<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 1998.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
--------- ---------.
Commission File No. 0-25662
ANADIGICS, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2582106
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ANADIGICS, Inc.
35 Technology Drive
Warren, New Jersey 07059
------------------- ----------
(Address of principal executive offices) (Zip Code)
(908) 668-5000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares outstanding of the registrant's common stock as of
October 16, 1998 was 14,738,356.
<PAGE>
INDEX
ANADIGICS, Inc.
Part.I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - September 27, 1998 and
December 31, 1997.
Condensed consolidated statements of operations - Three and nine
months ended September 27, 1998 and September 28, 1997.
Condensed consolidated statements of cash flows - Nine months ended
September 27, 1998 and September 28, 1997.
Notes to condensed consolidated financial statements - September 27,
1998.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Part II. Other Information
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE>
PART I
FINANCIAL STATEMENTS
Item 1. Financial Statements (unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS
ANADIGICS, Inc.
(Amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
September 27, December 31,
1998 1997 *
(unaudited)
------------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 18,293 $ 25,675
Marketable securities 12,454 15,826
Accounts receivable, net 13,877 17,999
Inventory 11,976 19,678
Prepaid expenses and other current assets 2,349 1,470
Deferred taxes 7,885 4,461
--------- ---------
Total current assets 66,834 85,109
Marketable securities 7,832 9,801
Property and equipment:
Equipment and furniture 66,252 58,916
Leasehold improvements 15,545 4,212
Projects in process 34,359 39,540
Less accumulated depreciation and amortization 38,681 30,419
--------- ---------
77,475 72,249
Deposits 865 925
--------- ---------
Total assets $ 153,006 $ 168,084
--------- ---------
--------- ---------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 6,225 $ 11,223
Accrued liabilities 3,214 5,961
Income taxes payable -- 2,439
Current maturities of capital lease obligations 268 425
--------- ---------
Total current liabilities 9,707 20,048
Deferred taxes 959 959
Capital lease obligations, less current portion 231 389
Other long-term liabilities 881 225
--------- ---------
Total liabilities 11,778 21,621
Stockholders' equity
Common stock, $0.01 par value, 68,000,000 shares authorized,
14,738,356 and 14,657,157, issued and outstanding at September
27, 1998 and December 31, 1997, respectively 147 147
Additional paid-in capital 159,830 159,356
Accumulated deficit (18,749) (13,040)
--------- ---------
Total stockholders' equity 141,228 146,463
--------- ---------
Total liabilities and stockholders' equity $ 153,006 $ 168,084
--------- ---------
--------- ---------
</TABLE>
* The condensed balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In addition, certain amounts as of
December 31, 1997 have been reclassified to conform with the September 27, 1998
presentation.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ANADIGICS, Inc.
(Amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
Sept. 27, 1998 Sept. 28, 1997 Sept. 27, 1998 Sept 28, 1997
-------------- -------------- -------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 22,041 $ 26,727 $ 63,501 $ 74,556
Cost of sales 21,758 13,688 48,391 39,168
------------ ------------ ------------ ------------
Gross profit 283 13,039 15,110 35,388
Research and development expenses 4,334 4,375 14,084 11,999
Selling and administrative expenses 3,084 3,226 9,489 9,000
Write-down on impairment of assets 1,357 -- 1,357 --
Reduction in work force -- -- 1,100 --
------------ ------------ ------------ ------------
Operating income (loss) (8,492) 5,438 (10,920) 14,389
Interest income, net 560 833 1,785 2,398
------------ ------------ ------------ ------------
Income (loss) before income taxes (7,932) 6,271 (9,135) 16,787
Provision (benefit) for income taxes (2,975) 2,310 (3,426) 6,043
------------ ------------ ------------ ------------
Net income (loss) $ (4,957) $ 3,961 $ (5,709) $ 10,744
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic earnings (loss) per share $ (0.34) $ 0.27 $ (0.39) $ 0.76
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common
shares outstanding 14,734,430 14,566,724 14,719,025 14,158,235
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted earnings (loss) per share $ (0.34) $ 0.26 $ (0.39) $ 0.72
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common and
dilutive securities outstanding 14,734,430 15,499,400 14,719,025 14,960,148
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
ANADIGICS, Inc.
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine months ended
Sept. 27, 1998 Sept. 28, 1997
-------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (5,709) $ 10,744
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation 8,387 5,028
Amortization 574 985
Deferred taxes (3,424)
Write-down on impairment of assets 1,357
Write-down of inventory 6,603
Changes in operating assets and liabilities:
Accounts receivable 4,122 (8,193)
Inventory 1,099 (7,911)
Prepaid expenses and other current assets (879) (307)
Deposits 60 (450)
Accounts payable (4,998) 1,618
Accrued liabilities and other long-term liabilities (2,091) 1,472
Income taxes payable (2,439) 2,400
-------- --------
Net cash provided by operating activities 2,662 5,386
Cash flows from investing activities:
Purchase of plant and equipment (15,544) (41,685)
Purchase of marketable securities (19,714) (35,510)
Proceeds from sale of marketable securities 25,055 16,674
-------- --------
Net cash used in investing activities (10,203) (60,521)
Cash flows from financing activities:
Payment of capital lease obligations (315) (979)
Issuance of common stock 474 58,528
-------- --------
Net cash provided by financing activities 159 57,549
-------- --------
Net (decrease) increase in cash and cash equivalents (7,382) 2,414
Cash and cash equivalents at beginning of period 25,675 23,112
-------- --------
Cash and cash equivalents at end of period $ 18,293 $ 25,526
-------- --------
-------- --------
Supplemental cash flow information:
Interest paid $ 52 $ 150
-------- --------
-------- --------
Taxes paid $ 3,138 $ 1,966
-------- --------
-------- --------
</TABLE>
5
<PAGE>
ANADIGICS, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) --
September 27, 1998
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended September 27, 1998 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1998. For further information,
refer to the financial statements for the year ended December 31, 1997 and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, ANADIGICS Foreign Sales
Corporation. All significant intercompany accounts have been eliminated in
consolidation.
Impairment of Long-Lived Assets
During the third quarter of 1998, the Company decided to cease production of its
low noise block ("LNB") converter integrated circuits that are used in direct
broadcast satellite ("DBS") applications because of the reduced global demand
for LNB converter integrated circuits and the effects of the Asian financial
crisis. Accordingly, the Company evaluated the ongoing value of the production
equipment associated with LNB converter integrated circuits. Based upon this
evaluation, the Company plans to dispose of the unused production assets with a
carrying amount $640 and has estimated the sales value, net of related costs to
sell, at $125. Accordingly, the Company recorded an impairment loss of $515
during the third quarter of 1998. (See Note 2 -- Inventories).
During the third quarter of 1998, in connection with the Company's
on-going information systems improvements, the Company determined that the value
of certain software was impaired. Based upon this evaluation, the Company
determined that software with a carrying amount of $842 is no longer used by the
Company. Accordingly, the software was written down to zero during the third
quarter of 1998.
6
<PAGE>
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories consist of the following:
<TABLE>
<CAPTION>
Sept. 27, 1998 Dec. 31, 1997
-------------- -------------
<S> <C> <C>
Raw materials $ 1,006 $ 1,670
Work in process 5,163 12,054
Finished goods 5,807 5,954
------- -------
$11,976 $19,678
------- -------
------- -------
</TABLE>
Cost of sales includes an inventory write-down of $6,603 during the third
quarter of 1998. The write-down consisted of the following:
<TABLE>
<S> <C>
Integrated circuits primarily used in cellular and
Personal communication services ("PCS") applications $ 3,445
LNB integrated circuits used in DBS applications 2,081
Integrated circuits used in cable television ("CATV")
applications 1,077
-------
Total inventory write-down $ 6,603
-------
-------
</TABLE>
The write-down of the integrated circuits primarily used in cellular
and PCS applications primarily consisted of older generation, single-band power
amplifier integrated circuits. Of the write-down, $694 relates to excess
inventories of one of the Company's older generation, single band power
amplifier integrated circuits, which reached end of life stages during the third
quarter of 1998. The remaining $2,751 relates primarily to older generation,
single-band power amplifier integrated circuits, which prior to the end of the
third quarter, the Company was aggressively attempting to sell to a secondary
wireless communications market, particularly in Asia. The Company experienced
limited success in selling these integrated circuits in these markets prior to
the third quarter of 1998 and reevaluated its resource commitments and the
potential markets (including Asia) for these products during the third quarter
of 1998. Based upon this reevaluation, the Company decided it was no longer
going to sell these products. As a result, the Company recorded the write-down
during the third quarter of 1998. This decision will allow the Company to
redirect these resources toward selling new generation, dual band power
amplifier integrated circuits and other cellular and PCS integrated circuits.
The write-down of the LNB integrated circuits used in DBS applications was
caused by deteriorating global DBS market conditions, which accelerated
during the third quarter, particularly in Europe, and the effects of the
Asian financial crisis. These deteriorating market conditions and the effects
of the Asian financial crisis lead to the Company's decision to cease
production of its LNB converter integrated circuits during the third quarter
of 1998 (See Note 1 -- Impairment of Long-Lived Assets). This decision will
allow the Company to redirect its resources toward more attractive markets
with longer-term growth opportunities.
The write-down of the integrated circuits used in CATV applications consisted of
older generation line amplifiers, which prior to the end of the third quarter,
the Company was aggressively attempting to sell to a secondary CATV
infrastructure market. The Company experienced limited success in selling these
integrated circuits during the first and second quarter of 1998 and reevaluated
its selling efforts and the potential markets for these products during the
third quarter of 1998. Based upon this reevaluation, the Company decided that it
was no longer going to sell these products. As a result, the Company recorded
the write-down during the third quarter of 1998.
7
<PAGE>
3. Earnings Per Share
The reconciliation of shares used to calculate basic and diluted earnings
(loss) per share consists of the following:
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
Sept. 27, 1998 Sept. 28, 1997 Sept. 27, 1998 Sept. 28, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding used to calculate
basic earnings per share 14,734,430 14,566,724 14,719,025 14,158,235
Net effect of dilutive stock options based
upon the treasury stock method
using an average market
price -- * 932,676 -- * 801,913
-------------- -------------- -------------- --------------
Weighted average common and
dilutive securities outstanding
used to calculate diluted earnings
per share 14,734,430 15,499,400 14,719,025 14,960,148
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
* -- The dilutive stock options are not included as their effect is
anti-dilutive.
4. Reporting Comprehensive Income
As of January 1, 1998, the Company adopted Statement No. 130, Reporting
Comprehensive Income ("FASB 130"). FASB 130 establishes new rules for the
reporting and display of comprehensive income (or loss) and its components in
the financial statements. The adoption of FASB 130 had no effect on the
Company's financial position or results of operations. Statement 130 requires
unrealized gains (losses) on the Company's available-for-sale securities, which
currently are reported in stockholders' equity, to be included in other
comprehensive income and the disclosure of total comprehensive income.
The components of comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
Sept. 27, 1998 Sept. 28, 1997 Sept. 27, 1998 Sept. 28, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income (loss) $(4,957) $ 3,961 $(5,709) $10,744
Unrealized gain on
marketable securities 57 3 36 50
------- ------- ------- -------
Total comprehensive income (loss) $(4,900) $ 3,964 $(5,673) $10,794
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
8
<PAGE>
5. Disclosures About Segments of an Enterprise and Related Information
In 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("FASB
131") which is required to be adopted for the Company's year ending December 31,
1998. FASB 131 establishes standards for reporting information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The adoption
of FASB 131 will have no impact on the Company's consolidated results of
operation, financial position or cash flows.
6. Subsequent Event
The Company granted options to an Executive to purchase 450,000 shares
of the Company's common stock at an exercise price equal to the last reported
sales price of the Company's common stock on October 1, 1998 (the grant date),
or $6.25 per share. The options become exercisable over a period of three years
(150,000 each anniversary date) and expire on October 1, 2008. The Company also
granted options to its Chairman to purchase 150,000 shares of the Company's
common stock at an exercise price equal to the last reported sales price of the
Company's common stock on October 1, 1998 (the grant date), or $6.25 per share.
The options become exercisable over a three year period (50,000 on the first
anniversary date and 12,500 each quarter thereafter) and expire on October 1,
2008.
9
<PAGE>
ANADIGICS, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Results of Operations
The following table sets forth unaudited consolidated statements of
operations data as a percent of net sales for the periods presented:
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
Sept. 27, 1998 Sept. 28, 1997 Sept. 27, 1998 Sept. 28, 1997
-------------- -------------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 98.7% 51.2% 76.2% 52.5%
----- ----- ----- -----
Gross profit 1.3% 48.8% 23.8% 47.5%
Research and development expenses 19.7% 16.4% 22.2% 16.1%
Selling and administrative expenses 14.0% 12.0% 15.0% 12.1%
Write-down on impairment of assets 6.1% -- 2.1% --
Reduction in force -- -- 1.7% --
Operating income (loss) (38.5%) 20.4% (17.2%) 19.3%
Interest income, net 2.5% 3.1% 2.8% 3.2%
----- ----- ----- -----
Income (loss) before income taxes (36.0%) 23.5% (14.4%) 22.5%
Provision (benefit) for income taxes (13.5%) 8.7% (5.4%) 8.1%
----- ----- ----- -----
Net income (loss) (22.5%) 14.8% (9.0%) 14.4%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
Third Quarter 1998 (Ended September 27, 1998) Compared to Third Quarter 1997
(Ended September 28, 1997)
Net Sales. Net sales during the third quarter of 1998 decreased 18% to
$22.0 million from $26.7 million in the third quarter of 1997. Sales of
integrated circuits for cellular and PCS applications decreased 51% during the
third quarter of 1998 to $8.3 million from $17.1 million in the third quarter of
1997. The lower demand during the third quarter of 1998, compared to the same
period in 1997, was primarily due to increased competition, a shift in demand to
lower cost phones not using the Company's parts, customer delays in ramp-up of
new generation dual-band phones using the Company's new parts, and the effect of
the Asian financial crisis on the wireless communications markets. Sequentially,
sales of integrated circuits for cellular and PCS applications increased 12%
during the third quarter of 1998 to $8.3 million from $7.5 million in the second
quarter of 1998, as sales of integrated circuits for dual-band cellular and PCS
applications increased.
Sales of integrated circuits for CATV applications increased 55% during the
third quarter of 1998 to $7.7 million from $4.9 million in the third quarter of
1997. The increase in sales during the third quarter of 1998 was due to
increases in demand for the Company's integrated circuit chip set used in
digital set-top converters and cable modems, and the Company's integrated
circuit line amplifier used as a repeater in hybrid fiber coaxial distribution
networks. Sequentially, sales of integrated circuits for CATV applications
decreased 6% during the third quarter of 1998 to $7.7 million from $8.2 million
in the second quarter of 1998, as sales of integrated circuits used in analog
set-top converters decreased.
10
<PAGE>
Sales of integrated circuits for fiber optic telecommunications and data
communication ("fiber optic") applications increased 86% during the third
quarter of 1998 to $5.0 million from $2.7 million in the third quarter of 1997.
The increase was primarily due to an increase in demand for transimpedence
amplifiers for Synchronous Optical Network (SONET) fiber optic
telecommunications applications and sales of a new family of integrated circuits
for data communication applications. Sequentially, sales of integrated circuits
for fiber optic applications increased 5% during the third quarter of 1998 to
$5.0 million from $4.8 million in the second quarter of 1998 on sales of a new
family of integrated circuits for data communication applications. The Company
expects net sales of integrated circuits for fiber optic applications during the
fourth quarter of 1998 to be lower than the third quarter of 1998 level, as
demand for the Company's new family of integrated circuits for data
communication applications has reduced.
Sales of integrated circuits for DBS applications decreased 50% during the
third quarter of 1998 to $0.9 million from $1.8 million in the third quarter of
1997. The reduction in sales of integrated circuits for DBS applications was
primarily due to significantly lower demand for the Company's LNB converter
integrated circuits in Europe and the effects of the Asian financial crisis (See
Note 2 - Inventories). Engineering service sales, which reflect customers'
contributions to research and development, decreased $0.1 million during the
third quarter of 1998 to $0.1 million from $0.2 million in the third quarter of
1997.
Generally, selling prices for same product sales were lower during the
third quarter of 1998 compared to the same period in 1997.
The Company expects net sales during the fourth quarter of 1998 to be
comparable to those of the third quarter of 1998 based upon the Company's
current level of orders and forecasts for orders.
Gross Margin. Gross margin during the third quarter of 1998 declined to
1.3% from 48.8% in the third quarter of 1997. The reduction in gross margin was
primarily due to inventory write-downs totaling approximately $6.6 million that
were recorded during the third quarter of 1998 (See Note 2 - Inventories).
Excluding the inventory write-down of $6.6 million, gross margin during the
third quarter of 1998 was 31.2%. In addition, higher costs associated with new
products, lower factory utilization, and higher fixed costs associated with the
Company's new test and manufacturing administration facilities placed into
service during the second quarter of 1998 also caused the reduction in gross
margin during the third quarter of 1998, compared to the same period of 1997.
The Company believes that low factory utilization and costs associated with
new product introductions may continue to adversely impact its gross margin
through the fourth quarter of 1998.
Research and Development. Company sponsored research and development
expenses decreased 1% to $4.3 million during the third quarter of 1998 from $4.4
million during the third quarter of 1997. As a percentage of sales, research and
development expenses increased to 19.7% in the third quarter of 1998 from 16.4%
in the third quarter of 1997.
The Company believes that research and development expense during the
fourth quarter of 1998 will be similar to the second quarter of 1998 level of
$5.1 million.
Selling and Administrative. Selling and administrative expenses decreased
4% during the third quarter of 1998 to $3.1 million from $3.2 million in the
third quarter of 1997. As a percentage of sales, selling and administrative
expenses increased to 14.0% during the third quarter of 1998 from 12.0% in the
same period of 1997.
The Company expects selling and administrative expenses to increase during
the fourth quarter of 1998 from the third quarter 1998 level of $3.1 million,
due to executive relocation costs.
11
<PAGE>
Write-down on Impairment of Assets. Write-down on impairment of assets
includes a write-down of approximately $0.5 million on equipment used to produce
LNB converter integrated circuits, and approximately $0.8 million for impairment
of certain software assets. (See Note 1 -- Impairment of Long-Lived Assets)
Interest Income, net. Interest income, net decreased 33% to $0.6 million
during the third quarter of 1998 from $0.8 million during the third quarter of
1997. The reduction in interest income, net of $0.2 million was primarily due to
a lower amount of interest income earning investments during the third quarter
of 1998 (caused by plant and equipment purchases that were primarily for the
Company's new wafer fabrication facility), compared to the third quarter of
1997.
Benefit for Income Taxes. The benefit for income taxes during the third
quarter of 1998 was recorded at an estimated annual effective tax rate of 37.5%
of the loss before income taxes.
Nine Months 1998 (Ended September 27, 1998) Compared to Nine Months 1997 (Ended
September 28, 1997)
Net Sales. Net sales during the nine month period ended September 27, 1998
decreased 15% to $63.5 million from $74.6 million in the nine month period ended
September 28, 1997. Sales of ICs for cellular and PCS applications decreased 41%
during the nine month period ended September 27, 1998 to $24.9 million from
$42.0 million during the nine month period ended September 28, 1997. The lower
demand was due to several factors, including increased competition, a shift in
demand to lower cost phones not using the Company's parts, customer delays in
ramp-up of new generation dual-band phones using the Company's new parts, and in
part, to the effect of the Asian financial crisis on the wireless communications
markets. Net sales of ICs for CATV applications for the nine month period ended
September 27, 1998 increased 32% to $20.4 million from $15.5 million in the nine
month period ended September 28, 1997 as demand for wide-band CATV tuner and
infrastructure ICs increased.
Sales of integrated circuits for fiber optic telecommunication and data
communication applications increased 57% during the nine month period ended
September 27, 1998 to $13.2 million from $8.5 million in the nine month period
ended September 28, 1997. The increase was primarily due to an increase in
demand for transimpedence amplifiers for Synchronous Optical Network (SONET)
fiber optic telecommunications applications and sales of a new family of
integrated circuits for data communication applications. Sales of ICs for DBS
applications decreased 40% during the nine month period ended September 27, 1998
to $4.5 million from $7.5 million in the nine month period ended September 28,
1997 as selling prices and demand decreased (See Note 2 -- Inventories).
Engineering service sales, which reflect customers' contributions to research
and development, decreased $0.6 million during the nine month period ended
September 27, 1998 to $0.5 million from $1.1 million in the nine month period
ended September 28, 1997.
Generally, selling prices for same product sales were lower during the
first nine months of 1998 compared to the same period in 1997.
12
<PAGE>
Gross Margin. Gross margin during the nine month period ended September 27,
1998 declined to 23.8% from 47.5% in the nine month period ended September 28,
1997. The reduction in gross margin was primarily due to inventory write-downs
totaling $6.6 million that were recorded during the third quarter of 1998 (See
Note 2 -- Inventories). Excluding the inventory write-downs of $6.6 million,
gross margin during the nine month period ended September 27, 1998 was 34.2%.
Higher costs associated with the Company's new products, lower factory
utilization and higher fixed costs associated with the Company's new test and
manufacturing administration facilities placed into service during the second
quarter of 1998 also caused the reduction in gross margin during the nine month
period ended September 27, 1998, compared to the same period of 1997.
Research and Development. Company sponsored research and development
expenses increased 17% during the nine month period ended September 27, 1998 to
$14.1 million from $12.0 million in the nine month period ended September 28,
1997. The increase was primarily attributable to increased research and
development of integrated circuits for CATV, fiber optic, and cellular and PCS
applications. As a percent of sales, company funded research and development
increased to 22.2% during the nine month period ended September 27, 1998 from
16.1% in the nine month period ended September 28, 1997.
Selling and Administrative. Selling and administrative expenses increased
5% during the nine month period ended September 27, 1998 to $9.5 million from
$9.0 million in the nine month period ended September 28, 1997. The increase
during the nine month period ended September 27, 1998 was primarily due to an
increase in operating costs associated with the Company's information systems.
As a percentage of sales, selling and administrative expenses increased to 15.0%
during the nine month period ended September 27, 1998 from 12.1% in the nine
month period ended September 28, 1997.
Reduction in Work Force. During the first quarter of 1998, the Company
recorded a charge of $1.1 million associated with a reduction in staff of 100
employees. The employees who were involuntarily terminated were notified,
received information regarding their benefit arrangement, and employment was
severed on March 2, 1998. The terminated employees represented all areas of the
Company, including production, research and development, and selling and
administrative areas.
The work force reduction charge primarily consisted of severance pay,
extended medical coverage, and outplacement service costs. Approximately $1.0
million of severance pay, extended medical coverage, and outplacement service
costs were paid through September 27, 1998, resulting in a remaining liability
of $0.1 million as of September 27, 1998. The remaining liability of $0.1
million, which represents extended medical coverage for the terminated
employees, is expected to be paid during the fourth quarter of 1998.
Interest Income, net. Interest income, net decreased 26% during the nine
month period ended September 27, 1998 to $1.8 million from $2.4 million during
the nine month period ended September 28, 1997. The reduction in interest
income, net of $0.6 million was primarily due to a lower amount of interest
income earning investments during the nine month period ended September 27, 1998
(caused by plant and equipment purchases that were primarily for the Company's
new wafer fabrication facility), compared to the same period in 1997.
Benefit for Income Taxes. The benefit for income taxes during the nine
month period ended September 27, 1998 was recorded at an estimated annual
effective tax rate of 37.5% of the loss before income taxes.
13
<PAGE>
Liquidity and Capital Resources
As of September 27, 1998, the Company had $18.3 million in cash and cash
equivalents and $20.3 million in marketable securities. The Company also has a
$20 million revolving bank credit facility with a drawdown expiration of July 1,
1999. The availability under the revolving credit facility is subject to a
number of financial covenants. Substantially all of the assets of the Company
are pledged as security for repayments of amounts borrowed under this facility.
There were no borrowings outstanding under this credit facility during the three
month period ended September 27, 1998.
Net cash provided by operating activities was $2.7 million during the nine
month period ended September 27, 1998. Cash provided by operating activities
primarily resulted from reductions in accounts receivable and inventory,
partially offset by reductions in accounts payable, accrued liabilities, and
income taxes payable during the nine month period ended September 27, 1998.
Net cash used in investing activities was $10.2 million during the nine
month period ended September 27, 1998. Purchases of plant and equipment of $15.6
million were partially offset by net sales of marketable securities of
approximately $5.4 million during the nine month period ended September 27,
1998.
Net cash provided by financing activities was $0.2 million during the nine
month period ended September 27, 1998, which consisted primarily of cash
payments received upon the issuance of common stock of the Company.
The Company expects to spend approximately $24.0 million on equipment,
furniture and fixtures, and leasehold improvements during the twelve month
period ending September 27, 1999. At September 27, 1998 the Company has
committed to purchase approximately $8.0 million of equipment, furniture and
fixtures, and leasehold improvements during the fourth quarter of 1998 and the
first quarter of 1999. The Company plans to continue activities associated with
qualifying its new wafer fabrication facility during the second half of 1998 and
the first half of 1999 and anticipates commencing production in the second half
of 1999.
The Company believes that its sources of capital, including internally
generated funds and $20 million available under existing credit arrangements,
will be adequate to satisfy anticipated capital needs for the next twelve
months. However, the Company may nevertheless elect to finance all or part of
its future capital requirements through additional equity or debt financing.
There can be no assurance that such additional financing would be available on
satisfactory terms.
Impact of Year 2000
As previously disclosed, the Company has determined that it will need to
modify or replace significant portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
beyond. The Company presently believes that with modifications to existing
software and conversions to new software, the Year 2000 issue will not pose
significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 issue could have a material impact on the operations of the Company.
The Company has initiated formal communications with all of its significant
suppliers, large customers and financial institutions to ensure that those
parties have appropriate plans to remediate Year 2000 issues where their systems
interface with the Company's systems or otherwise impact its operations. The
Company is assessing the extent to which its operations are vulnerable should
those organizations fail to properly remediate their computer systems.
14
<PAGE>
Impact of Year 2000 (continued)
The Company's comprehensive Year 2000 initiative is being managed by a
senior team of internal staff and outside consultants. The team's activities
are designed to ensure that there is no adverse effect on the Company's core
business operations and that transactions with customers, suppliers, and
financial institutions are fully supported. The Company is well under way
with these efforts, which are scheduled to be completed in mid 1999. The
total cost of the Year 2000 project is estimated at $2.0 million and is being
funded through operating cash flows. Of the total project cost, approximately
one-half is attributable to the purchase of new software which will be
capitalized. The remaining one-half will be expensed when incurred. To date,
the Company has incurred and expensed approximately $0.2 million, primarily
for assessment of the Year 2000 issue and the development of a modification
plan. While the Company believes its planning efforts are adequate to address
its Year 2000 concerns, there can be no guarantee that the systems of other
companies on which the Company's systems and operations rely will be
converted on a timely basis and will not have a material effect on the
Company. The Company has determined it has no exposure to contingencies
related to the Year 2000 issue for the products it has sold.
Risks and Uncertainties
Except for historical information contained herein, this Management's
Discussion and Analysis of Financial Condition and Results of Operation contains
forward looking statements that involve risks and uncertainties, including, but
not limited to, order rescheduling or cancellation, changes in customer's
forecasts of product demand, timely product and process development, individual
product pricing pressure, variation in production yield, changes in estimated
product lives, difficulties in obtaining components and assembly services needed
for production of integrated circuits, change in economic conditions of the
various markets the Company serves, as well as the other risks detailed from
time to time in the Company's reports filed with the Securities and Exchange
Commission, including the report on Form 10 K for the year ended December 31,
1997. These forward-looking statements can generally be identified as such
because the context of the statement will include words such as the Company
"believes", "anticipates", "expects", or words of similar import. Similarly,
statements that describe the Company's future plans, objectives, estimates or
goals are forward-looking statements. The cautionary statements made in this
Form 10-Q should be read as being applicable to all related forward-looking
statements wherever they appear in this Form 10-Q. Important factors that could
cause actual results and developments to be materially different from those
expressed or implied by such statements include those factors discussed herein.
15
<PAGE>
ANADIGICS, Inc.
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
In March and April 1998, there were filed against the Company and certain
of its officers and directors in the United States District Court for the
District of New Jersey seven proposed class action lawsuits (collectively, the
"Class Action Lawsuits"), captioned Assuncao v. Anadigics, Inc., et al., No.
98-917; Office and Professional Employees International Union Local 153 Pension
Fund v. Anadigics, Inc., et al., No. 98-919; Kotler v. Anadigics, Inc., et al.,
No. 98-923; Gray v. Anadigics, Inc., et al., No. 98-1337; Mirpuri v. Anadigics,
Inc., et al., No. 98-1811; Grayson v. Rosenzweig, et al., No. 98-1688; and
Morgante v. Anadigics, Inc., et al., No. 98-2024. The Complaints filed in the
Class Action Lawsuits (each of which names a combination of the following
directors and officers of the Company: Ronald Rosenzweig, George Gilbert, Harry
T. Rein, John F. Lyons, Charles Huang, Javed Patel, Sheo Khetan and Robert
Bayruns) seek unspecified damages in connection with claims under Sections 10(b)
(and Rule 10b-5 promulgated thereunder) and 20(a) of the Securities Exchange Act
of 1934 and, as set forth in the Union Local 153, Kotler, Gray and Mirpuri
Complaints, claims alleging common law fraud and negligent misrepresentation.
The Complaints allege that, as a result of certain material misstatements and
omissions made by the Company in connection with its business, the price of the
Company's common stock was artificially inflated during the proposed class
periods. The longest proposed class period alleged by the plaintiffs in the
Class Action Lawsuits is the period from July 17, 1997 through January 30, 1998.
Although the Company is unable at this time to assess the probable outcome of
the Class Action Lawsuits or the materiality of the risk of loss in connection
therewith (given that none of the Complaints alleges damages with any
particularity and the fact that certain procedural issues, including the
prospective consolidation of the Class Action Lawsuits and the appointment of
Lead Plaintiff and Lead Plaintiff's Counsel, have not yet been resolved), the
Company believes that it has acted responsibly and intends to vigorously defend
such Lawsuits.
On or about August 3, 1998, a shareholders derivative lawsuit, captioned
Deegan v. Rosenzweig, et al., No. 98-CV-3640 (the "Derivative Lawsuit"), was
filed in the United States District Court for the District of New Jersey against
the Company (as nominal defendant) and the following officers and directors
thereof: Charles Burton, Paul Bachow, Robert Bayruns, Ronald Rosenzweig, George
Gilbert, John Lyons, Harry Rein, Sheo Khetan, Javed Patel, Charles Huang and
Phillip Wallace. The Complaint in the Derivative Lawsuit alleges claims, which
are predicated upon the Class Action Lawsuits, seeking damages, contribution,
indemnification and equitable relief. Although the Company is unable at this
time to assess the probable outcome of the Derivative Lawsuit or the materiality
of the risk of loss in connection therewith (given that the Complaint does not
allege damages with any particularity), the Company believes that the Complaint
filed therein is deficient.
Item 5. Other Information
The Company has provided information to the Securities and Exchange
Commission in connection with what the Company understands to be the
Commission's investigation, pursuant to a Formal Order of Investigation, into
trading in the Company's stock in January 1998.
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
Exhibit 27. -- Financial Data Schedule
(b) Reports on Form 8-K during the quarter ended September 27, 1998.
The Company did not file any reports on Form 8-K during the quarter
ended September 27, 1998.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANADIGICS, INC.
By: /s/ John F. Lyons
------------------
John F. Lyons
Senior Vice President
and Chief Financial Officer
Dated: October 21, 1998
18
<PAGE>
ANADIGICS, Inc.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Exhibit 27. Financial Data Schedule ................... 20
</TABLE>
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FOR THE THREE
MONTHS ENDED SEPTEMBER 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-27-1998
<CASH> 18,293,000
<SECURITIES> 20,286,000
<RECEIVABLES> 13,877,000
<ALLOWANCES> 0
<INVENTORY> 11,976,000
<CURRENT-ASSETS> 66,834,000
<PP&E> 116,156,000
<DEPRECIATION> 38,681,000
<TOTAL-ASSETS> 153,006,000
<CURRENT-LIABILITIES> 9,707,000
<BONDS> 0
0
0
<COMMON> 147,000
<OTHER-SE> 141,081,000
<TOTAL-LIABILITY-AND-EQUITY> 153,006,000
<SALES> 22,041,000
<TOTAL-REVENUES> 22,041,000
<CGS> 21,758,000
<TOTAL-COSTS> 21,758,000
<OTHER-EXPENSES> 8,775,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (560)
<INCOME-PRETAX> (7,932,000)
<INCOME-TAX> (2,975,000)
<INCOME-CONTINUING> (4,957,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,957,000)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
