<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 OCTOBER 3, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO
____________.
Commission File No. 0-25662
ANADIGICS, Inc.
------------------------------------------------------
(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 (R)
-------------------
YOUR GAAS IC SOURCE
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
22, 1999 WAS 15,105,736.
<PAGE>
INDEX
ANADIGICS, Inc.
Part. I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - October 3,
1999 and December 31, 1998.
Condensed consolidated statements of operations
and comprehensive income (loss) - Three and nine
months ended October 3, 1999 and September 27,
1998.
Condensed consolidated statements of cash flows -
Nine months ended October 3, 1999 and September
27, 1998.
Notes to condensed consolidated financial
statements - October 3, 1999.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Part II. Other Information
Item 1. Legal Proceedings
Item 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>
OCTOBER 3, 1999 DECEMBER 31, 1998
--------------- -----------------
(UNAUDITED) (NOTE 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,868 $ 23,987
Marketable securities 16,486 16,923
Accounts receivable, net 23,518 11,848
Inventory 10,387 8,729
Prepaid expenses and other current assets 4,528 2,531
Insurance settlement receivable 5,325 --
Deferred taxes 5,486 4,345
--------- ---------
Total current assets 86,598 68,363
Marketable securities 6,727 1,486
Property and equipment:
Equipment and furniture 109,763 71,625
Leasehold improvements 27,453 15,717
Projects in process 1,460 34,286
Less accumulated depreciation and amortization 60,331 44,199
--------- ---------
78,345 77,429
Other assets 1,655 865
Deferred taxes 5,955 5,955
--------- ---------
Total assets $ 179,280 $ 154,098
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 12,423 $ 6,138
Accrued litigation settlement costs 11,876 --
Accrued liabilities 6,202 2,306
Accrued restructuring costs 1,000 1,567
Current maturities of long-term debt 1,000 1,000
Current maturities of capital lease obligations 164 229
--------- ---------
Total current liabilities 32,665 11,240
Capital lease obligations, less current portion 67 183
Other long-term liabilities 1,354 868
Long-term debt, less current portion 3,250 4,000
--------- ---------
Total liabilities 37,336 16,291
Stockholders' equity
Common stock, $0.01 par value, 68,000,000 shares
authorized, 15,110,741 and 14,738,356 issued
and outstanding at October 3, 1999 and
December 31, 1998, respectively 151 147
Additional paid-in capital 166,243 160,215
Accumulated deficit (24,395) (22,598)
Accumulated other comprehensive income (loss) (55) 43
--------- ---------
Total stockholders' equity 141,944 137,807
--------- ---------
Total liabilities and stockholders' equity $ 179,280 $ 154,098
========= =========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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
------------------ ------------------
OCT. 3, 1999 SEPT. 27, 1998 OCT. 3, 1999 SEPT. 27, 1998
------------ -------------- ------------ --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 35,460 $ 22,041 $ 91,042 $ 63,501
Cost of sales 18,862 21,758 55,011 48,391
------------ ------------ ------------ ------------
Gross profit 16,598 283 36,031 15,110
Research and development expenses 8,293 4,334 20,260 14,084
Selling and administrative expenses 5,091 3,084 13,834 9,489
Restructuring charge (441) 1,357 (441) 2,457
------------ ------------ ------------ ------------
Operating income (loss) 3,655 (8,492) 2,378 (10,920)
Interest income, net 503 560 1,497 1,785
Provision for litigation settlement -- -- 6,925 --
------------ ------------ ------------ ------------
Income (loss) before income taxes 4,158 (7,932) (3,050) (9,135)
Provision (benefit) for income taxes 1,413 (2,975) (1,253) (3,426)
------------ ------------ ------------ ------------
Net income (loss) $ 2,745 $ (4,957) $ (1,797) $ (5,709)
============ ============ ============ ============
Basic earnings (loss) per share $ 0.18 $ (0.34) $ (0.12) $ (0.39)
============ ============ ============ ============
Weighted average common
shares outstanding 14,991,987 14,734,430 14,876,401 14,719,025
============ ============ ============ ============
Diluted earnings (loss) per share $ 0.16 $ (0.34) $ (0.12) $ (0.39)
============ ============ ============ ============
Weighted average common and
dilutive securities outstanding 16,891,326 14,734,430 14,876,401 14,719,025
============ ============ ============ ============
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
ANADIGICS, INC.
(Amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ ------------------
OCT. 3, 1999 SEPT. 27, 1998 OCT. 3, 1999 SEPT. 27, 1998
------------ -------------- ------------ --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income (loss) $ 2,745 $(4,957) $(1,797) $(5,709)
Unrealized gain (loss) on
marketable securities (10) 57 (98) 36
------- ------- ------- -------
Comprehensive
income (loss) $ 2,735 $(4,900) $(1,895) $(5,673)
======= ======= ======= =======
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
ANADIGICS, INC.
(Amounts in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
OCT. 3, 1999 SEPT. 27, 1998
------------ --------------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,797) $ (5,709)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 15,890 8,387
Amortization 242 574
Deferred taxes (1,141) (3,424)
Provision for litigation settlement 6,551
Impairment of long-lived assets (non-cash) 1,357
Write-down of inventory 6,603
Changes in operating assets and liabilities
Accounts receivable (11,670) 4,122
Inventory (1,658) 1,099
Prepaid expenses and other current assets (1,997) (879)
Other assets (790) 60
Accounts payable 6,285 (4,998)
Accrued liabilities and other long-term liabilities 3,815 (2,091)
Income taxes payable -- (2,439)
-------- --------
Net cash provided by (used in) operating activities 13,730 2,662
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (17,048) (15,544)
Purchase of marketable securities (22,667) (19,714)
Proceeds from sale of marketable securities 17,863 25,055
-------- --------
Net cash used in investing activities (21,852) (10,203)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 5,934 474
Repayment of long-term debt (750) --
Payment of capital lease obligations (181) (315)
-------- --------
Net cash provided by financing activities 5,003 159
-------- --------
Net decrease in cash and cash equivalents (3,119) (7,382)
Cash and cash equivalents at beginning of period 23,987 25,675
-------- --------
Cash and cash equivalents at end of period $ 20,868 $ 18,293
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 285 $ 52
======== ========
Taxes paid $ 225 $ 3,138
======== ========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
ANADIGICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - OCTOBER 3,
1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited, condensed, consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended October 3,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999.
The condensed balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
The condensed, consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, Broadcast and Wireless Investors,
Inc. and ANADIGICS Foreign Sales Corporation. All significant intercompany
accounts have been eliminated in consolidation.
2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories consist of the following:
<TABLE>
<CAPTION>
OCT. 3, 1999 DEC. 31, 1998
------------ -------------
<S> <C> <C>
Raw materials $ 1,568 $ 784
Work in process 6,966 3,662
Finished goods 1,853 4,283
--------- ---------
$ 10,387 $ 8,729
========= =========
</TABLE>
6
<PAGE>
ANADIGICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - OCTOBER 3,
1999 (CONTINUED)
3. EARNINGS PER SHARE
The reconciliation of shares used to calculate basic and diluted earnings
per share consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ ------------------
OCT. 3, 1999 SEPT. 27, 1998 OCT. 3, 1999 SEPT. 27, 1998
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding used to calculate
basic earnings per share 14,991,987 14,734,430 14,876,401 14,719,025
Net effect of diluted stock options -
based upon the treasury stock
method using an average market
price 1,899,339 - * - * - *
---------- ---------- ---------- ----------
Weighted average common and
dilutive securities outstanding
used to calculate diluted earnings
per share 16,891,326 14,734,430 14,876,401 14,719,025
========== ========== ========== ==========
</TABLE>
* - The dilutive stock options are not included as their effect is
anti-dilutive.
4. SEGMENT INFORMATION
REVENUES BY APPLICATION
The Company classifies its revenues based upon the end application of
the product in which its integrated circuits are used. Net sales by end
application are regularly reviewed by the chief operating decision maker and are
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ ------------------
OCT. 3, 1999 SEPT. 27, 1998 OCT. 3, 1999 SEPT. 27, 1998
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Cellular and PCS Applications $15,715 $ 8,359 $38,205 $24,847
Cable and Broadcast Applications 12,726 8,552 33,231 24,910
Fiber Optic Applications 6,997 5,049 19,483 13,238
Engineering service sales 22 81 123 506
------- ------- ------- -------
Total $35,460 $22,041 $91,042 $63,501
======= ======= ======= =======
</TABLE>
GEOGRAPHIC INFORMATION
The Company primarily sells to four geographic regions; Europe, Asia,
North America, and South America. The geographic region is determined by the
destination of the shipped product. Net sales to each of the four geographic
regions are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ ------------------
OCT. 3, 1999 SEPT. 27, 1998 OCT. 3, 1999 SEPT. 27, 1998
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Europe $ 8,175 $ 4,774 $21,919 $16,536
Asia 9,676 5,775 24,332 17,631
North America (primarily U.S.A) 13,476 9,907 34,975 26,262
South America 4,133 1,585 9,816 3,072
------- ------- ------- -------
Total $35,460 $22,041 $91,042 $63,501
======= ======= ======= =======
</TABLE>
7
<PAGE>
ANADIGICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - OCTOBER 3,
1999 (CONTINUED)
5. LEGAL PROCEEDINGS
In March and April 1998, seven proposed class action lawsuits (collectively
the "Class Action Lawsuits") were filed against the Company and certain of its
officers and directors in the United States District Court for the District of
New Jersey. The Complaints filed in the Class Action Lawsuits claim alleged
common law fraud and negligent misrepresentation. The Complaints alleged that,
as a result of certain material misstatements and omissions made by the Company
in connection with its business, the price of the Company's common stock was
artificially inflated during the proposed class periods (July 17, 1997 through
January 30, 1998).
On December 20, 1998, the United States District Court for the District of
New Jersey consolidated the Class Action Lawsuits into one action, captioned In
re Anadigics, Inc. Securities Litigation, No. 98-CV-917 (the "Consolidated Class
Action Lawsuit"), and appointed Lead Plaintiffs and Lead Plaintiffs' Counsel.
On or about August 3, 1998, a shareholder's derivative lawsuit ("Derivative
Lawsuit") was filed in the United States District Court for the District of New
Jersey against the Company (as nominal defendant) and certain of its officers
and directors. The Complaint in the Derivative Lawsuit alleged claims, which are
predicated upon the Class Action Lawsuits, seeking damages, contribution,
indemnification and equitable relief.
On July 8, 1999, the Company and attorneys representing the plaintiffs in
the lawsuits described above entered into a memo of understanding setting forth
proposed settlement terms. Accordingly, the Company expects that all of the
lawsuits described above will be settled for a total payment of $11.8 million.
In connection with such settlement, the Company has entered into separate
written agreements with its insurance companies pursuant to which such insurance
companies will pay the Company an aggregate of $5.3 million no later than ten
days after final court approval of the settlement. The proposed settlement is
subject to various conditions including the entering into of a definitive
settlement agreement and final court approval.
6. SUBSEQUENT EVENT
On November 1, 1999, the Company received proceeds of $116.3 million (net
of related expenses) from a public offering (the "Offering") of 3,539,377 shares
of common stock. The Company intends to use the net proceeds from the Offering
for capital expenditures, working capital, and other general corporate purposes.
The Company may use all or a portion of the net proceeds to acquire
complementary businesses if the opportunity arises, however it currently has no
commitments or agreements with respect to any such transactions.
8
<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:
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ ------------------
OCT. 3, 1999 SEPT. 27, 1998 OCT. 3, 1999 SEPT. 27, 1998
------------ -------------- ------------ --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 53.2% 98.7% 60.4% 76.2%
----- ----- ----- -----
Gross profit 46.8% 1.3% 39.6% 23.8%
Research and development expenses 23.4% 19.7% 22.3% 22.2%
Selling and administrative expenses 14.4% 14.0% 15.2% 15.0%
Restructuring charge (1.2%) 6.1% (0.5%) 3.8%
----- ----- ----- -----
Operating income (loss) 10.2% (38.5%) 2.6% (17.2%)
Interest income, net 1.4% 2.5% 1.6% 2.8%
Provision for litigation settlement -- -- 7.6% --
----- ----- ----- -----
Income (loss) before income taxes 11.6% (36.0%) (3.4%) (14.4%)
Provision (benefit) for income taxes 4.3% (13.5%) (1.4%) (5.4%)
----- ----- ----- -----
Net income (loss) 7.3% (22.5%) (2.0%) (9.0%)
===== ===== ===== =====
</TABLE>
THIRD QUARTER 1999 (Ended Oct. 3, 1999) COMPARED TO THIRD QUARTER 1998 (Ended
Sept. 27, 1998)
NET SALES. Net sales during the third quarter of 1999 increased 61% to
$35.5 million from $22.0 million in the third quarter of 1998. Sales of
integrated circuits for cellular and PCS applications increased 88% during the
third quarter of 1999 to $15.7 million from $8.3 million in the third quarter of
1998 as demand for the Company's dual-band integrated circuit power amplifiers
increased.
Sales of integrated circuits for cable and broadcast applications
increased 49% during the third quarter of 1999 to $12.8 million from $8.6
million in the third quarter of 1998. The $8.6 million of sales in the third
quarter of 1998 included $0.6 million of sales of low noise block ("LNB")
converter integrated circuits, which the Company ceased production of during the
third quarter of 1998. The increase in sales of integrated circuits for cable
and broadcast applications during the third quarter of 1999 was due to increased
demand for the Company's integrated circuit chip set, which is used in digital
set-top converters and cable modems, and the Company's integrated circuit line
amplifier, which is used as a repeater in cable television distribution
networks.
Sales of integrated circuits for fiber optic telecommunications and
data communications ("fiber optic") applications increased 39% during the third
quarter of 1999 to $7.0 million from $5.0 million in the third quarter of 1998.
The increase was primarily due to an increase in demand for transimpedence
amplifiers for Synchronous Optical Network (SONET) long-haul fiber optic
telecommunications applications and for high speed gigabit ethernet data
communications applications.
The Company expects increased competition in its lower data rate (SONET
OC-12 and OC-24) fiber optic transipedence amplifier applications. Increased
competition could result in decreased prices for the Company's integrated
circuits and/or reduced demand for its products. Sales of OC-12 and OC-24 SONET
transimpedence amplifiers were approximately $2.5 million during the third
quarter of 1999.
9
<PAGE>
Engineering service sales, which reflect customers' contributions to
research and development, were $0.1 million during the third quarter of 1998.
Generally, selling prices for same product sales were lower during
the third quarter of 1999 compared to the third quarter of 1998.
GROSS MARGIN. Gross margin during the third quarter of 1999 increased
to 46.8% from 1.3% in the third quarter of 1998. (Gross margin during the third
quarter of 1998 included a special charge for inventory reserves of $6.6
million. Substantially all of the $6.6 million of reserved inventory was
scrapped prior to December 31, 1998.) Excluding the special charge for inventory
reserves of $6.6 million, gross margin during the third quarter of 1998 was
31.2%). The special charge for inventory reserves (which were primarily
work-in-process and finished goods) recorded during the third quarter of 1998
consisted of the following: $3.4 million of older generation, single-band power
amplifier integrated circuits used in cellular applications, $2.1 million of LNB
converter integrated circuits used in direct broadcast satellite applications,
and $1.1 million of older generation line amplifiers used in cable television
applications. In 1998, the Company was aggressively attempting to sell these
integrated circuits in certain markets (primarily secondary communications
markets in Asia). Based upon the Company's limited success in selling these
integrated circuits and upon its reevaluation of the potential markets for these
products, the Company curtailed its efforts to sell these products in the third
quarter of 1998.
The increase in gross margin during the third quarter of 1999 to 46.8%
from 31.2% (excluding the special charge for inventory reserves of $6.6 million)
in the third quarter of 1998 resulted from leveraging fixed costs over higher
sales levels during the third quarter of 1999 and manufacturing cost structure
improvements.
RESEARCH AND DEVELOPMENT. Company sponsored research and development
expense increased 91% during the third quarter of 1999 to $8.3 million from $4.3
million during the third quarter of 1998. The increase was primarily
attributable to: (1) increased research and development of integrated circuits
for cellular and PCS, CATV, and fiber optic applications, and (2) increased
research and development of new process technologies, particularly
heterojunction bi-polar transistor ("HBT") process technology for integrated
circuits used in cellular and PCS, and fiber optic applications. As a percentage
of sales, research and development expense increased to 23.4% in the third
quarter of 1999 from 19.7% in the third quarter of 1998.
The Company expects research and development expense to continue to
increase from the level incurred during the third quarter of 1999, as the
Company increases its investment in HBT process technology.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses
increased 65% during the third quarter of 1999 to $5.1 million from $3.1 million
in the third quarter of 1998. The increase in selling and administrative
expenses during the third quarter of 1999 was primarily due to increases in
performance-related compensation costs, recruiting and relocation expenses, and
consulting fees. As a percentage of sales, selling and administrative expenses
increased to 14.4% in the third quarter of 1999 from 14.0% in the third quarter
of 1998.
RESTRUCTURING CHARGE. During the third quarter of 1999, the Company
reversed $0.4 million of a manufacturing restructuring charge recorded during
the fourth quarter of 1998.
The Company recorded a restructuring charge of $1.4 million during the
third quarter of 1998. The restructuring charge consisted of write-downs of $0.5
million on equipment used to produce LNB converter integrated circuits, and $0.9
million for impairment of software. The Company evaluated the on-going value of
certain assets. Based upon a plan to dispose of these assets, which had no sales
value, we recorded an impairment loss of $1.4 million. These assets were
disposed during 1999.
10
<PAGE>
INTEREST INCOME, NET. Interest income, net decreased 10% to $0.5
million during the third quarter of 1999 from $0.6 million during the third
quarter of 1998.
PROVISION (BENEFIT) FOR INCOME TAXES. The provision for income taxes
during the third quarter of 1999 was recorded at 34% of the income before income
taxes, which was based upon an estimated annual effective tax rate of 17.0% of
the income before income taxes.
NINE MONTHS 1999 (Ended Oct. 3, 1999) COMPARED TO NINE MONTHS 1998 (Ended Sept.
27, 1998)
NET SALES. Net sales during the nine month period ended October 3, 1999
increased 43% to $91.0 million from $63.5 million in the nine month period ended
September 27, 1998. Sales of integrated circuits for cellular and PCS
applications increased 54% during the nine month period ended October 3, 1999 to
$38.2 million from $24.9 million in the nine month period ended September 27,
1998 as demand for the Company's dual-band power amplifiers increased.
Sales of integrated circuits for cable and broadcast applications
increased 33% during the nine month period ended October 3, 1999 to $33.2
million from $24.9 million in the nine month period ended September 27, 1998.
Included in the sales of integrated circuits for cable and broadcast
applications are sales of LNB converter integrated circuits (which the Company
ceased production of during the third quarter of 1998) of $0.7 million and $3.4
million during the nine month period ended October 3, 1999 and June 28, 1998,
respectively. The increase in sales of integrated circuits for cable and
broadcast applications during the nine month period ended October 3, 1999 was
due to increased demand for the Company's integrated circuit chip set, which are
used in digital set-top converters and cable modems, and the Company's
integrated circuit line amplifier which are used as a repeater in hybrid cable
television distribution networks.
Sales of integrated circuits for fiber optic telecommunication and data
communication applications increased 47% during the nine month period ended
October 3, 1999 to $19.5 million from $13.2 million in the nine month period
ended September 27, 1998 as demand for transimpedence amplifiers for Synchronous
Optical Network (SONET) long-haul fiber optic telecommunications applications
and for high speed gigabit ethernet data communications applications increased.
Engineering service sales, which reflect customers' contributions to
research and development, decreased $0.4 million during the nine month period
ended October 3, 1999 to $0.1 million from $0.5 million in the nine month period
ended September 27, 1998.
Generally, selling prices for same product sales were lower during the
nine month period ended October 3, 1999 compared to the nine month period ended
September 27, 1998.
GROSS MARGIN. Gross margin during the nine month period ended October
3, 1999 increased to 39.6% from 23.8% in the nine month period ended September
27, 1998. Excluding accelerated depreciation expense of $5.3 million, gross
margin was 45.4% during the first nine months of 1999. The accelerated
depreciation expense was due to a reduction in the useful lives of the
fabrication facility equipment and leasehold improvements with original lives
ranging from five to twenty years that were reduced to a life of nine months
beginning October 1, 1998. The reduction in estimated useful life followed our
October 1998 decision to close our four-inch wafer fabrication facility.
Excluding a special charge for inventory reserves of $6.6 million, gross margin
was 34.2% during the first nine months of 1999.
The increase in gross margin during the nine month period ended October
3, 1999 to 45.4% (excluding the accelerated depreciation) from 34.2% (excluding
the special charge inventory reserves) in the nine month period ended September
27, 1998 resulted from leveraging fixed costs over higher sales levels during
the nine month period ended October 3, 1999 and manufacturing cost structure
improvements.
11
<PAGE>
RESEARCH AND DEVELOPMENT. Company sponsored research and development
expense increased 44% during the nine month period ended October 3, 1999 to
$20.3 million from $14.1 million in the nine month period ended September 27,
1998. The increase was primarily attributable to: (1) increased research and
development of integrated circuits for cellular and PCS, CATV, and fiber optic
applications, and (2) increased research and development of new process
technologies. As a percent of sales, company funded research and development
increased to 22.3% during the nine month period ended October 3, 1999 from 22.2%
in the nine month period ended September 27, 1998.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses
increased 46% during the nine month period ended October 3, 1999 to $13.9
million from $9.5 million in the nine month period ended September 27, 1998. The
increase was due in part to increases in performance-related compensation costs,
recruiting and relocation costs, consulting fees, and in costs related to the
Company's marketing activities. As a percentage of sales, selling and
administrative expenses increased to 15.2% during the nine month period ended
October 3, 1999 from 14.9% in the nine month period ended September 27, 1998.
RESTRUCTURING CHARGE. The Company recorded a restructuring charge of
$2.5 million during the nine month period ended September 27, 1998. The
restructuring charge consisted of $1.1 million for a work force reduction of 100
employees, and write-downs of $0.5 million on equipment used to produce LNB
converter integrated circuits, and $0.9 million for impairment of software.
The work force reduction charge primarily consisted of severance pay,
extended medical coverage, and outplacement service costs.
INTEREST INCOME, NET. Interest income, net decreased 16% during the
nine month period ended October 3, 1999 to $1.5 million from $1.8 million in the
nine month period ended September 27, 1998.
PROVISION FOR LITIGATION SETTLEMENT. The Company recorded a provision
for litigation settlement of $6.9 million during the second quarter of 1999, as
it entered into a memo of understanding setting forth proposed settlement terms.
The $6.9 million provision consists of a settlement payment of $11.8, of which
$5.3 million is offset by insurance proceeds as the Company has entered into
separate written agreements with its insurance companies, and $0.4 million of
additional legal, settlement, notification and court related fees, of which $0.4
million was paid as of October 3, 1999. (See Part II - Item 1. Legal Proceedings
for additional information regarding all of the lawsuits and additional details
regarding the proposed settlement terms).
BENEFIT FOR INCOME TAXES. The benefit for income taxes during the nine
month period ended October 3, 1999 was recorded at 41% of the loss before income
taxes, which was based upon an estimated annual effective tax rate of 17.0% of
the income before income taxes.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of October 3, the Company had $20.9 million in cash and cash equivalents
and $23.2 million in marketable securities. The Company has $4.2 million
outstanding under its revolving bank credit facility as of the end of the third
quarter of 1999. The Company also has available $15.0 million under a term loan
facility as of the end of the third quarter of 1999. The term loan facility
drawdown period expires on July 1, 2001. The $4.2 million outstanding under the
revolving bank credit facility and availability under the term loan facility is
subject to a number of financial covenants. Substantially all of the assets of
the Company are pledged as security for repayments of the outstanding bank debt
plus any amounts borrowed under the term loan facility.
In connection with the $4.2 million outstanding under the bank credit
facility, the Company entered into an interest rate swap agreement, which
effectively fixes the interest rate on this debt at 7.09%. The Company concluded
that the swap effectively changed the variable interest rate characteristics to
a fixed rate for which the present value of cash flows are approximately the
same.
Net cash provided by operating activities was $13.7 million during the nine
month period ended October 3, 1999.
Net cash used in investing activities (to purchase equipment and marketable
securities) was $21.9 million during the nine month period ended October 3,
1999.
Net cash provided by financing activities was $5.0 million during the nine
month period ended October 3, 1999. Cash provided by financing activities was
primarily from the issuance of the Company's common stock from stock options
exercises during the period.
The Company expects to spend approximately $41.0 million on equipment,
furniture and fixtures, and leasehold improvements during the twelve month
period ending September 30, 2000. At October 3, 1999, the Company has committed
to purchase approximately $13.0 million of equipment, furniture and fixtures,
and leasehold improvements during the fourth quarter of 1999 and the first
quarter of 2000.
The Company believes that its current cash and cash equivalent balances
(which as of November 1, 1999 include $116.3 million, net of related expenses,
from common stock public offering), together with cash anticipated to be
generated from operations will satisfy anticipated capital needs for the next
twelve months and beyond.
13
<PAGE>
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company's comprehensive Year 2000 initiative is being managed by a
senior team of internal staff and outside consultants. The team's activities are
designed to ensure that there is no adverse effect on the Company's core
business operations and that transactions with customers, suppliers, and
financial institutions are fully supported.
Over the past year, the Company has invested in new computer hardware
and software to improve its business operations. To date we have upgraded our
critical information systems such that they are now Y2K ready. As a result of
this effort, we do not believe that any year 2000 related failures will cause a
significant interruption to our business.
The Company has also completed a comprehensive review of its equipment
and facilities. Based on this review, we do not believe that any year 2000
related failures of critical systems will result in a significant disruption to
our business.
The total cost of the Year 2000 project is estimated at $1.5 million
and is being funded through operating cash flows. Of the total project cost,
$1.0 million was for the purchase of new hardware and software, which was
capitalized. Through October 26, 1999, the Company has expensed approximately
$0.4 million, primarily for assessment of the Year 2000 issue, development of a
modification plan, and remediation efforts. The remaining $0.1 million is
expected to be incurred and expensed in November 1999.
The Company has contacted its significant suppliers and other third
party vendors with which it has a material relationship in order to determine
whether those entities have adequate plans in place to ensure their Year 2000
readiness. The Company has also reviewed public disclosures made by its material
customers in order to determine their year 2000 readiness. To date, the Company
has not identified any major issues with respect to its material customers, its
significant suppliers or other third party vendors.
We believe that a "worst case" scenario would involve third parties'
failures to address year 2000 issues. Such failures could result in, but not
limited to, any of the following:
(1) our utility services are interrupted resulting in our
inability to continue our manufacturing operations;
(2) our shipping services are interrupted preventing us from
getting our product to and from our off-shore packaging
facility and to our customers on a timely basis;
(3) our off-shore assembly contractors' operations are interrupted
resulting in our inability to obtain our packaged products on
a timely basis.
As of October 26, 1999, the Company has not developed an overall
contingency plan. It does not intend on doing so unless, as a result of ongoing
tests, it determines that contingency plans are warranted. Based on our
assessment to date and that our year 2000 mission critical systems are complete,
we believe that adequate time will be available to ensure alternatives can be
assessed, developed and implemented, if necessary prior to a year 2000 issue
having a negative impact on our operations. However, we cannot guarantee that
such contingencies, if required, will be completed on a timely basis. While the
Company believes its efforts will be adequate to address its year 2000 concerns,
there can be no guarantee that we will not experience unanticipated negative
consequences or material costs caused by undetected errors or defects in the
technology used in our internal systems or that third parties upon which we rely
will not experience similar negative consequences.
The Company's products do not have specific date functions or date
dependencies and will operate according to specifications through the year 2000
and beyond.
14
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, which is required to be adopted
in years beginning after June 15, 2000. The statement permits early adoption as
of the beginning of any fiscal quarter after its issuance. The Company expects
to adopt the new statement effective January 1, 2001. The Statement will require
the Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If a derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of the derivative will either be offset against the change in fair
value of the hedged asset, liability or firm commitment through earnings, or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company does not anticipate that the
adoption of this statement will have a significant effect on our results of
operations or financial position.
RISKS AND UNCERTAINTIES
Except for historical information contained herein, this Management's
Discussion and Analysis of Financial Condition and Results of Operation contains
forward-looking statements that involve risks and uncertainties, including, but
not limited to, order rescheduling or cancellation, changes in customer's
forecasts of product demand, timely product and process development, individual
product pricing pressure, variation in production yield, changes in estimated
product lives, difficulties in obtaining components and assembly services needed
for production of integrated circuits, change in economic conditions of the
various markets the Company serves, as well as the other risks detailed from
time to time in the Company's reports filed with the Securities and Exchange
Commission, including the report on Form 10-K for the year ended December 31,
1998 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 the Company "believes",
"anticipates", "expects", or words of similar import. Similarly, statements that
describe the Company's future plans, objectives, estimates or goals are
forward-looking statements. The cautionary statements made in this Form 10-Q
should be read as being applicable to all related forward-looking statements
wherever they appear in this Form 10-Q. Important factors that could cause
actual results and developments to be materially different from those expressed
or implied by such statements include those factors discussed herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates primarily from its
credit facility and its investments in certain available-for-sale securities. To
date, the Company has managed its exposure to changes in interest rates from its
credit facility by entering into an interest rate swap agreement which allows
the Company to convert its debt from variable to fixed interest rates. The
Company plans to continue to reduce its exposure to changes in interest rates
from its credit facility by using interest rate derivative instruments. The
Company's available-for-sale securities consist of fixed income investments
(U.S. Treasury and Agency securities and short-term commercial paper). The
Company continually monitors its exposure to changes in interest rates from its
available-for-sale securities. Accordingly, the Company believes that the
effects of changes in interest rates are limited and would not have a material
impact on its financial condition or results of operations. However, it is
possible that the Company is at risk if interest rates change in an unfavorable
direction. The magnitude of any gain or loss will be a function of the
difference between the fixed rate of the financial instrument and the market
rate and the Company's financial condition and results of operations could be
materially affected.
15
<PAGE>
ANADIGICS, Inc.
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March and April 1998, seven proposed class action lawsuits (collectively
the "Class Action Lawsuits") were filed against the Company and certain of its
officers and directors in the United States District Court for the District of
New Jersey. The Complaints filed in the Class Action Lawsuits claim alleged
common law fraud and negligent misrepresentation. The Complaints alleged that,
as a result of certain material misstatements and omissions made by the Company
in connection with its business, the price of the Company's common stock was
artificially inflated during the proposed class periods (July 17, 1997 through
January 30, 1998).
On December 20, 1998, the United States District Court for the District of
New Jersey consolidated the Class Action Lawsuits into one action, captioned In
re Anadigics, Inc. Securities Litigation, No. 98-CV-917 (the "Consolidated Class
Action Lawsuit"), and appointed Lead Plaintiffs and Lead Plaintiffs' Counsel.
On or about August 3, 1998, a shareholder's derivative lawsuit ("Derivative
Lawsuit") was filed in the United States District Court for the District of New
Jersey against the Company (as nominal defendant) and certain of its officers
and directors. The Complaint in the Derivative Lawsuit alleged claims, which are
predicated upon the Class Action Lawsuits, seeking damages, contribution,
indemnification and equitable relief.
On July 8, 1999, the Company and attorneys representing the plaintiffs in
the lawsuits described above entered into a memo of understanding setting forth
proposed settlement terms. Accordingly, the Company expects that all of the
lawsuits described above will be settled for a total payment of $11.8 million.
In connection with such settlement, the Company has entered into separate
written agreements with its insurance companies pursuant to which such insurance
companies will pay the Company an aggregate of $5.3 million no later than ten
days after final court approval of the settlement. The proposed settlement is
subject to various conditions including the entering into of a definitive
settlement agreement and final court approval.
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.
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 relating to the quarter ended October 3,
1999.
On October 25, 1999, the Company filed Form 8-K with the
Securities and Exchange Commission. Included with the Form
8-K in "Item 5 - Other Events" was the Company's earnings
release for the three month period ended October 3, 1999.
16
<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/ THOMAS C. SHIELDS
---------------------------
Thomas C. Shields
Senior Vice President
and Chief Financial Officer
Dated: November 5, 1999
17
<PAGE>
ANADIGICS, INC.
EXHIBIT INDEX
Page
----
Exhibit 27. Financial Data Schedule .................................... 19
18
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This schedule contains summary financial information extracted for the nine
month period ended October 3, 1999 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> OCT-03-1999
<CASH> 20,868,000
<SECURITIES> 16,486,000
<RECEIVABLES> 23,518,000
<ALLOWANCES> 0
<INVENTORY> 10,387,000
<CURRENT-ASSETS> 86,598,000
<PP&E> 138,676,000
<DEPRECIATION> 60,331,000
<TOTAL-ASSETS> 179,280,000
<CURRENT-LIABILITIES> 32,665,000
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<COMMON> 151,000
<OTHER-SE> 141,793,000
<TOTAL-LIABILITY-AND-EQUITY> 179,280,000
<SALES> 91,042,000
<TOTAL-REVENUES> 91,042,000
<CGS> 55,011,000
<TOTAL-COSTS> 55,011,000
<OTHER-EXPENSES> 33,653,000
<LOSS-PROVISION> (6,925,000)
<INTEREST-EXPENSE> (1,497,000)
<INCOME-PRETAX> (3,050,000)
<INCOME-TAX> (1,253,000)
<INCOME-CONTINUING> (1,797,000)
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