SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 2002.
Or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________
TO ____________.
Commission File No. 0-25662
ANADIGICS, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2582106
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
141 Mt. Bethel Road
Warren, New Jersey 07059
- ------------------------------------------ ----------------------
(Address of principal executive offices) (Zip Code)
(908) 668-5000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares outstanding of the registrant's common stock as of
October 30, 2002 was 30,585,540.
INDEX
ANADIGICS, Inc.
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - September 28, 2002
and December 31, 2001.
Condensed consolidated statements of operations and comprehensive
loss - Three and nine months ended September 28, 2002 and
September 29, 2001.
Condensed consolidated statements of cash flows - Nine months
ended September 28, 2002 and September 29, 2001.
Notes to condensed consolidated financial statements - September
28, 2002.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
Certifications
2
PART I - FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ANADIGICS, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
September 28, 2002 December 31, 2001
----------------- -----------------
(unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 18,834 $ 63,102
Marketable securities 70,535 55,364
Accounts receivable 12,601 10,200
Inventory 13,008 14,661
Prepaid expenses and other current assets 3,979 6,635
--------- ---------
Total current assets 118,957 149,962
Marketable securities 67,149 81,629
Property and equipment:
Equipment and furniture 123,871 127,903
Leasehold improvements 36,560 34,207
Projects in process 7,277 17,702
--------- ---------
167,708 179,812
Less accumulated depreciation and amortization 94,219 89,329
--------- ---------
73,489 90,483
Intangible assets, net of amortization 2,580 3,390
Goodwill -- 16,053
Other assets 3,695 5,397
--------- ---------
Total assets $ 265,870 $ 346,914
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,169 $ 9,115
Accrued liabilities 5,098 6,549
Current maturities of capital lease obligations -- 94
Accrued restructuring costs 4,156 1,898
Current maturities of long-term debt 46 244
--------- ---------
Total current liabilities 18,469 17,900
Long-term debt, less current portion 66,700 100,000
Other long-term liabilities 2,701 2,378
Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value, 144,000,000 shares
authorized, 30,585,540 and 30,568,761 issued and
outstanding at September 28, 2002 and
December 31, 2001, respectively 306 306
Additional paid-in capital 333,968 333,860
Accumulated deficit (157,140) (108,238)
Accumulated other comprehensive income 866 708
--------- ---------
Total stockholders' equity 178,000 226,636
--------- ---------
Total liabilities and stockholders' equity $ 265,870 $ 346,914
========= =========
See accompanying notes.
3
ANADIGICS, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Three months ended Nine months ended
-------------------------------- -------------------------------
Sept. 28, 2002 Sept. 29, 2001 Sept. 28, 2002 Sept. 29, 2001
--------------- -------------- --------------- --------------
(unaudited) (unaudited)
Net sales $ 21,288 $ 16,340 $ 63,830 $ 63,757
Cost of sales 21,225 18,197 59,062 65,636
------------ ------------ ------------ ------------
Gross profit (loss) 63 (1,857) 4,768 (1,879)
Research and development expenses 7,586 9,478 22,863 29,501
Selling and administrative expenses 5,463 6,872 16,398 20,881
Restructuring and other charges 2,286 1,195 5,001 2,095
Asset impairment charges 3,087 4,506 6,331 5,306
Goodwill impairment charge 8,043 - 8,043 -
Purchased in-process R&D - - - 3,800
------------ ------------ ------------ ------------
Operating loss (26,402) (23,908) (53,868) (63,462)
Interest income 1,543 1,515 4,959 5,599
Interest expense (1,307) (9) (4,171) (138)
Impairment on investment (390) - (390) -
Gain on repurchase of Convertible notes 12,581 - 12,581 -
Other income (expense) (5) 3 (3) (46)
------------ ------------ ------------ ------------
Loss before income taxes and cumulative
effect of accounting change (13,980) (22,399) (40,892) (58,047)
Provision for income taxes - - - 24,338
------------ ------------ ------------ ------------
Loss before cumulative effect
of accounting change (13,980) (22,399) (40,892) (82,385)
Cumulative effect of accounting change - - (8,010) -
------------ ------------ ------------ ------------
Net loss $ (13,980) $ (22,399) $ (48,902) $ (82,385)
============ ============ ============ ============
Basic and diluted loss per share
Loss before cumulative effect
of accounting change $ (0.46) $ (0.74) $ (1.34) $ (2.73)
Cumulative effect of accounting change - - (0.26) -
------------ ------------ ------------ ------------
Net loss $ (0.46) $ (0.74) $ (1.60) $ (2.73)
============ ============ ============ ============
Weighted average common and
dilutive securities outstanding 30,585,540 30,323,356 30,578,630 30,190,556
============ ============ ============ ============
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(DOLLARS IN THOUSANDS)
Three months ended Nine months ended
-------------------------------- -------------------------------
Sept. 28, 2002 Sept. 29, 2001 Sept. 28, 2002 Sept. 29, 2001
--------------- -------------- --------------- --------------
(unaudited) (unaudited)
Net loss $ (13,980) $ (22,399) $ (48,902) $ (82,385)
Unrealized gain on
marketable securities 457 1,023 254 1,016
Foreign currency translation
adjustment 1 (16) (21) (99)
Reclassification adjustment:
Net realized gain previously
in other comprehensive income (96) - (75) (13)
------------ ------------ ------------ ------------
Comprehensive loss $ (13,618) $ (21,392) $ (48,744) $ (81,481)
============ ============ ============ ============
See accompanying notes.
4
ANADIGICS, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Nine months ended
---------------------------------
Sept. 28, 2002 Sept. 29, 2001
-------------- --------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(48,902) $(82,385)
Adjustments to reconcile net loss to net cash
used by operating activities:
Cumulative effect of accounting change 8,010 -
Depreciation 14,891 18,783
Amortization 1,715 1,917
Goodwill impairment charge 8,043 -
Gain on repurchase of Convertible notes (12,581) -
Impairments of long lived assets and investments 6,721 5,058
Purchased in-process research and development - 3,800
Deferred taxes - 24,338
Amortization of premium on marketable securities 1,734 985
Realized gain on sales of marketable securities (75) (13)
Loss on sale of equipment - 46
Changes in operating assets and liabilities
Accounts receivable (2,401) 10,622
Inventory 1,653 6,526
Prepaid expenses and other assets 1,774 (1,797)
Accounts payable 54 170
Accrued and other liabilities 1,109 (926)
-------- --------
Net cash used by operating activities (18,255) (12,876)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of plant and equipment (3,756) (14,481)
Purchases of marketable securities (77,134) (99,215)
Proceeds from sale of marketable securities 74,889 84,440
Purchase of Telcom Devices, net of cash acquired - (27,927)
Proceeds from sale of equipment - 35
-------- --------
Net cash used in investing activities (6,001) (57,148)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 108 2,434
Repayment of debt (198) (3,322)
Repurchase of Convertible notes (19,828) --
Payment of capital lease obligations (94) (347)
-------- --------
Net cash used by financing activities (20,012) (1,235)
-------- --------
Net decrease in cash and cash equivalents (44,268) (71,259)
Cash and cash equivalents at beginning of period 63,102 95,116
-------- --------
Cash and cash equivalents at end of period $ 18,834 $ 23,857
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 2,881 $ 137
Taxes paid 118 -
Acquisition of equipment under capital leases - 248
See accompanying notes.
5
ANADIGICS, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
SEPTEMBER 28, 2002
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited, condensed, consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine month periods ended September 28, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002.
The condensed, consolidated balance sheet at December 31, 2001 has been
derived from the audited financial statements at that date but does not include
all the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
The condensed, consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the Financial Accounting Standards Board (FASB) issued
Statement No. 145, Rescission of FASB Statements No. 4, 44 and 62, Amendment of
FASB Statement No. 13 and Technical Corrections (FAS 145). For most companies,
FAS 145 will require gains and losses on extinguishments of debt to be
classified as income or loss from continuing operations rather than as
extraordinary items as previously required under FAS 4. Extraordinary treatment
will be required for certain extinguishments as provided in APB Opinion No. 30.
The statement also amended FAS 13 for certain sales-leaseback and sublease
accounting. The Company early adopted FAS 145 in accordance with the provisions
of the statement. Accordingly, the gain on the repurchase of the Company's
Convertible notes has been included in the loss before income taxes and
cumulative effect of accounting change.
In July 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations (FAS 143). FAS 143 requires that asset retirement
obligations that are identifiable upon acquisition and construction, and during
the operating life of a long-lived asset be recorded as a liability using the
present value of the estimated cash flows. A corresponding amount would be
capitalized as part of the asset's carrying amount and amortized to expense over
the asset's useful life. The Company is required to adopt the provisions of FAS
143 effective January 1, 2003. The Company is currently evaluating the impact of
adoption of this statement.
In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (FAS 146) and nullifies EITF Issue No. 94-3.
FAS 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, whereas EITF No. 94-3 had
recognized the liability at the commitment date to an exit plan. The Company is
required to adopt the provisions of FAS 146 effective for exit or disposal
activities initiated after December 31, 2002. The Company does not expect the
impact of the adoption of this statement to have a material impact on its
financial position, results of operations and cash flows.
2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories consist of the following:
September 28, 2002 December 31, 2001
------------------ -----------------
Raw materials $ 5,109 $ 6,095
Work in process 11,682 8,963
Finished goods 6,299 8,105
---------- ----------
23,090 23,163
Reserves (10,082) (8,502)
---------- ----------
Total $ 13,008 $ 14,661
========== ==========
6
3. LOSS PER SHARE
The reconciliation of shares used to calculate basic and diluted earnings per
share consists of the following:
Three months ended Nine months ended
-------------------------------- -------------------------------
Sept. 28, 2002 Sept. 29, 2001 Sept. 28, 2002 Sept. 29, 2001
-------------- -------------- -------------- --------------
Weighted average common shares
outstanding used to calculate
basic earnings per share 30,585,540 30,323,356 30,578,630 30,190,556
Net effect of dilutive securities
based upon the treasury stock
method using an average market
price -* -* -* -*
---------- ---------- ---------- ----------
Weighted average common and
dilutive securities outstanding
used to calculate diluted
earnings per share 30,585,540 30,323,356 30,578,630 30,190,556
========== ========== ========== ==========
* Any dilution arising from the Company's outstanding stock options or shares
potentially issuable upon conversion of the Convertible notes are not included
as their effect is anti-dilutive.
On May 20, 2002, the Company announced a voluntary stock option exchange
program for eligible employees. Officers and directors were not eligible for the
exchange program. Pursuant to the terms and conditions of the offer, which
expired on June 18, 2002, the Company accepted for cancellation options to
purchase 838,157 shares of common stock having a weighted average exercise price
of $36.90. With workforce reductions and normal attrition, options issuable as
of September 28, 2002 under this program have declined to 795,292. On or about
December 20, 2002, participating employees will receive one new option for each
option canceled. The new options will have an exercise price equal to the
closing sale price of the Company's common stock on that date and will fully
vest one year thereafter.
4. REVENUE SOURCES
The Company classifies its revenues based upon the end application of the
product in which its integrated circuits are used. In conjunction with the
restructuring of the business and the resulting de-emphasis of fiber optic
research activities, as well as convergence within the end markets for the
Company's cable and fiber products, the Company is now focused on the Broadband
and Wireless end market categories. Prior year results have been reclassified to
conform to these categories. Net sales by end application are regularly reviewed
by the chief operating decision-maker and are as follows:
Three months ended Nine months ended
-------------------------------- -------------------------------
Sept. 28, 2002 Sept. 29, 2001 Sept. 28, 2002 Sept. 29, 2001
-------------- -------------- -------------- --------------
Broadband $10,263 $10,245 $30,689 $45,384
Wireless 11,025 6,095 33,141 18,373
------- ------- ------- -------
Total $21,288 $16,340 $63,830 $63,757
======= ======= ======= =======
The Company primarily sells to four geographic regions: Europe, Asia, U.S.A.
and Canada, and Latin America. The geographic region is determined by the
destination of the shipped product. Net sales to each of the four geographic
regions are as follows:
Three months ended Nine months ended
-------------------------------- -------------------------------
Sept. 28, 2002 Sept. 29, 2001 Sept. 28, 2002 Sept. 29, 2001
-------------- -------------- -------------- --------------
Europe $ 1,035 $ 1,634 $ 3,072 $ 8,122
Asia 9,842 4,894 25,619 23,352
U.S.A. and Canada 9,982 6,554 33,860 20,854
Latin America 429 3,258 1,279 11,429
------- ------- ------- -------
Total $21,288 $16,340 $63,830 $63,757
======= ======= ======= =======
5. ACQUISITION OF TELCOM DEVICES
On April 2, 2001, ANADIGICS, Inc. acquired Telcom Devices Corp. ("Telcom"), a
manufacturer of indium phosphide based photodiodes for the telecommunications
and data communications markets. The acquisition was accounted for using the
purchase method of accounting. The results of operations of Telcom are included
in that of the Company from the date of purchase.
7
The cash consideration paid on April 2, 2001, for 100% of Telcom's stock was
$28,000. In addition, the Company incurred $300 in acquisition-related costs.
The total purchase price of $28,300 was allocated to the assets acquired and
liabilities assumed, based on their fair values (as determined by an appraisal)
as follows:
Fair value of tangible assets $ 5,522
Fair value of liabilities assumed (1,369)
In-process research and development 3,800
Process technology 3,400
Covenant not to compete 800
Deferred tax liability (1,831)
Goodwill 17,978
-------
Total purchase price $28,300
=======
The following unaudited pro-forma consolidated financial information reflects
the results of operations for the nine months ended September 28, 2002 and
September 29, 2001, as if the acquisition of Telcom had occurred on January 1,
2001 and after giving effect to purchase accounting adjustments. The charge for
purchased in-process R&D is not included in the pro-forma results, because it is
non-recurring.
Nine months ended
-------------------------------
Sept. 28, 2002 Sept. 29, 2001
-------------- --------------
Pro-forma revenue $ 63,830 $ 66,217
Pro-forma loss before cumulative
effect of accounting change $ (40,892) $ (79,198)
Pro-forma net loss $ (48,902) $ (79,198)
Basic and diluted loss per share:
Pro-forma loss before cumulative
effect of accounting change $ (1.34) $ (2.62)
Pro-forma net loss $ (1.60) $ (2.62)
6. GOODWILL, CUMULATIVE EFFECT OF ACCOUNTING CHANGE AND IMPAIRMENT
Effective January 1, 2002, the Company adopted the provisions of FASB
Statement No. 142, "Goodwill and other intangible assets" (FAS 142). Under the
new rules, goodwill is no longer subject to amortization but is reviewed for
potential impairment, upon adoption and thereafter annually or upon the
occurrence of an impairment indicator. The annual amortization of goodwill which
would have approximated $2,567 is no longer required. Other intangible assets
continue to be amortized over their useful lives. As a result of completing the
initial required impairment test, the Company recorded a charge for the
cumulative effect of the accounting change in the amount of $8,010 ($0.26 per
share) representing the excess of the carrying value of a reporting unit
(Telcom) as compared to its estimated fair value as of January 1, 2002. The
change modified the first quarter's previously reported net loss of $18,059
($0.59 per share) to $26,069 ($0.85 per share).
The Company continued to monitor fiber market conditions in light of
additional job cuts and difficult prospects announced by several of its
end-market customers during the third quarter. In view of these weaker market
conditions, the Company evaluated its goodwill and intangible assets for
potential impairment during the third quarter. As a result of that evaluation,
the Company recorded a goodwill impairment charge of $8,043.
The following table reflects unaudited pro-forma results of operations of the
Company giving effect to FAS 142 as if it were adopted on January 1, 2001:
For the three, nine and twelve month periods ended
--------------------------------------------------
Sept. 29, 2001 Sept. 29, 2001 December 31,2001
-------------- -------------- ----------------
Net loss, as reported $ (22,399) $ (82,385) $ (107,120)
Add back: amortization expense, net of tax 642 1,283 1,925
Pro-forma net loss $ (21,757) $ (81,102) $ (105,195)
Basic and diluted net loss per share
As reported $ (0.74) $ (2.73) $ (3.54)
Pro-forma net loss $ (0.72) $ (2.69) $ (3.48)
7. RESTRUCTURING, IMPAIRMENT and OTHER CHARGE
During the third quarter of 2002, the Company recorded charges for asset
impairments, impairment on investments and for restructuring and other charges
of $3,087, $390 and $2,286, respectively. The asset impairment charge of $3,087
related to the writeoff of certain manufacturing and research equipment,
leasehold improvements and certain technology licenses that are no longer used
in the ongoing activities of the business. The charge for impairment on
investments was recorded on a private-equity investment following an evaluation
that indicated the carrying value of such investment exceeded its estimated fair
market value. The restructuring and other charges were for facilities
consolidation costs and for severance and related benefit costs of workforce
reductions.
8
Combined with the charges recorded in the first quarter of 2002, the
Company's charges for asset impairments, impairment on investments and
restructuring and other charges during the nine month period ended September 28,
2002 were $6,331, $390 and $5,001, respectively. The restructuring and other
charges include $1,628 for severance and related benefits of workforce
reductions. The workforce reductions eliminated approximately 83 positions
throughout the Company to whom approximately $557 of benefits were paid through
September 28, 2002.
During the second quarter of 2002, we further evaluated our fixed assets held
for sale ($1,000) against weak resale markets and identified certain alternative
uses internally. Following our evaluation, these assets, formerly classified in
other current assets as held for sale, were placed into service and depreciation
resumed. During the nine months ended September 29, 2001, we recorded asset
impairment and restructuring and other charges of $5,306 and $2,095,
respectively.
8. INCOME TAXES
During the second quarter of 2001, the Company recorded a valuation allowance
of $26,814 against the carrying value of its deferred tax asset. Deferred tax
assets require a valuation allowance when, in the opinion of management, it is
more likely than not that some portion of the deferred tax assets may not be
realized. Whereas realization of the deferred tax assets is dependent upon the
timing and magnitude of future taxable income prior to the expiration of the
deferred tax attributes, management has recorded a full valuation allowance. The
amount of the deferred tax assets considered realizable, however, could change
if estimates of future taxable income during the carry-forward period are
changed.
9. LONG-TERM DEBT AND GAIN ON REPURCHASE OF CONVERTIBLE NOTES
On November 27, 2001, the Company issued $100,000 aggregate principal amount
of 5% Convertible Senior Notes ("Convertible notes") due November 15, 2006. The
notes are convertible into shares of common stock at any time prior to their
maturity or prior redemption by the Company. The notes are convertible into
shares of common stock at a rate of 47.619 shares for each $1,000 principal
amount (convertible at a price of $21.00 per share), subject to adjustment.
Interest is payable semi-annually on May 15 and November 15 of each year.
During the third quarter of 2002, the Company repurchased and retired $33,300
principal amount of the Convertible notes for $20,365 in cash, inclusive of
accrued interest of $537. The Company recognized a gain on the repurchase of
$12,581 after adjusting for accrued interest and the write-off of a
proportionate share of unamortized offering costs. In accordance with the
provisions of FAS 145, the gain on repurchase has been included in the loss
before income taxes and cumulative effect of accounting change.
9
ANADIGICS, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the unaudited consolidated statements of
operations data as a percent of net sales for the periods presented:
Three months ended Nine months ended
-------------------------------- ------------------------------
Sept. 28, 2002 Sept. 29, 2001 Sept. 28, 2002 Sept. 29, 2001
-------------- -------------- -------------- --------------
(unaudited) (unaudited)
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 99.7 111.4 92.5 102.9
----- ------ ----- ------
Gross profit (loss) 0.3 (11.4) 7.5 (2.9)
Research and development expenses 35.6 58.0 35.8 46.3
Selling and administrative expenses 25.7 42.1 25.7 32.8
Restructuring and other charges 10.7 34.9 9.8 11.6
Asset impairment charges 14.5 - 7.9 -
Goodwill impairment charge 37.8 - 12.6 -
Purchased in-process R&D - - - 6.0
----- ------ ----- ------
Operating loss (124.0) (146.3) (84.4) (99.5)
Interest income 7.2 9.3 7.8 8.8
Interest expense (6.1) (0.1) (6.6) (0.2)
Impairment on investments (1.8) - (0.6) -
Gain on repurchase of Convertible notes 59.1 - 19.7 -
Other income (expense) - - - (0.1)
----- ------ ----- ------
Loss before income taxes and cumulative
effect of accounting change (65.7) (137.1) (64.1) (91.0)
Provision for income taxes - - - 38.2
----- ------ ----- ------
Loss before cumulative effect
of accounting change (65.7) (137.1) (64.1) (129.2)
Cumulative effect of accounting change - - (12.5) -
----- ------ ----- ------
Net loss (65.7%) (137.1%) (76.6%) (129.2%)
===== ====== ===== ======
NET SALES. Net sales during the third quarter of 2002 increased 30.3% to
$21.3 million from $16.3 million in the third quarter of 2001. For the nine
months ended September 28, 2002, net sales were $63.8 million, consistent with
the net sales of $63.8 million for the nine months ended September 29, 2001.
Sales of integrated circuits for Wireless applications increased 80.9% during
the third quarter of 2002 to $11.0 million from $6.1 million in the third
quarter of 2001. For the nine months ended September 28, 2002, net sales of
integrated circuits for Wireless applications increased 80.4% to $33.1 million
from $18.4 million in the nine month period ended September 29, 2001. The
increase in sales of integrated circuits for Wireless applications in both the
quarter and nine month periods was primarily due to the increase in sales of our
CDMA power amplifier modules. The net sales in 2001 were predominantly derived
from TDMA power amplifiers.
Sales of integrated circuits for Broadband applications were unchanged during
the third quarter of 2002 at $10.2 million. For the nine months ended September
28, 2002, net sales of integrated circuits for Broadband applications decreased
32.4% to $30.7 million from $45.4 million in the nine month period ended
September 29, 2001. The nine month decrease is attributable to the decrease in
demand from cable applications, particularly for our reverse amplifiers used in
digital set-top boxes and cable modems. The decrease in demand was attributable
to particular market strength in early 2001.
The shift in the geographic distribution of sales is due to a mix shift in
Wireless to the U.S.A. and Canada in 2002 versus a more balanced distribution in
2001.
Generally, selling prices for same product sales were lower during 2002
compared to 2001.
GROSS MARGIN. Gross margin during the third quarter of 2002 increased to
0.3% from (11.4%) in the third quarter of 2001. For the nine months ended
September 28, 2002, gross margin increased to 7.5% from (2.9%) for the nine
months ended September 29, 2001. The third quarter of 2002 includes an inventory
charge of $2.2 million for defective raw materials purchased from a former
supplier that has ceased operations. Gross margin for the nine months ended 2002
includes net charges of $1.7 million whereas the same period for 2001 included
inventory charges of $11.1 million. The third quarter improvement in adjusted
gross margin (adjusted for the aforementioned inventory charges) in 2002 was
primarily due to the increase in revenues, higher production and consequent
absorption of fixed costs, as well as cost reductions in the expense base. The
nine month decrease in adjusted gross margin (adjusted for inventory charges)
stems primarily from a shift in product revenues from broadband into wireless.
10
Research and Development. Company sponsored research and development
expense decreased 20.0% during the third quarter of 2002 to $7.6 million from
$9.5 million during the third quarter of 2001. Company sponsored research and
development expense decreased 22.5% during the nine month period ended September
28, 2002 to $22.9 million. The decrease in both the quarter and nine months in
2002 was primarily attributable to our to cost reductions initiatives
implemented in 2001 and early 2002 and our narrower focus on specific
fiber-related projects. As a percentage of sales, research and development
expense decreased to 35.6% in the third quarter of 2002 from 58.0% in the third
quarter of 2001 and 35.8% and 46.3% in the nine months of 2002 and 2001,
respectively.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses decreased
20.5% during the third quarter of 2002 to $5.5 million from $6.9 million in the
third quarter of 2001 and early 2002. The decrease in selling and administrative
expenses during 2002 was primarily due to lower compensation and departmental
spending following our restructuring initiatives of 2001 and the elimination of
goodwill amortization. As a percentage of sales, selling and administrative
expenses decreased to 25.7% in the third quarter of 2002 from 42.1% in the third
quarter of 2001. Selling and administrative expenses decreased 21.5% during the
nine month period ended September 28, 2002 to $16.4 million from $20.9 million
in the nine month period ended September 29, 2001. As a percentage of sales,
selling and administrative expenses decreased to 25.7% during the nine month
period ended September 28, 2002 from 32.8% in the nine month period ended
September 29, 2001.
ASSET AND INVESTMENT IMPAIRMENT CHARGES AND RESTRUCTURING AND OTHER CHARGES.
During the third quarter of 2002, we recorded charges of $3.1 million for asset
impairments, $0.4 million for impairment on investments and $2.3 million for
restructuring and other charges. The asset impairment charge related to the
writeoff of certain manufacturing and research equipment, leasehold improvements
and certain technology licenses that are no longer used in the ongoing
activities of the business. The charge for impairment on investments was
recorded on a private-equity investment following an evaluation that indicated
the carrying value of such investment exceeded its estimated fair market value.
The restructuring and other charges were for facilities consolidation and for
severance and related benefit costs of workforce reductions. In the nine months
ended September 28, 2002, our charges for asset impairments, impairment on
investments and restructuring and other charges were $6.3, $0.4 and $5.0
million, respectively. The anticipated annual benefit from these charges is
expected to approximate $10.3 million. The restructuring and other charges
include $1.6 million for severance and related benefits of workforce reductions.
The workforce reductions eliminated approximately 83 positions throughout the
Company to whom approximately $0.5 million of benefits were paid through
September 28, 2002. During the second quarter, 2002, we identified certain
alternative internal uses for fixed assets previously held for sale ($1.0
million). The assets, formerly classified in other current assets as held for
sale, were placed into service and depreciation resumed. During the nine months
ended September 29, 2001, we recorded charges of $5.3 million for asset
impairments and $2.1 million for restructuring and other charges.
GOODWILL IMPAIRMENT CHARGE. We continued to monitor fiber market conditions
in light of additional job cuts and difficult prospects announced by several of
our end-market customers during the third quarter. In view of these weaker
market conditions, we evaluated our goodwill and intangible assets for potential
impairment during the third quarter. As a result of that evaluation, we recorded
a goodwill impairment charge of $8.0 million.
INTEREST INCOME. Interest income remained unchanged for the third quarter
of 2002 at $1.5 million. The lower interest rates environment in 2002 was offset
by our higher level of invested funds. Interest income decreased 11.4% during
the nine month period ended September 28, 2002 to $5.0 million from $5.6 million
in the nine month period ended September 29, 2001. The decrease was due to the
lower interest rates.
INTEREST EXPENSE. During the third quarter of 2002, we incurred $1.3
million in interest expense on the outstanding balance of our 5% Convertible
notes. Interest expense increased during the nine month period ended September
28, 2002 to $4.2 million from $0.1 million in the nine month period ended
September 29, 2001.
GAIN ON REPURCHASE OF CONVERTIBLE NOTES. During the third quarter of 2002,
we repurchased and retired $33.3 million in principal amount of our 5%
Convertible notes for $20.4 million in cash, inclusive of accrued interest of
$0.5 million. We recognized a gain on the repurchase of $12.6 million after
adjusting for accrued interest and the write-off of a proportionate share of
unamortized offering costs.
PROVISION FOR INCOME TAXES. The provision for income taxes during the first
quarter of 2001 was recorded at an estimated effective tax rate of 35.0% of the
loss before income taxes. During the second quarter of 2001, we recorded a
valuation allowance of $26.8 million against the carrying value of our deferred
tax asset. Since realization of deferred tax assets is dependent upon the timing
and magnitude of future taxable income prior to the expiration of the deferred
tax attributes, management has recorded a full valuation allowance in 2001 and
2002.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. Effective January 1, 2002, we
adopted the provisions of Statement of Financial Accounting Standards ("FAS") No
142, "Goodwill and other intangible assets". Under the new rules, goodwill is no
longer subject to amortization but is reviewed for potential impairment, upon
adoption and thereafter annually or upon the occurrence of an impairment
indicator. The annual amortization of goodwill which would have approximated
$2.6 million is no longer required. Other intangible assets continue to be
amortized over their useful lives. As a result of completing the required test,
we recorded a charge for the cumulative effect of the accounting change in the
amount of $8.0 million representing the excess of the carrying value of a
reporting unit as compared to its estimated fair value.
LIQUIDITY AND CAPITAL RESOURCES
As of September 28, 2002, we had $18.8 million in cash and cash equivalents
and $137.7 million in marketable securities. We had $66.7 million of
interest-bearing debt outstanding as of September 28, 2002. These figures
reflect the repurchase and retirement of $33.3 million of our Convertible notes
during the third quarter of 2002.
11
Operating activities used $18.3 million in cash during the nine month period
ended September 28, 2002. Investing activities, which consisted of purchases of
plant and equipment of $3.8 million and the net purchases of marketable
securities of $2.2 million, used $6.0 million of cash during the nine month
period ended September 28, 2002. Financing activities, which primarily consisted
of the repurchase of $33.3 million in principal value of our 5% Convertible
notes, used $20.0 million during the nine month period ended September 28, 2002.
As of September 28, 2002, we had purchase commitments of approximately $1.2
million of equipment, furniture and leasehold improvements. We may, from time to
time, seek to repurchase our outstanding debt and/or equity securities through
open market purchases, privately negotiated transactions or otherwise.
We believe that our existing sources of capital, including internally
generated funds, will be adequate to satisfy operational needs and anticipated
capital needs for the next twelve months and beyond. Our anticipated capital
needs may include acquisitions of complimentary businesses or technologies,
investments in other companies or repurchasing our outstanding debt or equity.
However, we may elect to finance all or part of our future capital requirements
through additional equity or debt financing. There can be no assurance that such
additional financing would be available on satisfactory terms.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the Financial Accounting Standards Board (FASB) issued
Statement No. 145, Rescission of FASB Statements No. 4, 44 and 62, Amendment of
FASB Statement No. 13 and Technical Corrections (FAS 145). For most companies,
FAS 145 will require gains and losses on extinguishments of debt to be
classified as income or loss from continuing operations rather than as
extraordinary items as previously required under FAS 4. Extraordinary treatment
will be required for certain extinguishments as provided in APB Opinion No. 30.
The statement also amended FAS 13 for certain sales-leaseback and sublease
accounting. We early adopted FAS 145 in accordance with the provisions of the
statement. Accordingly, the gain on the repurchase of our Convertible notes has
been included in the loss before income taxes and cumulative effect of
accounting change.
In July 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations (FAS 143). FAS 143 requires that asset retirement
obligations that are identifiable upon acquisition and construction, and during
the operating life of a long-lived asset be recorded as a liability using the
present value of the estimated cash flows. A corresponding amount would be
capitalized as part of the asset's carrying amount and amortized to expense over
the asset's useful life. We are required to adopt the provisions of FAS 143
effective January 1, 2003. We are currently evaluating the impact of adoption of
this statement.
In July 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (FAS 146) and nullifies EITF Issue
No. 94-3. FAS 146 requires that a liability for a cost associated with an exit
or disposal activity be recognized when the liability is incurred, whereas EITF
No 94-3 had recognized the liability at the commitment date to an exit plan. We
are required to adopt the provisions of FAS 146 effective for exit or disposal
activities initiated after December 31, 2002. We do not expect the impact of the
adoption of this statement to have a material impact on our financial position,
results of operations and cash flows.
RISKS AND UNCERTAINTIES
Except for historical information contained herein, this Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements that involve risks and uncertainties,
including, but not limited to, order rescheduling or cancellation, changes in
customers' forecasts of product demand, timely product and process development
and protection of the associated intellectual property rights, individual
product pricing pressure, variation in production yield, changes in estimated
product lives, difficulties in obtaining components and assembly and test
services needed for production of integrated circuits, change in economic
conditions of the various markets we serve, as well as the other risks detailed
from time to time in the Company's reports filed with the Securities and
Exchange Commission, including the report on Form 10-K for the year ended
December 31, 2001 and the Registration Statement on Form S-3 (Registration No.
333-75040). These forward-looking statements can generally be identified as such
because the context of the statement will include words such as "believe",
"anticipate", "expect", or words of similar import. Similarly, statements that
describe our future plans, objectives, estimates or goals are forward-looking
statements. The cautionary statements made in this Form 10-Q should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-Q. Important factors that could cause actual results and
developments to be materially different from those expressed or implied by such
statements include those factors discussed herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to changes in interest rates primarily from our investments in
certain available-for-sale securities. Our available-for-sale securities consist
primarily of fixed income investments (U.S. Treasury and Agency securities,
commercial paper and corporate bonds). We continually monitor our exposure to
changes in interest rates and credit ratings of issuers from our
available-for-sale securities. Accordingly, we believe that the effects of
changes in interest rates and credit ratings of issuers are limited and would
not have a material impact on our financial condition or results of operations.
However, it is possible that we are at risk if interest rates or credit ratings
of issuers change in an unfavorable direction. The magnitude of any gain or loss
will be a function of the difference between the fixed rate of the financial
instrument and the market rate and our financial condition and results of
operations could be materially affected.
12
Our Convertible notes bear a fixed rate of interest of 5%. A change in
interest rates on long-term debt is assumed to impact fair value but not
earnings or cash flow because the interest rate is fixed.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
The management of the Company, including the Chief Executive Officer and the
Chief Financial Officer, have conducted an evaluation of the effectiveness of
the Company's disclosure controls and procedures as defined in Rule 13a-14 under
the Securities Exchange Act of 1934, as of a date (the "Evaluation Date") within
90 days prior to the filing date of this report. Based on that evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded that, as of
the Evaluation Date, the Company's disclosure controls and procedures were
effective in ensuring that all material information relating to the Company,
including our consolidated subsidiaries, required to be filed in this quarterly
report has been made known to them in a timely manner.
Changes in internal controls.
There have been no significant changes made in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to the Evaluation Date.
13
ANADIGICS, Inc.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ANADIGICS is a party to litigation arising out of the operation of our
business. We believe that the ultimate resolution of such litigation should not
have a material adverse effect on our financial condition, results of operations
or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 99.1 Certification pursuant to 18 USC Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
b. Reports on Form 8K
Reports on Form 8-K during the quarter ended September 28, 2002. None.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANADIGICS, INC.
By: /s/ Thomas C. Shields
--------------------------------
Thomas C. Shields
Senior Vice President
and Chief Financial Officer
Dated: November 1, 2002
15
CERTIFICATION
I, Bami Bastani, certify that:
I have reviewed this quarterly report on Form 10-Q of ANADIGICS, Inc.;
Based upon my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
Based on my knowledge, the financial statements, and other financial information
included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant
(ANADIGICS, Inc.) as of, and for, the periods presented in this quarterly
report;
The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared
Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date")
Presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date
The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors:
All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 1, 2002
By: /s/ Bami Bastani
--------------------------------
Bami Bastani
President and
Chief Executive Officer
16
CERTIFICATION
I, Thomas Shields, certify that:
I have reviewed this quarterly report on Form 10-Q of ANADIGICS, Inc.;
Based upon my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
Based on my knowledge, the financial statements, and other financial information
included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant
(ANADIGICS, Inc.) as of, and for, the periods presented in this quarterly
report;
The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared
Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date")
Presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date
The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors:
All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 1, 2002
By: /s/ Thomas C. Shields
--------------------------------
Thomas C. Shields
Senior Vice President
and Chief Financial Officer
17