UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 2012. |
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 incorporation or organization) | (I.R.S. Employer Identification No.) |
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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer ¨ | Accelerated filer x | Non-accelerated filer ¨ (Do not check if a smaller reporting company) | |
Smaller reporting company ¨ |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the Registrant’s common stock as of September 29, 2012 was 71,311,376 (excluding 114,574 shares held in treasury).
ANADIGICS, Inc.
PART I | Financial Information | |
Item 1. | 3 | |
3 | ||
4 | ||
5 | ||
6 | ||
Item 2. | 15 | |
Item 3. | 18 | |
Item 4. | 18 | |
PART II. | Other Information | |
Item 1. | 19 | |
Item 1A. | 19 | |
Item 6. | 19 | |
20 |
PART I - FINANCIAL INFORMATION
ITEM 1. |
ANADIGICS, Inc.
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
September 29, 2012 | December 31, 2011 | |||||||
(Unaudited) | (Note 1) | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 10,348 | $ | 32,695 | ||||
Short-term marketable securities | 31,418 | 24,127 | ||||||
Accounts receivable, net | 13,568 | 17,329 | ||||||
Inventories | 17,524 | 19,733 | ||||||
Prepaid expenses and other current assets | 3,713 | 3,198 | ||||||
Total current assets | 76,571 | 97,082 | ||||||
Marketable securities | 20,436 | 36,756 | ||||||
Plant and equipment: | ||||||||
Equipment and furniture | 200,707 | 199,908 | ||||||
Leasehold improvements | 46,762 | 46,667 | ||||||
Projects in process | 1,868 | 2,049 | ||||||
249,337 | 248,624 | |||||||
Less accumulated depreciation and amortization | (204,761 | ) | (193,900 | ) | ||||
44,576 | 54,724 | |||||||
Other assets | 218 | 239 | ||||||
Total assets | $ | 141,801 | $ | 188,801 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 13,784 | $ | 11,905 | ||||
Accrued liabilities | 5,572 | 7,946 | ||||||
Accrued restructuring costs | 517 | - | ||||||
Total current liabilities | 19,873 | 19,851 | ||||||
Other long-term liabilities | 2,120 | 2,425 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Common stock, $0.01 par value, 144,000 shares authorized, 71,426 issued at September 29, 2012 and 69,394 issued at December 31, 2011 | 714 | 694 | ||||||
Additional paid-in capital | 609,433 | 602,757 | ||||||
Accumulated deficit | (492,905 | ) | (439,113 | ) | ||||
Accumulated other comprehensive income | 2,825 | 2,446 | ||||||
Treasury stock at cost: 115 shares | (259 | ) | (259 | ) | ||||
Total stockholders’ equity | 119,808 | 166,525 | ||||||
Total liabilities and stockholders’ equity | $ | 141,801 | $ | 188,801 |
ANADIGICS, Inc.
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three months ended | Nine months ended | |||||||||||||||
September 29, 2012 | October 1, 2011 | September 29, 2012 | October 1, 2011 | |||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Net sales | $ | 28,642 | $ | 37,264 | $ | 82,167 | $ | 116,310 | ||||||||
Cost of sales | 28,809 | 30,229 | 82,852 | 90,576 | ||||||||||||
Gross (loss) profit | (167 | ) | 7,035 | (685 | ) | 25,734 | ||||||||||
Research and development expenses | 10,823 | 9,938 | 33,747 | 34,851 | ||||||||||||
Selling and administrative expenses | 5,597 | 7,360 | 18,773 | 24,125 | ||||||||||||
Restructuring charges | 605 | - | 2,338 | 1,047 | ||||||||||||
Operating loss | (17,192 | ) | (10,263 | ) | (55,543 | ) | (34,289 | ) | ||||||||
Interest income | 128 | 145 | 411 | 417 | ||||||||||||
Interest expense | - | - | - | (25 | ) | |||||||||||
Other income, net | 25 | 104 | 1,340 | 155 | ||||||||||||
Net loss | $ | (17,039 | ) | $ | (10,014 | ) | $ | (53,792 | ) | $ | (33,742 | ) | ||||
Basic and diluted loss per share | $ | (0.24 | ) | $ | (0.15 | ) | $ | (0.76 | ) | $ | (0.50 | ) | ||||
Weighted average common shares outstanding used in computing loss per share | ||||||||||||||||
Basic and diluted | 71,143 | 67,997 | 70,520 | 67,550 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(AMOUNTS IN THOUSANDS)
Three months ended | Nine months ended | |||||||||||||||
September 29, 2012 | October 1, 2011 | September 29, 2012 | October 1, 2011 | |||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Net loss | $ | (17,039 | ) | $ | (10,014 | ) | $ | (53,792 | ) | $ | (33,742 | ) | ||||
Other comprehensive income | ||||||||||||||||
Unrealized gain (loss) on marketable securities | 151 | (665 | ) | 1,739 | 180 | |||||||||||
Foreign currency translation adjustment | - | (9 | ) | 5 | (2 | ) | ||||||||||
Reclassification adjustment: | ||||||||||||||||
Net recognized gain on marketable securities previously included in other comprehensive income | (29 | ) | (44 | ) | (1,365 | ) | (150 | ) | ||||||||
Comprehensive loss | $ | (16,917 | ) | $ | (10,732 | ) | $ | (53,413 | ) | $ | (33,714 | ) |
ANADIGICS, Inc.
(AMOUNTS IN THOUSANDS)
Nine months ended | ||||||||
September 29, 2012 | October 1, 2011 | |||||||
(unaudited) | (unaudited) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (53,792 | ) | $ | (33,742 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 12,556 | 13,892 | ||||||
Stock based compensation | 4,780 | 8,296 | ||||||
Amortization of premium on marketable securities | 538 | 204 | ||||||
Marketable securities recovery and accretion | (1,365 | ) | (165 | ) | ||||
Gain on disposal of equipment | (47 | ) | (120 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 3,761 | 16,610 | ||||||
Inventories | 2,209 | (247 | ) | |||||
Prepaid expenses and other assets | (493 | ) | (821 | ) | ||||
Accounts payable | 1,879 | (3,708 | ) | |||||
Accrued liabilities and other liabilities | (2,156 | ) | (2,716 | ) | ||||
Net cash used in operating activities | (32,130 | ) | (2,517 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of plant and equipment | (2,410 | ) | (3,624 | ) | ||||
Proceeds from sale of equipment | 47 | 313 | ||||||
Purchases of marketable securities | (32,532 | ) | (49,651 | ) | ||||
Proceeds from sales and redemptions of marketable securities | 42,762 | 1,600 | ||||||
Net cash provided (used in) investing activities | 7,867 | (51,362 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Issuance of common stock | 1,916 | 323 | ||||||
Net cash provided by financing activities | 1,916 | 323 | ||||||
Net decrease in cash and cash equivalents | (22,347 | ) | (53,556 | ) | ||||
Cash and cash equivalents at beginning of period | 32,695 | 97,129 | ||||||
Cash and cash equivalents at end of period | $ | 10,348 | $ | 43,573 |
ANADIGICS, Inc.
(AMOUNTS IN THOUSANDS, EXCEPT 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 U.S. generally accepted accounting principles 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 U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine month period ended September 29, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.
The condensed consolidated balance sheet at December 31, 2011 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by U.S. generally accepted accounting principles 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, 2011.
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.
The Company has evaluated subsequent events and determined that there were no subsequent events to recognize or disclose in these unaudited interim condensed consolidated financial statements.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Changes to accounting principles generally accepted in the United States of America are established by the Financial Accounting Standards Board (FASB) in the form of Accounting Standards Updates to the FASB’s Accounting Standards Codification.
In May 2011, the FASB issued guidance on fair value measurements and disclosure requirements. The guidance provides a consistent definition of fair value to ensure fair value measurement and disclosure requirements are similar between U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards. This guidance is effective for interim and annual periods beginning on or after December 15, 2011. Adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In June and December 2011, the FASB issued guidance on the presentation of other comprehensive income (OCI). This guidance eliminates the option to present the components of OCI as part of the statement of changes in stockholders’ equity and also requires presentation of reclassification adjustments from OCI to net income on the face of the financial statements. This guidance is effective for fiscal years and interim periods beginning after December 15, 2011, with the exception of the requirement to present reclassification adjustments from OCI to net income on the face of the financial statements, which has been deferred pending further deliberation by the FASB. Adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In December 2011, the FASB and International Accounting Standards Board (“IASB”) issued joint requirements related to balance sheet disclosures related to offsetting assets and liabilities. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards (“IFRS”). Disclosures are required to be retrospective for all comparative periods presented. The Company is required to adopt this standard for the first quarter of 2013. The Company does not expect this accounting standard to have a material impact on our condensed consolidated financial statements.
INCOME TAXES
The Company maintains a full valuation allowance on its deferred tax assets. Accordingly, the Company has not recorded a benefit or provision for income taxes. The Company recognizes interest and penalties related to the underpayment of income taxes in income tax expense. No unrecognized tax benefits, interest or penalties were accrued at September 29, 2012. The Company’s U.S. federal net operating losses have occurred since 1998 and as such, tax years subject to potential tax examination could apply from that date because carrying-back net operating loss opens the relevant year to audit.
WARRANTY
Based on the examination of historical returns and other information it deems critical, the Company estimates that a current charge to income will need to be provided in order to cover future warranty obligations for products sold during the year. The accrued liability for warranty costs is included in Accrued liabilities in the condensed consolidated balance sheets. Changes in the Company’s product warranty reserve are as follows:
Nine months ended | ||||||||
September 29, 2012 | October 1, 2011 | |||||||
Beginning balance | 430 | 571 | ||||||
Additions charged to costs and expenses | 1,121 | 557 | ||||||
Claims processed | (1,092 | ) | (780 | ) | ||||
Ending balance | 459 | 348 |
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the current presentation.
2. | RESTRUCTURING AND MANAGEMENT SEPARATION CHARGES |
RESTRUCTURING
During the three and nine months ended September 29, 2012, the Company implemented workforce reductions that eliminated approximately 10 and 40 positions throughout the Company, respectively, resulting in restructuring charges of $605 and $2,338, respectively, for severance, related benefits and other costs. The unpaid balance at September 29, 2012 was $517 and was recorded within Accrued restructuring costs.
In the second quarter of 2011, the Company implemented a workforce reduction that eliminated approximately 40 positions throughout the Company, resulting in a Restructuring charge of $1,047 for severance and related benefits.
Activity and liability balances related to the restructurings were as follows:
Restructuring Accrual | ||||
December 31, 2010 balance | $ | - | ||
Additions | 1,047 | |||
Deductions | (1,047 | ) | ||
December 31, 2011 balance | $ | - | ||
Additions | 2,338 | |||
Deductions | 1,821 | |||
September 29, 2012 balance | $ | 517 |
MANAGEMENT SEPARATION CHARGES
During the first quarter of 2011, the Company recorded certain management separation charges of $838 and $2,111, inclusive of accelerated stock-based compensation of $568 and $116, within Research and development and Selling and administrative expenses, respectively. The management separation charges arose from the resignations of the Company’s former Chief Executive Officer (CEO) and another Executive Officer, and included contractual separation pay, accelerated vesting of certain equity awards, and certain other costs.
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 | |||||||||||||||
September 29, 2012 | October 1, 2011 | September 29, 2012 | October 1, 2011 | |||||||||||||
Weighted average common shares for basic loss per share | 71,143 | 67,997 | 70,520 | 67,550 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Stock options (*) | - | - | - | - | ||||||||||||
Unvested restricted shares (*) | - | - | - | - | ||||||||||||
Adjusted weighted average shares for diluted loss per share | 71,143 | 67,997 | 70,520 | 67,550 |
* | Incremental shares from restricted shares and stock options are computed using the treasury stock method. |
For the three and nine months ended September 29, 2012 and October 1, 2011, potential additional dilution arising from any of the Company's outstanding stock options or unvested restricted stock (shares or units) are detailed below. Such potential dilution was excluded as their effect was anti-dilutive.
Three months ended | Nine months ended | |||||||||||||||
September 29, 2012 | October 1, 2011 | September 29, 2012 | October 1, 2011 | |||||||||||||
Stock options | 3,054 | 4,937 | 3,054 | 4,937 | ||||||||||||
Unvested restricted shares and units | 1,433 | 2,353 | 1,433 | 2,353 |
4. | FAIR VALUE AND MARKETABLE SECURITIES |
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Inputs used to measure fair value are classified in the following hierarchy:
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities |
Level 2 | Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability |
Level 3 | Unobservable inputs for the asset or liability |
The Company endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table presents a summary of fair value information for available-for-sale securities as at December 31, 2011 and September 29, 2012:
Fair Value Measurements at Reporting Date Using | ||||||||||||||||||||
Security Type | Amortized Cost Basis (1) | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||
Fixed Income Securities (2) | $ | 32,574 | $ | 32,532 | $ | - | $ | 32,532 | $ | - | ||||||||||
U.S. Government Agency debt securities (2) | 19,573 | 19,556 | 19,556 | - | - | |||||||||||||||
Former-auction corporate debt security (3) | 1,681 | 2,834 | - | 2,834 | - | |||||||||||||||
Auction Rate Securities | ||||||||||||||||||||
Corporate Debt (3) | 762 | 1,215 | - | - | 1,215 | |||||||||||||||
Preferred Equity | 2,404 | 3,031 | - | 2,403 | 628 | |||||||||||||||
State and Municipal Debt (3) | 1,434 | 1,715 | - | 1,715 | - | |||||||||||||||
Total at December 31, 2011 | $ | 58,428 | $ | 60,883 | $ | 19,556 | $ | 39,484 | $ | 1,843 | ||||||||||
Fixed Income Securities (2) | $ | 20,892 | $ | 20,905 | $ | - | $ | 20,905 | $ | - | ||||||||||
U.S. Government Agency debt securities (2) | 21,516 | 21,519 | 21,519 | - | - | |||||||||||||||
Municipal Notes (2) | 1,082 | 1,082 | - | 1,082 | - | |||||||||||||||
Former-auction corporate debt security (3) | 1,725 | 2,786 | - | 2,786 | - | |||||||||||||||
Auction Rate Securities | ||||||||||||||||||||
Preferred Equity | 2,404 | 3,904 | - | 2,373 | 1,531 | |||||||||||||||
State and Municipal Debt (3) | 1,381 | 1,658 | - | 1,658 | - | |||||||||||||||
Total at September 29, 2012 | $ | 49,000 | $ | 51,854 | $ | 21,519 | $ | 28,804 | $ | 1,531 |
(1) | Difference between amortized cost basis and fair value represents gross unrealized gain or loss. |
(2) | Available for sale debt securities with contractual maturities of 2 years or less. |
(3) | Available for sale debt securities with contractual maturities in excess of 10 years. |
The fair value of each of the following instruments approximates their carrying value because of the short maturity of these instruments: cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities.
Interest income of $90 and $136 was recognized to accrete the amortized cost basis of the Company’s existing and former-auction debt securities during the nine month periods ended September 29, 2012 and October 1, 2011, respectively.
AUCTION RATE SECURITIES AND FORMER-AUCTION CORPORATE DEBT SECURITY
Auction rate securities (ARS) were a short-term cash management instrument used by the market and the Company prior to 2008. The instruments used a monthly Dutch auction process to provide liquidity on long-term financial instruments that reset the applicable interest rate and through the reset, allowed existing investors to rollover or liquidate their holdings at par value. During 2007 and early 2008, ARS failed to auction due to sell orders exceeding buy orders and trading continues to be constrained. The funds associated with the failed auctions will not be accessible until a successful auction occurs, a suitable buyer is found outside of the auction process or an issuer redeems its security. The Company considers it more likely than not that it will sell their marketable debt securities prior to a recovery in valuation.
At September 29, 2012, certain ARS market information was insufficient to determine the fair value of the Company’s investments in ARS resulting in Level 3 valuations. Given the complexity of ARS investments, the Company obtained the assistance of an independent valuation firm to assist management in assessing the fair value of its ARS portfolio. The third party valuations developed to estimate the ARS fair value were determined using a combination of two calculations (1) a discounted cash flow (DCF) model, where the expected cash flows of the ARS are discounted to the present using a yield that incorporates compensation for illiquidity, and (2) a market comparables (MC) method, where the ARS are valued based on indications, from the secondary market, of what discounts buyers demand when purchasing similar ARS. The valuations include numerous assumptions such as assessments of the underlying structure of each security, expected cash flows, discount rates, credit ratings, workout periods, and overall capital market liquidity.
For the three and nine months ended September 29, 2012, the table below provides a reconciliation of the beginning and ending balances for each type of security valued using a Level 3 valuation.
($ in 000’s) | Fair Value Measurements Using S ignificant Unobservable Inputs (Level 3) Nine months ended September 29, 2012 | |||||||||||
Corporate Debt Security (a) | Preferred Equity Securities (b) | Total | ||||||||||
Balance at January 1, 2012 | $ | 1,215 | $ | 628 | $ | 1,843 | ||||||
Total gains or losses realized/unrealized | ||||||||||||
Included in earnings (loss) | ||||||||||||
- quarter ended March 31, 2012 | 1,250 | - | 1,250 | |||||||||
- quarter ended June 30, 2012 | - | - | - | |||||||||
- quarter ended September 29, 2012 | - | - | - | |||||||||
Included in other comprehensive income(loss) | ||||||||||||
- quarter ended March 31, 2012 | (452 | ) | 795 | 343 | ||||||||
- quarter ended June 30, 2012 | - | 108 | 108 | |||||||||
- quarter ended September 29, 2012 | - | - | - | |||||||||
Purchases, redemptions, and settlements: | ||||||||||||
Purchases | - | - | - | |||||||||
Redemptions | ||||||||||||
- quarter ended March 31, 2012 | (2,013 | ) | - | (2,013 | ) | |||||||
- quarter ended June 30, 2012 | - | - | - | |||||||||
- quarter ended September 29, 2012 | - | - | - | |||||||||
Settlements | - | - | - | |||||||||
Transfers in and/or out of Level 3 | - | - | - | |||||||||
Balance at September 29, 2012 | $ | - | $ | 1,531 | $ | 1,531 | ||||||
Amount of total gains or losses for the period included in earnings(loss) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date | - | - | - | |||||||||
Securities held at September 29, 2012: | ||||||||||||
Face value | $ | - | $ | 3,125 | $ | 3,125 | ||||||
Financial ratings | A2 to NR | |||||||||||
Weighted average interest rate (*) | 1.9 | % | 1.9 | % | ||||||||
Maturity date | N/A |
* The interest rate is based on a premium to one month LIBOR.
(a) Security issued by a publicly-held insurance company trust, which holds investments in U.S. Government obligations, highly rated commercial paper and money market funds and other investments approved by two credit rating agencies. The $2,500 face value security was redeemed by the issuer at a discount in the first quarter of 2012 for $2,013, resulting in a gain over its amortized cost basis of $1,250.
(b) Preferred securities issued by subsidiaries of two publicly-held debt default insurers. For one security, the DCF model uses a 5% discount rate and the MC method observed secondary markets for similar securities trading at a 25% discount to face value. For the second security, the DCF model discount rate and the secondary market discount were 47% and 86%, respectively. On a weighted average basis, the DCF discount rate and the secondary market discount were 20% and 47%, respectively.
For the three and nine months period ended October 1, 2011, the table below provides a reconciliation of the beginning and ending balances for each type of security valued using a Level 3 valuation.
($ in 000’s) | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Nine months ended October 1, 2011 | |||||||||||||||
State & Municipal Security (a) | Corporate Debt Security (b) | Preferred Equity Securities (c) | Total | |||||||||||||
Balance at January 1, 2011 | $ | 1,695 | $ | 1,199 | $ | 3,110 | $ | 6,004 | ||||||||
Total gains or losses realized/unrealized | ||||||||||||||||
Included in earnings (loss) | ||||||||||||||||
- quarter ended April 2, 2011 | 53 | 9 | - | 62 | ||||||||||||
- quarter ended July 2, 2011 | 22 | 9 | - | 31 | ||||||||||||
- quarter ended October 1, 2011 | - | 9 | - | 9 | ||||||||||||
Included in other comprehensive income(loss) | ||||||||||||||||
- quarter ended April 2, 2011 | (22 | ) | 84 | 97 | 159 | |||||||||||
- quarter ended July 2, 2011 | 54 | 187 | 216 | 457 | ||||||||||||
- quarter ended October 1, 2011 | - | (188 | ) | (95 | ) | (283 | ) | |||||||||
Purchases, redemptions, and settlements: | ||||||||||||||||
Purchases | - | - | - | - | ||||||||||||
Redemptions | ||||||||||||||||
- quarter ended April 2, 2011 | (100 | ) | - | - | (100 | ) | ||||||||||
- quarter ended July 2, 2011 | - | - | - | - | ||||||||||||
- quarter ended October 1, 2011 | - | - | - | - | ||||||||||||
Settlements | - | - | - | - | ||||||||||||
Transfers in and/or out of Level 3 | ||||||||||||||||
- quarter ended April 2, 2011 | - | - | - | - | ||||||||||||
- quarter ended July 2, 2011 | (1,702 | ) | - | (2,565 | ) | (4,267 | ) | |||||||||
- quarter ended October 1, 2011 | - | - | - | - | ||||||||||||
Balance at October 1, 2011 | $ | - | $ | 1,309 | $ | 763 | $ | 2,072 |
* Interest rates are reset every one to three months based on a premium to AA Commercial Paper, LIBOR or Treasury Bill rates.
(a) Security represents an interest in pooled student loans that are guaranteed by the Federal Family Education Loan Program. In the second quarter of 2011, the Company transferred its state and municipal debt security from Level 3 to Level 2 after having assessed external valuations and observing sustained trading in similar securities.
(b) Security issued by a publicly-held insurance company trust, which holds investments in U.S. Government obligations, highly rated commercial paper and money market funds and other investments approved by two credit rating agencies. The trust is funded by life insurance residuals.
(c) Preferred securities issued by i) a diversified closed-end management investment company and ii) subsidiaries of two publicly-held debt default insurers. The investment company is governed by the Investment Company Act of 1940 with regard to operating standards, antifraud rules, diversification requirements and an asset coverage requirement for asset backing of 200% of the par value of the preferred stock issued. In the second quarter of 2011, the Company transferred its closed-end preferred security from Level 3 to Level 2 after having assessed external valuations and observing sustained trading in similar securities.
5. | INVENTORIES |
Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories consist of the following:
September 29, 2012 | December 31, 2011 | |||||||
Raw materials | $ | 4,986 | $ | 4,579 | ||||
Work in process | 9,296 | 8,113 | ||||||
Finished goods | 3,242 | 7,041 | ||||||
Total | $ | 17,524 | $ | 19,733 |
6. | STOCK BASED COMPENSATION |
Equity Compensation Plans
The Company had 4 equity compensation plans under which equity securities are authorized for issuance to employees and/or directors:
§ | The 1995 Long-Term Incentive and Share Award Plan for Officers and Directors (terminated February 28, 2005) (1995 Plan); |
§ | The 1997 Long Term Incentive and Share Award Plan (terminated February 28, 2005) (1997 Plan); |
§ | The 2005 Long Term Incentive and Share Award Plan (2005 Plan, collectively with the 1995 Plan and the 1997 Plan, the Plans); and |
§ | The Employee Stock Purchase Plan (ESP Plan). |
Employees and outside directors have been granted restricted stock shares or units (collectively, restricted stock) and options to purchase shares of common stock under stock option plans adopted in 1995, 1997 and 2005. An aggregate of 4,913, 5,100 and 16,050 shares of common stock were reserved for issuance under the 1995 Plan, the 1997 Plan and the 2005 Plan, respectively. The Plans provide for the granting of stock options, stock appreciation rights, restricted stock and other share based awards to eligible employees and directors, as defined in the Plans. Option grants have terms of ten years and become exercisable in varying amounts over periods of up to three years. To date, no stock appreciation rights have been granted under the Plans. On February 1, 2009, a CEO inducement award of 700 stock options was granted outside of the Plans and the unvested portion of that award contractually vested upon separation on March 28, 2011.
In 1995, the Company adopted the ESP Plan under Section 423 of the Internal Revenue Code. All full-time employees of ANADIGICS, Inc. and part-time employees, as defined in the ESP Plan, are eligible to participate in the ESP Plan. An aggregate of 6,694 shares of common stock were reserved for offering under the ESP Plan. Offerings are made at the commencement of each calendar year and must be purchased by the end of that calendar year. Pursuant to the terms of the ESP Plan, shares purchased and the applicable per share price were 384 and $2.00, respectively for the year ended December 31, 2011.
The table below summarizes stock based compensation by source and by financial statement line item for the three and nine month periods:
Three months ended | Nine months ended | |||||||||||||||
September 29, 2012 | October 1, 2011 | September 29, 2012 | October 1, 2011 | |||||||||||||
Amortization of restricted stock | $ | 1,026 | $ | 1,698 | $ | 3,935 | $ | 6,584 | ||||||||
Amortization of ESP Plan | 40 | 100 | 310 | 500 | ||||||||||||
Amortization of stock option awards | 127 | 432 | 535 | 1,212 | ||||||||||||
Total stock based compensation | $ | 1,193 | $ | 2,230 | $ | 4,780 | $ | 8,296 | ||||||||
By Financial Statement line item | ||||||||||||||||
Cost of sales | $ | 208 | $ | 400 | $ | 737 | $ | 1,603 | ||||||||
Research and development expenses | 387 | 512 | 1,373 | 2,785 | ||||||||||||
Selling and administrative expenses | 598 | 1,318 | 2,605 | 3,988 | ||||||||||||
Restructuring charge | - | - | 65 | (80 | ) |
No tax benefits have been recorded due to the Company’s full valuation allowance position.
Stock based compensation for the nine months ended October 1, 2011 includes $684 for equity awards associated with the management separation charge recorded during the first quarter of 2011.
Restricted Stock and Stock Option Awards
The value of restricted stock grants are fixed upon the date of grant and amortized over the related vesting period of five months to three years. Restricted stock is subject to forfeiture if employment terminates prior to vesting. The Company estimates that approximately 2.5% of its restricted stock and stock option awards are forfeited annually (exclusive of LTI’s, as described below). The restricted stock shares carry voting and certain forfeitable dividend rights commencing upon grant, whereas restricted stock units do not. Neither restricted stock shares nor restricted stock units may be traded or transferred prior to vesting. Grant, vest and forfeit activity and related weighted average (WA) price per share for restricted stock and for stock options during the period from January 1, 2011 to September 29, 2012 is presented in tabular form below:
Restricted Stock Shares | Restricted Stock Units | Stock Options | ||||||||||||||||||||||
Shares | WA price/ share | Units | WA price/ u nit | Issuable upon exercise | WA exercise price | |||||||||||||||||||
Outstanding at January 1, 2011 | 180 | $ | 8.39 | 1,460 | $ | 4.49 | 4,143 | $ | 4.96 | |||||||||||||||
Granted (1) | - | - | 2,573 | 5.91 | 1,065 | 3.29 | ||||||||||||||||||
Shares vested/options exercised | (179 | ) | 8.38 | (1,654 | ) | 5.08 | (442 | ) | 2.12 | |||||||||||||||
Forfeited/expired (2) | (1 | ) | 9.72 | (409 | ) | 6.03 | (491 | ) | 9.37 | |||||||||||||||
Balance at December 31, 2011 | - | - | 1,970 | $ | 5.52 | 4,275 | $ | 4.32 | ||||||||||||||||
Granted | - | - | 641 | 2.35 | 6 | 2.29 | ||||||||||||||||||
Shares vested/options exercised | - | - | (1,085 | ) | 4.72 | (946 | ) | 2.03 | ||||||||||||||||
Forfeited/expired | - | - | (93 | ) | 6.16 | (281 | ) | 7.33 | ||||||||||||||||
Balance at September 29, 2012 | - | - | 1,433 | $ | 4.67 | 3,054 | $ | 4.76 |
(1) | Year 2011 stock options granted include 417 performance stock option shares |
(2) | Year 2011 stock options forfeited include 167 performance stock option shares |
In June 2011, the Company’s Chief Executive Officer and Chief Financial Officer were awarded a base grant of 417 long-term incentive stock options (LTI stock options) contingent upon the Company’s shareholder return performance against the performance of the Philadelphia Semiconductor Index component companies. The award and performance will be evaluated annually in one-third increments measuring Company shareholder returns during the one, two and three year periods following the award. Depending upon performance, the number of shares issuable pursuant to the LTI stock options can range from 50% to 150% of the base option shares. Company performance below the 25th-percentile in a measurement period would result in no vesting for that period. The LTI stock options have an exercise price of $3.24, a ten year term to expiration, and an average fair value of $2.62. The fair value estimate was calculated with the assistance of a valuation consultant using a Monte Carlo Simulation model. During the fourth quarter of 2011, 167 shares of the 417 LTI stock options were forfeited upon the separation of our former Chief Financial Officer. In the second quarter of 2012, 83 shares were canceled for non-achievement of performance goals at the end of the first annual requisite service period.
On February 16, 2012, subject to stockholder approval of additional 2005 Long-Term Incentive and Share Award Plan shares at the Company’s 2013 Annual Stockholder Meeting, the Company awarded 260 restricted stock units to two of its officers. 50% of the restricted stock units will have time-based vesting conditions (time-based) and 50% will have performance-based vesting conditions (performance-based). The time-based restricted stock units will vest 1/3rd on May 20, 2013, 1/3rd on February 18, 2014 and 1/3rd on February 18, 2015. The performance-based restricted stock units will vest based on absolute total stockholder return for one-year, two-year and three-year periods starting from the baseline date of December 31, 2011, compared to total stockholder return targets for each of the respective periods. In May, 2012, subject to stockholder approval at the Company’s 2013 Annual Stockholder Meeting, an additional 608 time-based and 105 performance-based restricted stock units were awarded to employees of the Company. These restricted stock units will vest consistent with the aforementioned officer awards. Due to the uncertainty of the 2013 shareholder approval vote, neither compensation expense nor inclusion in disclosure tables for these awards is reported herein.
As of September 29, 2012 | ||||
Unrecognized stock based compensation cost | ||||
Option plans | $ | 696 | ||
Restricted stock | $ | 4,154 | ||
Weighted average remaining recognition period | ||||
Option plans | 1.7 years | |||
Restricted stock | 1.5 years |
Stock options outstanding at September, 2012 are summarized as follows:
Range of exercise prices | Outstanding Options at S eptember 29, 2012 | Weighted average remaining contractual life | Weighted average exercise price | Exercisable at September 29, 2012 | Weighted average exercise price | |||||||||||||||||
$ | 1.23 - $1.93 | 799 | 5.4 | $ | 1.93 | 797 | $ | 1.93 | ||||||||||||||
$ | 2.10 - $3.24 | 1,017 | 4.9 | $ | 3.12 | 561 | $ | 3.03 | ||||||||||||||
$ | 3.30 - $8.79 | 636 | 2.3 | $ | 6.59 | 607 | $ | 6.64 | ||||||||||||||
$ | 8.84 - $18.98 | 602 | 3.6 | $ | 9.34 | 601 | $ | 9.34 |
Valuation Method for ESP Plan and Stock Option Awards
The fair value of these equity awards was estimated at the date of grant using a Black-Scholes option pricing model. The weighted average assumptions and fair values for stock based compensation grants used for the nine month periods ended September 29, 2012 and October 1, 2011 were (excludes the aforementioned LTI option grants):
Nine months ended | ||||||||
September 29, 2012 | October 1, 2011 | |||||||
Stock option awards: | ||||||||
Risk-free interest rate | 1.0 | % | 2.2 | % | ||||
Expected volatility | 70 | % | 65 | % | ||||
Average expected term (in years) | 5.0 | 5.0 | ||||||
Expected dividend yield | 0.0 | % | 0.0 | % | ||||
Weighted average fair value of options granted | $ | 1.32 | $ | 1.85 | ||||
ESP Plan: | ||||||||
Risk-free interest rate | 0.2 | % | 0.1 | % | ||||
Expected volatility | 63 | % | 61 | % | ||||
Average expected term (in years) | 1.0 | 1.0 | ||||||
Expected dividend yield | 0.0 | % | 0.0 | % | ||||
Weighted average fair value of purchase option | $ | 0.48 | $ | 0.75 |
For equity awards with an expected term of one year or less, the assumption for expected volatility is solely based on the Company’s historical volatility, whereas for equity awards with expected terms of greater than one year, the assumption is based on a combination of implied and historical volatility.
7. | LEGAL PROCEEDINGS |
On or about November 11, 2008, plaintiff Charlie Attias filed a putative securities class action lawsuit in the United States District Court for the District of New Jersey, captioned Charlie Attias v. Anadigics, Inc., et al., No. 3:08-cv-05572, and, on or about November 21, 2008, plaintiff Paul Kuznetz filed a related class action lawsuit in the same court, captioned Paul J. Kuznetz v. Anadigics, Inc., et al., No. 3:08-cv-05750 (jointly, the "Class Actions"). The Complaints in the Class Actions, which were consolidated under the caption In re Anadigics, Inc. Securities Litigation, No. 3:08-cv-05572, by an Order of the District Court dated November 24, 2008, sought unspecified damages for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as Rule 10b-5 promulgated thereunder, in connection with alleged misrepresentations and omissions in connection with, among other things, Anadigics's manufacturing capabilities and the demand for its products. On October 23, 2009, plaintiffs filed a Consolidated Amended Class Action Complaint, (the “First Amended Complaint”), which named the Company, a current officer and a former officer-director, and alleged a proposed class period running from July 24, 2007 through August 7, 2008. On December 23, 2009, defendants filed a motion to dismiss the First Amended Complaint. After holding extensive oral argument on defendants' motion, the District Court found plaintiffs' First Amended Complaint to be deficient, but afforded them another opportunity to amend their pleading. The District Court therefore denied defendants' motion to dismiss without prejudice to defendants' renewing the motion in response to plaintiffs' Second Amended Complaint, which plaintiffs filed on October 4, 2010. The Second Amended Complaint, which contained the same substantive claims that were alleged in the First Amended Complaint, alleged a proposed class period running from February 12, 2008 through August 7, 2008. Defendants filed a motion to dismiss the Second Amended Complaint on December 3, 2010. By an Opinion and an Order dated September 30, 2011, the District Court dismissed with prejudice plaintiffs' Second Amended Complaint. Shortly thereafter, plaintiffs appealed the District Court’s Opinion and Order to the United States Court of Appeals for the Third Circuit. On October 17, 2012, following briefing and argument, the Court of Appeals affirmed the District Court’s dismissal with prejudice of plaintiffs’ claims. It is not known whether plaintiffs will seek further appellate review.
On or about January 14, 2009, a shareholder's derivative lawsuit, captioned Sicari v. Anadigics, Inc., et al., No. SOM-L-88-09, was filed in the Superior Court of New Jersey, and, on or about February 2, 2009, a related shareholder's derivative lawsuit, captioned Moradzadeh v. Anadigics, Inc., et al., No. SOM-L-198-09, was filed in the same court (jointly, the "Derivative Lawsuits"). The Derivative Lawsuits seek unspecified damages for alleged state law claims against certain of the Company's current and former directors arising out of the matters at issue in the Class Actions. By Order dated March 6, 2009, the New Jersey Superior Court consolidated the Derivative Lawsuits under the caption In re Anadigics, Inc. Derivative Litigation, No. SOM-L-88-09. The Superior Court stayed the Derivative Lawsuits pending disposition of the defendants' motions to dismiss the Complaints filed in the related Class Actions.
The Company is also a party to ordinary course litigation arising out of the operation of our business. The Company believes that the ultimate resolution of such ordinary course litigation should not have a material adverse effect on its consolidated financial condition or results of operations.
ANADIGICS, Inc.
ITEM 2. |
OVERVIEW
ANADIGICS, Inc. (“we” or the “Company”) is a leading provider of semiconductor solutions in the growing broadband wireless and wireline communications markets. Our products include radio frequency (RF) power amplifiers (PAs), tuner integrated circuits, active splitters, line amplifiers and other components, which can be sold individually or packaged as integrated front end modules (FEMs). We believe that we are well-positioned to capitalize on the high growth and convergence occurring in the voice, data and video segments of the broadband wireless and wireline communications markets.
Our RF power amplifier products enable mobile handsets, datacards and other devices to access third and fourth generation (3G and 4G) wireless networks utilizing international standards including LTE (Long Term Evolution), WCDMA (Wideband Code Division Multiple Access), HSPA (High Speed Packet Access), CDMA (Code Division Multiple Access) EVDO (Evolution Data Optimized) and WiMAX (Worldwide Interoperability for Microwave Access). Our WiFi products enable connectivity for wireless mobile devices and other computing devices. Our CATV (Cable Television) products enable fixed-point, wireline broadband communications over CATV infrastructure as well as cable modem and set-top box products. Our Wireless infrastructure products support operator commitments worldwide to optimize the increasing demands for subscriber data through deployment of new small-cell base stations as part of a heterogeneous network.
Our business strategy focuses on enabling anytime, anywhere connectivity which enhances the consumer’s broadband and wireless experience. We develop RF front end solutions for communications equipment manufacturers and we partner with industry-leading wireless and wireline chipset providers who incorporate our solutions into their reference designs. Our solutions cost-effectively enhance communications devices by improving RF performance, efficiency, reliability, time-to-market and integration while reducing the size, weight and cost of these products.
We leverage our technological knowledge and advantages to be a leading technology-enabler via innovative semiconductor solutions for broadband wireless and wireline communications. We believe our patented InGaP-plus technology, which combines bipolar amplifying structures and pHEMT RF switches on the same die, coupled with our three level metal interconnect process provides us with a competitive advantage in the marketplace. Additionally, we believe our ProEficient™ power amplifiers, with high efficiency at all output power levels, provide our customers a competitive advantage by delivering performance required for 3G and 4G devices with lower battery power consumption and longer use time than comparable products in these markets.
Revenue during the third quarter of 2012 increased in comparison to the second quarter of 2012 principally due to increased demand for our CDMA wireless products.
During the first nine months of 2012, we reduced our workforce by approximately 40 positions throughout the Company, resulting in restructuring charges of $2.3 million. We expect the annualized cost savings from these restructurings to approximate $5.3 million.
We believe our markets are, and will continue to remain, competitive which could result in continued quarterly volatility in our net sales. This competition has resulted in, and is expected over the long-term to continue to result in, declining average selling prices for our products and increased challenges in maintaining or increasing market share.
We were incorporated in Delaware in 1984. Our corporate headquarters are located at 141 Mt. Bethel Road, Warren, New Jersey 07059, and our telephone number at that address is 908-668-5000.
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 | |||||||||||||||
September 29, 2012 | October 1, 2011 | September 29, 2012 | October 1, 2011 | |||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of sales | 100.6 | % | 81.1 | % | 100.8 | % | 77.9 | % | ||||||||
Gross margin | (0.6 | )% | 18.9 | % | (0.8 | )% | 22.1 | % | ||||||||
Research and development expenses | 37.8 | % | 26.7 | % | 41.1 | % | 30.0 | % | ||||||||
Selling and administrative expenses | 19.5 | % | 19.8 | % | 22.9 | % | 20.7 | % | ||||||||
Restructuring charges | 2.1 | % | - | 2.8 | % | 0.9 | % | |||||||||
Operating loss | (60.0 | )% | (27.6 | )% | (67.6 | )% | (29.5 | )% | ||||||||
Interest income | 0.4 | % | 0.4 | % | 0.5 | % | 0.4 | % | ||||||||
Interest expense | - | - | - | - | ||||||||||||
Other income, net | 0.1 | % | 0.3 | % | 1.6 | % | 0.1 | % | ||||||||
Net loss | (59.5 | )% | (26.9 | )% | (65.5 | )% | (29.0 | )% |
NET SALES. Net sales decreased 23.1% during the third quarter of 2012 to $28.6 million from $37.3 million in the third quarter of 2011. For the nine months ended September 29, 2012, net sales were $82.2 million, a 29.4% decrease from net sales of $116.3 million for the nine months ended October 1, 2011.
Sales of integrated circuits for wireless applications decreased 24.3% during the third quarter of 2012 to $21.1 million from $27.9 million in the third quarter of 2011. For the nine months ended September 29, 2012, net sales of integrated circuits for wireless applications decreased 32.9% to $60.1 million from $89.7 million for the nine months ended October 1, 2011. The decreases in sales were primarily due to decreased demand from our former largest customer due to certain products reaching end of life and their change in chipset providers that do not utilize our power amplifiers.
Sales of integrated circuits for broadband applications decreased 19.8% during the third quarter of 2012 to $7.5 million from $9.3 million in the third quarter of 2011. For the nine months ended September 29, 2012, net sales of integrated circuits for broadband applications decreased 17.4% to $22.1 million from $26.6 million for the nine months ended October 1, 2011. The decrease in sales was primarily due to declining demand for gallium arsenide integrated circuits in set-top box applications.
GROSS MARGIN. Gross margin during the third quarter of 2012 decreased to (0.6)% of net sales from 18.9% of net sales in the third quarter of 2011. For the nine months ended September 29, 2012, gross margin decreased to (0.8)% from 22.1% for the nine months ended October 1, 2011. The decrease in gross margin was primarily due to lower production and sales volume and a concentration of fixed costs as a percent of smaller revenues. Fixed production costs include, but are not limited to, depreciation, maintenance and operations’ support functions.
RESEARCH AND DEVELOPMENT. Company-sponsored research and development expenses increased 8.9% during the third quarter of 2012 to $10.8 million from $9.9 million in the third quarter of 2011, principally due to low material spending in the third quarter of 2011. Company-sponsored research and development expenses for the nine months ended September 29, 2012 decreased 3.2% to $33.7 million from $34.9 million during the nine months ended October 1, 2011. The difference was primarily due to a management separation charge of $0.8 million included in the first quarter of 2011.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses decreased 24.0% to $5.6 million during the third quarter of 2012 from $7.4 million during the third quarter of 2011. Selling and administrative expenses for the nine months ended September 29, 2012 decreased 22.2% to $18.8 million from $24.1 million during the nine months ended October 1, 2011. A management separation charge of $2.1 million was included in the first quarter of 2011. The remaining decreases have resulted from the quarterly savings achieved from our ongoing cost reduction actions.
RESTRUCTURING CHARGE. During the three and nine months ended September 29, 2012, we implemented workforce reductions which eliminated approximately 10 and 40 positions, respectively, resulting in restructuring charges of $0.6 million and $2.3 million, respectively, for severance, related benefits and other costs.
During the second quarter of 2011, we implemented workforce reductions, which eliminated approximately 40 positions, resulting in a restructuring charge of $1.0 million for severance and related benefits.
OTHER INCOME, NET. For the nine months ended September 29, 2012, other income of $1.3 million was primarily from redemption proceeds on one of our ARS in excess of our amortized cost basis.
LIQUIDITY AND CAPITAL RESOURCES
As of September 29, 2012, we had $10.3 million in cash and cash equivalents and $51.9 million in marketable securities.
Operating activities used $32.1 million in cash during the nine month period ended September 29, 2012, including $5.2 million of cash generated by reducing working capital. Investing activities provided $7.9 million of cash during the nine month period ended September 29, 2012 consisting principally of net sales of marketable securities of $10.2 million, partly offset by purchases of fixed assets of $2.4 million. Financing activities provided $1.9 million of cash proceeds received from stock option exercises.
We had unconditional purchase obligations at September 29, 2012 of approximately $2.7 million.
Within our $51.9 million in marketable securities at September 29, 2012, we held a total of $20.9 million of fixed income securities, $21.5 of U.S. government agency debt securities, $1.1 million of municipal notes, $5.6 million of auction rate securities (ARS) and $2.8 million as a former auction corporate debt security originally purchased as an ARS prior to its exchange for the underlying 30 year notes due 2037. The ARS instruments used a monthly Dutch auction process to provide liquidity on long-term financial instruments by resetting the applicable interest rate and through the reset, allowed existing investors to rollover or liquidate their holdings at par value. During 2007 and early 2008, ARS failed to auction due to sell orders exceeding buy orders and trading continues to be constrained. The funds associated with the $5.6 million failed auction securities will not be accessible until a successful auction occurs, a suitable buyer is found outside of the auction process or an issuer redeems its security. If the credit ratings of the security issuers deteriorate and any decline in market value below our amortized cost basis is determined to be other-than-temporary, we would be required to adjust the carrying value of the investment through an additional impairment charge.
We anticipate selling the existing and former-auction corporate debt securities prior to a recovery in valuation. We will continue to monitor and evaluate these investments for impairment and for short term classification purposes. We may not be able to access cash by selling the aforementioned auction rate debt or preferred securities without the loss of principal until a buyer is located, a future auction for these investments is successful, they are redeemed by their issuers or they mature. If we are unable to sell these securities in the market or they are not redeemed, then we may be required to hold them to maturity or in perpetuity for the preferred ARS. Based on our ability to access our cash, our expected operating cash flows, and our other sources of cash, we do not anticipate that the potential illiquidity of these investments will affect our ability to execute our current business plan.
We believe that our existing sources of capital, including our existing cash and marketable securities, will be adequate to satisfy operational needs and anticipated capital needs for at least the next twelve months. We may elect to finance all or part of our future capital requirements through additional equity or debt financing.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Changes to accounting principles generally accepted in the United States of America are established by the Financial Accounting Standards Board (FASB) in the form of Accounting Standards Updates (ASU’s) to the FASB’s Accounting Standards Codification.
In May 2011, the FASB issued guidance on fair value measurements and disclosure requirements. The guidance provides a consistent definition of fair value to ensure fair value measurement and disclosure requirements are similar between U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards. This guidance is effective for interim and annual periods beginning on or after December 15, 2011. Adoption of this guidance did not have a material impact on our consolidated financial statements.
In June and December 2011, the FASB issued guidance on the presentation of other comprehensive income (OCI). This guidance eliminates the option to present the components of OCI as part of the statement of changes in stockholders’ equity and also requires presentation of reclassification adjustments from OCI to net income on the face of the financial statements. This guidance is effective for fiscal years and interim periods beginning after December 15, 2011, with the exception of the requirement to present reclassification adjustments from OCI to net income on the face of the financial statements, which has been deferred pending further deliberation by the FASB. Adoption of this guidance did not have a material impact on our consolidated financial statements.
In December 2011, the FASB and International Accounting Standards Board (“IASB”) issued joint requirements related to balance sheet disclosures related to offsetting assets and liabilities. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards (“IFRS”). Disclosures are required to be retrospective for all comparative periods presented. We are required to adopt this standard for the first quarter of 2013. We do not expect this accounting standard to have a material impact on our condensed consolidated financial statements.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains projections and other forward-looking statements (as that term is defined in the Securities Exchange Act of 1934, as amended). These projections and forward-looking statements reflect the Company’s current views with respect to future events and financial performance and 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. No assurances can be given, however, that these events will occur or that these projections will be achieved, and actual results and developments could differ materially from those projected as a result of certain factors. Such factors include, but are not limited to, those risk factors listed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and in this quarterly report on Form 10-Q. The Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
The Company's market risk has not changed significantly from the risks disclosed in Item 7A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
ITEM 4. |
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed with the Securities and Exchange Commission, or SEC, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, as appropriate, to allow timely decisions regarding required disclosure. As of September 29, 2012, an evaluation was performed under the supervision and with the participation of our Management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the U.S. Securities Exchange Act of 1934). Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 29, 2012.
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.
Because of their inherent limitations, disclosure controls and procedures and internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
ANADIGICS, Inc.
PART II - OTHER INFORMATION
ITEM 1. |
The information set forth in Financial Note 7, “Legal Proceedings,” to the accompanying condensed consolidated financial statements (unaudited) - September 29, 2012 appearing in this Quarterly Report on Form 10-Q is incorporated herein by reference.
ITEM 1A. |
There have been no material changes from the risks as previously disclosed in the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2011.
ITEM 6. |
31.1 Rule 13a-14(a)/15d-14(a) Certification of Ronald Michels, President and Chief Executive Officer of ANADIGICS, Inc. | |
31.2 Rule 13a-14(a)/15d-14(a) Certification of Terrence G. Gallagher, Vice President and Chief Financial Officer of ANADIGICS, Inc. | |
32.1 Section 1350 Certification of Ronald Michels, President and Chief Executive Officer of ANADIGICS, Inc. | |
32.2 Section 1350 Certification of Terrence G. Gallagher, Vice President and Chief Financial Officer of ANADIGICS, Inc. |
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/ Terrence G. Gallagher | ||
Terrence G. Gallagher | |||
Vice President and Chief Financial Officer |
Dated: November 6, 2012
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