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 MARCH
29, 1998.
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
(State or other jurisdiction of incorporation or organization)
22-2582106
(I.R.S. Employer Identification No.)
35 Technology Drive
Warren, New Jersey 07059
(Address of principal executive offices)
(908) 668-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares outstanding of the registrant's common stock as of
April 20, 1998 was 14,704,705.
INDEX
ANADIGICS, Inc.
Part. I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - March 29, 1998
and December 31, 1997.
Condensed consolidated statements of operations -
Three months ended March 29, 1998 and March 30, 1997.
Condensed consolidated statements of cash flows - Three
months ended March 29, 1998 and March 30, 1997.
Notes to condensed consolidated financial statements -
March 29, 1998.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Part II. Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
PART I
FINANCIAL STATEMENTS
Item 1. Financial Statements (unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS
ANADIGICS, Inc.
(Amounts in thousands, except share and per share amounts)
March 29, 1998 December 31, 1997 *
Assets
Current assets:
Cash and cash equivalents $ 17,496 $ 25,675
Marketable securities 12,985 15,826
Accounts receivable, net 13,655 17,999
Inventory 22,926 19,678
Prepaid expenses and other current assets 2,219 1,470
Deferred taxes 4,845 4,461
Total current assets 74,126 85,109
Marketable securities 10,176 9,801
Property and equipment:
Equipment and furniture 62,316 58,916
Leasehold improvements 15,393 4,212
Projects in process 30,628 39,540
Less accumulated depreciation and amortization 32,787 30,419
75,550 72,249
Deposits 925 925
Total assets $ 160,777 $ 168,084
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 6,545 $ 11,223
Accrued liabilities 5,837 5,961
Income taxes payable 832 2,439
Current maturities of capital lease obligations 391 425
Total current liabilities 13,605 20,048
Deferred taxes 959 959
Capital lease obligations, less current portion 331 389
Other long-term liabilities 477 225
Total liabilities 15,372 21,621
Stockholders' equity
Common stock, $0.01 par value, 68,000,000 shares
authorized, 14,704,705 and 14,657,157, issued
and outstanding at March 29, 1998 and
December 31, 1997, respectively 147 147
Additional paid-in capital 159,369 159,356
Accumulated deficit (14,111) (13,040)
Total stockholders' equity 145,405 146,463
Total liabilities and stockholders' equity $ 160,777 $ 168,084
* The condensed balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In addition, certain amounts
as of December 31, 1997 have been reclassified to conform with the
March 29, 1998 presentation.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ANADIGICS, Inc.
(Amounts in thousands, except share and per share amounts)
Three months ended
March 29, 1998 March 30, 1997
(unaudited) (unaudited)
Net sales $ 18,785 $ 22,860
Cost of sales 12,068 12,321
Gross profit 6,717 10,539
Research and development expenses 4,642 3,439
Selling and administrative expenses 3,345 2,746
Reduction in force 1,100 -
Operating income (loss) (2,370) 4,354
Interest income, net 656 561
Income (loss) before income taxes (1,714) 4,915
Provision (benefit) for income taxes (643) 1,745
Net income (loss) $ (1,071) $ 3,170
Basic earnings (loss) per share $ (0.07) $ 0.24
Weighted average common shares
outstanding 14,704,705 13,401,406
Diluted earnings (loss) per share $ (0.07) $ 0.23
Weighted average common and dilutive
securities outstanding 14,704,705 14,065,366
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
ANADIGICS, Inc.
(Amounts in thousands)
Three months ended
March 29, 1998 March 30, 1997
(unaudited) (unaudited)
Cash flows from operating activities:
Net income (loss) $ (1,071) $ 3,170
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation 2,560 1,403
Amortization 208 351
Deferred taxes (384)
Changes in operating assets and liabilities:
Accounts receivable 4,344 (1,682)
Inventory (3,248) (786)
Prepaid expenses and other current assets (749) (160)
Deposits - (200)
Accounts payable (4,678) 7,141
Accrued liabilities and other long-term liabilities 128 (327)
Income taxes payable (1,607) 1,061
Net cash (used in) provided by operating activities (4,497) 9,971
Cash flows from investing activities:
Purchase of plant and equipment (6,069) (22,422)
Purchase of marketable securities (6,030) (5,031)
Proceeds from sale of marketable securities 8,496 2,000
Net cash used in investing activities (3,603) (22,453)
Cash flows from financing activities:
Payment of capital lease obligations (92) (419)
Issuance of common stock 13 56,230
Net cash (used in) provided by financing activities (79) 55,811
Net (decrease) increase in cash and cash equivalents (8,179) 40,329
Cash and cash equivalents at beginning of period 25,675 23,112
Cash and cash equivalents at end of period $ 17,496 $ 63,441
Supplemental cash flow information:
Interest paid $ 17 $ 54
Taxes paid $ 1,350 $ 227
ANADIGICS, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) -
March 29, 1998
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited, condensed, consolidated financial statements
have been prepared in accordance with 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 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 month period ended March 29, 1998 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the financial
statements for the year ended December 31, 1997 and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
The condensed, consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, ANADIGICS Foreign Sales
Corporation. All significant intercompany accounts have been eliminated in
consolidation.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out method)
or market. Inventories consist of the following:
March 29, 1998 Dec. 31, 1997
Raw materials $ 2,835 $ 1,670
Work in process 12,466 12,054
Finished goods 7,625 5,954
$ 22,926 $ 19,678
3. Earnings Per Share
The reconciliation of shares used to calculate basic and diluted earnings
per share consists of the following:
Three months ended
March 29, 1998 March 30, 1997
Weighted average common shares outstanding
used to calculate basic earnings per share 14,704,705 13,401,406
Net effect of dilutive stock options -based on
treasury stock method using average market price - * 663,960
Weighted average common and dilutive securities
outstanding used to calculate diluted earnings
per share 14,704,705 14,065,366
* The dilutive stock options are not included as their effect is
anti-dilutive.
ANADIGICS, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Results of Operations
The following table sets forth unaudited consolidated statements of
operations data as a percent of net sales for the periods presented:
Consolidated Statements of Operations
Three months ended
March 29, 1998 March 30, 1997
Net sales 100.0% 100.0%
Cost of sales 64.2% 53.9%
Gross profit 35.8% 46.1%
Research and development expenses 24.7% 15.0%
Selling and administrative expenses 17.8% 12.0%
Reduction in force 5.9% -
Operating income (loss) (12.6%) 19.1%
Interest income, net 3.5% 2.4%
Income (loss) before income taxes (9.1%) 21.5%
Provision (benefit) for income taxes (3.4)% 7.6%
Net income (loss) (5.7%) 13.9%
First Quarter 1998 (Ended March 29, 1998) Compared to First Quarter 1997
(Ended March 30, 1997)
Net Sales. Net sales during the first quarter of 1998 decreased 18% to $18.8
million from $22.9 million in the first quarter of 1997. Sales of integrated
circuits for cellular and personal communication services ("PCS") applications
decreased 25% during the first quarter of 1998 to $9.0 million from $12.1
million in the first quarter of 1997. During the first quarter of 1998, the
Company experienced significantly lower demand for its cellular and PCS
products. The lower demand was due to several factors, including increased
competition, a shift in demand to lower cost phones not using the Company's
parts, customer delays in ramp-up of new generation dual-band phones using
the Company's new parts, and in part, to the effect of the Asian financial
crisis on the wireless communications markets. Included in the sales of
integrated circuits for cellular and PCS applications of $9.0 million during
the first quarter of 1998 was approximately $2.3 million of sales of products
which reached the end of their lives during the quarter.
Sales of integrated circuits for cable television ("CATV") applications were
$4.6 million for the first quarter of 1998 and 1997. Sales of integrated
circuits for fiber optic telecommunications and data communication
applications increased 32% during the first quarter of 1998 to $3.4 million
from $2.6 million in the first quarter of 1997 as demand for transimpedence
amplifiers for the Synchronous Optical Network (SONET) fiber optic
transmission increased. Sales of integrated circuits for direct broadcast
satellite ("DBS") applications decreased 45% during the first quarter
of 1998 to $1.7 million from $3.1 million in the first quarter of 1997. The
reduction in sales of integrated circuits for DBS applications was due to
lower demand for broadcast satellite tuner integrated circuits during the
first quarter of 1998, compared to the first quarter of 1997. In addition,
during the first quarter of 1998, the Company sold low noise block ("LNB")
converter integrated circuits in die form, which were at lower selling
prices than its packaged LNB converter integrated circuits. Engineering
service sales, which reflect customers' contributions to research and
development, decreased $0.4 million during the first quarter of 1998 to
$0.1 million from $0.5 million in the first quarter of 1997.
Generally, selling prices for same product sales were lower in the first
quarter of 1998 compared to the same period in 1997.
Gross Margin. Gross margin during the first quarter of 1998 declined to
35.8% from 46.1% in the first quarter of 1997. The reduction in gross margin
was primarily due to a $1.0 million charge related to excess inventories of
certain of the Company's power amplifier integrated circuits, which reached
end of life stages during the first quarter of 1998.
The Company believes that lower production volumes, shorter product life
cycles, new product introductions, and lower selling prices (specifically
for its cellular and PCS integrated circuits) may continue to adversely
impact its gross margin during 1998, when compared with 1997 levels.
Research and Development. Company sponsored research and development
expense increased 35% during the first quarter of 1998 to $4.6 million from
$3.4 million during the first quarter of 1997. As a percentage of sales, it
also increased to 24.7% in the first quarter of 1998 from 15.0% in the
first quarter of 1997. The increase was primarily attributable to increased
research and development of integrated circuits for cellular, PCS, and
other wireless applications.
Selling and Administrative. Selling and administrative expenses increased
22% during the first quarter of 1998 to $3.3 million from $2.7 million in
the first quarter of 1997. General and administrative expenses increased
50% during the first quarter of 1998, compared to 1997. The increase was
due in part to increased operating costs associated with the Company's
information systems, replacement of bad debt reserves due to the write-off
of a customer receivable that was previously reserved, and other consulting
costs. As a percentage of sales, selling and administrative expenses
increased to 17.8% in the first quarter of 1998 from 12.0%
in the first quarter of 1997.
Reduction in Force. During the first quarter of 1998, the Company recorded
a charge of $1.1 million associated with a reduction in staff of 100
employees. The work force reduction charge primarily consisted of severance
pay, extended medical coverage, and outplacement service costs.
Interest Income, net. Interest income, net increased 17% to $0.7 million
during the first quarter of 1998 from $0.6 million during the first quarter
of 1997. The increase in interest income, net of $0.1 million was primarily
due to lower levels of indebtedness during the first quarter of 1998,
compared to the first quarter of 1997.
Provision for Income Taxes. The benefit for income taxes during the first
quarter of 1998 was recorded at an estimated annual effective tax rate of
37.5% of pre-tax income.
Liquidity and Capital Resources
As of March 29, 1998, the Company had $17.5 million in cash and cash
equivalents and $23.2 million in marketable securities. The Company also
has a $20 million revolving bank credit facility with a drawdown expiration
of July 1, 1999 and a $10 million line of credit which expires on
July 1, 1998. The availability under the revolving credit facility is
subject to a number of financial covenants and the availability under the
line of credit is subject to approval by the bank. Substantially
all of the assets of the Company are pledged as security for repayments
of amounts borrowed under these credit facilities. There were no borrowings
outstanding under the Company's credit facilities during the three month
period ended March 29, 1998.
Net cash used in operations was $4.5 million during the three month period
ended March 29, 1998. An increase in inventory of $3.2 million and reductions in
accounts payable and income taxes payable of $6.3 million (combined)
accounted for most of the cash used in operations during the three month
period ended March 29, 1998. These uses were partially offset by a reduction
in accounts receivable of $4.3 million during the first quarter of 1998.
Net cash used in investing activities was $3.6 million during the three month
period ended March 29, 1998. Purchases of plant and equipment of $6.1 million
were partially offset by net sales of marketable securities of $2.5 million
during the first quarter of 1998.
Net cash used in financing activities was $0.1 million during the three
months ended March 29, 1998, which consisted primarily of payments of
capital lease obligations.
The Company expects to spend approximately $15 million on equipment,
furniture and fixtures, and leasehold improvements during the twelve month
period ending March 31, 1999. At March 29, 1998 the Company has committed
to purchase approximately $9 million of equipment, furniture and fixtures,
and leasehold improvements during 1998. The Company plans to continue
activities associated with qualifying its new wafer fabrication facility
during 1998 and anticipates commencing production in the first half of 1999.
The Company believes that its sources of capital, including internally
generated funds and $30 million available under existing credit
arrangements, will be adequate to satisfy anticipated capital needs for the
next twelve months. However, the Company may nevertheless elect to finance
all or part of its future capital requirements through additional equity
or debt financing. There can be no assurance that such additional financing
would be available on satisfactory terms.
Effect of Changes in Accounting Principles
Reporting Comprehensive Income
As of January 1, 1998, the Company adopted Statement No. 130, Reporting
Comprehensive Income ("FASB 130"). FASB 130 establishes new rules for the
reporting and display of comprehensive income (or loss) and its components
in the financial statements. The adoption of FASB 130 had no effect on the
Company's financial position or results of operations. Statement 130
requires unrealized gains (losses) on the Company's available-for-sale
securities, which currently are reported in stockholders' equity, to be
included in other comprehensive income and the disclosure of total
comprehensive income.
The components of comprehensive income (loss) during the three-month periods
ended March 29, 1998 and March 30, 1997 are as follows:
March 29, 1998 March 30, 1997
Net income (loss) $ (1,071) $ 3,170
Unrealized gain (loss) on marketable securities 23 (13)
Total comprehensive income (loss) $ (1,048) $ 3,157
Disclosures About Segments of an Enterprise and Related Information
In 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("FASB
131") which is required to be adopted for the Company's year ending December
31, 1998. FASB 131 establishes standards for reporting information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. The adoption of FASB 131 will have no impact on the Company's
consolidated results of operation, financial position or cash flows.
Risks and Uncertainties
Except for historical information contained herein, this Management's
Discussion and Analysis of Financial Condition and Results of Operation
contains forward-looking statements that involve risks and uncertainties,
including, but not limited to, timely product and process development,
individual product pricing pressure, order rescheduling or cancellation,
variation in production yield, changes in estimated product lives,
difficulties in obtaining components and assembly services needed for
production of integrated circuits, change in economic conditions of the
various markets the Company serves, as well as the other risks detailed
from time to time in the Company's reports filed with the Securities and
Exchange Commission, including the report on Form 10-K for the year ended
December 31, 1997. These forward-looking statements can generally be
identified as such because the context of the statement will include words
such as the Company "believes", "anticipates", "expects", or words of
similar import. Similarly, statements that describe the Company's 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.
ANADIGICS, Inc.
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
On January 29, 1998, the Company announced its results for the quarter and
year ended December 31, 1997 and also announced that it was experiencing
a substantial reduction in orders and forecasts for orders from its wireless
customers, which will result in significantly lower sales in the first
quarter and could result in a net loss for the period. On the day following
the announcement, the price of the Company's common stock declined from a
closing price of $33 13/16 on January 29, 1998 to a closing price of
$14 1/8 on January 30, 1998.
On March 2, 1998, two proposed class action lawsuits, captioned (i) Jean
Assuncao v. Anadigics, Inc. Ronald Rosenzweig, George Gilbert and Harry
Rein, No. 98-CV-917, and (ii) Office and Professional Employees
International Union Local 153 Pension Fund v. Anadigics, Inc., Ronald
Rosenzweig, George Gilbert and Harry Rein, No. 98-CV-919, were filed in
the United States District Court for the District of New Jersey. On March 3,
1998, a third proposed class action lawsuit, captioned Beatrice Kotler v.
Anadigics, Inc., Ronald Rosenzweig, John F. Lyons and George Gilbert, No.
98-CV-923, was also filed in the United States District Court for the
District of New Jersey. A fourth proposed class action lawsuit, captioned
Gray v. Anadigics, Inc., Ronald Rosenzweig, John F. Lyons and George
Gilbert, No. 98-CV-1337, was filed in the United States District Court for
the District of New Jersey on March 16, 1998. (The Assuncao, Union Local
153, Kotler and Gray actions are collectively referred to hereafter as the
"Lawsuits"). The Complaints filed in the Lawsuits seek unspecified
damages in connection with alleged violations of Sections 10(b) (and Rule
10b-5 promulgated thereunder) and 20(a) of the Securities and Exchange Act
of 1934 and, as set forth in the Union Local 153, Kotler and Gray
Complaints, common law fraud and/or negligent misrepresentation. The
Complaints allege that, as a result of certain material misstatements and
omissions made by the Company in connection with its business, the price
of the Company's common stock was artificially inflated during the proposed
class periods. The longest class period alleged in the Complaints runs
from August 6, 1997 through January 30, 1998. Although the Company is
unable at this time to assess the probable outcome of the Lawsuits or the
materiality of the risk of loss in connection therewith (given the early
stage of the litigation and the fact that none of the Complaints alleges
damages with any particularity), the Company believes that it has acted
responsibly and intends to vigorously defend the Lawsuits.
The Company is also involved in other threatened and pending legal
proceedings arising in the course of the Company's business. The adverse
outcome of any of these other legal proceedings is not expected to have a
material adverse effect on the results of operation or financial condition
of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
Exhibit 27. - Financial Data Schedule
(b) Reports on Form 8-K during the quarter ended March 29, 1998.
The Company did not file any reports on Form 8-K during the
quarter ended March 29, 1998.
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/ John F. Lyons
John F. Lyons
Senior Vice President and Chief Financial Officer
Dated: April 20, 1998
ANADIGICS, Inc.
EXHIBIT INDEX
Page
Exhibit 27. Financial Data Schedule ..........................14