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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 SEPTEMBER 27, 2003.
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 [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
The number of shares outstanding of the Registrant's common stock as of
October 31, 2003 was 30,674,033.
INDEX
ANADIGICS, Inc.
Part. I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets -
September 27, 2003 and December 31, 2002.
Condensed consolidated statements of operations
and comprehensive loss - Three and nine months
ended September 27, 2003 and September 28, 2002.
Condensed consolidated statements of cash flows -
Nine months ended September 27, 2003 and
September 28, 2002.
Notes to condensed consolidated financial
statements - September 27, 2003.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements (unaudited)
ANADIGICS, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
September 27, 2003 December 31, 2002
------------------ -----------------
(unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 14,945 $ 24,343
Marketable securities 69,991 74,038
Accounts receivable 10,879 9,016
Inventories 11,327 13,277
Prepaid expenses and other current assets 3,457 4,600
--------- ---------
Total current assets 110,599 125,274
Marketable securities 43,363 57,137
Property and equipment:
Equipment and furniture 126,366 123,328
Leasehold improvements 38,413 37,473
Projects in process 3,659 5,371
--------- ---------
168,438 166,172
Less accumulated depreciation and amortization 111,174 97,572
--------- ---------
57,264 68,600
Goodwill and other intangibles, net of amortization 1,351 -
Other assets 3,871 4,660
--------- ---------
Total assets $ 216,448 $ 255,671
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,248 $ 7,434
Accrued liabilities 4,367 4,733
Accrued restructuring costs 2,103 2,956
Current maturities of capital lease obligations 96 -
--------- ---------
Total current liabilities 14,814 15,123
Long-term debt, less current portion 66,700 66,700
Other long-term liabilities 2,913 2,760
Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value, 144,000,000 shares authorized,
30,674,033 issued and outstanding at September 27, 2003
and December 31, 2002 307 307
Additional paid-in capital 334,170 334,162
Accumulated deficit (202,764) (164,124)
Accumulated other comprehensive income 308 743
--------- ---------
Total stockholders' equity 132,021 171,088
--------- ---------
Total liabilities and stockholders' equity $ 216,448 $ 255,671
========= =========
See accompanying notes.
3
ANADIGICS, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Three months ended Nine months ended
-------------------------------- -------------------------------
Sept. 27, 2003 Sept. 28, 2002 Sept. 27, 2003 Sept. 28, 2002
-------------- -------------- -------------- --------------
(unaudited) (unaudited)
Net sales $ 17,750 $ 21,288 $ 51,874 $ 63,830
Cost of sales 17,690 21,225 51,199 59,062
----------- ----------- ----------- -----------
Gross profit 60 63 675 4,768
Research and development expenses 7,937 7,586 23,264 22,863
Selling and administrative expenses 4,735 5,463 13,703 16,398
Restructuring and other charges - 2,286 625 5,001
Asset impairment charges - 3,087 - 6,331
Goodwill impairment charge - 8,043 - 8,043
Purchased in-process R&D - - 1,690 -
----------- ----------- ----------- -----------
Operating loss (12,612) (26,402) (38,607) (53,868)
Interest income 741 1,543 2,628 4,959
Interest expense (940) (1,307) (2,821) (4,171)
Impairment on investment - (390) - (390)
Gain on repurchase of Convertible notes - 12,581 - 12,581
Other income (expense) 183 (5) 160 (3)
----------- ----------- ----------- -----------
Loss before cumulative effect
of accounting change (12,628) (13,980) (38,640) (40,892)
Cumulative effect of accounting change - - - (8,010)
----------- ----------- ----------- -----------
Net loss $ (12,628) $ (13,980) $ (38,640) $ (48,902)
=========== =========== =========== ===========
Basic and diluted loss per share
Loss before cumulative effect
of accounting change $ (0.41) $ (0.46) $ (1.26) $ (1.34)
Net loss $ (0.41) $ (0.46) $ (1.26) $ (1.60)
Weighted average common and
dilutive securities outstanding 30,674,033 30,585,540 30,674,033 30,578,630
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(DOLLARS IN THOUSANDS)
Three months ended Nine months ended
-------------------------------- --------------------------------
Sept. 27, 2003 Sept. 28, 2002 Sept. 27, 2003 Sept. 28, 2002
-------------- -------------- --------------- --------------
(unaudited) (unaudited)
Net loss $ (12,628) $ (13,980) $ (38,640) $ (48,902)
Unrealized (loss) gain on
marketable securities (341) 457 (468) 254
Foreign currency translation
adjustment 5 1 18 (21)
Reclassification adjustment:
Net realized (gain) loss previously
in other comprehensive income - (96) 15 (75)
---------- ----------- ---------- ------------
Comprehensive loss $ (12,964) $ (13,618) $ (39,075) $ (48,744)
========== =========== ========== ============
See accompanying notes.
4
ANADIGICS, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Nine months ended
--------------------------------
Sept. 27, 2003 Sept. 28, 2002
-------------- --------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (38,640) $ (48,902)
Adjustments to reconcile net loss to net cash used in
operating activities:
Cumulative effect of accounting change - 8,010
Depreciation 13,902 14,891
Amortization 957 1,715
Goodwill impairment charge - 8,043
Gain on repurchase of Convertible notes - (12,581)
Amortization of premium on marketable securities 1,786 1,659
Purchased in-process R&D 1,690 -
Impairments of long lived assets and investments - 6,721
Loss on disposal of equipment 26 -
Changes in operating assets and liabilities:
Accounts receivable (1,711) (2,401)
Inventory 1,951 1,653
Prepaid expenses and other assets 1,044 1,774
Accounts payable 481 54
Accrued liabilities and other liabilities (1,063) 1,109
----------- -----------
Net cash used in operating activities (19,577) (18,255)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of plant and equipment (2,297) (3,756)
Acquisition of business (3,015) -
Purchases of marketable securities (79,180) (77,134)
Proceeds from sale of marketable securities 94,747 74,889
----------- -----------
Net cash provided by (used in) investing activities 10,255 (6,001)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of capital lease obligations (76) (94)
Repayments of long-term debt - (198)
Repurchase of Convertible notes - (19,828)
Issuance of common stock - 108
----------- -----------
Net cash used in financing activities (76) (20,012)
----------- -----------
Net increase (decrease) in cash and cash equivalents (9,398) (44,268)
Cash and cash equivalents at beginning of period 24,343 63,102
----------- -----------
Cash and cash equivalents at end of period $ 14,945 $ 18,834
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 1,668 $2,881
Taxes paid - 118
See accompanying notes.
5
ANADIGICS, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
SEPT. 27, 2003
(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 generally accepted accounting
principles 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 nine
month periods ended September 27, 2003 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2003.
The condensed, consolidated balance sheet at December 31, 2002 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, 2002.
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.
INCOME TAXES
The Company maintains a full valuation allowance on its deferred tax assets.
Accordingly, the Company has not recorded a benefit for income taxes.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Effective January 1, 2002, the Company completed the first of the required
impairment tests of goodwill required under Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (FAS 142), which was
adopted as of that date. 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. 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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board (FASB) 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 adopted the provisions of FAS 143 effective January 1, 2003 and there
was no impact on the financial statements.
In July 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (FAS 146) which 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 adopted the provisions of FAS 146 for exit or disposal activities
initiated after January 1, 2003.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires the recognition
of certain guarantees as liabilities at fair market value and is effective for
guarantees issued or modified after December 31, 2002. The Company adopted the
disclosure requirement of FIN 45 and there was no impact on the financial
statements from the fair market value provisions. The Company provides for
warranty obligations, by a current charge to income, an amount we estimate, by
examining historical returns and other information we deem critical, will be
needed to cover future warranty costs for products sold during the period.
Warranty reserve movements in the nine months included $234 in actual charges
and $10 in provisions resulting in the balance of $144 at September 27, 2003.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). FIN 46 is the interpretation of Accounting
Research Bulletin No. 51 Consolidated Financial Statements, which addresses
consolidation by business enterprises of variable interest entities. FIN 46 is
effective immediately for all variable interest entities created after January
31, 2003 and effective for fiscal years beginning after December 15, 2003 for
variable interest entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003. The Company does not expect the adoption of
FIN 46 to have a material impact on its financial position, results of
operations and cash flows.
In December 2002, the FASB issued Statement No. 148, Accounting for
Stock-Based Compensation -- Transition and Disclosure (FAS 148). FAS 148 amends
Statement No. 123, Stock-Based Compensation, (FAS 123) to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, FAS 148 amends
the requirements of FAS 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
disclosure provisions of FAS 148 are effective for periods ending after December
15, 2002 and have been incorporated as below.
6
STOCK BASED COMPENSATION
As permitted by FAS 123, the Company has elected to follow the intrinsic
value method under Accounting Principle Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25) and related interpretations in accounting for
its employee stock option plans. Under APB 25, no compensation expense is
recognized at the time of option grant when the exercise price of the Company's
employee stock options equals the fair market value of the underlying common
stock on the date of grant.
The following table illustrates the effect on net loss and loss per common
share as if the Company had applied the fair value method to measure stock-based
compensation, required under the disclosure provisions of FAS 123:
Three months ended Nine months ended
------------------------------ -----------------------------
Sept. 27, 2003 Sept. 28, 2002 Sept. 27, 2003 Sept. 28, 2002
-------------- -------------- -------------- --------------
Net loss, as reported $ (12,628) $ (13,980) $ (38,640) $ (48,902)
Stock based compensation expense
under fair value reporting (1,510) (2,078) (5,181) (8,595)
Pro-forma net loss (14,138) (16,058) (43,821) (57,497)
Basic and diluted net loss per share
Net loss, as reported $ (0.41) $ (0.46) $ (1.26) $ (1.60)
Pro-forma net loss $ (0.46) $ (0.53) $ (1.43) $ (1.88)
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories consist of the following:
Sept. 27, 2003 December 31, 2002
-------------- -----------------
Raw materials $ 3,247 $ 4,316
Work in process 9,601 10,080
Finished goods 4,175 6,015
----------- ----------
17,023 20,411
Reserves (5,696) (7,134)
----------- ----------
Total $ 11,327 $ 13,277
=========== ==========
3. LOSS PER SHARE
The reconciliation of shares used to calculate basic and diluted loss per
share consists of the following:
Three months ended Nine months ended
------------------------------- ------------------------------
Sept. 27, 2003 Sept. 28, 2002 Sept. 27, 2003 Sept. 28, 2002
-------------- -------------- -------------- --------------
Weighted average common shares
outstanding used to calculate
basic earnings per share 30,674,033 30,585,540 30,674,033 30,578,630
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 30,674,033 30,585,540 30,674,033 30,578,630
========== ========== ========== ==========
* 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.
7
On July 3, 2003, the Company announced a voluntary stock option exchange
program for employees and officers. Directors were not eligible for the exchange
program. Pursuant to the terms and conditions of the offer, which expired on
August 4, 2003, the Company accepted for cancellation options to purchase
1,673,931 shares of common stock having a weighted average exercise price of
$19.49. On or about February 6, 2004, participating employees will receive one
new option for every three options cancelled. 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. As of September 27, 2003,
options issuable under this program are 557,954.
4. REVENUE SOURCES
The Company classifies its revenues based upon the end application of the
product in which its integrated circuits are used. Net sales by end application
are regularly reviewed by the chief operating decision maker and are as follows:
Three months ended Nine months ended
------------------------------- ------------------------------
Sept. 27, 2003 Sept. 28, 2002 Sept. 27, 2003 Sept 28, 2002
-------------- -------------- -------------- -------------
Broadband $ 8,267 $ 10,263 $ 24,817 $ 30,689
Wireless 9,483 11,025 27,057 33,141
------------ ------------ ------------- ------------
Total $ 17,750 $ 21,288 $ 51,874 $ 63,830
============ ============ ============= ============
The Company primarily sells to three geographic regions: Asia, U.S.A. and
Canada, and Other. The geographic region is determined by the destination of the
shipped product. Net sales to each of the three geographic regions are as
follows:
Three months ended Nine months ended
-------------------------------- ------------------------------
Sept. 27, 2003 Sept. 28, 2002 Sept. 27, 2003 Sept 28, 2002
--------------- -------------- -------------- -------------
Asia $ 8,662 $ 9,842 $ 19,642 $ 25,619
U.S.A. and Canada 6,995 9,982 27,828 33,860
Other 2,093 1,464 4,404 4,351
------------- ------------- ------------- ------------
Total $ 17,750 $ 21,288 $ 51,874 $ 63,830
============= ============= ============= ============
5. RESTRUCTURING, IMPAIRMENT and OTHER CHARGE
During the first quarter of 2003, the Company recorded restructuring charges of
$625 pertaining to severance and related benefits of workforce reductions
undertaken in the quarter. The workforce reductions eliminated approximately 19
operations and administrative positions to whom $534 of benefits were paid
through September 27, 2003. During the nine months ended September 28, 2002, we
recorded asset impairments, impairment on investment, and restructuring and
other charges of $6,331, $390 and $5,001, respectively.
6. LONG-TERM DEBT
On November 27, 2001, the Company issued $100,000 aggregate principal amount
of 5% Convertible Senior Notes ("Convertible notes" or "notes") due November 15,
2006. During the third quarter of 2002, the Company repurchased and retired
$33,300 principal amount of the Convertible notes. The outstanding 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.
7. ACQUISITION OF RF SOLUTIONS' POWER AMPLIFIER BUSINESS
On March 31, 2003, the Company acquired certain assets and liabilities of the
wireless LAN ("WLAN") power amplifier business of RF Solutions ("RFS"). The RFS
acquisition was a strategic initiative that allows the Company to participate in
the emerging and fast-growing WLAN market with a depth of experienced design
personnel and cutting-edge products. The acquisition was accounted for using the
purchase method of accounting. The results of operations for RFS are included in
the results of operations of the Company from the date of purchase. There are no
significant differences between the accounting policies of the Company and RFS.
The Company paid cash purchase consideration on March 31, 2003 of $2,800 and
may be required to issue up to 3 million shares of the Company's common stock as
contingent consideration, based on the achievement of certain revenue milestones
over the 12 months ending March 31, 2004. Any contingent shares would be issued
as the revenue milestones are achieved. The Company incurred $215 in
acquisition-related costs. The fixed acquisition cost of $3,015 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 $ 479
Fair value of liabilities assumed (527)
In-process research and development 1,690
Process technology 169
Goodwill 1,204
Total purchase price $3,015
8
If certain sales targets are reached over the twelve months ending March 31,
2004, the additional purchase consideration would increase the goodwill
attributed to RFS. The Company is unable to assess the amount or probability of
any contingent purchase consideration that may be due and has therefore excluded
it from the fair value allocation. The Company recorded a charge of $1,690
representing the fair value of certain acquired research and development
projects relating to dual band, high gain and modules applications for Wireless
LAN that were determined to have not reached technological feasibility and to
not have alternative future uses. The fair value of such projects was determined
based on discounted net cash flows. These cash flows were based upon
management's estimates of future revenues and expected profitability of each
technology. The rate used to discount these projected cash flows accounted for
the time value of money, as well as the risks of realization of cash flows.
The following unaudited pro-forma consolidated financial information reflects
the results of operations for the three and nine months ended September 27, 2003
and September 28, 2002, as if the acquisition of RFS had occurred on December
31, 2001 and after giving effect to purchase accounting adjustments. The charge
for purchased in-process research and development is not included in the
pro-forma results, because it is non-recurring.
Three months ended Nine months ended
------------------------------- -------------------------------
Sept. 27, 2003 Sept. 28, 2002 Sept. 27, 2003 Sept. 28, 2002
-------------- -------------- -------------- --------------
Pro-forma revenue $ 17,750 $ 21,367 $ 52,233 $ 63,970
Pro-forma net loss before cumulative
effect of accounting change $ (12,628) $ (15,843) $ (38,418) $ (46,209)
Pro-forma net loss $ (12,628) $ (15,843) $ (38,418) $ (54,219)
Basic and diluted net loss per share
Pro-forma net loss before cumulative
effect of accounting change $ (0.41) $ (0.52) $ (1.25) $ (1.51)
Pro-forma net loss $ (0.41) $ (0.52) $ (1.25) $ (1.77)
These pro-forma results have been prepared for comparative purposes only and
do not purport to be indicative of what operating results would have been had
the acquisition actually taken place on December 31, 2001. In addition, these
results are not intended to be a projection of future results and do not reflect
any synergies that might be achieved from the combined operations.
9
ANADIGICS, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth unaudited consolidated statements of
operations data as a percent of net sales for the periods presented:
Three months ended Nine months ended
------------------------------- ------------------------------
Sept. 27, 2003 Sept. 28, 2002 Sept. 27, 2003 Sept. 28, 2002
-------------- -------------- -------------- --------------
(unaudited) (unaudited)
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 99.7 99.7 98.7 92.5
---------- ---------- ---------- ---------
Gross profit 0.3 0.3 1.3 7.5
Research and development expenses 44.7 35.6 44.8 35.8
Selling and administrative expenses 26.6 25.7 26.4 25.7
Restructuring and other charges - 10.7 1.2 7.9
Asset impairment charge - 14.5 - 9.8
Goodwill impairment charge - 37.8 - 12.6
Purchased in-process R&D - - 3.3 -
---------- ---------- ---------- ---------
Operating loss (71.0) (124.0) (74.4) (84.4)
Interest income 4.2 7.2 5.1 7.8
Interest expense (5.3) (6.1) (5.5) (6.6)
Impairment on investments - (1.8) - (0.6)
Gain on repurchase of Convertible notes - 59.1 - 19.7
Other income 1.0 - 0.3 -
---------- ---------- ---------- ---------
Loss before cumulative effect
of accounting change (71.1) (65.7) (74.5) (64.1)
Cumulative effect of accounting change - - - (12.5)
---------- ---------- ---------- ---------
Net loss (71.1%) (65.7%) (74.5%) (76.6%)
========== ========== ========== =========
NET SALES. Net sales decreased 16.6% during the third quarter of 2003 to
$17.8 million from $21.3 million in the third quarter of 2002. For the nine
months ended September 27, 2003, net sales were $51.9 million, a 18.7% decrease
from net sales of $63.8 million for the nine months ended September 28, 2002.
Sales of integrated circuits for Wireless applications decreased 14.0% during
the third quarter of 2003 to $9.5 million from $11.0 million in the third
quarter of 2002. For the nine months ended September 27, 2003, net sales of
integrated circuits for Wireless applications decreased 18.4% to $27.1 million
from $33.1 million in the nine-month period ended September 28, 2002. The
decrease in sales of integrated circuits for Wireless applications during the
third quarter was primarily due to the product mix-shift into smaller die-size
products. The nine-month decrease is primarily attributable to the continued
decrease in sales of our TDMA power amplifiers.
Sales of integrated circuits for Broadband applications decreased 19.5%
during the third quarter of 2003 to $8.3 million from $10.3 million in the third
quarter of 2002. For the nine months ended September 27, 2003, net sales of
integrated circuits for Broadband applications decreased 19.1% to $24.8 million
from $30.7 million in the nine-month period ended September 28, 2002. Sales for
the three and nine month periods ended September 27, 2003 decreased despite the
inclusion of Wireless LAN sales resulting from the acquisition of RF Solutions'
("RFS") power amplifier business on March 31, 2003. The decrease in sales of
integrated circuits for Broadband applications was primarily due to decreased
demand for our reverse amplifiers and converters used in digital set-top boxes
and cable modems.
Generally, selling prices for same product sales were lower during the third
quarter of 2003 compared to the third quarter of 2002.
GROSS MARGIN. Gross margin during the third quarter of 2003 was 0.3%,
consistent with the gross margin of 0.3% for the third quarter of 2002. For the
nine months ended September 27, 2003, gross margin decreased to 1.3% from 7.5%
for the nine months ended September 28, 2002. The third quarter of 2002 included
an inventory charge of $2.2 million for defective raw materials purchased from a
former supplier that has ceased operations. The decrease in gross margin in the
three and nine month periods ended September 27, 2003 (adjusted for the
aforementioned inventory charges) was primarily due to the decrease in revenues,
lower production throughput and consequent lower absorption of fixed costs,
which was partially offset by reductions in our manufacturing cost base.
RESEARCH AND DEVELOPMENT. Company sponsored research and development expense
increased 4.6% during the third quarter of 2003 to $7.9 million from $7.6
million during the third quarter of 2002. Company sponsored research and
development expense increased 1.8% during the nine-month period ended September
27, 2003 to $23.3 million from $22.9 million for the nine-month period ended
September 28, 2002. The increase in the third quarter of 2003 was due to the
inclusion of the operations of RFS following its acquisition on March 31, 2003.
As a percentage of sales, research and development expense increased to 44.7% in
the third quarter of 2003 from 35.6% in the third quarter of 2002 and to 44.8%
from 35.8% in the nine months of 2003 and 2002, respectively.
10
SELLING AND ADMINISTRATIVE. Selling and administrative expenses decreased
13.3% during the third quarter of 2003 to $4.7 million from $5.5 million in the
third quarter of 2002. Selling and administrative expenses decreased 16.4%
during the nine-month period ended September 27, 2003 to $13.7 million from
$16.4 million in the nine-month period ended September 28, 2002. The decrease in
the three and nine month periods ended September 27, 2003 was primarily due to
lower compensation and operating costs following our restructuring initiatives
of 2002 and the first quarter of 2003. As a percentage of sales, selling and
administrative expenses increased slightly to 26.6% in the third quarter of 2003
from 25.7% in the third quarter of 2002 and to 26.4% from 25.7% in the nine
months of 2003 and 2002, respectively.
ASSET IMPAIRMENT AND RESTRUCTURING AND OTHER CHARGES. During the first
quarter of 2003, we recorded restructuring charges of $0.6 million pertaining to
severance and related benefits of workforce reductions undertaken in that
quarter. The workforce reductions eliminated approximately 19 positions in
operations and administration to whom approximately $0.5 million of severance
benefits were paid through September 27, 2003. The anticipated annual benefit
from these charges is expected to approximate $1.9 million. During the nine
months ended September 28, 2002, we recorded asset impairments, impairment on
investments, and restructuring and other charges of $6.3 million, $0.4 million
and $5.0 million, respectively.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. The Company expensed purchased
in-process research and development costs of $1.7 million as a result of the RFS
acquisition on March 31, 2003. The charge represents the fair value of certain
acquired research and development projects that were determined to have not
reached technological feasibility and to not have alternative future uses.
INTEREST INCOME. Interest income decreased 52.0% to $0.7 million during the
third quarter of 2003 from $1.5 million during the third quarter of 2002. For
the nine months ended September 27, 2003, interest income decreased 47.0% to
$2.6 million from $5.0 million in the nine-month period ended September 28,
2002. The decreases were due to lower invested funds compounded by lower
interest rates.
INTEREST EXPENSE. Interest expense decreased 28.1% to $0.9 million during the
third quarter of 2003 from $1.3 million during the third quarter of 2002. For
the nine months ended September 27, 2003, interest expense decreased 32.4% to
$2.8 million from $4.2 million in the nine-month period ended September 28,
2002. The decreases were due to the lower outstanding balance of $66.7 million
of our 5% Convertible notes, following their original $100.0 million issuance on
November 27, 2001 and our partial repurchase and retirement of such notes in the
third quarter of 2002.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. Effective January 1, 2002, we
completed the first of the required impairment tests of goodwill required under
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, which was adopted as of that date. 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 (Telcom) as
compared to its estimated fair value.
LIQUIDITY AND CAPITAL RESOURCES
As of September 27, 2003, we had $14.9 million in cash and cash equivalents
and $113.4 million in marketable securities. We had $66.7 million of
interest-bearing debt outstanding as of September 27, 2003.
Operating activities used $19.6 million in cash during the nine-month period
ended September 27, 2003. Investing activities, which consisted of net sales of
marketable securities of $15.6 million, partially offset by purchases of
equipment of $2.3 million and $3.0 million paid upon the acquisition of RFS'
power amplifier business, provided $10.3 million of cash during the nine-month
period ended September 27, 2003.
As of September 27, 2003, we had purchase commitments of approximately $0.8
million for equipment, furniture and leasehold improvements.
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, or
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 June 2001, the Financial Accounting Standards Board (FASB) 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
adopted the provisions of FAS 143 effective January 1, 2003 and there was no
impact on the financial statements.
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In July 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (FAS 146) which 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
adopted the provisions of FAS 146 for exit or disposal activities initiated
during the period ended March 29, 2003.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires the recognition
of certain guarantees as liabilities at fair market value and is effective for
guarantees issued or modified after December 31, 2002. We adopted the disclosure
requirement of FIN 45 and there was no impact on the financial statements from
the fair market value provisions. We provide for warranty obligations, by a
current charge to income, an amount we estimate, by examining historical returns
and other information we deem critical, will be needed to cover future warranty
costs for products sold during the period.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). FIN 46 is the interpretation of Accounting
Research Bulletin No. 51 Consolidated Financial Statements, which addresses
consolidation by business enterprises of variable interest entities. FIN 46 is
effective immediately for all variable interest entities created after January
31, 2003 and effective for fiscal years beginning after December 15, 2003 for
variable interest entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003. We do not expect the adoption of FIN 46 to
have a material impact on our financial position, results of operations and cash
flows.
In December 2002, the FASB issued Statement No. 148, Accounting for
Stock-Based Compensation -- Transition and Disclosure (FAS 148). FAS 148 amends
Statement No. 123, Stock-Based Compensation, (FAS 123) to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, FAS 148 amends
the requirements of FAS 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
disclosure provisions of FAS 148 are effective for periods ending after December
15, 2002.
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
customers' forecasts of product demand, timely product and process development
and protection of the associated intellectual property rights, individual
product pricing pressure, variation in production yield, changes in estimated
product lives, difficulties in obtaining components and assembly and test
services needed for production of integrated circuits, changes in economic
conditions of the various markets we serve, as well as the other risks detailed
from time to time in our reports filed with the Securities and Exchange
Commission, including the report on Form 10-K for the year ended December 31,
2002 and the Registration Statement on Form S-3 (Registration No. 333-75040).
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 would be at risk if interest rates or credit
ratings of issuers change in an unfavorable direction. The magnitude of any gain
or loss would 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.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of certain members of the
Company's management, including the President and Chief Executive Officer and
Chief Financial Officer, the Company completed an evaluation of the
effectiveness of the design and operation of its disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities
Exchange Act of 1934, as amended, (the "Exchange Act")). Based on this
evaluation, the Company's President and Chief Executive Officer and Chief
Financial Officer believe that the disclosure controls and procedures were
effective as of the end of the period covered by this report with respect to
timely communicating to them and other members of management responsible for
preparing periodic reports all material information required to be disclosed in
this report as it relates to the Company and its consolidated subsidiaries.
There was no change in the Company's internal control over financial
reporting during the Company's last fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
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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 its
business. We believe that the ultimate resolution of such litigation should not
have a material adverse effect on the Company's financial condition, results of
operations or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Rule 13a-14(a)/15d-14(a) Certification of Bami Bastani, President
and Chief Executive Officer of ANADIGICS, Inc.
31.2 Rule 13a-14(a)/15d-14(a) Certification of Thomas C. Shields,
Senior Vice President and Chief Financial Officer of
ANADIGICS, Inc.
32.1 Section 1350 Certification of Bami Bastani, President and Chief
Executive Officer of ANADIGICS, Inc.
32.2 Section 1350 Certification of Thomas C. Shields, Senior Vice
President and Chief Financial Officer of ANADIGICS, Inc.
(b) Reports on Form 8-K during the quarter ended September 27, 2003.
On July 28, 2003, the Company furnished on Form 8-K a press release
announcing the Company's financial results for its second quarter of
2003.
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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: November 3, 2003
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