacific Operations November 1998 he was our Senior Vice President, Asia/Pacific Operations. Previously, he had been responsible for this function at General Instrument Corporation's Power Semiconductor Division since March 1994. From 1991 to 1994, he was President of General Instrument Corporation Taiwan. Stephen B. Paige.................... 52 Stephen B. Paige has been our Senior Vice President, Senior Vice President, General General Counsel and Secretary since the spin-off. Counsel and Secretary Previously, he was Senior Vice President and General Counsel for General Instrument Corporation's Power Semiconductor Division since May 1997. From April 1995 to May 1997, he was Vice President and General Counsel of Monsanto Business Services, Chicago Region. From January 1992 to April 1995, he was Vice President, General Counsel and Secretary of The NutraSweet Company, a wholly-owned subsidiary of Monsanto Company. Linda S. Perry...................... 49 Linda S. Perry has been our Senior Vice President, Senior Vice President, Human Resources since September 1997 and its Vice President, Human Resources Human Resources since the spin-off. Previously, she held the position of Vice President, Human Resources at General Instrument Corporation's Power Semiconductor Division and has had responsibility for this function since 1988. 12 14 NAME AND TITLE AGE BUSINESS EXPERIENCE -------------- --- ------------------- John P. Phillips.................... 54 John P. Phillips has been our President, Europe and President, Europe and North America Operations since November 1998. From the North America Operations spin-off to November 1998 he was Senior Vice President, European Operations. Previously, he was Senior Vice President of Worldwide Technology for General Instrument Corporation's Power Semiconductor Division and had responsibility for this function since March 1992. - --------------- (1) Mr. Caggia resigned from his positions with General Semiconductor effective January 19, 2000. On March 15, 2000, Mr. Gange was appointed Senior Vice President and Chief Financial Officer. (2) On March 15, 2000, Mr. Nelson was appointed Chief Operating Officer. ITEM 2. PROPERTIES Our principal administrative, production and research and development facilities are located in the following locations: LOCATION LEASED OR OWNED SQUARE FEET -------- ------------------------------ ----------- Melville, New York......................... Leased, Expires 2004 52,000 Westbury, New York......................... Leased, Expires 2005 (1) 18,000 Taipei, Taiwan............................. Owned 350,000 Macroom, Ireland........................... Owned 120,000 Tianjin, China............................. Ground Lease, Expires 2045 (2) 120,000 Freiburg, Germany.......................... Leased, Expires 2007 (3) 55,000 Colmar, France............................. Owned 63,000 - --------------- (1) We have an option to extend this lease until 2010. (2) We own the facility; however, the land upon which it is constructed is leased. (3) We have the right to terminate this lease beginning in 2000. We believe that our facilities around the world, whether owned or leased, are well-maintained. Our manufacturing facilities contain sufficient production capacity to meet our needs for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS In connection with the spin-off in 1997, Next Level Systems, Inc. (which subsequently changed its name to General Instrument Corporation and was acquired by Motorola Inc. in January 2000) agreed to indemnify us with respect to certain legal proceedings relating to the business transferred to Next Level Systems, Inc., including the obligations, if any, arising out of or relating to the two securities litigations described below. Therefore, we are of the opinion that the resolution of these matters will not have an effect on our consolidated financial position, results of operations or cash flows. The action captioned In Re General Instrument Corporation Securities Litigation pending in the U.S. District Court for the Northern District of Illinois, Eastern Division, consolidates numerous class action complaints (including the derivative action) filed in various courts between October 10 and October 27, 1995, and is brought by plaintiffs, on their own behalf and as representatives of a class of purchasers of General Instrument Corporation common stock during the period March 21 through October 18, 1995. The complaint alleges that prior to the spin-off, General Instrument Corporation 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, by allegedly making false and misleading statements and failing to disclose material facts about General Instrument Corporation'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 General Instrument Corporation. The derivative action 13 15 alleges that the members of General Instrument Corporation's Board of Directors, several of its officers and Forstmann Little & Co. and related entities have breached their fiduciary duties by reason of the matter complained of in the class action and the defendants' alleged use of material non-public information to sell shares of General Instrument Corporation common stock for personal gain. The action captioned BKP Partners, L.P. v. General Instrument Corp. was brought in February 1996 by certain holders of preferred stock of NextLevel Communications, which was merged into a subsidiary of General Instrument Corporation in September 1995. The action was originally filed in the Northern District of California and was later 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 NextLevel in connection with the acquisition of NextLevel by General Instrument Corporation. Plaintiffs seek, among other things, unspecified compensatory and punitive damages and attorneys' fees and costs. We are 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 we are indemnified. We are of the opinion that these litigations or claims will not have a material negative effect on our consolidated financial position, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock trades on the New York Stock Exchange under the symbol SEM. The following table sets forth the high and low sale prices as reported by the New York Stock Exchange for the years ended December 31, 1998 and 1999. HIGH LOW --------- --------- YEAR ENDING DECEMBER 31, 1998 First Quarter............................................... $14 3/4 $10 5/8 Second Quarter.............................................. 14 3/4 9 7/8 Third Quarter............................................... 10 1/8 6 Fourth Quarter.............................................. 10 11/16 5 15/16 HIGH LOW --------- --------- YEAR ENDING DECEMBER 31, 1999 First Quarter............................................... $ 9 7/16 $ 5 15/16 Second Quarter.............................................. 9 3/4 6 3/8 Third Quarter............................................... 12 5/8 7 7/8 Fourth Quarter.............................................. 15 1/8 8 11/16 As of February 29, 2000, there were 409 holders of record of our common stock. We have not paid any cash dividends since the spin-off. We do not currently intend to pay dividends in the foreseeable future, but to reinvest earnings in our business. Our ability to pay cash dividends on our common stock is limited by certain covenants contained in our credit agreement. See Note 8 to the Consolidated Financial Statements included in Part II of this Form 10-K. 14 16 ITEM 6. SELECTED FINANCIAL DATA The following table presents our selected historical financial data at the dates and for each of the periods indicated. The financial data as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999 has been derived from the audited consolidated financial statements included elsewhere herein. The financial data as of December 31, 1997, 1996, and 1995 and for the years ended December 31, 1996 and 1995 has been derived from the previously audited consolidated financial statements not included herein, as adjusted to give effect to the spin-off by General Instrument Corporation in 1997. This selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere herein. Historical consolidated financial data may not be indicative of our future performance. YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1999 1998 1997(A) 1996 1995 -------- -------- -------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales............................ $417,082 $401,144 $380,038 $ 361,891 $ 414,269 Cost of sales........................ 302,476 283,582 289,313 230,687 254,991 Selling, general and administrative..................... 46,567 46,802 44,668 42,594 51,225 Research and development............. 6,903 6,104 5,998 5,838 5,068 Restructuring........................ -- 12,324 -- -- -- Operating income..................... 55,994 47,187 34,916 77,618 97,776 Interest expense -- net.............. (23,466) (20,026) (14,353) (10,396) (9,461) Income from continuing operations.... 24,389 18,534 8,872 39,764 57,316 Net income (loss).................... 24,389 18,534 5,933 (1,864) 123,782 BASIC EARNINGS (LOSS) PER SHARE: Income from continuing operations.... $ 0.66 $ 0.50 $ 0.25 $ 1.20 $ 1.86 Net income (loss).................... 0.66 0.50 0.17 (0.06) 4.01 DILUTED EARNINGS PER SHARE: Income from continuing operations.... $ 0.66 $ 0.50 $ 0.25 $ 1.15 $ 1.68 Net income........................... 0.66 0.50 0.17 0.27 3.86 CONSOLIDATED BALANCE SHEET DATA: Accounts receivable.................. $ 63,246 $ 59,643 $ 54,077 $ 49,629 $ 58,819 Inventories.......................... 43,480 39,514 34,309 31,551 23,524 Property, plant and equipment........ 231,217 223,743 218,752 202,281 156,714 Net assets of discontinued operations......................... -- -- -- 1,444,734 1,265,345 Total assets......................... 573,799 563,447 550,305 2,057,162 1,799,387 Long-term debt, including current maturities......................... 276,500 286,000 268,074 692,335 732,079 - --------------- (a) Includes charges of $33.8 million ($25.3 million net of tax), or $0.69 per share, primarily related to the separation of General Instrument Corporation's Taiwan operations. These costs include $32.7 million charged to cost of sales and $1.1 million charged to selling, general and administrative expense. 15 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION We are a market leader in the discrete segment of the semiconductor industry. We design and manufacture a broad array of discrete semiconductors, including power rectifiers, transient voltage suppressors, small signal transistors and small signal diodes. We are a world leader in the power rectifier and transient voltage suppressor markets, which products represented 87% of our 1999 net sales, with an approximate 15% market share as measured by net sales in 1999. Our products condition current and voltage, protect electrical circuits from power surges, amplify and switch small electrical signals and regulate voltage levels in circuits. Our products are essential components of most electronic devices and systems and are used throughout a wide range of industries, including the computer, automotive, telecommunications and consumer electronics industries. We operate six production facilities located in China, France, Germany, Ireland, Taiwan and New York, and we produce an average of 35 million units per day. COST REDUCTION PROGRAMS We are engaged in ongoing cost reduction programs. These programs are designed to make our global manufacturing facilities more efficient and achieve a reduction in our future operating costs. The principal elements of our cost reduction programs include reducing the cost of our raw materials, improving the efficiency of our raw material utilization and automating labor intensive portions of our manufacturing process. RESTRUCTURING In 1999 we completed a restructuring plan, announced on November 6, 1998, which was designed to enhance the interface of our operations and customers and improve our cost structure, efficiency and competitive position. The restructuring included reducing the workforce by decentralizing certain purchasing, marketing, finance and research and development functions and providing early retirement to a group of employees, closing two sales offices and writing off assets related to a discontinued product. Restructuring charges recorded in the fourth quarter of 1998 included $8.4 million in charges primarily related to employee separation and related costs and $3.9 million in non-cash charges for asset write-offs. This program resulted in a reduction of operating expenses by $6.4 million per year. 1997 SPIN-OFF On January 7, 1997, the Board of Directors of General Instrument Corporation approved a plan to divide General Instrument Corporation into three separate public companies in a spin-off transaction that was completed on July 28, 1997. Simultaneously with the spin-off, General Instrument Corporation changed its name to General Semiconductor, Inc. and effected a one-for-four reverse stock split. Following the spin-off, we began operations as a stand-alone publicly held company. The revenues, costs and expenses and cash flows of the businesses transferred to the General Instrument Corporation (formerly NextLevel Systems, Inc.) and CommScope, Inc. segments have been excluded from the respective captions in the consolidated statements of income and consolidated statements of cash flows and have been reported through July 28, 1997 as "Income (loss) from discontinued operations," net of applicable income taxes, and as "Cash provided by (used in) discontinued operations" for all periods presented in our consolidated financial statements included elsewhere herein. Unless otherwise noted, the following discussion pertains to our continuing operations. 16 18 RESULTS OF OPERATIONS The following table sets forth certain items included in selected consolidated financial data as a percentage of sales: YEAR ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ------ ------ ------ Net sales................................................... 100.0% 100.0% 100.0% Cost of sales............................................... 72.5 70.7 76.1 ----- ----- ----- Gross profit................................................ 27.5 29.3 23.9 Selling, general and administrative......................... 11.2 11.7 11.8 Research and development.................................... 1.7 1.5 1.6 Amortization of excess of cost over fair value of net assets acquired.................................................. 1.2 1.3 1.4 Restructuring............................................... -- 3.1 -- ----- ----- ----- Operating income............................................ 13.4 11.8 9.2 Other income (expense) -- net............................... -- -- -- Interest expense -- net..................................... 5.6 5.0 3.8 ----- ----- ----- Income from continuing operations before income taxes....... 7.8 6.8 5.4 Provision for income taxes.................................. 1.9 2.1 3.1 ----- ----- ----- Income from continuing operations........................... 5.9% 4.6% 2.3% ===== ===== ===== ADJUSTED EBITDA Adjusted 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. See the statements of cash flow included in the Company's Consolidated Financial Statements, included in Part II of this Form 10-K. Adjusted EBITDA is calculated by adding to EBITDA certain items of expense that the Company believes are neither likely to recur nor indicative of future performance, consisting of (a) pre-tax charges of $33.8 million incurred during 1997 in connection with the separation and (b) pre-tax charges of $12.3 million incurred in the fourth quarter of 1998 for the restructuring. 17 19 YEAR ENDED DECEMBER 31, --------------------------- 1999 1998 1997 ------- ------- ------- Income from continuing operations........................ $24,389 $18,534 $ 8,872 Interest................................................. 23,466 20,026 14,353 Taxes.................................................... 8,130 8,556 11,649 Depreciation and amortization(1)......................... 27,240 24,682 23,892 ------- ------- ------- EBITDA................................................... 83,225 71,798 58,766 Restructuring............................................ -- 12,324 -- Spin-off................................................. -- -- 33,866 ------- ------- ------- Adjusted EBITDA.......................................... $83,225 $84,122 $92,632 ======= ======= ======= - --------------- (1) Amortization of deferred financing fees is excluded from "Depreciation and amortization" and included in "Interest". COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 WITH THE YEAR ENDED DECEMBER 31, 1998 NET SALES Net sales of $417.1 million for the year ended December 31, 1999 increased $16.0 million from $401.1 million for the comparable prior year period. The 4.0% increase is primarily due to an 18% increase in unit volume sales partly offset by a 15% decline in average selling prices resulting from the effects of industry wide excess capacity most notably in the first half of 1999. COST OF SALES Cost of sales for the year ended December 31, 1999 of $302.5 million increased $18.9 million from $283.6 million for the corresponding prior year period. The 6.7% increase is principally due to an increase in unit volume sales, partly offset by continued cost control and savings achieved from the 1998 restructuring. Accordingly, gross margin for the year ended December 31, 1999 represents 27.5% of net sales compared with 29.3% for the corresponding prior year period. The decrease relates to erosion of average selling prices partially offset by a change in the mix of products sold, continued cost controls, savings achieved from the 1998 restructuring and improved factory utilization. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses of $46.6 million for the year ended December 31, 1999 remained fairly stable compared with $46.8 million in 1998. Higher selling costs to support increased sales were offset by lower variable compensation expense and savings achieved from the 1998 restructuring. As a percentage of sales, selling, general and administrative expenses decreased to 11.2% for the year ended December 31, 1999 from 11.7% for the corresponding prior year period due to the increase in sales. RESEARCH AND DEVELOPMENT EXPENSES Research and development expense of $6.9 million for the year ended December 31, 1999 increased from $6.1 million for the comparable prior year period due to costs incurred related to the planned introduction of power MOSFETs partly offset by cost savings achieved from the 1998 restructuring. Research and development spending reflects the modification of existing products as well as the continued development of new products. 18 20 NET INTEREST EXPENSE Net interest expense increased to $23.5 million for the year ended December 31, 1999 from $20.0 million for the corresponding prior year period due to higher borrowing rates and amortization of deferred financing fees associated with amendments to the credit facility discussed below. INCOME TAXES The Company's effective tax rate for the year ended December 31, 1999 decreased to 25.0% from 31.6% for the year ended December 31, 1998 due primarily to an increased proportion of income of foreign subsidiaries taxed at rates lower than the U.S. rate. ADJUSTED EBITDA The $0.9 million decrease in adjusted EBITDA for the year ended December 31, 1999, compared with the corresponding prior year period is due primarily to lower selling prices, partly offset by increased sales volume and operating cost improvements. COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 WITH THE YEAR ENDED DECEMBER 31, 1997 NET SALES Net sales for the year ended December 31, 1998 of $401.1 million increased $21.1 million from $380.0 million for the year ended December 31, 1997. The 5.6% increase reflects a 7% increase in unit volume as well as the inclusion of small signal product sales (business acquired on October 1, 1997), partially offset by an approximate 10% decline in worldwide average selling prices. International sales, including export sales from the U.S., represented approximately 70% of net sales in each of the years ended December 31, 1998 and 1997. COST OF SALES Cost of sales for the year ended December 31, 1998 of $283.6 million decreased 2% from $289.3 million for 1997. Excluding 1997 pre-tax charges of $32.7 million primarily related to the separation of the Taiwan operations of General Instrument Corporation in connection with the spin-off, cost of sales increased $27.0 million or 10.5% principally due to increased costs related to higher operating levels and the full year effect of the small signal products acquisition offset, in part, by improved factory performance and cost reduction. Cost of sales, as a percentage of net sales, was 70.7% for 1998 compared to 67.5% for 1997, excluding the 1997 pre-tax charges discussed above. This increase primarily results from the decline in average selling prices discussed above. Accordingly, gross margin for the year ended December 31, 1998 represents 29.3% of net sales compared with 32.5% for the comparable prior year period, excluding the 1997 pre-tax charges discussed above. This decrease reflects the margin percentage reduction that was expected due to the full year effect of the small signal products acquisition and erosion of average selling prices, partially offset by improved factory performance. Without the small signal products acquisition, the year over year decrease in gross margin would have been less than one percentage point. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expense increased to $46.8 million for the year ended December 31, 1998 compared to $44.7 million in 1997 and represented 11.7% and 11.8% of sales, respectively. The $2.1 million increase includes higher selling costs to support increased sales. No other expense increase is individually significant. 19 21 RESEARCH AND DEVELOPMENT Research and development expense for the year ended December 31, 1998 was $6.1 million compared to $6.0 million in 1997 and represented 1.6% of sales in each period. Research and development expenditures reflect the continued development of new products and modifications of existing products and manufacturing technologies to achieve cost reductions. NET INTEREST EXPENSE Net interest expense increased $5.6 million to $20.0 million for the year ended December 31, 1998 from $14.4 million in 1997. Net interest expense in 1997 represents an allocation based upon General Semiconductor's net assets as a percentage of total assets of General Instrument Corporation through July 28, 1997 and actual interest expense thereafter. Pro forma net interest expense, assuming a net debt level of $275.0 million through the spin-off and amortization of debt issuance costs associated with the new borrowings, would have been $19.6 million for the year ended December 31, 1997. INCOME TAXES The Company's effective income tax rate was 31.6% for 1998 compared with 56.8% for 1997 (37.0% excluding the tax effects, at the applicable rates, of the costs incurred to separate the General Instrument Corporation's Taiwan operations in connection with the spin-off). The decrease from the 37.0% described above, relates primarily to increased income of foreign subsidiaries taxed at rates lower than U.S. rates. ADJUSTED EBITDA Adjusted EBITDA for the year ended December 31, 1998 of $84.1 million decreased $8.5 million from $92.6 million for the year ended December 31, 1997. Increased revenues in 1998 which reflect the inclusion of the small signal products sales for a full year were offset by price erosion of approximately 15%, higher costs from increased unit production and higher operating costs incurred as a result of increased sales. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1999, working capital was $64.7 million, compared to $51.7 million at December 31, 1998. The working capital increase of $13.0 million resulted primarily from the payment of restructuring costs, an increase in accounts receivable in support of a higher revenue base and increased days sales outstanding, and increased inventories due to additional customer requested consignment stock. As of December 31, 1999 approximately $1.4 million remains accrued for costs related to the 1998 restructuring. Such amounts are expected to be paid in 2000. As a result the current ratio increased to 2.0 to 1 at December 31, 1999 from 1.7 to 1 at December 31, 1998. During the year ended December 31, 1999, the Company invested $27.3 million in property, plant and equipment principally directed to strategic initiatives and automation compared with $26.9 million and $29.2 million in 1998 and 1997, respectively. While the Company does not have any material commitments for capital expenditures it does expect to invest approximately $35.0 to $40.0 million in 2000 for automation, new products, quality and system enhancements and capacity increases. Long-term debt at December 31, 1999 was $276.5 million, compared to $286.0 million at December 31, 1998. The Company's ratio of total debt to adjusted EBITDA was 3.3 to 1 at December 31, 1999, compared to 3.4 to 1 at December 31, 1998. The Company's ratio of senior debt to adjusted EBITDA improved from 3.4 to 1 at December 31, 1998 to 1.3 to 1. The improvement of this ratio is due to the issuance of $172.5 million of convertible subordinated notes in the fourth quarter of 1999. 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 approximately 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 20 22 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 ($104.0 million at December 31, 1999) and to certain existing and future trade payable and other liabilities of certain of our subsidiaries (approximately $64.0 million at December 31, 1999). 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 December 31, 1999 and 1998, the Company was in compliance with all such amended covenants. The weighted average interest rate on the Company's long-term debt as of December 31, 1999 and 1998 was 7.0% and 5.8%, respectively. At December 31, 1999 there were $11.0 million letters of credit outstanding that reduce the amount that can be borrowed against the Company's $263.8 million credit facility. The Company generated $41.1 million cash flow from operations but experienced an overall decrease in cash of $0.6 million for the year ended December 31, 1999. The positive cash flow provided by operations was used for capital expenditures, a partial repayment of debt outstanding and financing fees associated with the issuance of the Convertible Notes. For the year ended December 31, 1998 the Company generated $32.5 million cash flow from continuing operating activities but experienced an overall decrease in cash of $2.0 million. The positive cash flow provided by continuing operations and borrowings was offset by capital expenditures and the remaining payments related to the spin-off. 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 cash flow needs from the results of its operations, working capital and the existing Credit Agreement. The Company intends to repay its remaining senior indebtedness primarily with cash flow from operations. 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. 21 23 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK GENERAL The following discussion and the estimated amounts generated from the sensitivity analyses referred to below include forward-looking statements of market risk which assume for analytical purposes that certain adverse market conditions may occur. Actual future market conditions may differ materially from such assumptions because the amounts noted below are the result of analyses used for the purpose of assessing possible risks and the mitigation thereof. Accordingly, the forward-looking statements should not be considered projections by General Semiconductor of future events or losses. Among other factors, the Company's cash flows and earnings are subject to fluctuations resulting from changes in foreign currency exchange rates and interest rates. The Company manages its exposure to these market risks through internally established policies and procedures and, when deemed appropriate, through the use of derivative financial instruments. The Company's policy does not allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there are no underlying exposures. The Company does not use financial instruments for trading purposes and is not a party to any leveraged derivatives. The Company monitors its underlying market risk exposures on an ongoing basis and believes that it can modify or adapt its hedging strategies as needed. The Company measured its market risk, related to its holdings of financial instruments based on changes in interest and foreign exchange rates, utilizing a sensitivity analysis. The sensitivity analysis measures the potential loss in fair values, cash flows or earnings based on a hypothetical 10% change in interest and foreign exchange rates. The Company used current market rates on its market risk sensitive assets and liabilities to perform the sensitivity analysis. Certain items such as obligations for pension and post retirement benefits were not included in the analysis. The Company is exposed to credit risk in the event of non-performance by the counterparties to its foreign exchange-forward contracts. The Company believes that the various counterparties with which the Company enters into these agreements consist of only financially sound institutions and, accordingly, believes that the credit risk for non-performance of these contracts is not significant. Additional information regarding the Company's financial instruments is contained in Notes 8 and 13 to the Consolidated Financial Statements included in Part II of this Form 10-K. FOREIGN CURRENCY RISK Almost all of General Semiconductor's products are manufactured in Southeast Asia and Europe and a significant portion are sold internationally. Therefore, the Company is subject to market risk related to changes in foreign exchange rates. On a selective basis, the Company enters into forward and purchased option contracts designed to hedge the currency exposure of contractual and other firm commitments denominated in foreign currencies and the currency exposure of anticipated but not yet committed transactions expected to be denominated in foreign currencies. The Company's principal foreign currency exposures are in the New Taiwan Dollar, Japanese Yen, Chinese Renminbi, the British Pound and the Euro. The Company's committed exposures relate primarily to trade payables, accounts receivable and employee compensation. At December 31, 1999, the Company had committed exposures of $53.6 million. As of December 31, 1999 and 1998, the Company had outstanding forward and purchased option contracts in the amounts of $10.6 million and $21.3 million, respectively, comprised of foreign currencies which were to be sold, and $12.7 million and $79.6 million, respectively, comprised of foreign currencies which were to be purchased. All outstanding forward contracts at December 31, 1999 mature within twelve months and have an aggregate fair value of $0.2 million. At December 31, 1999, the impact of a hypothetical 10% adverse change in exchange rates on the fair value of foreign exchange forward contracts and purchased options is a reduction in fair value of $2.3 million. 22 24 This impact would be offset by an increase in the fair value of the Company's committed exposures of $2.7 million. INTEREST RATE RISK The Company is exposed to changes in U.S. dollar LIBOR interest rates on its floating rate revolving credit facility. At December 31, 1999, the outstanding balance under this facility was $104.0 million. On a selective basis, the Company from time to time enters into interest rate swap or cap agreements to reduce the potential negative impact increases in interest rates could have on its outstanding variable rate debt. The impact of interest rate instruments on the Company's results of operations in each of the three years ended December 31, 1999 was not significant. A hypothetical 10% increase in interest rates would adversely affect the Company's pretax earnings and cash flow by $0.9 million annually, due to the Company's floating rate debt. At December 31, 1999 the fair value of the Convertible Notes was approximately $184.6 million. INTERNATIONAL MARKETS Management believes that a significant amount of General Semiconductor's sales in 2000 will continue to come from international markets. International sales generally represent 70% of the Company's worldwide sales. Sales to the Asia/Pacific region accounted for approximately 40% of the Company's worldwide sales for the year ended December 31, 1999. During 1999 order trends strengthened while average selling prices continued to deteriorate. However, approximately 50% of the Company's production is currently in Taiwan, the cost of which has increased from the strengthened New Taiwan Dollar in relation to the U.S. dollar. Extended underutilization of the Company's manufacturing facilities, resulting in production inefficiency, could result in margin deterioration. There can be no assurance as to the extent or duration of the impact of these events on the Company. RECENT ACCOUNTING PRONOUNCEMENTS In 1998 the Financial Accounting Standards Board issued 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. 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 23 25 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. EFFECT OF INFLATION General Semiconductor attempts to minimize the effect of inflation on earnings by controlling its operating costs and selling prices. In the opinion of management, the rate of inflation has not had a material impact on the Company's results of operations. 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, any Form 10-Q or Form 8-K of the Company, or any oral or written statements made by or on behalf of the Company, may include forward looking statements which reflect the Company's current views with respect to future events and financial performance. These forward looking statements are identified by their use of such terms and phrases as "intends," "intend," "intended," "goal," "estimate," "estimates," "expects," "expect," "expected," "project," "projects," "projected," "projections," "plans," "anticipates," "anticipated," "should," "designed to," "foreseeable future," "believe," "believes" and "scheduled" and similar expressions. Readers are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. Reference is made to the cautionary statements contained in Exhibit 99 to this Form 10-K for a discussion of the factors that may cause actual results to differ from the results discussed in these forward looking statements. 24 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS PAGE ---- Financial Statements of General Semiconductor, Inc. Management's Responsibility for Financial Statements...... 26 Independent Auditors' Report.............................. 27 Consolidated Financial Statements: Consolidated Balance Sheets -- as of December 31, 1999 and 1998.............................................. 28 Consolidated Statements of Income -- Years ended December 31, 1999, 1998 and 1997...................... 29 Consolidated Statements of Stockholders' Equity -- Years ended December 31, 1999, 1998 and 1997.................................................. 30 Consolidated Statements of Cash Flows -- Years ended December 31, 1999, 1998 and 1997...................... 31 Notes to Consolidated Financial Statements................ 32 through 52 25 27 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS Management is responsible for the preparation and accuracy of the consolidated financial statements and other information included in this report. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles using, where appropriate, management's best estimates and judgments. In meeting its responsibility for the reliability of the consolidated financial statements, management has developed and relies on the Company's system of internal accounting control. The system is designed to provide reasonable assurance that assets are safeguarded and that transactions are executed as authorized and are properly recorded. The system is augmented by written policies and procedures and an internal audit department. The Board of Directors reviews the consolidated financial statements and reporting practices of the Company through its Audit Committee, which is composed entirely of directors who are not officers or employees of the Company. The Audit Committee meets with the independent auditors, the internal auditor and management to discuss audit scopes and results and to consider internal control and financial reporting matters. Both the independent and internal auditors have direct unrestricted access to the Audit Committee. The entire Board of Directors reviews the Company's financial performance and financial plan. /s/ Robert J. Gange /s/ Ronald A. Ostertag Robert J. Gange Ronald A. Ostertag Senior Vice President and Chairman, President and Chief Financial Officer Chief Executive Officer 26 28 INDEPENDENT AUDITORS' REPORT To the Stockholders of General Semiconductor, Inc. Melville, New York We have audited the accompanying consolidated balance sheets of General Semiconductor, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of General Semiconductor, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Jericho, New York February 2, 2000 27 29 GENERAL SEMICONDUCTOR, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT STOCK PAR VALUE) DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ ASSETS Current Assets: Cash and cash equivalents................................... $ 2,586 $ 3,225 Accounts receivable, less allowance for doubtful accounts of $1,091 and $769, respectively............................. 63,246 59,643 Inventories................................................. 43,480 39,514 Prepaid expenses and other current assets................... 11,843 12,010 Deferred income taxes....................................... 10,130 13,738 -------- -------- Total current assets............................... 131,285 128,130 Property, plant and equipment -- net........................ 231,217 223,743 Excess of cost over fair value of net assets acquired, less accumulated amortization of $49,071 and $43,929, respectively.............................................. 157,609 162,751 Deferred income taxes....................................... 29,894 29,376 Intangibles and other assets, less accumulated amortization of $13,083 and $11,099, respectively...................... 23,794 19,447 -------- -------- TOTAL ASSETS................................................ $573,799 $563,447 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable............................................ $ 31,864 $ 31,343 Accrued expenses............................................ 34,700 45,084 -------- -------- Total current liabilities.......................... 66,564 76,427 Long-term debt.............................................. 276,500 286,000 Deferred income taxes....................................... 28,608 21,390 Other non-current liabilities............................... 70,745 74,283 -------- -------- Total liabilities.................................. 442,417 458,100 -------- -------- 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; 37,069 and 36,925 shares issued, respectively............. 371 369 Additional paid-in capital.................................. 2,151 507 Retained earnings........................................... 136,231 111,842 -------- -------- 138,753 112,718 Less -- Treasury stock, at cost, 104 shares................. (7,371) (7,371) -------- -------- Total stockholders' equity......................... 131,382 105,347 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $573,799 $563,447 ======== ======== See notes to consolidated financial statements. 28 30 GENERAL SEMICONDUCTOR, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 -------- -------- -------- NET SALES.................................................. $417,082 $401,144 $380,038 -------- -------- -------- OPERATING COSTS AND EXPENSES: Cost of sales............................................ 302,476 283,582 289,313 Selling, general and administrative...................... 46,567 46,802 44,668 Research and development................................. 6,903 6,104 5,998 Amortization of excess of cost over fair value of net assets acquired....................................... 5,142 5,145 5,143 Restructuring............................................ -- 12,324 -- -------- -------- -------- Total operating costs and expenses............... 361,088 353,957 345,122 -------- -------- -------- OPERATING INCOME........................................... 55,994 47,187 34,916 Other expense-net.......................................... (9) (71) (42) Interest expense-net....................................... (23,466) (20,026) (14,353) -------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES........................................ 32,519 27,090 20,521 Provision for income taxes................................. (8,130) (8,556) (11,649) -------- -------- -------- INCOME FROM CONTINUING OPERATIONS.......................... 24,389 18,534 8,872 DISCONTINUED OPERATIONS Loss from discontinued operations, net of income tax expense of $22,073....................................... -- -- (2,939) -------- -------- -------- NET INCOME................................................. $ 24,389 $ 18,534 $ 5,933 ======== ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING: Basic.................................................... 36,832 36,811 35,414 Diluted.................................................. 37,563 36,899 35,576 BASIC EARNINGS PER SHARE: Continuing operations.................................... $ 0.66 $ 0.50 $ 0.25 Discontinued operations.................................. -- -- (0.08) -------- -------- -------- Net income............................................... $ 0.66 $ 0.50 $ 0.17 ======== ======== ======== DILUTED EARNINGS PER SHARE: Continuing operations.................................... $ 0.66 $ 0.50 $ 0.25 Discontinued operations.................................. -- -- (0.08) -------- -------- -------- Net income............................................... $ 0.66 $ 0.50 $ 0.17 ======== ======== ======== See notes to consolidated financial statements. 29 31 GENERAL SEMICONDUCTOR, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS) ACCUMULATED OTHER COMPREHENSIVE INCOME -------------------- TOTAL COMMON STOCK ADDITIONAL UNEARNED UNREALIZED STOCK- --------------- PAID-IN RETAINED TREASURY COMPEN- GAIN ON HOLDERS' SHARES AMOUNT CAPITAL EARNINGS STOCK SATION INVESTMENT EQUITY ------ ------ ----------- --------- -------- -------- -------------------- ----------- BALANCE, JANUARY 1, 1997... 34,286 $343 $ 926,194 $ 254,552 $(7,271) $(665) $ -- $ 1,173,153 Exercise of stock options and related tax benefit.................. 200 2 19,361 -- -- -- -- 19,363 Comprehensive income: Net income............... -- -- -- 5,933 -- -- -- -- Unrealized gain on investment, net of tax.................... -- -- -- -- -- -- 22,018 -- Total comprehensive income................... -- -- -- -- -- -- -- 27,951 Amortization of unearned compensation............. -- -- -- -- -- 243 -- 243 Treasury stock transactions............. -- -- -- -- (100) -- -- (100) Conversion of Convertible Junior Subordinated Notes -- net............. 2,397 24 226,636 -- -- -- -- 226,660 Distribution of General Instrument and Commscope................ -- -- (1,172,191) (167,177) -- 422 (22,018) (1,360,964) Common stock issued........ 4 -- 55 -- -- -- -- 55 ------ ---- ----------- --------- ------- ----- -------- ----------- BALANCE, DECEMBER 31, 1997..................... 36,887 369 55 93,308 (7,371) -- -- 86,361 Exercise of stock options and related tax benefit.................. 38 -- 452 -- -- -- -- 452 Comprehensive income: Net income............... -- -- -- 18,534 -- -- -- -- Total comprehensive income................... 18,534 ------ ---- ----------- --------- ------- ----- -------- ----------- BALANCE, DECEMBER 31, 1998..................... 36,925 369 507 111,842 (7,371) -- -- 105,347 Exercise of stock options and related tax benefit.................. 144 2 1,644 -- -- -- -- 1,646 Comprehensive income: Net income............... -- -- -- 24,389 -- -- -- -- Total comprehensive income................... 24,389 ------ ---- ----------- --------- ------- ----- -------- ----------- BALANCE, DECEMBER 31, 1999..................... 37,069 $371 $ 2,151 $ 136,231 $(7,371) $ -- $ -- $ 131,382 ====== ==== =========== ========= ======= ===== ======== =========== See notes to consolidated financial statements. 30 32 GENERAL SEMICONDUCTOR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) YEAR ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 --------- -------- --------- OPERATING ACTIVITIES: Income from continuing operations......................... $ 24,389 $ 18,534 $ 8,872 Adjustments to reconcile income from continuing operations to net cash provided by continuing operating activities: Depreciation and amortization.......................... 27,806 24,982 24,232 Asset write-off in conjunction with restructuring...... -- 3,865 -- Changes in assets and liabilities, net of effect of business acquired: Accounts receivable.................................. (3,603) (5,565) (13,335) Inventories.......................................... (3,966) (5,204) 2,465 Prepaid expenses and other current assets............ 167 (2,694) (3,208) Other non-current assets............................. 800 (24) 666 Deferred income taxes................................ 10,308 (2,662) (1,236) Accounts payable and accrued expenses................ (3,265) 5,808 9,274 Restructuring........................................ (6,434) (657) -- Other non-current liabilities........................ (3,538) (3,193) 1,685 Other.................................................. (824) (689) (331) --------- -------- --------- Net cash provided by continuing operating activities........ 41,840 32,501 29,084 --------- -------- --------- Cash (used in) provided by discontinued operations.......... -- (25,177) 145,452 --------- -------- --------- INVESTING ACTIVITIES: Expenditures for property, plant and equipment............ (27,328) (26,898) (29,208) Proceeds from sale of short-term investments.............. -- -- 24,974 Proceeds from sale of assets.............................. -- -- 3,000 Payment for business acquired............................. -- -- (8,982) --------- -------- --------- Net cash used in investing activities....................... (27,328) (26,898) (10,216) --------- -------- --------- FINANCING ACTIVITIES: Issuance of subordinated convertible notes................ 172,500 -- -- Net proceeds from (repayments of ) revolving credit facilities............................................. (182,000) 64,000 (192,000) Deferred financing fees................................... (7,131) (742) -- Proceeds from exercise of stock options................... 1,480 423 18,305 Redemption of Convertible Junior Subordinated Notes....... -- -- (245) Principal repayment of debt............................... -- (46,074) (4,310) Costs associated with the issuance of debt and Common Stock.................................................. -- -- (1,130) --------- -------- --------- Net cash (used in) provided by financing activities......... (15,151) 17,607 (179,380) --------- -------- --------- Decrease in cash and cash equivalents....................... (639) (1,967) (15,060) Cash and cash equivalents, beginning of year................ 3,225 5,192 20,252 --------- -------- --------- Cash and cash equivalents, end of year...................... $ 2,586 $ 3,225 $ 5,192 ========= ======== ========= SUPPLEMENTAL CASH FLOW INFORMATION, RELATING TO CONTINUING AND DISCONTINUED OPERATIONS: Income taxes paid......................................... $ 6,023 $ 9,776 $ 37,224 Interest paid............................................. $ 24,183 $ 19,677 $ 32,033 See notes to consolidated financial statements. 31 33 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED) 1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION General Semiconductor, Inc. ("General Semiconductor" or the "Company") is a world leader in the discrete segment of the semiconductor industry. The Company designs, manufactures and sells low-to-medium-power rectifiers, small signal transistors and transient voltage suppression ("TVS") components in axial, bridge, surface mount and array packages. Power rectifiers, small signal devices and TVS products are semiconductors that are essential components of most electronic devices and systems. Rectifiers convert alternating current (AC) into direct current (DC) which can be utilized by electronic equipment. TVS devices provide protection from electrical surges, ranging from electrostatic discharge to induced lightning. Small signal devices amplify or switch low level currents. The Company's products are primarily targeted for use in the computer, automotive, telecommunications, lighting and consumer electronics industries. General Instrument Corporation ("GI") (i) transferred all the assets and liabilities relating to the manufacture and sale of broadband communications products used in the cable television, satellite, and telecommunications industries and all rights to the related GI trademarks to its wholly-owned subsidiary NextLevel Systems, Inc. ("NextLevel"), and all the assets and liabilities relating to the manufacture and sale of coaxial, fiber optic and other electric cable used in the cable television, satellite and other industries to its wholly-owned subsidiary CommScope, Inc. ("CommScope") and (ii) distributed all of the outstanding shares of capital stock of each of NextLevel and CommScope to its stockholders on a pro rata basis as a dividend (the "Distribution") in a transaction that was finalized on July 28, 1997 (the "Distribution Date"). On the Distribution Date, NextLevel and CommScope began operating as independent entities with publicly traded common stock. GI retained no ownership interest in either NextLevel or CommScope. Concurrent with the Distribution, GI changed its name to General Semiconductor, Inc. and effected a one for four reverse stock split (the "Stock Split"). On February 2, 1998 NextLevel changed its name to General Instrument Corporation ("General Instrument"). In this report, all share and per share amounts have been retroactively restated to reflect the Stock Split. In addition, the number of common shares issued have been adjusted to reflect the Stock Split and an amount equal to the par value of the reduction of the shares has been transferred from common stock to additional paid-in capital as of January 1, 1997, the earliest period reported. The revenues, costs and expenses and cash flows of the businesses transferred to General Instrument and CommScope (the "Discontinued Operations"), have been excluded from the respective captions in the Consolidated Statements of Income and Consolidated Statements of Cash Flows and have been reported through the Distribution Date as "Loss from discontinued operations", net of applicable income taxes and as "Cash (used in) provided by discontinued operations" for all periods presented. For the purpose of governing certain of the ongoing relationships among General Semiconductor, General Instrument and CommScope after the Distribution, these entities entered into various agreements that provided for an orderly transition, the separation and distribution of the operating assets and liabilities and pension plan assets and liabilities of GI, as well as tax sharing, and other matters. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The accompanying consolidated financial statements include the accounts of General Semiconductor and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates. The preparation of the accompanying consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the 32 34 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) date of the financial statements and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents. The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. Inventories. Inventories are stated at the lower of cost, determined on a first-in, first-out ("FIFO") basis, or market. Property, Plant and Equipment. Property, plant and equipment are stated at cost. Provisions for depreciation are based on estimated useful lives of the assets using the straight-line method. Useful lives are 12 to 40 years for buildings and improvements; estimated useful life or lease term, whichever is shorter, for leasehold improvements and 3 to 10 years for machinery and equipment. The cost of maintenance and repairs is charged to operations as incurred. Intangible Assets. Intangible assets consist primarily of patents which are amortized on a straight-line basis over their useful lives not exceeding 20 years. Excess of Cost Over Fair Value of Net Assets Acquired. The excess of cost over fair value of net assets acquired is being amortized on a straight-line basis over 40 years. Management periodically evaluates the appropriateness of both the carrying value and remaining life of the excess of cost over fair value of net assets acquired by assessing recoverability based on forecasted operating cash flows, on an undiscounted basis, and other factors. Long-Lived Assets. The Company periodically evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying values of such assets may not be recoverable. The Company evaluates the carrying values of such assets using future undiscounted cash flows. Revenue Recognition. The Company recognizes revenue when products are shipped with appropriate provisions for uncollectible accounts and credits for returns. Foreign Currency Translation. The Company has determined the U.S. dollar to be the functional currency of all foreign subsidiaries. Accordingly, gains and losses recognized as a result of translating foreign subsidiaries' monetary assets and liabilities from local foreign currencies to U.S. dollars are reflected in the accompanying consolidated statements of income. Research and Development. The Company charges research and development expenses to operations as incurred. Environmental Liabilities. The Company accounts for environmental expenditures in accordance with Statement of Position 96-1, "Environmental Remediation Liabilities". Accordingly, the Company accrues for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and reasonably estimable. Income Taxes. Deferred income taxes reflect the future tax consequences of differences between the financial reporting and income tax bases of assets and liabilities. Deferred income taxes are provided for the income tax liabilities to be incurred on the repatriation of undistributed earnings of the Company's foreign subsidiaries, except for locations where the Company has designated earnings to be permanently reinvested. Recent Accounting Pronouncements. In 1998 the Financial Accounting Standards Board issued 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. 33 35 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Reclassifications. Certain prior year amounts have been reclassified to conform to the current year presentation. 3. INVENTORIES Inventories consist of: DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Raw materials...................................... $ 5,657 $ 5,139 Work in process.................................... 13,739 14,181 Finished goods..................................... 24,084 20,194 ------- ------- Total.............................................. $43,480 $39,514 ======= ======= 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of: DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Land and land improvements......................... $ 76,317 $ 76,321 Buildings, improvements and leasehold improvements..................................... 69,085 64,106 Machinery and equipment............................ 248,809 232,690 --------- --------- 394,211 373,117 Accumulated depreciation........................... (162,994) (149,374) --------- --------- Property, plant and equipment, net................. $ 231,217 $ 223,743 ========= ========= Depreciation expense aggregated $20.7 million, $18.0 million, and $16.8 million for 1999, 1998 and 1997, respectively. 5. ACCRUED EXPENSES Accrued expenses consist of: DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Salaries and compensation liabilities.............. $13,012 $14,355 Restructuring liabilities.......................... 1,375 7,809 Benefit plan liabilities........................... 6,923 7,709 Other.............................................. 13,390 15,211 ------- ------- Total.............................................. $34,700 $45,084 ======= ======= On November 6, 1998, the Company announced a restructuring plan designed to enhance the interface of operations and customers, to improve its cost structure, efficiency and its competitive position and to accelerate growth. The restructuring included reducing the workforce by decentralizing certain purchasing, marketing, finance and research and development functions and providing early retirement to a group of employees, closing two sales offices and writing off assets related to an unprofitable product that will no longer 34 36 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) be manufactured. Restructuring charges recorded in the fourth quarter included $8.2 million employee separation and related costs, $0.2 million other cost, and $3.9 million in non-cash charges for asset write-offs. A summary of the restructuring reserve is: YEAR ENDED DECEMBER 31, ------------------------ 1999 1998 --------- --------- Restructuring reserve: Balance, beginning of period........................... $ 7,809 $ -- Provision.............................................. -- 12,324 Asset impairment write-offs............................ -- (3,858) Severance and early retirement costs................... (6,230) (605) Other costs............................................ (204) (52) ------- ------- Balance, end of period................................. $ 1,375 $ 7,809 ======= ======= The Company estimates the remaining liability, which primarily represents severance and early retirement costs which have been incurred but not yet paid, will be paid during 2000. 6. OTHER NON-CURRENT LIABILITIES Other non-current liabilities consist of: DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Environmental liabilities.......................... $27,723 $29,363 Benefit plan liabilities........................... 35,682 35,596 Other.............................................. 7,340 9,324 ------- ------- Total.............................................. $70,745 $74,283 ======= ======= 7. INCOME TAXES General Semiconductor, General Instrument and CommScope entered into a tax sharing agreement (the "Tax Sharing Agreement") that defines the parties' rights and obligations with respect to federal, state and other income or franchise taxes related to the businesses of GI for tax periods prior to, including and following the Distribution and with respect to certain other tax matters. General Instrument is responsible for consolidated federal income taxes, consolidated or combined state income taxes and separate state income taxes of GI and its subsidiaries and preparation and filings of the applicable returns through July 25, 1997. Such liability was determined assuming a closing of the books on July 25, 1997. Liability for foreign income taxes and other taxes was generally allocated to the legal entity on which such taxes were imposed except that liability for taxes relating to the transferred businesses (as defined in the Tax Sharing Agreement) were generally allocated to General Instrument. Notwithstanding the above, each of General Instrument, CommScope and General Semiconductor is responsible for any such taxes to the extent that such taxes are attributable to action taken by that entity or its affiliates, after the Distribution, that is inconsistent with the tax treatment contemplated in the tax ruling received from the Internal Revenue Service. The Company believes that the Tax Sharing Agreement is fair to each of the parties and contains terms which generally are comparable to those which would have been reached at arms-length negotiations with unaffiliated parties. 35 37 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The domestic and foreign components of income from continuing operations before income taxes is: YEAR ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ------- ------- ------- Domestic.............................................. $ 7,365 $ 8,141 $16,354 Foreign............................................... 25,154 18,949 4,167 ------- ------- ------- Total................................................. $32,519 $27,090 $20,521 ======= ======= ======= The components of the provision for income taxes are as follows: YEAR ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ------- ------- ------- Current: Federal............................................... $(4,131) $ 3,848 $ 4,691 Foreign............................................... 2,329 6,539 2,754 State................................................. (376) 831 2,200 ------- ------- ------- (2,178) 11,218 9,645 ------- ------- ------- Deferred: Federal............................................... 7,571 (11) 3,066 Foreign............................................... 1,950 (2,478) (1,325) State................................................. 787 (173) 263 ------- ------- ------- 10,308 (2,662) 2,004 ------- ------- ------- Provision for income taxes............................ $ 8,130 $ 8,556 $11,649 ======= ======= ======= The following table presents the principal reasons for the difference between the actual income tax provision and the tax provision computed by applying the U.S. federal statutory income tax rate to income from continuing operations before income taxes: YEAR ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ------- ------- ------- Federal income tax provision at 35%................... $11,382 $ 9,482 $ 7,182 State income taxes-net of federal benefit............. 267 428 1,601 Foreign operations.................................... (4,578) (2,166) 1,470 Non-deductible expenses............................... 1,059 1,945 914 Other-net............................................. -- (1,133) 482 ------- ------- ------- Provision for income taxes............................ $ 8,130 $ 8,556 $11,649 ======= ======= ======= Effective income tax rate............................. 25.0% 31.6% 56.8% Income taxes related to foreign operations in 1999, 1998 and 1997 reflect the Company's ability to recognize the benefit of foreign tax credits. 36 38 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income taxes recorded in the accompanying consolidated balance sheets are comprised of : DECEMBER 31, 1999 DECEMBER 31, 1998 ------------------------------- ------------------------------- ASSET LIABILITY NET ASSET LIABILITY NET -------- --------- -------- -------- --------- -------- Current Deferred Income Taxes: Accounts receivable and inventory reserves........................... $ 2,911 $ -- $ 2,911 $ 3,845 $ -- $ 3,845 Product and warranty liabilities..... 156 -- 156 332 -- 332 Employee benefits.................... 2,283 -- 2,283 5,213 -- 5,213 Other current........................ 4,780 -- 4,780 4,348 -- 4,348 -------- ------- -------- -------- ------- -------- $ 10,130 $ -- $ 10,130 $ 13,738 $ -- $ 13,738 ======== ======= ======== ======== ======= ======== Non-Current Deferred Income Taxes: Domestic capital loss carryforwards...................... $ 17,518 $ -- $ 17,518 $ 17,518 $ -- $ 17,518 Fixed and intangible assets.......... (6,253) -- (6,253) (6,041) -- (6,041) Environmental liabilities............ 10,535 -- 10,535 11,158 -- 11,158 Employee benefits.................... 12,234 -- 12,234 12,188 -- 12,188 Other non-current.................... 15,637 28,608 (12,971) 14,330 21,390 (7,060) Valuation allowance.................. (19,777) -- (19,777) (19,777) -- (19,777) -------- ------- -------- -------- ------- -------- $ 29,894 $28,608 $ 1,286 $ 29,376 $21,390 $ 7,986 ======== ======= ======== ======== ======= ======== In accordance with the Tax Sharing Agreement, approximately $17.8 million of deferred tax assets related to the Company were allocated to General Instrument in connection with the Distribution. Deferred taxes have not been provided on undistributed earnings of certain foreign operations of $18.6 million and $14.3 million in 1999 and 1998, respectively, as those earnings are considered to be permanently reinvested. Determining the tax liability that would arise if these amounts were remitted is not practicable. The valuation allowance at December 31,1999 relates principally to domestic capital loss carryforwards, which expire in 2002. The valuation allowance will be reduced when and if the Company generates domestic capital gains. 8. LONG-TERM DEBT Long-term debt consists of: DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Subordinated debt: Convertible Notes................................ $172,500 $ -- Senior bank indebtedness: Revolving credit facility........................ 104,000 286,000 -------- -------- Total.................................... $276,500 $286,000 ======== ======== 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 approximately 11.1 million shares of the Company's common stock, at the option of 37 39 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 ($104.0 million at December 31, 1999) and to certain existing and future trade payable and other liabilities of certain of its subsidiaries (approximately $64.0 million at December 31, 1999). 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 December 31, 1999 and 1998, the Company was in compliance with all such amended covenants. The weighted average interest rate on the Company's long-term debt at December 31, 1999 and 1998 was 7.0% and 5.8%, respectively. Net interest expense included in the 1997 Consolidated Statement of Income through the Distribution Date represents an allocation based upon General Semiconductor's net assets as a percentage of total assets of GI. 9. COMMITMENTS AND CONTINGENCIES The Company leases office space, manufacturing facilities and transportation and other equipment under operating leases which expire at various dates through the year 2005. Rent expense was $5.5 million, $5.4 million and $3.3 million in 1999, 1998 and 1997, respectively. Future minimum lease payments required under operating leases as of December 31, 1999 are: 2000...................................................... $3,012 2001...................................................... 2,467 2002...................................................... 1,557 2003...................................................... 1,209 2004...................................................... 248 Thereafter................................................ 52 38 40 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company has approximately $11.0 million in letters of credit outstanding at December 31, 1999. Environmental Matters. 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 $30.2 million at December 31, 1999 ($31.9 million at December 31, 1998). 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. 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. 39 41 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. 10. EMPLOYEE BENEFITS Pension Plans. In connection with the Distribution, the Company, General Instrument and CommScope entered into an Employee Benefits Allocation Agreement (the "Agreement"). The Agreement provides that the Company generally will assume or retain, as the case may be, all liabilities under employee benefits plans maintained by GI or any of its subsidiaries with respect to employees of General Semiconductor or any of its retained subsidiaries and employees of previously divested operations other than the liabilities related to employees of General Instrument or CommScope subsequent to the Distribution. Net periodic pension cost consists of: YEAR ENDED DECEMBER 31 ----------------------------------------------------------------- 1999 1998 1997 ------------------- ------------------- ------------------- DOMESTIC FOREIGN DOMESTIC FOREIGN DOMESTIC FOREIGN -------- ------- -------- ------- -------- ------- Service cost..................... $ 577 $2,616 $ 482 $2,513 $ 407 $ 2,746 Interest......................... 5,176 3,285 5,209 3,040 5,117 3,301 Expected return on plan assets... (6,324) (949) (5,979) (853) (5,620) (1,185) Transition (asset) obligation.... -- 165 -- 160 -- 188 Amortization of prior service costs.......................... (12) -- (12) -- (12) -- Recognized actuarial loss........ 50 455 198 522 2 756 ------- ------ ------- ------ ------- ------- Net periodic pension cost (income)....................... $ (533) $5,572 $ (102) $5,382 $ (106) $ 5,806 ======= ====== ======= ====== ======= ======= 40 42 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The status of the Company's continuing pension plans and the related amounts recorded in the accompanying consolidated balance sheets are: DECEMBER 31, 1999 DECEMBER 31, 1998 -------------------- -------------------- DOMESTIC FOREIGN DOMESTIC FOREIGN -------- -------- -------- -------- Change in Benefit Obligation Benefit obligation at beginning of year......... $80,285 $ 50,587 $75,741 $ 46,863 Service cost................................. 577 2,616 482 2,513 Interest cost................................ 5,176 3,285 5,209 3,040 Actuarial (gain) or loss..................... (5,974) (825) 4,499 (174) Impact of foreign exchange................... -- (121) -- 885 Benefits paid................................ (9,244) (2,497) (5,646) (2,540) Curtailment loss............................. 840 -- -- -- ------- -------- ------- -------- Benefit obligation at end of year............... 71,660 53,045 80,285 50,587 ------- -------- ------- -------- Change in Plan Assets Fair value of plan assets at beginning of year......................................... 85,905 12,308 78,539 11,018 Actual return on plan assets (net of expenses).................................. 5,112 782 13,012 1,132 Employer contributions....................... 19 3,000 -- 2,543 Impact of foreign exchange................... -- 227 -- 155 Benefits paid................................ (9,244) (2,497) (5,646) (2,540) ------- -------- ------- -------- Fair value of plan assets at end of year........ 81,792 13,820 85,905 12,308 ------- -------- ------- -------- Reconciliation of the Funded Status Funded status................................ 10,132 (39,225) 5,620 (38,279) Unrecognized transition (asset) or obligation................................. -- 1,325 -- 1,523 Unrecognized prior service cost.............. (54) -- (65) -- Unrecognized actuarial (gain) or loss........ (8,377) 10,460 (3,567) 11,496 ------- -------- ------- -------- Asset (liability) recognized at year-end........ $ 1,701 $(27,440) $ 1,988 $(25,260) ======= ======== ======= ======== Actuarial assumptions: Discount rate................................ 7.75% 6.75% 6.75% 6.75% Investment return............................ 9.00% 7.00% 9.00% 7.00% Compensation increases....................... 4.75% 6.00% 4.75% 6.00% The domestic pension plans consist principally of a qualified retirement plan which has satisfied the full funding limitation requirements under the Employee Retirement Income Security Act of 1974 ("ERISA"). The Company made no contributions to the plan in 1999, 1998 or 1997. Domestic plan assets consist of fixed income and equity securities. The Company also has an unfunded supplemental retirement plan for certain members of management. Net pension cost and accrued pension obligations for this plan are included in the amounts above. The foreign pension plans consist principally of a Taiwan and a German pension plan which are funded in accordance with statutory requirements. Foreign plan assets principally consist of fixed income securities. Defined Contribution Plans. The Company maintains defined contribution plans covering all domestic non-union employees and employees in Ireland and France. Company contributions were $0.4 million in 1999 and $0.7 million in 1998 and 1997. Postretirement Benefits other than Pensions. The Company maintains an unfunded contributory group medical plan (the "Plan") for all full-time U.S. employees not covered by a collective bargaining agreement who meet defined age and service requirements. The Company recognizes the cost of providing and maintaining postretirement benefits during employees' active service periods. The Plan is the primary provider 41 43 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of benefits for retirees up to age 65. After age 65, Medicare becomes the primary provider. Net periodic postretirement benefit cost consists of: YEAR ENDED DECEMBER 31, ------------------------- 1999 1998 1997 ------- ------ ------ Service cost................................................ $ 141 $ 91 $ 87 Interest.................................................... 965 918 891 Amortization of prior service cost.......................... (194) (383) (383) Recognized actuarial loss................................... 184 135 12 ------ ----- ----- Net periodic postretirement benefit cost.................... $1,096 $ 761 $ 607 ====== ===== ===== The status of the Plan and the related amounts recorded in the accompanying consolidated balance sheets are: DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Change in Benefit Obligation Benefit obligation at beginning of year.................. $ 13,927 $ 13,286 Service cost.......................................... 141 91 Interest cost......................................... 965 918 Plan amendments....................................... 1,879 -- Actuarial (gain) or loss.............................. (2,050) 2,056 Retiree contributions................................. 269 -- Benefits paid......................................... (1,697) (2,424) -------- -------- Benefit obligation at end of year........................ 13,434 13,927 -------- -------- Change in Plan Assets Fair value of plan assets at beginning of year........... -- -- Actual return on plan assets.......................... -- -- Employer contributions................................ 1,429 2,424 Retiree contributions................................. 268 -- Benefits paid......................................... (1,697) (2,424) -------- -------- Fair value of plan assets at end of year................. -- -- -------- -------- Reconciliation of the Funded Status Funded status......................................... (13,434) (13,927) Unrecognized transition (asset) or obligation......... -- -- Unrecognized prior service cost....................... (2,762) (4,834) Unrecognized actuarial (gain) or loss................. 2,719 4,955 -------- -------- Accrued benefit liability at year end.................... $(13,477) $(13,806) ======== ======== Actuarial assumptions: Discount rate......................................... 7.75% 6.75% Expected return on plan assets........................ N/A N/A The assumed rate of future increases in health care costs for 1999 and 1998 was 10.0% and 11.25%, respectively, for pre-age 65 retirees, and 8% and 9%, respectively, for post-age 65 retirees, and is expected to decline to 6% by the year 2003 for pre-age 65 retirees and by the year 2005 for post-age 65 retirees, respectively. Under the Plan, the actuarially determined effect of a one percentage point increase in the 42 44 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) assumed health care cost trend rate on annual net postretirement benefit cost and the APBO would be $1.1 million and $1.4 million, respectively, for 1999 and 1998. Postemployment Benefits other than Pensions. The postemployment benefits obligation relates principally to medical costs for former employees on long-term disability. As of December 31, 1999 and 1998 $0.6 million and $1.0 million was accrued for postemployment benefits, respectively. 11. STOCKHOLDERS' EQUITY Stock Option Plan. Following the Distribution, the Company continued in effect the 1993 Long-Term Incentive Plan, renamed the Amended and Restated General Semiconductor, Inc. 1993 Long-Term Incentive Plan (the "1993 LTIP") as adjusted to reflect the Distribution and Stock Split. Stock options granted generally vest ratably over a three year period beginning on the first anniversary from the date granted, expire after ten years and have exercise prices equal to the market value of the Company's common stock at the date of grant. In May 1998, the stockholders of the Company approved the adoption of the General Semiconductor, Inc. 1998 Long-Term Incentive Plan (the "1998 LTIP") which provides for the granting of stock options, stock appreciation rights, restricted stock, performance units, performance shares and phantom stock to employees of the Company and its subsidiaries and the granting of stock options to directors of the Company. The 1998 LTIP replaces the Company's 1993 LTIP. No further awards or options were granted pursuant to the 1993 LTIP. All shares available for future grant under the 1993 LTIP and those shares in respect of options or awards granted or issued pursuant to the 1993 LTIP which are subsequently forfeited, expired or otherwise terminate without having been exercised will be added to the number of shares available for grant under the 1998 LTIP. The following table summarizes stock option activity relating to the Company's 1993 LTIP and 1998 LTIP (collectively, the "LTIP Plans") since the Distribution. NUMBER WEIGHTED- OF AVERAGE SHARES EXERCISE PRICE ------ -------------- Options outstanding at Distribution Date.............. 2,838 $11.77 Granted............................................... 195 14.94 Cancelled............................................. (17) 12.00 ----- Options outstanding at December 31, 1997.............. 3,016 $11.98 Granted............................................... 1,715 8.96 Exercised............................................. (38) 11.28 Cancelled............................................. (69) 12.03 ----- Options outstanding at December 31, 1998.............. 4,624 $10.86 Granted............................................... 1,347 8.65 Exercised............................................. (144) 10.24 Cancelled............................................. (300) 11.10 ----- Options outstanding at December 31, 1999.............. 5,527 $10.32 ===== For the period January 1, 1997 through the Distribution, 8,422 options to purchase GI common stock were granted, 798 options were exercised and 4,032 options were canceled. The weighted-average exercise price of these options (unadjusted for the Distribution and Stock Split) was $23.14, $22.95 and $29.50, respectively. At the Distribution Date, all unexercised GI stock options held by General Semiconductor employees and certain Directors of GI were converted into General Semiconductor stock options. For the 43 45 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) holders of unexercised General Semiconductor stock options, the number of options was adjusted and all exercise prices were decreased immediately following the Distribution to preserve the economic value of the options that existed prior to the Distribution Date. The following table summarizes information about stock options outstanding and exercisable under the Company's LTIP Plans. SHARES UNDER OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------- ------------------------- NUMBER WEIGHTED- NUMBER OUTSTANDING AVERAGE WEIGHTED- EXERCISABLE WEIGHTED- AT REMAINING AVERAGE AT AVERAGE RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE EXERCISE PRICES 1999 TERM (YEARS) PRICE 1999 PRICE - --------------- ------------ ------------ --------- ------------ --------- $1.48 to $8.44....... 1,318 7.9 $ 7.23 519 $ 7.39 $8.68 to $12.06...... 2,702 8.0 $10.35 1,158 $11.73 $12.75 to $14.38..... 1,507 6.2 $12.97 1,083 $13.04 ----- ----- 5,527 7.5 $10.32 2,760 $11.43 ===== ===== At December 31, 1999 and 1998, 2.7 million shares and 3.8 million shares, respectively, were reserved for future awards under the Company's LTIP Plans. The tax benefits arising from stock options exercised during the years ended December 31, 1999, 1998 and 1997 in the amount of $0.2 million, $0.1 million, and $1.1 million, respectively, were recorded in stockholders' equity as additional paid-in capital. In addition, under the provisions of the Incentive Plan, the Company issued 1 thousand and 4 thousand shares of Common Stock to certain members of its Board of Directors during the years ended December 31, 1999 and 1997, respectively. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its LTIP Plans. Since the exercise price of all stock options granted under the LTIP Plans in 1999, 1998 and 1997 was equal to the closing price of the Common Stock on the date of grant, no compensation expense has been recognized. Compensation expense would have been $4.4 million, $5.4 million and $27.1 million in 1999, 1998 and 1997, respectively, had compensation cost for stock options awarded during these years under the Company's stock option agreements been determined based upon the fair value at the grant date consistent with the methodology prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation". The Company's pro forma net income (loss) and diluted earnings (loss) per share would have been $21.7 million and $0.59 per share, respectively, for 1999, $15.2 million and $0.41 per share, respectively, for 1998 and $(10.9) million and $(0.31) per share, respectively for 1997. The estimated weighted-average per share fair value of the options granted during 1999 was $4.45, $4.18 during 1998, $9.70 for the period from January 1, 1997 through the Distribution Date, and $6.38 for the remainder of 1997, on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: 1999 1998 1997 ---- ---- ---- Expected life (years)....................................... 4.0 4.0 4.0 Risk-free interest rate..................................... 6.08% 4.81% 6.39% Expected volatility-pre-Distribution........................ N/A N/A 43% Expected volatility-post-Distribution....................... 62% 54% 45% Expected dividend yield..................................... 0% 0% 0% The pro forma effect on net income (loss) and earnings (loss) per share for 1999, 1998 and 1997 may not be representative of the pro forma effect in future years because it includes compensation cost on a straight- 44 46 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) line basis over the vesting periods of the grants and does not take into consideration the pro forma compensation costs for grants made prior to 1995. Stockholder Rights Plan. On January 6, 1997 the Board of Directors adopted a stockholder rights plan designed to protect stockholders from various abusive takeover tactics, including attempts to acquire control of the Company at an inadequate price. Under the rights plan, which was amended in March 1999, each stockholder, subsequent to the distribution date of January 24, 1997, receives a dividend of one right for each outstanding share of the Company's Common Stock. The rights are attached to, and presently only trade with, the Common Stock and currently are not exercisable. Except as specified below, upon becoming exercisable, all rights holders will be entitled to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock ("Participating Preferred Stock") at a price of $100. The rights become exercisable and will begin to trade separately from the Common Stock upon the earlier of (i) the first date of public announcement that a person or group (other than an existing 15% stockholder or pursuant to a Permitted Offer, as defined) has acquired beneficial ownership of 15% or more of the Company's outstanding Common Stock, or (ii) 10 business days following a person's or group's commencement of, or announcement of, an intention to commence a tender or exchange offer, the consummation of which would result in beneficial ownership of 15% or more of the Company's Common Stock. The rights will entitle holders to purchase Common Stock having a market value (immediately prior to such acquisition) of twice the exercise price of the right in lieu of purchasing the Participating Preferred Stock. If the Company is acquired through a merger or other business combination transaction (other than a Permitted Offer, as defined), each right will entitle the holder to purchase common stock of the surviving company having a market value (immediately prior to such acquisition) of twice the exercise price of the right. The Company may redeem the rights for $0.01 each at any time prior to such acquisition. The rights will expire on January 6, 2007, unless earlier redeemed. In connection with the stockholder rights plan, the Board of Directors approved the creation of, out of the authorized but unissued shares of preferred stock of the Company, the Participating Preferred Stock, consisting of 0.4 million shares with a par value of $0.01 per share. The holders of the Participating Preferred Stock are entitled to receive dividends, if declared by the Board of Directors, from funds legally available. Each share of Participating Preferred Stock is entitled to one thousand votes on all matters submitted to stockholder vote. The shares of Participating Preferred Stock are not redeemable by the Company nor convertible into Common Stock or any other security of the Company. 12. 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 1999 and 1997, 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 1998, 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. 45 47 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Set forth below are reconciliations of the numerators and denominators of the basic and diluted per share computations for each of the years ended December 31, 1999, 1998 and 1997. FOR THE YEAR ENDED DECEMBER 31, 1999 ----------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- BASIC EPS Net income..................................... $24,389 36,832 $0.66 ===== EFFECT OF DILUTIVE SECURITIES Options...................................... -- 218 Convertible debt............................. 323 513 ------- ------ DILUTED EPS Net income plus assumed conversions............ $24,712 37,563 $0.66 ======= ====== ===== FOR THE YEAR ENDED DECEMBER 31, 1998 ----------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- BASIC EPS Net income..................................... $18,534 36,811 $0.50 ===== EFFECT OF DILUTIVE SECURITIES Options...................................... -- 88 ------- ------ DILUTED EPS Net income..................................... $18,534 36,899 $0.50 ======= ====== ===== FOR THE YEAR ENDED DECEMBER 31, 1997 ----------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- BASIC EPS Income from continuing operations.............. $8,872 35,414 $0.25 ===== EFFECT OF DILUTIVE SECURITIES Options...................................... -- 162 ------ ------ DILUTED EPS Income from continuing operations.............. $8,872 35,576 $0.25 ====== ====== ===== In 1997 the effect of GI's 5% convertible junior subordinated notes (the "Junior Notes") which were outstanding through the Distribution is excluded from the above computation of diluted earnings per share because the impact was anti-dilutive. Had the impact of the weighted-average shares outstanding related to the Junior Notes of 1,305 shares been included in the diluted calculation, the diluted weighted-average shares outstanding of as December 31, 1997 would have been 36,881 shares. 13. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS Derivative instruments are primarily used by the Company to reduce financial risk arising from changes in foreign exchange and interest rates. The Company does not use derivative instruments for trading purposes, nor does it engage in currency or interest rate speculation. Derivatives used by the Company consist of foreign exchange, interest rate and other instruments. The Company believes that the various counterparties with 46 48 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) which the Company enters into these agreements consist of only financially sound institutions and, accordingly, believes that the credit risk for non-performance of these contracts is not significant. The Company monitors its underlying market risk exposures on an ongoing basis and believes that it can modify or adapt its hedging strategies as needed. Foreign Exchange Instruments. The Company enters into forward contracts on a month-to-month basis to minimize the effect of foreign currency fluctuations with regard to certain monetary assets and liabilities denominated in currencies other than the U.S. dollar. Gains and losses on these contracts generally offset, in the same period, gains and losses resulting from the translation of monetary assets and liabilities to U.S. dollars on a monthly basis, reducing the risk of exchange rate movements in the Company's results of operations. On a selective basis, the Company enters into forward contracts and purchased option contracts designed to hedge the currency exposure of contractual and other firm commitments denominated in foreign currencies and the currency exposure of anticipated, but not yet committed, transactions expected to be denominated in foreign currencies. The purpose of these activities is to protect the Company from the risk that the eventual net cash flows in U.S. dollars from foreign receivables and payables will be adversely affected by changes in exchange rates. Gains and losses on all purchased options and those forward contracts which hedge contractual and other firm commitments are deferred and recognized in the Company's results of operations in the same period as the gain or loss from the underlying transactions. Gains and losses on forward contracts used to hedge anticipated, but not yet committed, transactions are recognized in the Company's results of operations as changes in exchange rates for the applicable foreign currencies occur. Historically, foreign contracts with respect to contractual and other firm commitments and anticipated, but not yet committed, transactions have been short-term in nature. In addition, purchased options have had no intrinsic value at the time of purchase. The Company settles foreign exchange contracts generally at maturity and at prevailing market rates. The Company amortizes premiums on purchased options over the life of the contract. The amortization of these premiums during each of the three years in the period ended December 31, 1999 was not significant. As of December 31, 1999 and 1998, the Company had outstanding forward and purchased option contracts in the amounts of $10.6 million and $21.3 million, respectively, comprised of foreign currencies which were to be sold and $12.7 million and $79.6 million, respectively, comprised of foreign currencies which were to be purchased. All outstanding forward option contracts as of December 31, 1999 mature within twelve months. As of December 31, 1999 the Company had no purchased option contracts outstanding. As of December 31, 1999 the following forward contracts were outstanding: FORWARD CONTRACTS: AVERAGE US DOLLAR (000'S) US DOLLAR (000'S) CURRENCY RATE PURCHASE/(SELL) FAIR VALUE - -------- ------- ----------------- ----------------- New Taiwan Dollar................. 31.57 NTD/US $(12,670) $116 Japanese Yen...................... 102.66 JPY/US 9,741 138 British Pounds.................... 1.61 US/BPS 899 (20) As of December 31, 1998 the following forward and purchased option contracts were outstanding: 47 49 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FORWARD CONTRACTS: AVERAGE US DOLLAR (000'S) US DOLLAR (000'S) CURRENCY RATE PURCHASE/(SELL) FAIR VALUE - -------- ------- ----------------- ----------------- New Taiwan Dollar................. 32.57 NTD/US $(54,283) $545 German Marks...................... 1.67 DM/US 11,392 60 Japanese Yen...................... 115.62 JPY/US 8,779 (155) Irish Punt........................ 1.49 US/IEP (3,125) (5) British Pounds.................... 1.68 US/BPS 1,093 5 PURCHASED OPTIONS: AVERAGE US DOLLAR (000'S) US DOLLAR (000'S) CURRENCY RATE PURCHASE/(SELL) FAIR VALUE - -------- ------- ----------------- ----------------- New Taiwan Dollar................. 33.03 NTD/US $(22,161) $ 600 Fair values shown above are based on quoted market prices. Deferred gains or losses on the above contracts at December 31, 1999 and 1998 were not significant. Foreign currency transaction gains included in income from continuing operations were $0.8 million, $1.6 million and $3.8 million in 1999, 1998, 1997, respectively. Interest Rate Derivative Instruments. On a selective basis, the Company from time to time enters into interest rate cap or swap agreements to reduce the potential negative impact of increases in interest rates on its outstanding variable-rate debt under the Credit Agreement. The Company recognizes in its results of operations over the term of the contract, as interest expense, the amortization of contract premiums incurred from purchasing interest rate caps. Net payments or receipts resulting from these agreements are recorded as adjustments to interest expense. The effect of interest rate instruments on the Company's results of operations in each of the three years in the period ended December 31, 1999 was not significant. The Company entered into two interest rate swap transactions with a term of one year beginning on January 22, 1998. Pursuant to these agreements it paid a fixed interest rate averaging 5.96% on a combined notional amount of $100 million and received interest on the combined $100 million notional amount based on a three month LIBOR rate set quarterly beginning on January 22, 1998. During February 1998, the Company purchased two interest rate caps each with a notional amount of $50 million. The caps became effective on April 27, 1998 and June 29, 1998 with terms of nine months and six months, respectively. Under the terms of the caps, the Company was paid an amount equal to the excess, if any, of three month LIBOR above 6% multiplied by the notional amounts. The premium paid for the caps was not significant. At December 31, 1998 the Company held the following interest rate derivative instruments: INSTRUMENT NOTIONAL AMOUNT FIXED/STRIKE RATE FLOATING RATE FAIR VALUE - ---------- --------------- ----------------- ------------- ---------- Interest Rate Cap...... $50,000 6.000% 3-month LIBOR $ -- Floating to Fixed Swap................. 50,000 5.953% 3-month LIBOR (100) Floating to Fixed Swap................. 50,000 5.966% 3-month LIBOR (100) Fair values are based on the net present value of the future cash flows under the swap and cap agreements. Other Financial Instruments. As of December 31, 1999 and 1998 the carrying value of cash and cash equivalents, trade accounts receivable and trade accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount of the Company's senior bank indebtedness approximates fair value because the underlying instruments have variable interest 48 50 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) rates that adjust to market on a short-term basis. At December 31, 1999 the fair value of the Convertible Notes was approximately $184.6 million. Concentration of credit risk. The Company's accounts receivable are generated from sales to customers in a variety of end-use markets that are geographically and economically dispersed and payment is generally due within 30 days. Accordingly, the Company does not believe it is subject to any significant concentration of credit risk. 14. 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. Net sales by reportable geographic segment reflects 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 (loss) 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. Corporate assets consist of patents, the excess of cost over fair value of net assets acquired and deferred financing costs. Long-lived assets in the European and Far East geographic segments are related primarily to Ireland and Taiwan, respectively. UNITED STATES EUROPE FAR EAST CHINA CORPORATE CONSOLIDATED -------- -------- -------- ------- --------- ------------ YEAR ENDED DECEMBER 31, 1999: Net sales(a)................ $220,602 $130,287 $ 66,193 $ -- $ -- $417,082 Intercompany transfers...... 133,183 143,058 171,609 45,025 (492,875) -- -------- -------- -------- ------- --------- -------- Net sales................. 353,785 273,345 237,802 45,025 (492,875) 417,082 ======== ======== ======== ======= ========= ======== Interest income............. -- 35 22 12 34 103 Interest expense............ -- 239 46 -- 23,284 23,569 Depreciation and amortization expense...... 9,580 5,939 8,953 3,334 -- 27,806 Earnings before provision for income taxes.......... 2,509 7,621 16,255 6,134 -- 32,519 Income tax expense.......... 2,507 1,200 4,750 (327) -- 8,130 Long-lived assets........... 99,866 55,559 60,090 30,383 166,722 412,620 Capital expenditures........ $ 3,244 $ 7,560 $ 12,862 $ 3,662 $ -- $ 27,328 49 51 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) UNITED STATES EUROPE FAR EAST CHINA CORPORATE CONSOLIDATED -------- -------- -------- ------- --------- ------------ YEAR ENDED DECEMBER 31, 1998: Net sales (a)............... $225,711 $135,247 $ 40,186 $ -- $ -- $401,144 Intercompany transfers...... 114,833 136,993 170,568 28,956 (451,350) -- -------- -------- -------- ------- --------- -------- Net sales................. 340,544 272,240 210,754 28,956 (451,350) $401,144 ======== ======== ======== ======= ========= ======== Interest income............. -- 48 26 29 273 376 Interest expense............ -- 297 588 -- 19,517 20,402 Depreciation and amortization expense...... 8,770 4,654 8,913 2,645 -- 24,982 Earnings before provision for income taxes(b)....... 6,614 3,802 11,061 5,613 -- 27,090 Income tax expense.......... 3,073 3,364 1,989 130 -- 8,556 Long-lived assets........... 93,691 52,931 57,264 29,049 173,006 405,941 Capital expenditures........ $ 2,731 $ 14,042 $ 7,532 $ 2,593 $ -- $ 26,898 YEAR ENDED DECEMBER 31, 1997: Net sales (a)............... $245,772 $102,881 $ 31,385 $ -- $ -- $380,038 Intercompany transfers...... 102,966 84,301 137,293 4,752 (329,312) -- -------- -------- -------- ------- --------- -------- Net sales................. 348,738 187,182 168,678 4,752 (329,312) $380,038 ======== ======== ======== ======= ========= ======== Interest income............. -- 224 58 26 -- 308 Interest expense............ -- 223 3,561 -- 10,877 14,661 Depreciation and amortization expense...... 9,711 4,323 9,514 684 -- 24,232 Earnings (loss) before provision for income taxes(c).................. 14,535 630 8,328 (2,972) -- 20,521 Income tax expense.......... 5,452 1,042 5,155 -- -- 11,649 Long-lived assets........... 94,670 47,360 59,827 27,094 177,114 406,065 Capital expenditures........ $ 7,106 $ 1,039 $ 8,100 $12,963 $ -- $ 29,208 - --------------- (a) Included in United States net sales are export sales as follows: 1999 1998 1997 -------- -------- -------- Taiwan....................................... $ 62,494 $ 93,380 $ 99,134 China........................................ 41,607 32,904 28,602 -------- -------- -------- $104,101 $126,284 $127,736 ======== ======== ======== 50 52 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net sales, by country, within the European geographic segment are: 1999 1998 1997 -------- -------- -------- France....................................... $ 12,428 $ 12,993 $ 9,988 Germany...................................... 56,405 59,326 41,265 Italy........................................ 12,314 14,272 12,662 U.K. ........................................ 17,329 15,315 13,457 Other........................................ 31,811 33,341 25,509 -------- -------- -------- $130,287 $135,247 $102,881 ======== ======== ======== (b) Earnings before provision for income taxes in 1998 includes restructuring charges of $12.3 million ($8.5 million net of tax). (c) Earnings(loss) before provision for income taxes in 1997 includes charges of $33.8 million, ($25.3 million net of tax), primarily related to the separation of GI's Taiwan operations. No single customer accounted for more than 10% of the Company's sales during the years ended December 31, 1999, 1998 and 1997. 15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly data for 1999 and 1998 is as follows: QUARTER ENDED 1999 -------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ----------- ---------- ------------ -------------- Net sales............................. $ 96,961 $101,583 $105,756 $112,782 Gross profit.......................... 24,484 26,563 28,835 34,724 Net income............................ 4,252 5,108 6,208 8,821 Earnings per share Basic:.............................. $ 0.12 $ 0.14 $ 0.17 $ 0.24 Diluted:............................ 0.12 0.14 0.17 0.23 QUARTER ENDED 1998 -------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31(A) ----------- ---------- ------------ -------------- Net sales............................. $106,397 $ 98,762 $ 97,223 $ 98,762 Gross profit.......................... 35,289 28,647 26,726 26,900 Net income(loss)...................... 9,466 6,846 5,956 (3,734) Earnings(loss) per share Basic:.............................. $ 0.26 $ 0.19 $ 0.16 $ (0.10) Diluted:............................ 0.26 0.19 0.16 (0.10) - --------------- (a) Includes restructuring charges of $12.3 million ($8.5 million or $0.23 per share net of tax). 16. ACQUISITION On October 1, 1997 the Company purchased certain assets and assumed certain liabilities related to the discrete semiconductor business of ITT Industries, Inc. for $9.0 million including direct transaction costs. The acquisition was accounted for as a purchase transaction and, accordingly, the results of operations are included in the Consolidated Statement of Income since the date of acquisition. The pro forma effects, assuming this transaction was effective January 1, 1997, were not material to the Company's results of operations, financial position or cash flows for the year ended December 31, 1997. 51 53 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 17. DISCONTINUED OPERATIONS Net sales for the Discontinued Operations included in the Consolidated Statement of Income were $1.3 billion for the year ended December 31, 1997. Discontinued operations includes $52.9 million, net of applicable income taxes, for the year ended December 31, 1997 for costs incurred primarily related to the separation of the Taiwan operations between General Semiconductor and General Instrument and for professional fees and certain other administrative and financing costs incurred directly related to the Distribution. The distribution of the net assets of discontinued businesses reduced stockholders' equity by $1.4 billion of which $1.2 billion was allocated to additional paid-in capital and $0.2 billion to retained earnings. 52 54 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Identification of Directors: The sections captioned "Election of Directors" and "The Board of Directors and Committees of the Board" contained in the Company's 2000 Proxy Statement are hereby incorporated by reference. (b) Identification of Executive Officers: See Part I of this Form 10-K (c) Compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended: The section captioned "Section 16(a) Beneficial Ownership Reporting Compliance" contained in the Company's 2000 Proxy Statement is hereby incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION Information required by this item is contained in the sections captioned "Compensation of Executive Officers", and "Severance Protection and Other Agreements", in the Company's 2000 Proxy Statement and is incorporated by reference herein. The sections captioned "Report of the Compensation Committee" and "Performance Graph" in the Company's 2000 Proxy Statement are not incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item is contained in the sections captioned "Security Ownership of Certain Beneficial Owners and Management of the Company" and "Compensation of Executive Officers-Stock Options" in the Company's 2000 Proxy Statement and is incorporated by reference herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item is contained in the section captioned "Certain Related Party Transactions" in the Company's 2000 Proxy Statement and is incorporated by reference herein. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this report 1. Financial Statements Independent Auditors' Report Consolidated Financial Statements: Consolidated Balance Sheets -- as of December 31, 1999 and 1998 Consolidated Statements of Income -- Years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Stockholders' Equity -- Years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows -- Years ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements 53 55 See item 8 of this Form 10-K for Consolidated Financial Statements 2. Financial Statement Schedules. Schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 3. Exhibits. The exhibits required by Item 601 of Regulation S-K filed as part of, or incorporated by reference in, this report are listed in (c) below. (b) Reports on Form 8-K The Company filed a Form 8-K with the SEC, dated December 1, 1999, to report under Item 5 of that Form that a press release was issued on December 1, 1999 announcing the Company's planned convertible subordinated note offering. A copy of the press release was filed as an exhibit to the Form 8-K. The Company filed a Form 8-K with the SEC, dated December 14, 1999, to report under Item 5 of that Form that a press release was issued on December 14, 1999 announcing completion of the Company's convertible subordinated note offering. A copy of the press release was filed as an exhibit to the Form 8-K. (c) Item 601 Exhibits EXHIBITS - -------- 2.1 Agreement of Merger, dated as of July 25, 1997, between General Instrument Corporation and General Instrument Corporation of Delaware. (Incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997 (File No. 1-5442)) 3.1 Restated Certificate of Incorporation of General Semiconductor, Inc. (including Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock). (Incorporated herein by reference from the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998 (File No. 1-5442)) 3.2 Amended and Restated By-Laws of General Semiconductor, Inc. (Incorporated herein by reference from the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998 (File No. 1-5442)) 4.1 Rights Agreement, dated January 6, 1997, between General Semiconductor, Inc. and ChaseMellon Shareholder Services, LLC. (Incorporated herein by reference from the Registration Statement on Form 8-A filed January 10, 1997 (File No. 1-5442)) 4.2 Amendment No. 1 to the Rights Agreement, dated as of March 10, 1999 between General Semiconductor, Inc. and ChaseMellon Shareholder Services, LL (Incorporated herein by reference from the Amendment to the Registration Statement on Form 8-A/A filed March 16, 1999 (File No. 1-5442)) 10.1 Employee Benefits Allocation Agreement, dated as of July 25, 1997, among NextLevel Systems, Inc., CommScope, Inc. and General Semiconductor, Inc. (Incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997 (File No. 1-5442)) 10.2 Debt and Cash Allocation Agreement, dated as of July 25, 1997, among NextLevel Systems, Inc., CommScope, Inc. and General Semiconductor, Inc. (Incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997 (File No. 1-5442)) 10.3 Insurance Agreement, dated as of July 25, 1997, among NextLevel Systems, Inc., CommScope, Inc. and General Semiconductor, Inc. (Incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997 (File No. 1-5442)) 10.4 Tax Sharing Agreement, dated as of July 25, 1997, among NextLevel Systems, Inc., CommScope, Inc. and General Semiconductor, Inc. (Incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997 (File No. 1-5442)) 54 56 EXHIBITS - -------- 10.5 Trademark License Agreement, dated as of July 25, 1997, among NextLevel Systems, Inc., CommScope, Inc. and General Semiconductor, Inc. (Incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997 (File No. 1-5442)) 10.6 Transition Services Agreement, dated as of July 25, 1997, among NextLevel Systems, Inc., CommScope, Inc. and General Semiconductor, Inc. (Incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997 (File No. 1-5442)) 10.7 Credit Agreement, dated as of July 23, 1997, among NextLevel Systems, Inc., and General Semiconductor, Inc., Certain Banks, The Chase Manhattan Bank as Administrative Agent and The Chase Manhattan Bank, Bank of America National Trust and Savings Association, Bank of Montreal, The Bank of Nova Scotia, CIBC, Inc. Credit Lyonnais New York Branch, Fleet National Bank and Wachovia Bank, N.A. as Co-Agents. (Incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997 (File No. 1-5442)) 10.7.1 First Amendment to the Credit Agreement, dated as of December 31, 1998 among General Semiconductor, Inc., The Chase Manhattan Bank as Administrative Agent, the Banks from time to time parties thereto, and the financial institutions named therein as co-agents for the Banks. (Incorporated herein by reference from the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998 (File No. 1-5442)) 10.7.2 Second Amendment to the Credit Agreement, dated as of June 22, 1999 among General Semiconductor, Inc., The Chase Manhattan Bank as Administrative Agent, the Banks from time to time parties thereto, and the financial institutions named therein as co-agents for the Banks. (Incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1999 (File No. 1-5442)) 10.7.3 Guarantee and Collateral Agreement, dated as of August 15, 1999 between General Semiconductor, Inc. and certain of its subsidiaries in favor of the Chase Manhattan Bank, as Administrative Agent. (Incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999 (file No. 1-5442)) 10.8+ Amended and Restated General Semiconductor, Inc. 1993 Long-Term Incentive Plan. (Incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997 (File No. 1-5442)) 10.8.1+ General Semiconductor, Inc. 1998 Long-Term Incentive Plan. (Incorporated herein by reference from the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on July 20, 1998 (Reg. No. 333-22861)) 10.8.2+ First Amendment to the General Semiconductor, Inc. 1998 Long-Term Incentive Plan effective as of October 19, 1999 10.8.3+ General Semiconductor, Inc. Annual Incentive Plan adopted October 19, 1999. (Incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999 (File No. 1-5442)) 10.9+ Form of Indemnification Agreement between General Semiconductor, Inc. and certain executive officers. (Incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997 (File No. 1-5442)) 10.10+ Amended and Restated Severance Protection Agreement, dated October 29, 1998, between General Semiconductor, Inc. and Ronald A. Ostertag. (Incorporated herein by reference from the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998 (File No. 1-5442)) 10.11+ Form of Amended and Restated Severance Protection Agreement between General Semiconductor, Inc. and certain of its executive officers (other than the Chief Executive Officer). (Incorporated herein by reference from the Company's Annual Report on Form 10-K/ A for the fiscal year ended December 31, 1998 (File No. 1-5442)) 10.12 Indenture dated as of December 14, 1999 between General Semiconductor, Inc. and The Bank of New York, as Trustee (Incorporated herein by reference from the Company's Registration Statement on Form S-3 dated January 12, 2000 (File No. 333-94513)) 10.13 Registration Rights Agreement dated as of December 14, 1999 between General Semiconductor, Inc. and the Initial Purchasers named therein (Incorporated herein by reference from the Company's Registration Statement on Form S-3 dated January 12, 2000 (File No. 333-94513)). 55 57 EXHIBITS - -------- 21. Subsidiaries of the Registrant. 23. Independent Auditors' Consent. 27. Financial Data Schedule. 99. Forward-Looking Information. - --------------- + Management compensation. 56 58 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. /s/ RONALD A. OSTERTAG -------------------------------------- Ronald A. Ostertag Chairman of the Board, President and Chief Executive Officer Dated: March 15, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ RONALD A. OSTERTAG Chairman of the Board, President March 15, 2000 - --------------------------------------------------- and Chief Executive Officer and Ronald A. Ostertag Director (Principal Executive Officer) /s/ ROBERT J. GANGE Senior Vice President and Chief March 15, 2000 - --------------------------------------------------- Financial Officer Robert J. Gange (Principal Financial Officer) /s/ ROBERT J. GANGE Controller (Principal Accounting March 15, 2000 - --------------------------------------------------- Officer) Robert J. Gange /s/ C. SCOTT KULICKE Director March 15, 2000 - --------------------------------------------------- C. Scott Kulicke /s/ RONALD ROSENZWEIG Director March 15, 2000 - --------------------------------------------------- Ronald Rosenzweig /s/ PETER A. SCHWARTZ Director March 15, 2000 - --------------------------------------------------- Peter A. Schwartz /s/ SAMUEL L. SIMMONS Director March 15, 2000 - --------------------------------------------------- Samuel L. Simmons /s/ PROF. GERARD T. WRIXON Director March 15, 2000 - --------------------------------------------------- Prof. Gerard T. Wrixon 57