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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 29, 2002.
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 No. 0-25662
ANADIGICS, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2582106
--------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
141 Mt. Bethel Road
Warren, New Jersey 07059
---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(908) 668-5000
----------------------------------------------------
(Registrant's telephone number, including area code)
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 [ ]
The number of shares outstanding of the registrant's common stock as of July 30,
2002 was 30,585,540.
INDEX
ANADIGICS, Inc.
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - June 29,
2002 and December 31, 2001.
Condensed consolidated statements of operations
and comprehensive loss - Three and six months
ended June 29, 2002 and June 30, 2001.
Condensed consolidated statements of cash flows -
Six months ended June 29, 2002 and June 30, 2001.
Notes to condensed consolidated financial
statements - June 29, 2002.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II. Other Information
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
2
PART I - FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ANADIGICS, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
June 29, 2002 December 31, 2001
------------- ------------------
(unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 25,703 $ 63,102
Marketable securities 83,976 55,364
Accounts receivable 11,636 10,200
Inventory 16,180 14,661
Prepaid expenses and other current assets 5,242 6,635
------------- -------------
Total current assets 142,737 149,962
Marketable securities 75,241 81,629
Property and equipment:
Equipment and furniture 128,680 127,903
Leasehold improvements 32,778 34,207
Projects in process 12,581 17,702
------------- -------------
174,039 179,812
Less accumulated depreciation and amortization 94,989 89,329
------------- -------------
79,050 90,483
Intangible assets, net of amortization 2,850 3,390
Goodwill 8,043 16,053
Other assets 5,548 5,397
------------- -------------
Total assets $ 313,469 $ 346,914
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,712 $ 9,115
Accrued liabilities 6,312 6,549
Current maturities of capital lease obligations -- 94
Accrued restructuring costs 2,188 1,898
Current maturities of long-term debt 113 244
------------- -------------
Total current liabilities 19,325 17,900
Long-term debt, less current portion 100,000 100,000
Other long-term liabilities 2,526 2,378
Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value, 144,000,000 shares
authorized, 30,585,533 and 30,568,761 issued
and outstanding at June 29, 2002 and
December 31, 2001, respectively 306 306
Additional paid-in capital 333,968 333,860
Accumulated deficit (143,160) (108,238)
Accumulated other comprehensive income 504 708
------------- -------------
Total stockholders' equity 191,618 226,636
------------- -------------
Total liabilities and stockholders' equity $ 313,469 $ 346,914
============= =============
See accompanying notes.
3
ANADIGICS, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Three months ended Six months ended
----------------------------- -----------------------------
June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
------------- ------------- ------------- -------------
(unaudited) (unaudited)
Net sales $ 23,021 $ 18,897 $ 42,542 $ 47,418
Cost of sales 18,832 26,235 37,837 47,440
------------ ------------ ------------ ------------
Gross profit (loss) 4,189 (7,338) 4,705 (22)
Research and development expenses 7,699 9,972 15,277 20,023
Selling and administrative expenses 5,656 7,369 10,935 14,010
Restructuring charges -- 900 2,715 900
Asset impairment charges -- 800 3,244 800
Purchased in-process R&D -- 3,800 -- 3,800
------------ ------------ ------------ ------------
Operating loss (9,166) (30,179) (27,466) (39,555)
Interest income 1,735 1,660 3,416 4,084
Interest expense (1,422) (66) (2,864) (129)
Other income (expense) -- 11 2 (49)
------------ ------------ ------------ ------------
Loss before income taxes and
cumulative effect of accounting
change (8,853) (28,574) (26,912) (35,649)
Provision for income taxes -- 26,814 -- 24,338
------------ ------------ ------------ ------------
Net loss before cumulative effect
of accounting change (8,853) (55,388) (26,912) (59,987)
Cumulative effect of accounting
change -- -- (8,010) --
------------ ------------ ------------ ------------
Net loss $ (8,853) $ (55,388) $ (34,922) (59,987)
============ ============ ============ ============
Basic and diluted loss per share
Net loss before cumulative effect
of accounting change $ (0.29) $ (1.84) $ (0.88) $ (1.99)
Cumulative effect of accounting
change -- -- (0.26) --
------------ ------------ ------------ ------------
Net loss $ (0.29) $ (1.84) $ (1.14) $ (1.99)
============ ============ ============ ============
Weighted average common and
dilutive securities outstanding 30,579,575 30,183,105 30,575,202 30,126,585
============ ============ ============ ============
See accompanying notes.
4
ANADIGICS, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(DOLLARS IN THOUSANDS)
Three months ended Six months ended
----------------------------- -----------------------------
June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
------------- ------------- ------------- -------------
(unaudited) (unaudited)
Net loss $ (8,853) $ (55,388) $ (34,922) $ (59,987)
Unrealized gain (loss) on
marketable securities 762 (263) (203) (7)
Foreign currency translation
adjustment 33 (11) (22) (83)
Reclassification adjustment:
Net realized (gain) loss previously
in other comprehensive income (10) (2) 21 (13)
------------ ------------ ------------ ------------
Comprehensive loss $ (8,068) $ (55,664) $ (35,126) $ (60,090)
============ ============ ============ ============
See accompanying notes.
5
ANADIGICS, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Six months ended
-----------------------------
June 29, 2002 June 30, 2001
------------- -------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (34,922) $ (59,987)
Adjustments to reconcile net loss to net cash
used by operating activities:
Cumulative effect of accounting change 8,010 --
Depreciation 9,906 12,279
Amortization 1,127 974
Loss on asset impairment 3,244 552
Purchased in-process research and development -- 3,800
Deferred taxes -- 24,338
Amortization of premium on marketable securities 1,102 425
Realized loss (gain) on sales of marketable securities 21 (13)
Loss on sale of equipment -- 49
Changes in operating assets and liabilities
Accounts receivable (1,436) 10,501
Inventory (1,519) 7,268
Prepaid expenses and other assets 578 (2,024)
Accounts payable 1,597 1,745
Accrued and other liabilities 179 (485)
------------ ------------
Net cash used by operating activities (12,113) (578)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of plant and equipment (1,662) (11,559)
Purchases of marketable securities (52,400) (82,873)
Proceeds from sale of marketable securities 28,893 68,183
Purchase of Telcom Devices, net of cash acquired -- (27,927)
Proceeds from sale of equipment -- 32
------------ ------------
Net cash used in investing activities (25,169) (54,144)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 108 1,785
Repayment of debt (131) (3,240)
Payment of capital lease obligations (94) (244)
------------ ------------
Net cash used by financing activities (117) (1,699)
------------ ------------
Net decrease in cash and cash equivalents (37,399) (56,421)
Cash and cash equivalents at beginning of period 63,102 95,116
------------ ------------
Cash and cash equivalents at end of period $ 25,703 $ 38,695
============ ============
Supplemental disclosures of cash flow information:
Interest paid $ 2,342 $ 121
Taxes paid 118 --
Acquisition of equipment under capital leases -- 248
See accompanying notes.
6
ANADIGICS, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - JUNE 29, 2002
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited, condensed, consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and six month periods ended June 29,
2002 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2002.
The condensed, consolidated balance sheet at December 31, 2001 has been
derived from the audited financial statements at that date but does not include
all the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
The condensed, consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board issued Statement
No. 143, Accounting for Asset Retirement Obligations ("FAS 143"). FAS 143
requires that asset retirement obligations that are identifiable upon
acquisition and construction, and during the operating life of a long-lived
asset be recorded as a liability using the present value of the estimated cash
flows. A corresponding amount would be capitalized as part of the asset's
carrying amount and amortized to expense over the asset's useful life. The
Company is required to adopt the provisions of FAS 143 effective January 1,
2003. The Company is currently evaluating the impact of adoption of this
statement.
In April 2002, the FASB issued Statement No. 145, Rescission of FASB
Statements No. 4, 44 and 62, Amendment of FASB Statement No 13 and Technical
Corrections (FAS 145). For most companies, FAS 145 will require gains and losses
on extinguishments of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under
FAS 4. Extraordinary treatment will be required for certain extinguishments as
provided in APB Opinion No. 30. The statement also amended FAS 13 for certain
sales-leaseback and sublease accounting. The Company is required to adopt the
provisions of FAS 145 effective January 1, 2003. The Company is currently
evaluating the impact of adoption of this statement.
In July 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (FAS 146) and nullifies EITF Issue
No. 94-3. FAS 146 requires that a liability for a cost associated with an exit
or disposal activity be recognized when the liability is incurred, whereas EITF
No 94-3 had recognized the liability at the commitment date to an exit plan. The
Company is required to adopt the provisions of FAS 146 effective for exit or
disposal activities initiated after December 31, 2002. The Company is currently
evaluating the impact of adoption of this statement.
2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
method) or market. Inventories consist of the following:
June 29, 2002 December 31, 2001
---------------- ------------------
Raw materials $ 5,022 $ 6,095
Work in process 11,637 8,963
Finished goods 7,431 8,105
----------- ----------
24,090 23,163
Reserves (7,910) (8,502)
----------- ----------
Total $ 16,180 $ 14,661
=========== ==========
7
3. LOSS PER SHARE
The reconciliation of shares used to calculate basic and diluted
earnings per share consists of the following:
Three months ended Six months ended
---------------------------- -----------------------------
June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
------------- ------------- ------------- -------------
Weighted average common shares
outstanding used to calculate
basic earnings per share 30,579,575 30,183,105 30,575,202 30,126,585
Net effect of dilutive securities
based upon the treasury stock
method using an average market
price --* --* --* --*
---------- ---------- ---------- ----------
Weighted average common and
dilutive securities outstanding
used to calculate diluted
earnings per share 30,579,575 30,183,105 30,575,202 30,126,585
========== ========== ========== ==========
* Any dilution arising from the Company's outstanding stock options or shares
potentially issuable upon conversion of the Convertible notes are not included
as their effect is anti-dilutive.
On May 20, 2002, the Company announced a voluntary stock option exchange
program for eligible employees. Officers and directors were not eligible for the
exchange program. Pursuant to the terms and conditions of the offer, which
expired on June 18, 2002, the Company accepted for cancellation options to
purchase 838,157 shares of common stock having a weighted average exercise price
of $36.90. On or about December 20, 2002, participating employees will receive
one new option for each option canceled. The new options will have an exercise
price equal to the closing sale price of the Company's common stock on that date
and will fully vest one year thereafter.
4. REVENUE SOURCES
The Company classifies its revenues based upon the end application of
the product in which its integrated circuits are used. In conjunction with the
restructuring of the business and the resulting de-emphasis of fiber optic
research activities, as well as convergence within the end markets for the
Company's cable and fiber products, the Company is now focused on the Broadband
and Wireless end market categories. Prior year results have been reclassified to
conform to these categories. Net sales by end application are regularly reviewed
by the chief operating decision-maker and are as follows:
Three months ended Six months ended
------------------------------ ------------------------------
June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
------------- ------------- ------------- -------------
Broadband $ 9,924 $ 12,964 $ 20,426 $ 35,140
Wireless 13,097 5,933 22,116 12,278
------------- ------------- ------------- ------------
Total $ 23,021 $ 18,897 $ 42,542 $ 47,418
============= ============= ============= ============
The Company primarily sells to four geographic regions: Europe, Asia,
U.S.A. and Canada, and Latin America. The geographic region is determined by the
destination of the shipped product. Net sales to each of the four geographic
regions are as follows:
Three months ended Six months ended
------------------------------ -----------------------------
June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
------------- ------------- ------------- -------------
Europe $ 950 $ 4,009 $ 2,037 $ 6,488
Asia 8,312 5,486 15,777 18,458
U.S.A. and Canada 13,427 5,593 23,878 14,301
Latin America 332 3,809 850 8,171
------------- ------------- ------------- ------------
Total $ 23,021 $ 18,897 $ 42,542 $ 47,418
============= ============= ============= ============
5. ACQUISITION OF TELCOM DEVICES
On April 2, 2001, ANADIGICS, Inc. acquired Telcom Devices Corp.
("Telcom"), a manufacturer of indium phosphide based photodiodes for the
telecommunications and data communications markets. The acquisition was
accounted for using the purchase method of accounting. The results of operations
of Telcom are included in that of the Company from the date of purchase.
The cash consideration paid on April 2, 2001, for 100% of Telcom's
stock was $28,000. In addition, the Company incurred $300 in acquisition-related
costs. The total purchase price of $28,300 was allocated to the assets acquired
and liabilities assumed, based on their fair values (as determined by an
appraisal) as follows:
Fair value of tangible assets $5,522
Fair value of liabilities assumed (1,369)
In-process research and development 3,800
Process technology 3,400
Covenant not to compete 800
Deferred tax liability (1,831)
Goodwill 17,978
-------
Total purchase price $28,300
=======
8
The following unaudited pro-forma consolidated financial information
reflects the results of operations for the six months ended June 29, 2002 and
June 30, 2001, as if the acquisition of Telcom had occurred on January 1, 2001
and after giving effect to purchase accounting adjustments. The charge for
purchased in-process R&D is not included in the pro-forma results, because it is
non-recurring.
Six months ended
------------------------------
June 29, 2002 June 30, 2001
------------- -------------
Pro-forma revenue $ 42,542 $ 49,878
Pro-forma net loss before cumulative
effect of accounting change $ (26,912) $ (56,800)
Pro-forma net loss $ (34,922) $ (56,800)
Basic and diluted net loss per share
Pro-forma net loss before cumulative
effect of accounting change $ (0.88) $ (1.89)
Pro-forma net loss $ (1.14) $ (1.89)
6. GOODWILL AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE
During the period ended June 29, 2002, the Company completed the first
of the required impairment tests of goodwill required under Statement of
Financial Accounting Standards ("FAS") No 142, "Goodwill and other intangible
assets", which was adopted effective January 1, 2002. Under the new rules,
goodwill is no longer subject to amortization but is reviewed for potential
impairment, upon adoption and thereafter annually or upon the occurrence of an
impairment indicator. The annual amortization of goodwill which would have
approximated $2,567 is no longer required. Other intangible assets continue to
be amortized over their useful lives. As a result of completing the required
test, the Company recorded a charge retroactive to the adoption date for the
cumulative effect of the accounting change in the amount of $8,010 ($0.26 per
share) representing the excess of the carrying value of a reporting unit
(Telcom) as compared to its estimated fair value. The change modifies the first
quarter's previously reported net loss of $18,059 ($0.59 per share) to $26,069
($0.85 per share).
The following table reflects unaudited pro-forma results of operations
of the Company giving effect to FAS 142 as if it were adopted on January 1,
2001:
For the three, six and twelve month periods ended
--------------------------------------------------
June 30, 2001 June 30, 2001 December 31, 2001
------------- ------------- -----------------
Net loss, as reported $ (55,388) $ (59,987) $ (107,120)
Add back: amortization expense, net of tax 642 642 1,925
Pro-forma net loss $ (54,746) $ (59,345) $ (105,195)
Basic and diluted net loss per share
As reported $ (1.84) $ (1.99) $ (3.54)
Pro-forma net loss $ (1.81) $ (1.97) $ (3.48)
7. RESTRUCTURING CHARGE
During the first quarter of 2002, the Company recorded restructuring
charges of $5,959. As part of its cost reduction initiatives, the Company has
curtailed certain fiber-optic research activities and is consolidating
facilities at its Warren headquarters. The restructuring charges included $2,185
for facilities consolidation costs and $3,244 for an impairment of certain
leasehold improvements and research fixed assets, which are no longer used in
the ongoing activities of the business. A charge of $530 was recorded for
severance and related benefits of workforce reductions undertaken in first
quarter. The workforce reductions eliminated approximately 23 fiber research and
marketing employees to whom benefits were substantially paid through June 29,
2002. During the second quarter, 2002, we further evaluated our fixed assets
held for sale ($1,000) against weak resale markets and identified certain
alternative uses internally. Following our evaluation, these assets, formerly
classified in other current assets as held for sale, were placed into service
and depreciation resumed. During the second quarter of 2001, we recorded
restructuring charges of $900 for severance and related benefits and facilities
consolidation and $800 for impaired fixed assets.
8. INCOME TAXES
During the second quarter of 2001, the Company recorded a valuation
allowance of $26,814 against the carrying value of its deferred tax asset.
Deferred tax assets require a valuation allowance when, in the opinion of
management, it is more likely than not that some portion of the deferred tax
assets may not be realized. Whereas realization of the deferred tax assets is
dependent upon the timing and magnitude of future taxable income prior to the
expiration of the deferred tax attributes, management has recorded a full
valuation allowance. The amount of the deferred tax assets considered
realizable, however, could change if estimates of future taxable income during
the carry-forward period are changed.
9
9. LONG-TERM DEBT
On November 27, 2001, the Company issued $100,000 aggregate principal
amount of 5% Convertible Senior Notes ("Convertible notes") due November 15,
2006. The notes are convertible into shares of common stock at any time prior to
their maturity or prior redemption by the Company. The notes are convertible
into shares of common stock at a rate of 47.619 shares for each $1,000 principal
amount (convertible at a price of $21.00 per share), subject to adjustment.
Interest is payable semi-annually on May 15 and November 15 of each year.
10
ANADIGICS, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the unaudited consolidated statements of
operations data as a percent of net sales for the periods presented:
Three months ended Six months ended
------------------------------- ------------------------------
June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
------------- -------------- ------------- -------------
(unaudited) (unaudited)
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 81.8 138.8 88.9 100.0
--------- ---------- ---------- ---------
Gross profit (loss) 18.2 (38.8) 11.1 --
Research and development expenses 33.4 52.8 35.9 42.2
Selling and administrative expenses 24.6 39.0 25.7 29.6
Restructuring charge -- 4.8 6.4 1.9
Asset impairment charge -- 4.2 7.6 1.7
Purchased in-process R&D -- 20.1 -- 8.0
--------- ---------- ---------- ---------
Operating loss (39.8) (159.7) (64.5) (83.4)
Interest income 7.5 8.8 8.0 8.6
Interest expense (6.2) (0.3) (6.7) (0.3)
Gain (loss) on sale of equipment -- 0.1 -- (0.1)
--------- ---------- ---------- ---------
Loss before income taxes and
cumulative effect of accounting
change (38.5) (151.1) (63.2) (75.2)
Provision for income taxes -- 141.9 -- 51.3
--------- ---------- ---------- ---------
Net loss before cumulative effect
of accounting change (38.5) (293.0) (63.2) (126.5)
Cumulative effect of accounting
change -- -- (18.9) --
--------- ---------- ---------- ---------
Net loss (38.5%) (293.0%) (82.1%) (126.5%)
========= ========== ========== =========
NET SALES. Net sales during the second quarter of 2002 increased 21.8% to
$23.0 million from $18.9 million in the second quarter of 2001. For the six
months ended June 29, 2002, net sales were $42.5 million, a 10.3% decrease from
net sales of $47.4 million for the six months ended June 30, 2001.
Sales of integrated circuits for Wireless applications increased 120.7%
during the second quarter of 2002 to $13.1 million from $5.9 million in the
second quarter of 2001. For the six months ended June 29, 2002, net sales of
integrated circuits for Wireless applications increased 80.1% to $22.1 million
from $12.3 million in the six month period ended June 30, 2001. The increase in
sales of integrated circuits for Wireless applications in both the quarter and
six month periods was primarily due to the increase in sales of our CDMA power
amplifier modules, which accounted for 90% and 81% of second quarter and six
months revenues in 2002, compared with 1% and zero, respectively in the prior
year. The net sales in 2001 were predominantly derived from TDMA power
amplifiers.
Sales of integrated circuits for Broadband applications decreased 23.5%
during the second quarter of 2002 to $9.9 million from $13.0 million in the
second quarter of 2001. For the six months ended June 29, 2002, net sales of
integrated circuits for Broadband applications decreased 41.9% to $20.4 million
from $35.1 million in the six month period ended June 30, 2001. The decrease in
sales of integrated circuits for Broadband applications during the second
quarter was primarily due to a reduction in sales of integrated circuits for
fiber optic applications and decreased demand for our reverse amplifiers used in
digital set-top boxes and cable modems. The six month decrease is attributable
to the reasons above, in addition to the broader decrease in demand from cable
applications. The decrease in demand is attributable to market softness.
The shift in the geographic distribution of sales is due to a mix shift
in Wireless to the U.S.A. and Canada in 2002 versus a more balanced distribution
in 2001.
Generally, selling prices for same product sales were lower during 2002
compared to 2001.
GROSS MARGIN. Gross margin during the second quarter of 2002 increased to
18.2% from (38.8%) in the second quarter of 2001. For the six months ended June
29, 2002, gross margin increased to 11.1% from break-even for the six months
ended June 30, 2001. Gross margins in 2001 included inventory reserve charges of
$7.6 million and $11.1 million, respectively in the quarter and six month
periods whereas the second quarter of 2002 includes a reduction of reserves of
$0.5 million. The second quarter improvement in adjusted gross margin (adjusted
for the aforementioned inventory reserve movements) in 2002 was primarily due to
the increase in revenues, higher production and consequent absorption of fixed
costs, as well as cost reductions in the expense base. The six month decrease in
adjusted gross margin stems primarily from lower revenues in broadband.
11
RESEARCH AND DEVELOPMENT. Company sponsored research and development
expense decreased 22.8% during the second quarter of 2002 to $7.7 million from
$10.0 million during the second quarter of 2001. Company sponsored research and
development expense decreased 23.7% during the six month period ended June 29,
2002 to $15.3 million. The decrease in both the quarter and six months in 2002
was primarily attributable to the realignment of R&D programs favoring wireless
and cable, and the refocusing of efforts on specific fiber-related projects, in
addition to cost reductions initiatives implemented in 2001 and early 2002. As a
percentage of sales, research and development expense decreased to 33.4% in the
second quarter of 2002 from 52.8% in the second quarter of 2001 and 35.9% and
42.2% in the six months of 2002 and 2001, respectively.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses decreased
23.2% during the second quarter of 2002 to $5.7 million from $7.4 million in the
second quarter of 2001. The decrease in selling and administrative expenses
during 2002 was primarily due to lower compensation and operating expenses
following our restructuring initiatives of 2001. As a percentage of sales,
selling and administrative expenses decreased to 24.6% in the second quarter of
2002 from 39.0% in the second quarter of 2001. Selling and administrative
expenses decreased 21.9% during the six month period ended June 29, 2002 to
$10.9 million from $14.0 million in the six month period ended June 30, 2001. As
a percentage of sales, selling and administrative expenses decreased to 25.7%
during the six month period ended June 29, 2002 from 29.6% in the six month
period ended June 30, 2001.
RESTRUCTURING AND ASSET IMPAIRMENT CHARGES. The restructuring charges in
the six month period ended June 29, 2002 include $2.2 million for facilities
consolidation costs and $3.2 million for an impairment of certain leasehold
improvements and research fixed assets, which are no longer used in our ongoing
business. A charge of $0.5 million was recorded for severance and related
benefits of workforce reductions undertaken in the first quarter. The workforce
reductions eliminated approximately 23 fiber research and marketing employees to
whom benefits were substantially paid through June 29, 2002. The anticipated
annual savings from these charges is expected to approximate $5.0 million.
During the second quarter, 2002, we continued to evaluate our fixed assets held
for sale ($1.0 million) against weak resale markets and identified certain
alternative uses internally. Following our evaluation, the assets formerly
classified in other current assets as held for sale were placed into service and
depreciation resumed. During the second quarter of 2001, we recorded
restructuring charges of $0.9 million for severance and related benefits and
facilities consolidation and $0.8 million for impaired fixed assets.
INTEREST INCOME. Interest income increased 4.5% to $1.7 million during the
second quarter of 2002 from $1.6 million during the second quarter of 2001. The
increase of $0.1 million was due to the higher level of invested funds. Interest
income decreased 16.4% during the six month period ended June 29, 2002 to $3.4
million from $4.1 million in the six month period ended June 30, 2001. The
decrease was primarily due to lower interest rates.
INTEREST EXPENSE. During the second quarter of 2002, we incurred $1.4
million in interest expense on our $100.0 million of 5% Convertible notes,
following their issuance on November 27, 2001. Interest expense increased during
the six month period ended June 29, 2002 to $2.9 million from $0.1 million in
the six month period ended June 30, 2001.
PROVISION FOR INCOME TAXES. The provision for income taxes during the first
quarter of 2001 was recorded at an estimated effective tax rate of 35.0% of the
loss before income taxes. During the second quarter of 2001, we recorded a
valuation allowance of $26.8 million against the carrying value of our deferred
tax asset. Since realization of deferred tax assets is dependent upon the timing
and magnitude of future taxable income prior to the expiration of the deferred
tax attributes, management has recorded a full valuation allowance in 2001 and
2002.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. During the period ended June 29,
2002, we completed the first of the required impairment tests of goodwill
required under Statement of Financial Accounting Standards ("FAS") No 142,
"Goodwill and other intangible assets", which was adopted effective January 1,
2002. Under the new rules, goodwill is no longer subject to amortization but is
reviewed for potential impairment, upon adoption and thereafter annually or upon
the occurrence of an impairment indicator. The annual amortization of goodwill
which would have approximated $2.6 million is no longer required. Other
intangible assets continue to be amortized over their useful lives. As a result
of completing the required test, we recorded a charge retroactive to the
adoption date for the cumulative effect of the accounting change in the amount
of $8.0 million representing the excess of the carrying value of a reporting
unit as compared to its estimated fair value.
LIQUIDITY AND CAPITAL RESOURCES
As of June 29, 2002, we had $25.7 million in cash and cash equivalents and
$159.2 million in marketable securities. We had $100.1 million of
interest-bearing debt outstanding as of June 29, 2002. These figures reflect our
private offering of $100 million aggregate principal amount of Convertible notes
due in 2006, completed during November 2001.
Operating activities used $12.1 million in cash during the six month period
ended June 29, 2002. Investing activities, which primarily consisted of net
purchases of marketable securities of $23.5 million, used $25.2 million of cash
during the six month period ended June 29, 2002. Financing activities, which
primarily consisted of repayments of bank debt, used $0.1 million during the six
month period ended June 29, 2002.
As of June 29, 2002, we had purchase commitments of approximately $2.9
million of equipment, furniture and leasehold improvements. We may, from time to
time, seek to repurchase our outstanding debt and/or equity securities through
open market purchases, privately negotiated transactions or otherwise.
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We believe that our existing sources of capital, including internally
generated funds, will be adequate to satisfy operational needs and anticipated
capital needs for the next twelve months and beyond. Our anticipated capital
needs may include acquisitions of complimentary businesses or technologies,
investments in other companies or repurchasing our outstanding debt or equity.
However, we may elect to finance all or part of our future capital requirements
through additional equity or debt financing. There can be no assurance that such
additional financing would be available on satisfactory terms.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board issued Statement No.
143, Accounting for Asset Retirement Obligations ("FAS 143"). FAS 143 requires
that asset retirement obligations that are identifiable upon acquisition and
construction, and during the operating life of a long-lived asset be recorded as
a liability using the present value of the estimated cash flows. A corresponding
amount would be capitalized as part of the asset's carrying amount and amortized
to expense over the asset's useful life. We are required to adopt the provisions
of FAS 143 effective January 1, 2003. We are currently evaluating the impact of
adoption of this statement.
In April 2002, the FASB issued Statement No. 145, Rescission of FASB
Statements No. 4, 44 and 62, Amendment of FASB Statement No 13 and Technical
Corrections (FAS 145). For most companies, FAS 145 will require gains and losses
on extinguishments of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under FAS
4. Extraordinary treatment will be required for certain extinguishmnets as
provided in APB Opinion No. 30. The statement also amended FAS 13 for certain
sales-leaseback and sublease accounting. We are required to adopt the provisions
of FAS 145 effective January 1, 2003. We are currently evaluating the impact of
adoption of this statement.
In July 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (FAS 146) and nullifies EITF Issue
No. 94-3. FAS 146 requires that a liability for a cost associated with an exit
or disposal activity be recognized when the liability is incurred, whereas EITF
No 94-3 had recognized the liability at the commitment date to an exit plan. We
are required to adopt the provisions of FAS 146 effective for exit or disposal
activities initiated after December 31, 2002. We are currently evaluating the
impact of adoption of this statement.
RISKS AND UNCERTAINTIES
Except for historical information contained herein, this Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements that involve risks and uncertainties,
including, but not limited to, order rescheduling or cancellation, changes in
customer's forecasts of product demand, timely product and process development,
individual product pricing pressure, variation in production yield, changes in
estimated product lives, difficulties in obtaining components and assembly
services needed for production of integrated circuits, change in economic
conditions of the various markets we serve, as well as the other risks detailed
from time to time in the Company's reports filed with the Securities and
Exchange Commission, including the report on Form 10-K for the year ended
December 31, 2001 and the Registration Statement on Form S-3 (Registration No.
333-83889). These forward-looking statements can generally be identified as such
because the context of the statement will include words such as "believe",
"anticipate", "expect", or words of similar import. Similarly, statements that
describe our future plans, objectives, estimates or goals are forward-looking
statements. The cautionary statements made in this Form 10-Q should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-Q. Important factors that could cause actual results and
developments to be materially different from those expressed or implied by such
statements include those factors discussed herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to changes in interest rates primarily from our investments
in certain available-for-sale securities. Our available-for-sale securities
consist primarily of fixed income investments (U.S. Treasury and Agency
securities, commercial paper and corporate bonds). We continually monitor our
exposure to changes in interest rates and credit ratings of issuers from our
available-for-sale securities. Accordingly, we believe that the effects of
changes in interest rates and credit ratings of issuers are limited and would
not have a material impact on our financial condition or results of operations.
However, it is possible that we are at risk if interest rates or credit ratings
of issuers change in an unfavorable direction. The magnitude of any gain or loss
will be a function of the difference between the fixed rate of the financial
instrument and the market rate and our financial condition and results of
operations could be materially affected.
Our Convertible notes bear a fixed rate of interest of 5%. A change in
interest rates on long-term debt is assumed to impact fair value but not
earnings or cash flow because the interest rate is fixed.
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ANADIGICS, Inc.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ANADIGICS is a party to litigation arising out of the operation of our
business. We believe that the ultimate resolution of such litigation should not
have a material adverse effect on our financial condition, results of operations
or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on May 23, 2002 at
which the Company's stockholders voted on:
(a) The election of two Class I Directors of ANADIGICS to hold office until
2005.
(b) The ratification of Ernst & Young, LLP as independent auditors of ANADIGICS
for the fiscal year ending December 31, 2002.
The two matters listed above were voted upon and approved by the shareholders of
the Company as follows:
(a) The election of Harry Rein as a Class I Director was approved by
holders of 27,590,233 shares of the Company's outstanding capital
stock. Holders of 177,939 shares withheld from voting on such election.
The election of Dennis F. Strigl as a Class I Director was approved by
holders of 27,235,975 shares of the Company's outstanding capital
stock. Holders of 532,197 shares withheld from voting on such election.
(b) The ratification of the appointment of Ernst & Young LLP as independent
auditors was approved by holders of 27,200,258 shares of the Company's
outstanding capital stock. Holders of 501,655 shares voted against the
ratification, and holders of 66,259 shares abstained from voting on
such ratification.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K during the quarter ended June 29, 2002.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANADIGICS, INC.
By: /s/ Thomas C. Shields
----------------------------
Thomas C. Shields
Senior Vice President
and Chief Financial Officer
Dated: August 1, 2002
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CERTIFICATION
Each of the undersigned hereby certifies in his capacity as an officer of
ANADIGICS, Inc. (the "Company") that the Quarterly Report of the Company on Form
10-Q for the periods ended June 29, 2002 fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934 and that the information
contained in such report fairly presents, in all material respects, the
financial condition of the Company at the end of such periods and the results of
operations of the Company for such periods.
/s/ Bami Bastani
-------------------------------------
Dated: August 1, 2002 Bami Bastani
President and Chief Executive Officer
/s/ Thomas Shields
-------------------------------------
Thomas Shields
Senior Vice President and
Chief Financial Officer
16