0001125282-01-502246.txt : 20011029 0001125282-01-502246.hdr.sgml : 20011029 ACCESSION NUMBER: 0001125282-01-502246 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010929 FILED AS OF DATE: 20011023 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANADIGICS INC CENTRAL INDEX KEY: 0000940332 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 222582106 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25662 FILM NUMBER: 1764588 BUSINESS ADDRESS: STREET 1: 35 TECHNOLOGY DR CITY: WARREN STATE: NJ ZIP: 07059 BUSINESS PHONE: 9086685000 MAIL ADDRESS: STREET 1: 35 TECHNOLOGY DRIVE CITY: WARREN STATE: NJ ZIP: 07059 10-Q 1 b314283_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 SEPTEMBER 29, 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 October 22, 2001 was 30,356,649. INDEX ANADIGICS, Inc. Part. I. Financial Information Item 1. Financial Statements (unaudited) Condensed consolidated balance sheets - September 29, 2001 and December 31, 2000. Condensed consolidated statements of operations and comprehensive income (loss) - Three and nine months ended September 29, 2001 and September 30, 2000. Condensed consolidated statements of cash flows - Nine months ended September 29, 2001 and September 30, 2000. Notes to condensed consolidated financial statements - September 29, 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)
September 29, 2001 December 31, 2000 ------------------ ----------------- (unaudited) (Note 1) ASSETS Current assets: Cash and cash equivalents $ 23,857 $ 95,116 Marketable securities 31,612 53,254 Accounts receivable, net 12,550 21,794 Inventory 17,736 22,969 Prepaid expenses and other current assets 5,328 3,475 Deferred taxes -- 3,035 --------- --------- Total current assets 91,083 199,643 Marketable securities 54,252 17,791 Property and equipment: Equipment and furniture 135,654 137,819 Leasehold improvements 33,964 32,767 Projects in process 17,518 19,083 --------- --------- 187,136 189,669 Less accumulated depreciation and amortization 88,454 83,034 --------- --------- 98,682 106,635 Goodwill and other intangibles, net of amortization 20,354 -- Deferred taxes -- 23,102 Other assets 6,327 5,302 --------- --------- Total assets $ 270,698 $ 352,473 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 11,541 $ 10,985 Accrued liabilities 5,091 6,824 Current maturities of capital lease obligations 151 250 Accrued restructuring costs 1,542 597 Current maturities of long-term debt 262 1,000 --------- --------- Total current liabilities 18,587 19,656 Other long-term liabilities 2,281 1,985 Long-term debt, less current portion 45 2,000 Commitments and contingencies Stockholders' equity Common stock, $0.01 par value, 144,000,000 shares authorized, 30,355,168 and 30,027,760 issued and outstanding at September 29, 2001 and December 31, 2000, respectively 304 300 Additional paid-in capital 331,792 329,362 Accumulated deficit (83,503) (1,118) Accumulated other comprehensive income 1,192 288 --------- --------- Total stockholders' equity 249,785 328,832 --------- --------- Total liabilities and stockholders' equity $ 270,698 $ 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 Nine months ended ----------------------------------- ----------------------------------- Sept. 29, 2001 Sept. 30, 2000 Sept. 29, 2001 Sept. 30, 2000 -------------- -------------- -------------- -------------- (unaudited) (unaudited) Net sales $ 16,340 $ 51,075 $ 63,757 $ 141,597 Cost of sales 18,197 24,810 65,636 69,778 ------------ ------------ ------------ ------------ Gross (loss) profit (1,857) 26,265 (1,879) 71,819 Research and development expenses 9,478 10,852 29,501 30,821 Selling and administrative expenses 6,872 7,121 20,881 19,885 Restructuring charges 5,701 -- 7,401 -- Purchased in-process R&D -- -- 3,800 -- ------------ ------------ ------------ ------------ Operating (loss) income (23,908) 8,292 (63,462) 21,113 Interest income, net 1,506 2,756 5,461 7,876 Gain (loss) on sale of equipment 3 15 (46) 1,353 ------------ ------------ ------------ ------------ (Loss) income before income taxes (22,399) 11,063 (58,047) 30,342 Provision for income taxes -- 3,986 24,338 11,119 ------------ ------------ ------------ ------------ Net (loss) income $ (22,399) $ 7,077 $ (82,385) $ 19,223 ============ ============ ============ ============ Basic (loss) earnings per share $ (0.74) $ 0.24 $ (2.73) $ 0.65 ============ ============ ============ ============ Weighted average common shares outstanding 30,323,356 29,880,442 30,190,556 29,655,966 ============ ============ ============ ============ Diluted (loss) earnings per share $ (0.74) $ 0.23 $ (2.73) $ 0.61 ============ ============ ============ ============ Weighted average common and dilutive securities outstanding 30,323,356 31,241,801 30,190,556 31,655,258 ============ ============ ============ ============
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (DOLLARS IN THOUSANDS)
Three months ended Nine months ended -------------------------------- ------------------------------- Sept. 29, 2001 Sept. 30, 2000 Sept. 29, 2001 Sept. 30, 2000 -------------- -------------- -------------- -------------- (unaudited) (unaudited) Net (loss) income $ (22,399) $ 7,077 $ (82,385) $ 19,223 Unrealized gain on marketable securities 1,023 192 1,016 103 Foreign currency translation adjustment (16) -- (99) -- Reclassification adjustment: Net realized gain previously in other comprehensive income -- -- (13) -- --------- --------- --------- --------- Comprehensive (loss) income $ (21,392) $ 7,269 $ (81,481) $ 19,326 ========= ========= ========= =========
See accompanying notes. 4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
Nine months ended ------------------------------ Sept. 29, 2001 Sept. 30, 2000 -------------- -------------- (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income $ (82,385) $ 19,223 Adjustments to reconcile net (loss) income to net cash (used) provided by operating activities: Depreciation 18,783 16,253 Amortization 1,917 226 Loss on asset impairment 5,058 -- Purchased in-process research and development 3,800 -- Deferred taxes 24,338 11,181 Amortization of premium (discount) on marketable securities 959 (230) Realized gain on sales of marketable securities 13 -- Loss (gain) on sale of equipment 46 (1,353) Provision for litigation settlement -- (6,436) Changes in operating assets and liabilities Accounts receivable 10,622 (8,998) Inventory 6,526 (7,375) Prepaid expenses and other assets (1,797) (2,507) Accounts payable 170 (2,515) Accrued and other liabilities (926) 566 --------- --------- Net cash (used) provided by operating activities (12,876) 18,035 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of plant and equipment (14,481) (32,693) Purchases of marketable securities (99,215) (67,510) Proceeds from sale of marketable securities 84,440 24,301 Purchase of Telcom Devices, net of cash acquired (27,927) -- Proceeds from sale of equipment 35 1,342 --------- --------- Net cash used in investing activities (57,148) (74,560) CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock 2,434 10,958 Repayment of debt (3,322) (750) Payment of capital lease obligations (347) (314) --------- --------- Net cash (used) provided by financing activities (1,235) 9,894 --------- --------- Net decrease in cash and cash equivalents (71,259) (46,631) Cash and cash equivalents at beginning of period 95,116 149,895 --------- --------- Cash and cash equivalents at end of period $ 23,857 $ 103,264 --------- --------- --------- --------- Supplemental disclosures of cash flow information: Interest paid $ 137 $ 230 Taxes paid -- 46 Acquisition of equipment under capital leases 248 357
See accompanying notes. 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - SEPTEMBER 29, 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 and nine month periods ended September 29, 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 On July 20, 2001, the FASB issued Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("FAS 142"). This statement will be effective for fiscal years beginning after December 15, 2001. Under the provisions of FAS 142, the cost of certain of the Company's intangible assets will no longer be subject to amortization but will be reviewed annually for impairment. Management anticipates that upon adoption of FAS 142 the annual amortization of goodwill that would have approximated $2.6 million will no longer be required for 2002 and beyond. The Company has not yet determined the impact, if any, on its earnings or financial position of the required impairment tests of goodwill. In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement will be effective for fiscal years beginning after December 15, 2001. This statement establishes a single accounting model, based upon the framework established in FAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", for long-lived assets to be disposed of by sale and to address significant implementation issues. The Company is in the process of assessing the impact of the adoption of this statement 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 29, 2001 December 31, 2000 ------------------ ----------------- Raw materials $ 7,142 $ 5,526 Work in process 12,759 14,329 Finished goods 8,630 8,942 ---------- ---------- 28,531 28,797 Reserves (10,795) (5,828) ---------- ---------- Total $ 17,736 $ 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 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - SEPT. 29, 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 Nine months ended -------------------------------- ------------------------------- Sept. 29, 2001 Sept. 30, 2000 Sept. 29, 2001 Sept. 30, 2000 -------------- -------------- -------------- -------------- Weighted average common shares outstanding used to calculate basic earnings per share 30,323,356 29,880,442 30,190,556 29,655,966 Net effect of diluted stock options based upon the treasury stock method using an average market price -* 1,361,359 -* 1,999,292 ---------- ---------- ---------- ---------- Weighted average common and dilutive securities outstanding used to calculate diluted earnings per share 30,323,356 31,241,801 30,190,556 31,655,258 ========== ========== ========== ==========
* - 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 Nine months ended ------------------------------ ----------------------------- Sept. 29, 2001 Sept. 30, 2000 Sept. 29, 2001 Sept. 30, 2000 -------------- -------------- -------------- -------------- Cellular and PCS Applications $ 6,095 $ 20,732 $ 18,373 $ 69,615 Cable and Broadcast Applications 7,838 23,586 35,314 55,874 Fiber Optic Applications 2,407 6,757 10,070 16,108 ------------- ------------- ------------- ------------ Total $ 16,340 $ 51,075 $ 63,757 $ 141,597 ============= ============= ============= ============
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. 29, 2001 Sept. 30, 2000 Sept. 29, 2001 Sept. 30, 2000 -------------- -------------- -------------- -------------- Europe $ 1,634 $ 7,709 $ 8,122 $ 27,599 Asia 4,894 13,557 23,352 31,562 U.S.A. and Canada 6,554 17,258 20,854 53,341 Latin America 3,258 12,551 11,429 29,095 ------------- ------------- ------------- ------------ Total $ 16,340 $ 51,075 $ 63,757 $ 141,597 ============= ============= ============= ============
6. 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. There are no significant differences between the accounting policies of ANADIGICS and Telcom. 7 6. ACQUISITION OF TELCOM DEVICES (CONT.) 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 In addition, contingent purchase consideration of up to $17,000 may be payable if certain sales and profit targets are reached over the twelve months ending March 31, 2002. Any payments of contingent purchase consideration would increase the goodwill attributed to Telcom. We are unable to assess the probability of any contingent purchase consideration that may be due and have therefore excluded it from our fair value allocation. The process technology, covenant not-to-compete and goodwill are being amortized using the straight-line method over their respective estimated useful lives, which range from two to seven years. The Company recorded a charge of $3,800 representing the fair value of certain acquired research and development projects relating to 40 GB/s photodiode and autobondable and auto eutectic bonding that were determined to have not reached technological feasibility and do not have alternative future uses. The fair-value of such projects was determined based on discounted net cash flows. These cash flows were based on management's estimates of future revenues and expected profitability of each technology. The rate used to discount these projected cash flows accounted for the time value of money, as well as the risks of realization of the cash flows. The following unaudited pro-forma consolidated financial information reflects the results of operations for the nine months ended September 29, 2001 and September 30, 2000, as if the acquisition of Telcom had occurred on December 31, 1999 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. 29, 2001 Sept. 30, 2000 -------------- -------------- Pro-forma revenue $ 66,217 $ 147,975 Pro-forma net (loss) income $ (79,198) $ 17,451 Pro-forma net (loss) income per share Basic $ (2.62) $ 0.59 Diluted $ (2.62) $ 0.55
These pro-forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisition actually taken place on December 31, 1999. In addition, these results are not intended to be a projection of future results and do not reflect any synergies that might be achieved from the combined operations. 7. RESTRUCTURING CHARGES During the third quarter of 2001, the Company recorded a restructuring charge of $5,701 for an impairment of fixed assets and for severance and related benefits costs of workforce reductions. The charge consists of $4,506 for an impairment of certain manufacturing and research fixed assets as they are surplus to the Company's foreseeable operating levels and research activities. Certain of these assets are held-for-sale and an estimated recoverable value of $1,000 has been included in other current assets. A charge of $1,195 was recorded for severance and related benefits costs for workforce reductions undertaken in the third quarter. Combined with the restructuring charge recorded in the second quarter of 2001, the Company's restructuring charges total $7,401. The charges consist primarily of $1,945 for severance and related benefits costs for workforce reductions and $5,306 for impairment of fixed assets. The workforce reductions eliminate approximately 100 positions throughout the Company and $1,105 of benefits were paid through September 29, 2001. 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. 8 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. 29, 2001 Sept. 30, 2000 Sept. 29, 2001 Sept. 30, 2000 -------------- -------------- -------------- -------------- (unaudited) (unaudited) Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 111.4 48.6 102.9 49.3 ------ ------ ------ ------ Gross (loss) profit (11.4) 51.4 (2.9) 50.7 Research and development expenses 58.0 21.2 46.3 21.8 Selling and administrative expenses 42.1 13.9 32.8 14.0 Restructuring charge 34.9 -- 11.6 -- Purchased in-process R&D -- -- 6.0 -- ------ ------ ------ ------ Operating (loss) income (146.3) 16.3 (99.5) 14.9 Interest income, net 9.2 5.4 8.6 5.6 Gain (loss) on sale of equipment -- -- (0.1) 1.0 ------ ------ ------ ------ (Loss) income before income taxes (137.1) 21.7 (91.0) 21.5 Provision for income taxes -- 7.8 38.2 7.9 ------ ------ ------ ------ Net (loss) income (137.1%) 13.9% (129.2%) 13.6% ====== ====== ====== ======
NET SALES. Net sales during the third quarter of 2001 decreased 68.0% to $16.3 million, compared to $51.1 million for the third quarter of 2000. For the nine months ended September 29, 2001, net sales were $63.8 million, a 55.0% decrease from net sales of $141.6 million for the nine months ended September 30, 2000. The decline in net sales is due to the significant downturn in demand experienced across each of the Company's product lines. The wireless and broadband markets were soft due to high component inventories at most of our customers and lower end-consumer demand. Specifically, net sales of integrated circuits for cellular and PCS applications decreased 70.6% during the third quarter of 2001 to $6.1 million from $20.7 million in the third quarter of 2000. For the nine months ended September 29, 2001, net sales of integrated circuits for cellular and PCS applications decreased 73.6% to $18.4 million from $69.6 million in the nine month period ended September 30, 2000. The decrease was primarily due to decreased demand for our multi-band, multi-mode power amplifier integrated circuits used in wireless telephone handsets. Sales of integrated circuits for cable and broadcast applications decreased 66.8% during the third quarter of 2001 to $7.8 million from $23.6 million in the third quarter of 2000. For the nine months ended September 29, 2001, net sales of integrated circuits for cable and broadcast applications decreased 36.8% to $35.3 million from $55.9 million in the nine month period ended September 30, 2000. The decrease was primarily due to decreased demand for our integrated circuit reverse amplifiers and converters used in digital set-top boxes, cable modems, and our integrated circuit line amplifiers used as repeaters in cable television distribution networks. Sales of integrated circuits for fiber optic telecommunications and data communications ("fiber optic") applications decreased 64.4% during the third quarter of 2001 to $2.4 million from $6.8 million in the third quarter of 2000. For the nine months ended September 29, 2001, net sales of integrated circuits for fiber optic applications decreased 37.5% to $10.1 million from $16.1 million in the nine month period ended September 30, 2000. Net sales for the third quarter and nine months ended September 30, 2001 include $1.3 and $4.9 million, respectively of Telcom's sales since its acquisition on April 2, 2001. The reduction in sales of integrated circuits for fiber optic applications was primarily due to lower capital spending in the fiber optic markets. Generally, selling prices for same product sales were lower during 2001 as compared to 2000. GROSS MARGIN. Gross margin for the third quarter of 2001 decreased to (11.4%) of net sales, compared with 51.4% of net sales in the comparable period of the prior year. For the nine months ended September 29, 2001, gross margin decreased to (2.9%) from 50.7% of net sales for the nine months ended September 30, 2000. The decline in gross margin in the quarter results primarily from lower net sales, lower production and consequent lower absorption of fixed costs. In addition to lower sales and absorption impacts, the decline in gross margin for the nine months ended September 29, 2001 includes an $11.1 million inventory charge, which was partially offset by the inclusion of Telcom Devices in the current year results. The inventory charge primarily related to excess, slow-moving, and obsolete inventories. Excluding the charge for inventories, gross margin during the nine months ended September 29, 2001 was 14.4%. RESEARCH AND DEVELOPMENT. Company sponsored research and development expense decreased 12.7% during the third quarter of 2001 to $9.5 million from $10.8 million during the third quarter of 2000. As a percentage of sales, research and development expense increased to 58.0% in the third quarter of 2001 from 21.2% in the third quarter of 2000. Company sponsored research and development expense decreased 4.3% during the nine month period ended September 29, 2001 to $29.5 million. As a percent of sales, company funded research and 9 development increased to 46.3% during the nine month period ended September 29, 2001 from 21.8% in the nine month period ended September 30, 2000. PURCHASED IN-PROCESS R&D. The Company expensed purchased in-process research and development costs of $3.8 million as a result of the Telcom acquisition on April 2, 2001. The charge represents the fair value of certain acquired research and development projects that were determined to have not reached technological feasibility and do not have alternative future uses. SELLING AND ADMINISTRATIVE. Selling and administrative expenses decreased 3.5% during the third quarter of 2001 to $6.9 million from $7.1 million in the third quarter of 2000. The decrease was primarily due to a decrease in consulting services partially offset by $0.9 million of intangibles amortization in connection with the Telcom acquisition. As a percentage of sales, selling and administrative expenses increased to 42.1% in the third quarter of 2001 from 13.9% in the third quarter of 2000. Selling and administrative expenses increased 5.0% during the nine month period ended September 29, 2001 to $20.9 million from $19.9 million in the nine month period ended September 30, 2000. The increase was primarily due to the inclusion of intangibles amortization in connection with the Telcom acquisition, partially offset by a decrease in consulting services. As a percentage of sales, selling and administrative expenses increased to 32.8% during the nine month period ended September 29, 2001 from 14.0% in the nine month period ended September 30, 2000. RESTRUCTURING CHARGES. During the third quarter of 2001, the Company recorded a restructuring charge of $5.7 million for an impairment of fixed assets and for severance and related benefits costs of workforce reductions. The charge consists of $4.5 million for an impairment of certain manufacturing and research fixed assets as they are surplus to the Company's foreseeable operating levels and research activities. Certain of these assets are held-for-sale and an estimated recoverable value of $1,000 has been included in other current assets. A charge of $1.2 million was recorded for severance and related benefits costs of workforce reductions undertaken in the third quarter. In the nine months ended September 29, 2001, the Company has recorded restructuring charges of $7.4 million. The charges consist primarily of $1.9 million for severance and related benefits costs of workforce reductions and $5.3 million for impairment of fixed assets. The workforce reductions eliminate approximately 100 positions throughout the Company and $1.1 million of benefits were paid through September 29, 2001. The anticipated annual benefit from these restructuring charges is expected to approximate $9.8 million from the annualized rate of the first quarter of 2001. Combining this benefit with savings from other eliminated positions, results in a total anticipated annual savings of $11.8 million. INTEREST INCOME, NET. Net interest income decreased 45.4% to $1.5 million during the third quarter of 2001 from $2.8 million during the third quarter of 2000. Net interest income decreased 30.7% during the nine month period ended September 29, 2001 to $5.5 million from $7.9 million in the nine month period ended September 30, 2000. The decreases were primarily due to lower balances of cash and marketable securities and generally lower interest rates. GAIN ON SALE OF EQUIPMENT. During the nine month period ended September 30, 2000 the Company sold equipment resulting in a $1.4 million gain. PROVISION FOR INCOME TAXES. During the second quarter of 2001, the Company recorded a valuation allowance of $26.8 million against the carrying value of its deferred tax asset. Whereas 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. LIQUIDITY AND CAPITAL RESOURCES As of September 29, 2001, we had $23.8 million in cash and cash equivalents and $85.9 million in marketable securities for a total combined balance of $109.7 million. The Company had $0.3 million outstanding under a term loan as of the end of the third quarter, 2001. Operating activities used $12.9 million in cash during the nine month period ended September 29, 2001. Investing activities, which primarily consisted of purchases of equipment of $14.5 million, net purchases of marketable securities of $14.8 million, and the purchase of Telcom of $27.9 million, used $57.1 million of cash during the nine month period ended September 29, 2001. Financing activities, which primarily relates to the repayment of bank debt, used $1.2 million during the nine month period ended September 29, 2001. As of September 29, 2001, we had purchase commitments of approximately $3.3 million for equipment, furniture and leasehold improvements. We believe that our sources of capital, including internally generated funds, will be adequate to satisfy anticipated capital needs for the next twelve months and beyond. Our anticipated capital needs may include acquisitions of complementary 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. 10 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 investments in certain available-for-sale securities. Our available-for-sale securities consist of fixed income investments (U.S. Treasury and Agency securities and 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. 11 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company was not a party to any material pending legal proceedings other than ordinary routine litigation incidental to its business, which litigation would not, in the opinion of the Company's management, have a material adverse effect on the Company's financial position, results of operations or cash flows. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Reports on Form 8-K during the quarter ended September 29, 2001. The Company did not file any reports on Form 8K during the quarter ended September 29, 2001. 12 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: October 23, 2001 13