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 JULY 4, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ____________ TO ____________.
Commission File No. 0-25662
ANADIGICS, Inc.
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(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)
35 Technology Drive
Warren, New Jersey 07059
- ---------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
(908) 668-5000
----------------------------------------------------
(Registrant's telephone number, including area code)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES [ X ] NO [ ]
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS OF JULY 26,
1999 WAS 14,871,937.
INDEX
ANADIGICS, Inc.
Part. I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - July 4, 1999 and December
31, 1998.
Condensed consolidated statements of operations and comprehensive
income (loss) - Three and six months ended July 4, 1999 and June
28, 1998.
Condensed consolidated statements of cash flows - Six months
ended July 4, 1999 and June 28, 1998.
Notes to condensed consolidated financial statements - July 4,
1999.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II. Other Information
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
2
PART I - FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEETS
ANADIGICS, INC.
(Amounts in thousands, except share and per share amounts)
July 4, 1999 December 31, 1998
------------ -----------------
(unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 25,343 $ 23,987
Marketable securities 14,736 16,923
Accounts receivable, net 18,191 11,848
Inventory 10,256 8,729
Prepaid expenses and other current assets 2,466 2,531
Insurance settlement receivable 5,325
Deferred taxes 6,856 4,345
--------- ---------
Total current assets 83,173 68,363
Marketable securities 3,568 1,486
Property and equipment:
Equipment and furniture 80,823 71,625
Leasehold improvements 16,424 15,717
Projects in process 34,150 34,286
Less accumulated depreciation and amortization 56,117 44,199
--------- ---------
75,280 77,429
Other assets 1,279 865
Deferred taxes 5,955 5,955
--------- ---------
Total assets $ 169,255 $ 154,098
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 9,043 $ 6,138
Accrued litigation settlement costs 12,050 --
Accrued liabilities 5,952 2,306
Accrued restructuring costs 1,441 1,567
Current maturities of long-term debt 1,000 1,000
Current maturities of capital lease obligations 160 229
--------- ---------
Total current liabilities 29,646 11,240
Capital lease obligations, less current portion 117 183
Other long-term liabilities 1,183 868
Long-term debt, less current portion 3,500 4,000
--------- ---------
Total liabilities 34,446 16,291
Stockholders' equity
Common stock, $0.01 par value, 68,000,000 shares authorized,
14,871,937 and 14,738,356 issued and outstanding at
July 4, 1999 and December 31, 1998, respectively 149 147
Additional paid-in capital 161,843 160,215
Accumulated deficit (27,139) (22,598)
Accumulated other comprehensive income (loss) (44) 43
--------- ---------
Total stockholders' equity 134,809 137,807
--------- ---------
Total liabilities and stockholders' equity $ 169,255 $ 154,098
========= =========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ANADIGICS, INC.
(Amounts in thousands, except share and per share amounts)
Three months ended Six months ended
--------------------------------- ---------------------------------
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
------------ ------------- ------------ -------------
(unaudited) (unaudited)
Net sales $ 30,534 $ 22,675 $ 55,582 $ 41,460
Cost of sales 19,248 14,565 36,148 26,633
------------ ------------ ------------ ------------
Gross profit 11,286 8,110 19,434 14,827
Research and development expenses 6,387 5,108 11,968 9,750
Selling and administrative expenses 4,885 3,060 8,744 6,405
Restructuring charge -- -- -- 1,100
------------ ------------ ------------ ------------
Operating income (loss) 14 (58) (1,278) (2,428)
Interest income, net 478 570 995 1,225
Provision for litigation settlement, net 6,925 -- 6,925 --
------------ ------------ ------------ ------------
Income (loss) before income taxes (6,433) 512 (7,208) (1,203)
Provision (benefit) for income taxes (2,380) 192 (2,667) (451)
------------ ------------ ------------ ------------
Net income (loss) $ (4,053) $ 320 $ (4,541) $ (752)
============ ============ ============ ============
Basic earnings (loss) per share $ (0.27) $ 0.02 $ (0.31) $ (0.05)
============ ============ ============ ============
Weighted average common
shares outstanding 14,838,546 14,718,286 14,811,687 14,711,323
============ ============ ============ ============
Diluted earnings (loss) per share $ (0.27) $ 0.02 $ (0.31) $ (0.05)
============ ============ ============ ============
Weighted average common and
dilutive securities outstanding 14,838,546 14,976,998 14,811,687 14,711,323
============ ============ ============ ============
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
ANADIGICS, INC.
(Amounts in thousands)
Three months ended Six months ended
--------------------------------- ---------------------------------
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
------------ ------------- ------------ -------------
(unaudited) (unaudited)
Net income (loss) $ (4,053) $ 320 $ (4,541) $ (752)
Unrealized gain (loss) on
marketable securities (81) (7) (87) 20
------------ ------------ ------------ ------------
Comprehensive income (loss) $ (4,134) $ 313 $ (4,628) $ (732)
============ ============ ============ ============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
ANADIGICS, INC.
(Amounts in thousands)
Six months ended
------------------------------
July 4, 1999 June 28, 1998
------------ -------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,541) $ (752)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 11,721 5,342
Amortization 197 404
Deferred taxes (2,511) (451)
Provision for litigation settlement, net 6,725
Changes in operating assets and liabilities
Accounts receivable (6,343) 5,673
Inventory (1,527) (973)
Prepaid expenses and other current assets 65 (1,183)
Other assets (414) 60
Accounts payable 2,905 (6,531)
Accrued liabilities and other long-term liabilities 3,835 (432)
Income taxes payable -- (2,439)
-------- --------
Net cash provided by (used in) operating activities 10,112 (1,282)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (9,769) (8,818)
Purchase of marketable securities (14,094) (14,456)
Proceeds from sale of marketable securities 14,112 17,912
-------- --------
Net cash used in investing activities (9,751) (5,362)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,630 294
Repayment of long-term debt (500) --
Payment of capital lease obligations (135) (229)
-------- --------
Net cash provided by financing activities 995 65
-------- --------
Net increase (decrease) in cash and cash equivalents 1,356 (6,579)
Cash and cash equivalents at beginning of period 23,987 25,675
-------- --------
Cash and cash equivalents at end of period $ 25,343 $ 19,096
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 103 $ 36
======== ========
Taxes paid $ 180 $ 2,774
======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
ANADIGICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - JULY 4, 1999
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 July 4, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
The condensed balance sheet at December 31, 1998 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.
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, 1998.
The condensed, consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, Broadcast and Wireless Investors,
Inc. and 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:
July 4, 1999 Dec. 31, 1998
------------ -------------
Raw materials $ 2,323 $ 784
Work in process 4,900 3,662
Finished goods 3,033 4,283
---------- ----------
$ 10,256 $ 8,729
========== ==========
6
ANADIGICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - JULY 4, 1999
(CONTINUED)
3. EARNINGS PER SHARE
The reconciliation of shares used to calculate basic and diluted earnings
per share consists of the following:
Three months ended Six months ended
------------------------------ -------------------------------
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
------------ ------------- ------------ -------------
Weighted average common shares
outstanding used to calculate
basic earnings per share 14,838,546 14,718,286 14,811,687 14,711,323
Net effect of diluted stock options
based upon the treasury stock method
using an average market price - * 258,712 - * - *
---------- ---------- ---------- ----------
Weighted average common and
dilutive securities outstanding
used to calculate diluted earnings
per share 14,838,546 14,976,998 14,811,687 14,711,323
========== ========== ========== ==========
* - The dilutive stock options are not included as their effect is
anti-dilutive.
4. SEGMENT INFORMATION
REVENUES BY APPLICATION
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 Six months ended
---------------------------- ----------------------------
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
------------ ------------- ------------ -------------
Cellular and PCS Applications $13,073 $ 7,479 $22,490 $16,486
Cable and Broadcast Applications 10,575 10,072 20,506 16,359
Fiber Optic Applications 6,886 4,809 12,486 8,190
Engineering service sales -- 315 100 425
------- ------- ------- -------
Total $30,534 $22,675 $55,582 $41,460
======= ======= ======= =======
GEOGRAPHIC INFORMATION
The Company primarily sells to four geographic regions; Europe, Asia, North
America, and South America. The geographic region is determined by the
destination of the shipped product. Net sales to each of the four geographic
regions are as follows:
Three months ended Six months ended
---------------------------- ----------------------------
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
------------ ------------- ------------ -------------
Europe $ 7,772 $ 6,624 $13,583 $11,762
Asia 7,385 6,698 14,810 11,856
North America 12,172 8,424 21,482 16,354
South America 3,205 929 5,707 1,488
------- ------- ------- -------
Total $30,534 $22,675 $55,582 $41,460
======= ======= ======= =======
7
ANADIGICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - JULY 4, 1999
(CONTINUED)
5. LEGAL PROCEEDINGS
In March and April 1998, seven proposed class action lawsuits (collectively
the "Class Action Lawsuits") were filed against the Company and certain of its
officers and directors in the United States District Court for the District of
New Jersey. The Complaints filed in the Class Action Lawsuits claim alleged
common law fraud and negligent misrepresentation. The Complaints alleged 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 (July 17, 1997 through
January 30, 1998).
On December 20, 1998, the United States District Court for the District of
New Jersey consolidated the Class Action Lawsuits into one action, captioned In
re Anadigics, Inc. Securities Litigation, No. 98-CV-917 (the "Consolidated Class
Action Lawsuit"), and appointed Lead Plaintiffs and Lead Plaintiffs' Counsel.
On or about August 3, 1998, a shareholder's derivative lawsuit ("Derivative
Lawsuit") was filed in the United States District Court for the District of New
Jersey against the Company (as nominal defendant) and certain of its officers
and directors. The Complaint in the Derivative Lawsuit alleged claims, which are
predicated upon the Class Action Lawsuits, seeking damages, contribution,
indemnification and equitable relief.
On July 8, 1999, the Company and attorneys representing the plaintiffs
in the lawsuits described above entered into a memorandum of understanding
setting forth proposed settlement terms. Accordingly, we expect that all of
the lawsuits described above will be settled for a total payment of $11.8
million of which approximately $5.3 million will be reimbursed by our
insurance companies. The proposed settlement is subject to various conditions
including the entering into of a definitive settlement agreement and final
court approval.
6. SUBSEQUENT EVENT
On July 22, 1999, the Company approved a public offering (the "Offering")
of an additional 3,000,000 shares of common stock (plus an additional 450,000
shares of common stock that may be issued upon exercise of an overallotment
option by the underwriters). The Company intends to use the net proceeds from
the offering for capital expenditures, working capital, and other general
corporate purposes. The Company may use all or a portion of the net proceeds to
acquire complementary businesses if the opportunity arises, however it currently
has no commitments or agreements with respect to any such transactions.
8
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 STATEMENT OF OPERATIONS
Three months ended Six months ended
----------------------------- ----------------------------
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
------------ ------------- ------------ -------------
(unaudited) (unaudited)
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 63.0% 64.2% 65.0% 64.2%
-------- -------- -------- --------
Gross profit 37.0% 35.8% 35.0% 35.8%
Research and development expenses 20.9% 22.5% 21.6% 23.5%
Selling and administrative expenses 16.0% 13.5% 15.7% 15.5%
Restructuring charge -- -- -- 2.7%
-------- -------- -------- --------
Operating income (loss) 0.1% (0.2%) (2.3%) (5.9%)
Interest income, net 1.5% 2.5% 1.8% 3.0%
Provision for litigation settlement, net 22.7% -- 12.5% --
-------- -------- -------- --------
Income (loss) before income taxes (21.1%) 2.3% (13.0%) (2.9%)
Provision (benefit) for income taxes (7.8%) 0.9% (4.8%) (1.1%)
-------- -------- -------- --------
Net income (loss) (13.3%) 1.4% (8.2%) (1.8%)
======== ======== ======== ========
SECOND QUARTER 1999 (Ended July 4, 1999) COMPARED TO SECOND QUARTER 1998 (Ended
June 28, 1998)
NET SALES. Net sales during the second quarter of 1999 increased 35% to
$30.5 million from $22.7 million in the second quarter of 1998. Sales of
integrated circuits for cellular and PCS applications increased 75% during the
second quarter of 1999 to $13.0 million from $7.5 million in the second quarter
of 1998 as demand for the Company's dual-band power amplifiers increased.
Sales of integrated circuits for cable and broadcast applications increased
5% during the second quarter of 1999 to $10.6 million from $10.1 million in the
second quarter of 1998. Included in the sales of integrated circuits for cable
and broadcast applications are sales of low noise block converter integrated
circuits (which the Company ceased production of during the third quarter of
1998) of $0.3 million and $1.6 million during the second quarter of 1999 and
1998, respectively. The increase in sales of integrated circuits for cable and
broadcast applications during the second quarter of 1999 was due to increases in
demand for the Company's integrated circuit chip set used in digital set-top
converters and cable modems and the Company's integrated circuit line amplifier
used as a repeater in cable television distribution networks.
Sales of integrated circuits for fiber optic telecommunications and data
communications ("fiber optic") applications increased 43% during the second
quarter of 1999 to $6.9 million from $4.8 million in the second quarter of 1998.
The increase was primarily due to an increase in demand for transimpedence
amplifiers for Synchronous Optical Network (SONET) fiber optic
telecommunications applications and sales of the Company's new transimpedence
amplifiers for Gigabit Ethernet applications.
9
The Company expects increased competition from internally sourced silicon
integrated circuits at certain of its customers for SONET OC-12 and OC-24 fiber
optic transimpedence amplifiers. Increased competition could result in decreased
prices of the Company's integrated circuits and/or reduced demand for its
products. Sales of OC-12 and OC-24 SONET transimpedence amplifiers were
approximately $3.3 million during the second quarter of 1999.
Engineering service sales, which reflect customers' contributions to
research and development, were $0.3 million during the second quarter of 1998.
GROSS MARGIN. Gross margin during the second quarter of 1999 increased to
37.0% from 35.8% in the second quarter of 1998. Excluding the accelerated
depreciation expense of $2.7 million, gross margin during the second quarter of
1999 was 45.7%. The increase in gross margin was primarily due to increased
sales volume and manufacturing cost structure improvements, which were mostly
offset by $2.7 million of accelerated depreciation expense (associated with the
planned closing of the Company's existing wafer fabrication facility) that was
recorded during the second quarter of 1999.
RESEARCH AND DEVELOPMENT. Company sponsored research and development
expense increased 25% during the second quarter of 1999 to $6.4 million from
$5.1 million during the second quarter of 1998. The increase was primarily
attributable to: (1) increased research and development of integrated circuits
for cellular and PCS, CATV, and fiber optic applications, and (2) increased
research and development of new process technologies. As a percentage of sales,
research and development expense decreased to 20.9% in the second quarter of
1999 from 22.5% in the second quarter of 1998.
The Company expects research and development expense to continue to
increase from the level incurred during the second quarter of 1999.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased
60% during the second quarter of 1999 to $4.9 million from $3.1 million in the
second quarter of 1998. The increase in selling and administrative expenses
during the second quarter of 1999 was primarily due to increases in performance
related compensation costs, costs associated with staffing changes, consulting
fees, recruiting and relocation expenses, and in costs related to the Company's
marketing activities. As a percentage of sales, selling and administrative
expenses increased to 16.0% in the second quarter of 1999 from 13.5% in the
second quarter of 1998.
INTEREST INCOME, NET. Interest income, net decreased 16% to $0.5 million
during the second quarter of 1999 from $0.6 million during the second quarter of
1998.
PROVISION FOR LITIGATION SETTLEMENT, NET. The Company recorded a provision
for litigation settlement of $6.9 million during the second quarter of 1999, as
it reached an agreement in principle with the plaintiffs' counsel to settle a
consolidated class action lawsuit and a derivative lawsuit. The $6.9 million
provision consists of an expected payment of $11.8 offset by insurance proceeds
of $5.3 million, and $0.4 million of additional legal, settlement, notification
and court related fees, of which $0.2 million was paid as of July 4, 1999. (See
Part II - Item 1. Legal Proceedings for additional information regarding the
consolidated class action lawsuit, the derivative lawsuit, and details of the
settlement).
BENEFIT FOR INCOME TAXES. The benefit for income taxes during the second
quarter of 1999 was recorded at an estimated annual effective tax rate of 37.0%
of the loss before income taxes.
10
SIX MONTHS 1999 (Ended July 4, 1999) COMPARED TO SIX MONTHS 1998
(Ended June 28, 1998)
NET SALES. Net sales during the six month period ended July 4, 1999
increased 34% to $55.6 million from $41.5 million in the six month period ended
June 28, 1998. Sales of integrated circuits for cellular and PCS applications
increased 36% during the six month period ended July 4, 1999 to $22.5 million
from $16.5 million in the six month period ended June 28, 1998 as demand for the
Company's dual-band power amplifiers increased.
Sales of integrated circuits for cable and broadcast applications
increased 25% during the six month period ended July 4, 1999 to $20.5 million
from $16.4 million in the six month period ended June 28, 1998. Included in
the sales of integrated circuits for cable and broadcast applications are
sales of low noise block converters (which the Company ceased production of
during the third quarter of 1998) of $0.7 million and $2.8 million during the
six month period ended July 4, 1999 and June 28, 1998, respectively. The
increase in sales of integrated circuits for cable and broadcast applications
during the six month period ended July 4, 1999 was due to increases in demand
for the Company's chip sets used in digital set-top converters and cable
modems, and the Company's line amplifiers used as a repeater in cable
television distribution networks.
Sales of integrated circuits for fiber optic telecommunication and data
communication applications increased 52% during the six month period ended July
4, 1999 to $12.5 million from $8.2 million in the six month period ended June
28, 1998 as demand for transimpedence amplifiers for Synchronous Optical Network
(SONET) fiber optic telecommunications applications and data communication
applications increased. We expect increased competition from internally
sourced silicon integrated circuits at certain of our customers for SONET
OC-12 and OC-24 fiber optic transimpedence amplifiers. Increased competition
could result in decreased prices of our integrated circuits and/or reduced
demand for our products. Sales of SONET OC-12 and OC-24 fiber optic
transimpedence amplifiers were approximately $4.5 million during the first
half of 1999.
Engineering service sales, which reflect customers' contributions to
research and development, decreased $0.3 million during the six month period
ended July 4, 1999 to $0.1 million from $0.4 million in the six month period
ended June 28, 1998.
Generally, selling prices for same product sales were lower during the six
month period ended July 4, 1999 compared to the six month period ended June 28,
1998.
GROSS MARGIN. Gross margin during the six month period ended July 4,
1999 declined to 35.0% from 35.8% in the six month period ended June 28,
1998. Excluding the accelerated depreciation expense of $5.3 million, gross
margin during the six month period ended July 4, 1999 was 44.5%. The
accelerated depreciation expense (associated with the closing of the
Company's four-inch wafer fabrication facility) that was recorded during the
first half of 1999, was mostly offset by increased sales volume,
manufacturing cost structure improvements and improved yields.
RESEARCH AND DEVELOPMENT. Company-funded research and development
expense increased 23% during the six month period ended July 4, 1999 to $12.0
million from $9.8 million in the six month period ended June 28, 1998. The
increase was primarily attributable to increased research and development of
(1) integrated circuits for cellular and PCS, cable television and fiber
optic applications and (2) new process technologies. As a percent of
sales, company-funded research and development decreased to 21.6% during the
six month period ended July 4, 1999 from 23.5% in the six month period ended
June 28, 1998.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased
37% during the six month period ended July 4, 1999 to $8.7 million from $6.4
million in the six month period ended June 28, 1998. The increase was due in
part to increases in performance-related compensation costs, consulting fees
and costs related to the Company's marketing activities. As a percentage of
sales, selling and administrative expenses increased to 15.7% during the six
month period ended July 4, 1999 from 15.5% in the six month period ended June
28, 1998.
11
RESTRUCTURING CHARGES. 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 employees who were involuntarily terminated were notified,
received information regarding their benefit arrangement and were severed on
March 2, 1998. The terminated employees represented all areas of the
Company's operations, including production, research and development, and
selling and administrative areas. The reduction in work force charge
primarily consisted of severance pay, extended medical coverage and
outplacement service costs. The $1.1 million was paid during 1998.
INTEREST INCOME, NET. Interest income, net decreased 19% during the six
month period ended July 4, 1999 to $1.0 million from $1.2 million in the six
month period ended June 28, 1998.
PROVISION FOR LITIGATION SETTLEMENT, NET. The Company recorded a provision
for litigation settlement of $6.9 million during the second quarter of 1999, as
it reached an agreement in principle with the plaintiffs' counsel to settle a
consolidated class action lawsuit and a derivative lawsuit. The $6.9 million
provision consists of an expected payment of $11.8 offset by insurance proceeds
of $5.3 million, and $0.4 million of additional legal, settlement, notification
and court related fees, of which $0.2 million was paid as of July 4, 1999. (See
Part II - Item 1. Legal Proceedings for additional information regarding the
consolidated class action lawsuit, the derivative lawsuit, and details of the
settlement).
BENEFIT FOR INCOME TAXES. The benefit for income taxes during the six month
period ended July 4, 1999 was recorded at an estimated annual effective tax rate
of 37.0% of the loss before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
As of July 4, 1999, the Company had $25.3 million in cash and cash
equivalents and $18.3 million in marketable securities. The Company has $4.5
million of bank debt outstanding as of the end of the second quarter of 1999.
The Company entered into an interest rate swap agreement, which effectively
fixes the interest rate on this debt at 7.09%. The swap effectively changed
the variable interest rate characteristics to a fixed rate for which the
present value of cash flows are approximately the same. As of the end of the
second quarter of 1999, the Company also has available $15.0 million under a
term loan facility. The term loan facility drawdown period expires on July 1,
2001. The outstanding bank debt and the term loan facility are subject to a
number of financial covenants. Substantially all of the assets of the Company
are pledged as security for repayments of the outstanding bank debt and
borrowings, if any, under the term loan facility.
Net cash provided by operating activities was $10.1 million during the six
month period ended July 4, 1999.
Net cash used in investing activities (to purchase equipment) was $9.8
million during the six month period ended July 4, 1999.
Net cash provided by financing activities was $1.0 million during the six
month period ended July 4, 1999. Cash provided by financing activities was
primarily from the issuance of the Company's common stock from stock options
exercised during the period.
The Company expects to spend approximately $30.0 million on equipment,
furniture and fixtures, and leasehold improvements during the twelve month
period ending June 30, 2000. At July 4, 1999, the Company has committed to
purchase approximately $7.5 million of equipment, furniture and fixtures, and
leasehold improvements through the remainder of 1999.
The Company believes that its current cash and cash equivalent balances,
together with cash anticipated to be generated from operations and the
planned equity offering (See "Notes to Condensed Consolidated Financial
Statements (unaudited) - July 4, 1999 - Note 6. -Subsequent Event" contained
in Item 1. herein) will satisfy anticipated capital needs for the next twelve
months. There can be no assurance that the planned equity offering will be
completed.
12
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company's comprehensive Year 2000 initiative is being managed by a
senior team of internal staff and outside consultants. The team's activities are
designed to ensure that there is no adverse effect on the Company's core
business operations and that transactions with customers, suppliers, and
financial institutions are fully supported.
Over the past year, the Company has invested in new computer hardware
and software to improve its business operations. To date we have upgraded the
majority of our critical information systems such that they are now Y2K ready.
Remaining critical systems are on target for their Y2K upgrades at the end of
September 1999. As a result of this effort, we do not believe that any year 2000
related failures will cause a significant interruption to our business.
The Company has also completed a comprehensive review of its equipment
and facilities. Based on this review, we do not believe that any year 2000
related failures of critical systems will result in a significant disruption
to our business as a result of the year 2000 issue. A number of minor
upgrades will be completed by the end of September 1999.
The total cost of the Year 2000 project is estimated at $1.6 million
and is being funded through operating cash flows. Of the total project cost,
approximately $1.0 million is for the purchase of new hardware and software,
which will be capitalized. To date, the Company has spent approximately $0.8
million on hardware and software purchases and the remaining amount represents
equipment purchases expected to be delivered and installed during the third
quarter of 1999. To date, the Company has incurred and expensed approximately
$0.4 million, primarily for assessment of the Year 2000 issue, development of a
modification plan, and remediation efforts. The remaining $0.2 million is
expected to be incurred and expensed in the third quarter of 1999.
The Company has also completed formal communications with its
significant suppliers and other third party vendors with which it has a
material relationship in order to determine whether those entities have
adequate plans in place to ensure their Year 2000 readiness. To date, the
Company has not identified any major issues with respect to its significant
suppliers and other third party vendors.
As of the end of the second quarter of 1999, the Company has not
developed a "worst case" scenario or an overall contingency plan. It does not
intend on doing so unless, as a result of ongoing tests, it determines that
contingency plans are warranted. Based on our assessment to date and our
expectations that our Y2K Program will be substantially complete by the end of
September 1999, we believe that adequate time will be available to ensure
alternatives can be assessed, developed and implemented, if necessary prior to a
Y2K issue having a negative impact on our operations. However, we cannot
guarantee that such contingencies, if required, will be completed on a timely
basis. While the Company believes its efforts will be adequate to address its
Year 2000 concerns, there can be no guarantee that we will not experience
unanticipated negative consequences or material costs caused by undetected
errors or defects in the technology used in our internal systems or that third
parties upon which we rely will not experience similar negative consequences.
The Company's products do not have specific date functions or date
dependencies and will operate according to specifications through the Year 2000
and beyond.
13
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, which is required to be adopted
in years beginning after June 15, 2000. The statement permits early adoption as
of the beginning of any fiscal quarter after its issuance. The Company expects
to adopt the new statement effective January 1, 2001. The Statement will require
the Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If a derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of the derivative will either be offset against the change in fair
value of the hedged asset, liability or firm commitment through earnings, or
recognized in other comprehensive income until the hedged item is recognized in
earnings. Th ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company does not anticipate that the
adoption of this statement will have a significant effect on our results of
operations or financial position.
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, order rescheduling or cancellation, changes in customer's
forecasts of product demand, timely product and process development, individual
product pricing pressure, variation in production yield, changes in estimated
product lives, difficulties in obtaining components and assembly services needed
for production of integrated circuits, change in economic conditions of the
various markets 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,
1998. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates primarily from its
credit facility and its investments in certain available-for-sale securities. To
date, the Company has managed its exposure to changes in interest rates from its
credit facility by entering into an interest rate swap agreement which allows
the Company to convert its debt from variable to fixed interest rates. The
Company plans to continue to reduce its exposure to changes in interest rates
from its credit facility by using interest rate derivative instruments. The
Company's available-for-sale securities consist of fixed income investments
(U.S. Treasury and Agency securities and short-term commercial paper). The
Company continually monitors its exposure to changes in interest rates from its
available-for-sale securities. Accordingly, the Company believes that the
effects of changes in interest rates are limited and would not have a material
impact on its financial condition or results of operations. However, it is
possible that the Company is at risk if interest rates change in an unfavorable
direction. The magnitude of any gain or loss will be a function of the
difference between the fixed rate of the financial instrument and the market
rate and the Company's financial condition and results of operations could be
materially affected.
14
ANADIGICS, INC.
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March and April 1998, seven proposed class action lawsuits (collectively
the "Class Action Lawsuits") were filed against the Company and certain of its
officers and directors in the United States District Court for the District of
New Jersey. The Complaints filed in the Class Action Lawsuits claim alleged
common law fraud and negligent misrepresentation. The Complaints alleged 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 (July 17, 1997 through
January 30, 1998).
On December 20, 1998, the United States District Court for the District of
New Jersey consolidated the Class Action Lawsuits into one action, captioned In
re Anadigics, Inc. Securities Litigation, No. 98-CV-917 (the "Consolidated Class
Action Lawsuit"), and appointed Lead Plaintiffs and Lead Plaintiffs' Counsel.
On or about August 3, 1998, a shareholder's derivative lawsuit ("Derivative
Lawsuit") was filed in the United States District Court for the District of New
Jersey against the Company (as nominal defendant) and certain of its officers
and directors. The Complaint in the Derivative Lawsuit alleged claims, which are
predicated upon the Class Action Lawsuits, seeking damages, contribution,
indemnification and equitable relief.
On July 8, 1999, the Company and attorneys representing the plaintiffs
in the lawsuits described above entered into a memorandum of understanding
setting forth proposed settlement terms. Accordingly, we expect that all of
the lawsuits described above will be settled for a total payment of $11.8
million of which approximately $5.3 million will be reimbursed by our
insurance companies. The proposed settlement is subject to various conditions
including the entering into of a definitive settlement agreement and final
court approval.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on May 25, 1999 at
which the Company's stockholders voted on:
(a) The election of two Class I Directors of ANADIGICS (Bruns Grayson and
Harry Rein) to hold office until 2002.
(b) The ratification of Ernst & Young LLP as independent auditors of
ANADIGICS, Inc. for the fiscal year ending December 31, 1999.
The two matters listed above were voted upon and approved by the
shareholders of the Company as follows:
(a) The election of Bruns Grayson as a Class I Director was approved by
holders of 13,386,232 shares of the Company's outstanding capital
stock. Holders of 167,526 shares withheld from voting on such
election. The election of Harry Rein as a Class I Director was
approved by holders of 13,399,372 shares of the Company's outstanding
capital stock. Holders of 154,386 shares withheld from voting on such
election.
(b) The ratification of the appointment of Ernst & Young LLP as
independent auditors was approved by holders of 13,509,085 shares of
the Company's outstanding capital stock. Holders of 25,478 shares
voted against the ratification, and holders of 19,195 shares abstained
from voting on such ratification.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
Exhibit 10.1 - Employment agreement between ANADIGICS and
Dr. Bami Bastani, dated September 17, 1998
Exhibit 10.2 - Employment agreement between ANADIGICS and
Ronald Rosenzweig, dated September 17, 1998
Exhibit 10.3 - Employment agreement between ANADIGICS and
Ronald Rosenzweig, dated June 1, 1999.
Exhibit 10.4 - Employment agreement between ANADIGICS and
John Lyons, dated June 1, 1999.
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K during the quarter ended July 4, 1999.
The Company did not file any reports on Form 8-K during the
quarter ended July 4, 1999.
15
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: July 28, 1999
16
ANADIGICS, INC.
EXHIBIT INDEX
Exhibit 10.1 Employment agreement between ANADIGICS and
Dr. Bami Bastani, dated September 17, 1998
Exhibit 10.2 Employment agreement between ANADIGICS and
Ronald Rosenzweig, dated September 17, 1998
Exhibit 10.3 Employment agreement between ANADIGICS and
Ronald Rosenzweig, dated June 1, 1999.
Exhibit 10.4 Employment agreement between ANADIGICS and
John Lyons, dated June 1, 1999.
Exhibit 27.1 Financial Data Schedule
17