10-Q 1 b311162_10q.txt QUARTERLY REPORT 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 MARCH 31, 2001. 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 April 25, 2001 was 30,108,153. INDEX ANADIGICS, Inc. Part. I. Financial Information Item 1. Financial Statements (unaudited) Condensed consolidated balance sheets - March 31, 2001 and December 31, 2000. Condensed consolidated statements of operations and comprehensive income (loss) - Three months ended March 31, 2001 and April 2, 2000. Condensed consolidated statements of cash flows - Three months ended March 31, 2001 and April 2, 2000. Notes to condensed consolidated financial statements - March 31, 2001. 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 6. Exhibits and Reports on Form 8-K 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)
March 31, 2001 December 31, 2000 --------------- ----------------- (unaudited) (Note 1) ASSETS Current assets: Cash and cash equivalents $ 92,606 $ 95,116 Marketable securities 42,705 53,254 Accounts receivable, net 16,682 21,794 Inventory 22,774 22,969 Prepaid expenses and other current assets 4,843 3,475 Deferred taxes 3,035 3,035 --------- --------- Total current assets 182,645 199,643 Marketable securities 27,864 17,791 Property and equipment: Equipment and furniture 134,757 137,819 Leasehold improvements 33,144 32,767 Projects in process 16,016 19,083 --------- --------- 183,917 189,669 Less accumulated depreciation and amortization 81,004 83,034 --------- --------- 102,913 106,635 Deferred taxes 25,608 23,102 Other assets 5,253 5,302 --------- --------- Total assets $ 344,283 $ 352,473 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,506 $ 10,985 Accrued liabilities 6,266 6,824 Current maturities of capital lease obligations 140 250 Accrued restructuring costs 521 597 Current maturities of long-term debt 1,000 1,000 --------- --------- Total current liabilities 15,433 19,656 Capital lease obligations, less current portion -- -- Other long-term liabilities 2,084 1,985 Long-term debt, less current portion 1,750 2,000 Commitments and contingencies Stockholders' equity Common stock, $0.01 par value, 144,000,000 shares authorized, 30,100,361 and 30,027,760 issued and outstanding at March 31, 2001 and December 31, 2000, respectively 301 300 Additional paid-in capital 329,970 329,362 Accumulated deficit (5,716) (1,118) Accumulated other comprehensive income 461 288 --------- --------- Total stockholders' equity 325,016 328,832 --------- --------- Total liabilities and stockholders' equity $ 344,283 $ 352,473 ========= =========
See accompanying notes. 3 ANADIGICS, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Three months ended -------------------------------- March 31, 2001 April 2, 2000 --------------- -------------- (unaudited) (unaudited) Net sales $ 28,520 $ 43,005 Cost of sales 21,205 21,833 ----------- ----------- Gross profit 7,315 21,172 Research and development expenses 10,051 9,789 Selling and administrative expenses 6,640 6,137 ----------- ----------- Operating (loss) income (9,376) 5,246 Interest income, net 2,362 2,499 (Loss) gain on sale of equipment (60) 1,049 ----------- ----------- (Loss) income before income taxes (7,074) 8,794 (Benefit) provision for income taxes (2,476) 3,254 ----------- ----------- Net (loss) income $ (4,598) $ 5,540 =========== =========== Basic (loss) earnings per share $ (0.15) $ 0.19 =========== =========== Weighted average common shares outstanding 30,063,509 29,277,268 =========== =========== Diluted (loss) earnings per share $ (0.15) $ 0.18 =========== =========== Weighted average common and dilutive securities outstanding 30,063,509 31,629,984 =========== ===========
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (DOLLARS IN THOUSANDS)
Three months ended -------------------------------- March 31, 2001 April 2, 2000 --------------- ------------- (unaudited) (unaudited) Net (loss) income $ (4,598) $ 5,540 Unrealized gains on marketable securities 256 8 Foreign currency translation adjustment (72) -- Reclassification adjustment: Net gain recognized in other comprehensive income (11) ----------- ----------- Comprehensive (loss) income $ (4,425) $ 5,548 =========== ===========
See accompanying notes. 4 ANADIGICS, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
Three months ended --------------------------------- March 31, 2001 April 2, 2000 --------------- -------------- (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income $ (4,598) $ 5,540 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 6,052 4,953 Amortization 31 46 Amortization of discount on marketable securities (350) (61) Realized gain on sale of marketable securities (11) Deferred taxes (2,506) 3,254 Loss (gain) on disposal of equipment 60 (1,049) Provision for litigation settlement -- (6,436) Changes in operating assets and liabilities: Accounts receivable 5,112 (2,412) Inventory 195 (2,083) Prepaid expenses and other assets (1,319) (5,288) Accounts payable (3,479) (2,079) Accrued liabilities and other liabilities (607) (708) ----------- ----------- Net cash provided by operating activities (1,420) (6,323) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of plant and equipment (2,419) (7,597) Purchases of marketable securities (38,830) (19,431) Proceeds from sale of marketable securities 39,912 5,707 Proceeds from disposal of equipment 21 1,052 ----------- ----------- Net cash used in investing activities (1,316) (20,269) CASH FLOWS FROM FINANCING ACTIVITIES Payment of capital lease obligations (133) (66) Repayment of long-term debt (250) (250) Issuance of common stock 609 9,175 ----------- ----------- Net cash provided by financing activities 226 8,859 =========== =========== Net decrease in cash and cash equivalents (2,510) (17,773) Cash and cash equivalents at beginning of period 95,116 149,895 ----------- ----------- Cash and cash equivalents at end of period $ 92,606 $ 132,162 =========== =========== Supplemental disclosures of cash flow information: Interest paid $62 $79 Taxes paid -- 45 Acquisition of equipment under capital leases 23 103
See accompanying notes. 5 ANADIGICS, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - MARCH 31, 2001 (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 generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. The condensed, consolidated balance sheet at December 31, 2000 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, 2000. 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 June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended in June 2000 by Statement of Financial Accounting Standards No. 138 ("SFAS 138"), "Accounting for Certain Derivative Instruments and Certain Hedging Activities," which requires companies to recognize all derivatives as either assets or liabilities in the balance sheet and measure such instruments at fair value. As amended by Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB 133," the provisions of SFAS 133 were adopted by the Company as of January 1, 2001. Adoption of SFAS 133, as amended by SFAS 138, did not have a material impact on the Company's results of operations or financial position during the first quarter of 2001. 2. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories consist of the following: March 31, 2001 December 31, 2000 -------------- ----------------- Raw materials $ 9,553 $ 5,526 Work in process 12,966 14,329 Finished goods 9,585 8,942 ----------- ---------- 32,104 28,797 Reserves (9,330) (5,828) ----------- ---------- Total $ 22,774 $ 22,969 =========== ========== 3. LEGAL PROCEEDINGS The court-approved settlement of the previously-disclosed consolidated securities class action, captioned In re ANADIGICS, Inc. Securities Litigation, No. 98-CV-917 (MLC) (D.N.J.), and shareholder's derivative lawsuit, captioned Deegan v. Rosenzweig, No. 98-CV-3640 (MLC) (D.N.J.), became final and was funded in January 2000. The total settlement payment (including the costs of administering the settlement) was $11.8 million, of which approximately $5.3 million was paid on behalf of ANADIGICS, Inc. by the Company's insurers. 6 ANADIGICS, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - MARCH 31, 2001 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 4. EARNINGS PER SHARE The reconciliation of shares used to calculate basic and diluted earnings per share consists of the following: Three months ended --------------------------------- March 31, 2001 April 2, 2000 --------------- -------------- Weighted average common shares outstanding used to calculate basic earnings per share 30,063,509 29,277,268 Net effect of diluted stock options based upon the treasury stock method using an average market price --* 2,352,716 ------------- ------------ Weighted average common and dilutive securities outstanding used to calculate diluted earnings per share 30,063,509 31,629,984 ============= ============ * The dilutive stock options are not included as their effect is anti-dilutive. 5. REVENUE SOURCES The Company classifies its revenues based upon the end application of the product in which its integrated circuits are used. Net sales by end application are regularly reviewed by the chief operating decision maker and are as follows: Three months ended --------------------------------- March 31, 2001 April 2, 2000 --------------- -------------- Cellular and PCS Applications $ 6,344 $ 23,376 Cable and Broadcast Applications 19,068 15,303 Fiber Optic Applications 3,108 4,326 --------------- -------------- Total $ 28,520 $ 43,005 =============== ============== 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 --------------------------------- March 31, 2001 April 2, 2000 --------------- -------------- Europe $ 2,478 $ 9,755 Asia 12,972 9,219 U.S.A. and Canada 8,708 17,026 Latin America 4,362 7,005 --------------- -------------- Total $ 28,520 $ 43,005 =============== ============== 6. SUBSEQUENT EVENTS The Company acquired Telcom Devices Corporation located in Camarillo, California on April 2, 2001. Telcom Devices manufactures indium phosphide based photodiodes for the telecommunication and data communication markets. The transaction will be accounted for as a purchase and is valued at $28 million, plus certain earn-out payments tied to future financial performance targets, for a potential total consideration of up to $45 million. The earn-out payments, if the financial performance is achieved, would be payable in the second quarter of 2002. 7 ANADIGICS, Inc. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth unaudited consolidated statements of operations data as a percent of net sales for the periods presented: Three months ended --------------------------------- March 31, 2001 April 2, 2000 --------------- -------------- Net sales 100.0% 100.0% Cost of sales 74.4% 50.8% --------------- -------------- Gross profit 25.6% 49.2% Research and development expenses 35.2% 22.8% Selling and administrative expenses 23.3% 14.2% --------------- -------------- Operating income (32.9%) 12.2% Interest income, net 8.3% 5.8% (Loss) gain on disposal of equipment (0.2%) 2.4% --------------- -------------- (Loss) income before income taxes (24.8%) 20.4% (Benefit) provision for income taxes (8.7%) 7.5% --------------- -------------- Net (loss) income (16.1%) 12.9% =============== ============== FIRST QUARTER 2000 (ENDED MARCH 31, 2001) COMPARED TO FIRST QUARTER 2000 (ENDED APRIL 2, 2000) NET SALES. Net sales during the first quarter of 2001 decreased 34% to $28.5 million from $43.0 million in the first quarter of 2000. Sales of integrated circuits for cellular and PCS applications decreased 73% during the first quarter of 2001 to $6.3 million from $23.4 million in the first quarter of 2000. The decrease in sales of integrated circuits for cellular and PCS applications was primarily due to a decrease in the demand for Global System for Mobile Communication (GSM) and Time Division Multiple Access (TDMA) power amplifiers. Sales of integrated circuits for cable and broadcast applications increased 25% during the first quarter of 2001 to $19.1 million from $15.3 million in the first quarter of 2000. The increase in sales of integrated circuits for cable and broadcast applications was primarily due to an increase in demand for our integrated circuit chip sets used in digital set-top converters and cable modems. Additionally, demand for our integrated circuit line amplifiers used as repeaters in cable television distribution networks increased. Sales of integrated circuits for fiber optic telecommunications and data communications ("fiber optic") applications decreased 28% during the first quarter of 2001 to $3.1 million from $4.3 million in the first quarter of 2000. The reduction in sales of integrated circuits for fiber optic applications was primarily due to softening of customer re-sale markets and customer inventory levels, particularly the gigabit ethernet and 2X fiber channel commodities. Generally, selling prices for same product sales were lower during the first quarter of 2001 compared to the first quarter of 2000. Due to overall market conditions and inventory corrections throughout the wireless and broadband communications markets, we will continue to experience a sequential decline in our product revenue during the second quarter of 2001. GROSS MARGIN. Gross margin during the first quarter of 2001 decreased to 25.6% from 49.2% in the first quarter of 2000. The decrease in gross margin was primarily due to the decrease in revenues and a $3.5 million inventory charge predominately for datacom fiber optic products with the softening of demand in the market. 8 RESEARCH AND DEVELOPMENT. Company sponsored research and development expense increased 3% during the first quarter of 2001 to $10.1 million from $9.8 million during the first quarter of 2000. The increase was primarily attributable to increased headcount and depreciation on equipment to sponsor research and development of integrated circuits for cellular and PCS, CATV, fiber optic applications and new process technologies, including Indium Gallium Phosphide Heterojunction Bi-polar Transistor (InGaP HBT) used in cellular and PCS, and fiber optic applications. As a percentage of sales, research and development expense increased to 35.2% in the first quarter of 2001 from 22.8% in the first quarter of 2000. SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased 8% during the first quarter of 2001 to $6.6 million from $6.1 million in the first quarter of 2000. The increase in selling and administrative expenses was primarily due to higher compensation costs associated with an increase in sales and marketing headcount to support customer expansion initiatives as well as an increase in depreciation costs. As a percentage of sales, selling and administrative expenses increased to 23.3% in the first quarter of 2001 from 14.2% in the first quarter of 2000. INTEREST INCOME, NET. Net interest income decreased 4% to $2.4 million during the first quarter of 2001 from $2.5 million during the first quarter of 2000. The decrease of $.1 million was primarily due to lower balances of cash and marketable securities and generally lower interest rates. BENEFIT FOR INCOME TAXES. The benefit 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. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2001, the Company had $92.6 million in cash and cash equivalents and $70.6 million in marketable securities. The Company had $2.8 million outstanding under its revolving bank credit facility as of the end of the first quarter of 2001, bearing an effective interest rate of 7.09%. As of March 31, 2001, the Company also had 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 term loan facility are subject to certain financial covenants. Substantially all of the Company's assets are pledged as security for repayments of the outstanding bank debt and borrowings, if any, under the term loan facility. Operating activities used $1.4 million in cash during the three month period ended March 31, 2001. Investing activities, which primarily consisted of purchases of equipment of $2.4 million and net sales of marketable securities of $1.1 million, used $1.3 million of cash during the three month period ended March 31, 2001. Financing activities, which primarily consisted of proceeds received from employee stock options exercised, raised $.2 million during the three month period ended March 31, 2001. As of March 31, 2001, we had purchase commitments of approximately $11.5 million of equipment, furniture and leasehold improvements, inclusive of our six-inch wafer fabrication facility expansion, for the first half of 2001. The expansion, which is expected to cost approximately $14.0 million (of which $6.5 million has been spent through March 31, 2001) will approximately double our current production capacity and is expected to be completed by the end of the third quarter 2001. We believe that existing funds and sources of capital, including internally generated funds and/or the $15.0 million available under the existing term loan facility, will be adequate to satisfy anticipated capital needs for the next twelve months and beyond. Our anticipated capital needs may include acquisitions of complimentary businesses or technologies, or investments in other companies. 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. SUBSEQUENT EVENTS We acquired Telcom Devices Corporation located in Camarillo, California on April 2, 2001. Telcom Devices manufactures indium phosphide based photodiodes for the telecommunication and data communication markets. This acquisition is a key step in our fiber strategy to provide high performance, chip set solutions by adding long wavelength PIN photodiodes and unique packaging capabilities to our fiber product line. This transaction will be accounted for as a purchase and is valued at $28 million, plus certain earn-out payments tied to future financial performance targets, for a potential total consideration of up to $45 million. The earn-out payments, if the financial performance is achieved, would be payable in the second quarter of 2002. 9 IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended in June 2000 by Statement of Financial Accounting Standards No. 138 ("SFAS 138"), "Accounting for Certain Derivative Instruments and Certain Hedging Activities," which requires companies to recognize all derivatives as either assets or liabilities in the balance sheet and measure such instruments at fair value. As amended by Statement of Financial Accounting Standards No. 137 (SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB 133," we adopted the provisions of SFAS 133 as of January 1, 2001. Adoption of SFAS 133, as amended by SFAS 138, did not have a material impact on our results of operations or financial position during the first quarter of 2001. 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 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 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, 2000 and the Registration Statement on Form S-3 (Registration No. 333-83889). These forward-looking statements can generally be identified as such because the context of the statement will include words such as we "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 credit facility and our investments in certain available-for-sale securities. To date, we have managed our exposure to changes in interest rates from our credit facility by entering into interest rate swap agreements which allow us to convert our debt from variable to fixed interest rates. Our available-for-sale securities consist of fixed income investments (U.S. Treasury and Agency securities and short-term commercial paper). We continually monitor our exposure to changes in interest rates from our available-for-sale securities. Accordingly, we believe that the effects of changes in interest rates 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 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. 10 ANADIGICS, Inc. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS SHAREHOLDER LITIGATION The court-approved settlement of the previously-disclosed consolidated securities class action, captioned In re ANADIGICS, Inc. Securities Litigation, No. 98-CV-917 (MLC) (D.N.J.), and shareholder's derivative lawsuit, captioned Deegan v. Rosenzweig, No. 98-CV-3640 (MLC) (D.N.J.), became final and was funded in January 2000. The total settlement payment (including the costs of administering the settlement) was $11.8 million, of which approximately $5.3 million was paid on behalf of ANADIGICS, Inc. by the Company's insurers. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Reports on Form 8-K during the quarter ended March 31, 2001. None. 11 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: April 30, 2001 12