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ANAD > SEC Filings for ANAD > Form 10-Q on 6-Nov-2012All Recent SEC Filings

Show all filings for ANADIGICS INC

Form 10-Q for ANADIGICS INC


6-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

ANADIGICS, Inc. ("we" or the "Company") is a leading provider of semiconductor solutions in the growing broadband wireless and wireline communications markets. Our products include radio frequency (RF) power amplifiers (PAs), tuner integrated circuits, active splitters, line amplifiers and other components, which can be sold individually or packaged as integrated front end modules (FEMs). We believe that we are well-positioned to capitalize on the high growth and convergence occurring in the voice, data and video segments of the broadband wireless and wireline communications markets.

Our RF power amplifier products enable mobile handsets, datacards and other devices to access third and fourth generation (3G and 4G) wireless networks utilizing international standards including LTE (Long Term Evolution), WCDMA (Wideband Code Division Multiple Access), HSPA (High Speed Packet Access), CDMA (Code Division Multiple Access) EVDO (Evolution Data Optimized) and WiMAX (Worldwide Interoperability for Microwave Access). Our WiFi products enable connectivity for wireless mobile devices and other computing devices. Our CATV (Cable Television) products enable fixed-point, wireline broadband communications over CATV infrastructure as well as cable modem and set-top box products. Our Wireless infrastructure products support operator commitments worldwide to optimize the increasing demands for subscriber data through deployment of new small-cell base stations as part of a heterogeneous network.

Our business strategy focuses on enabling anytime, anywhere connectivity which enhances the consumer's broadband and wireless experience. We develop RF front end solutions for communications equipment manufacturers and we partner with industry-leading wireless and wireline chipset providers who incorporate our solutions into their reference designs. Our solutions cost-effectively enhance communications devices by improving RF performance, efficiency, reliability, time-to-market and integration while reducing the size, weight and cost of these products.

We leverage our technological knowledge and advantages to be a leading technology-enabler via innovative semiconductor solutions for broadband wireless and wireline communications. We believe our patented InGaP-plus technology, which combines bipolar amplifying structures and pHEMT RF switches on the same die, coupled with our three level metal interconnect process provides us with a competitive advantage in the marketplace. Additionally, we believe our ProEficient™ power amplifiers, with high efficiency at all output power levels, provide our customers a competitive advantage by delivering performance required for 3G and 4G devices with lower battery power consumption and longer use time than comparable products in these markets.

Revenue during the third quarter of 2012 increased in comparison to the second quarter of 2012 principally due to increased demand for our CDMA wireless products.

During the first nine months of 2012, we reduced our workforce by approximately 40 positions throughout the Company, resulting in restructuring charges of $2.3 million. We expect the annualized cost savings from these restructurings to approximate $5.3 million.

We believe our markets are, and will continue to remain, competitive which could result in continued quarterly volatility in our net sales. This competition has resulted in, and is expected over the long-term to continue to result in, declining average selling prices for our products and increased challenges in maintaining or increasing market share.

We were incorporated in Delaware in 1984. Our corporate headquarters are located at 141 Mt. Bethel Road, Warren, New Jersey 07059, and our telephone number at that address is 908-668-5000.


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RESULTS OF OPERATIONS

The following table sets forth unaudited consolidated statements of operations
data as a percent of net sales for the periods presented:

                                                   Three months ended                      Nine months ended
                                            September 29,         October 1,        September 29,        October 1,
                                                2012                 2011               2012                2011

Net sales                                            100.0 %            100.0 %              100.0 %           100.0 %
Cost of sales                                        100.6 %             81.1 %              100.8 %            77.9 %

Gross margin                                          (0.6 )%            18.9 %               (0.8 )%           22.1 %
Research and development expenses                     37.8 %             26.7 %               41.1 %            30.0 %
Selling and administrative expenses                   19.5 %             19.8 %               22.9 %            20.7 %
Restructuring charges                                  2.1 %                -                  2.8 %             0.9 %

Operating loss                                       (60.0 )%           (27.6 )%             (67.6 )%          (29.5 )%
Interest income                                        0.4 %              0.4 %                0.5 %             0.4 %
Interest expense                                         -                  -                    -                 -
Other income, net                                      0.1 %              0.3 %                1.6 %             0.1 %

Net loss                                             (59.5 )%           (26.9 )%             (65.5 )%          (29.0 )%

NET SALES. Net sales decreased 23.1% during the third quarter of 2012 to $28.6 million from $37.3 million in the third quarter of 2011. For the nine months ended September 29, 2012, net sales were $82.2 million, a 29.4% decrease from net sales of $116.3 million for the nine months ended October 1, 2011.

Sales of integrated circuits for wireless applications decreased 24.3% during the third quarter of 2012 to $21.1 million from $27.9 million in the third quarter of 2011. For the nine months ended September 29, 2012, net sales of integrated circuits for wireless applications decreased 32.9% to $60.1 million from $89.7 million for the nine months ended October 1, 2011. The decreases in sales were primarily due to decreased demand from our former largest customer due to certain products reaching end of life and their change in chipset providers that do not utilize our power amplifiers.

Sales of integrated circuits for broadband applications decreased 19.8% during the third quarter of 2012 to $7.5 million from $9.3 million in the third quarter of 2011. For the nine months ended September 29, 2012, net sales of integrated circuits for broadband applications decreased 17.4% to $22.1 million from $26.6 million for the nine months ended October 1, 2011. The decrease in sales was primarily due to declining demand for gallium arsenide integrated circuits in set-top box applications.

GROSS MARGIN. Gross margin during the third quarter of 2012 decreased to (0.6)% of net sales from 18.9% of net sales in the third quarter of 2011. For the nine months ended September 29, 2012, gross margin decreased to (0.8)% from 22.1% for the nine months ended October 1, 2011. The decrease in gross margin was primarily due to lower production and sales volume and a concentration of fixed costs as a percent of smaller revenues. Fixed production costs include, but are not limited to, depreciation, maintenance and operations' support functions.

RESEARCH AND DEVELOPMENT. Company-sponsored research and development expenses increased 8.9% during the third quarter of 2012 to $10.8 million from $9.9 million in the third quarter of 2011, principally due to low material spending in the third quarter of 2011. Company-sponsored research and development expenses for the nine months ended September 29, 2012 decreased 3.2% to $33.7 million from $34.9 million during the nine months ended October 1, 2011. The difference was primarily due to a management separation charge of $0.8 million included in the first quarter of 2011.

SELLING AND ADMINISTRATIVE. Selling and administrative expenses decreased 24.0% to $5.6 million during the third quarter of 2012 from $7.4 million during the third quarter of 2011. Selling and administrative expenses for the nine months ended September 29, 2012 decreased 22.2% to $18.8 million from $24.1 million during the nine months ended October 1, 2011. A management separation charge of $2.1 million was included in the first quarter of 2011. The remaining decreases have resulted from the quarterly savings achieved from our ongoing cost reduction actions.

RESTRUCTURING CHARGE. During the three and nine months ended September 29, 2012, we implemented workforce reductions which eliminated approximately 10 and 40 positions, respectively, resulting in restructuring charges of $0.6 million and $2.3 million, respectively, for severance, related benefits and other costs.


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During the second quarter of 2011, we implemented workforce reductions, which eliminated approximately 40 positions, resulting in a restructuring charge of $1.0 million for severance and related benefits.

OTHER INCOME, NET. For the nine months ended September 29, 2012, other income of $1.3 million was primarily from redemption proceeds on one of our ARS in excess of our amortized cost basis.

LIQUIDITY AND CAPITAL RESOURCES

As of September 29, 2012, we had $10.3 million in cash and cash equivalents and $51.9 million in marketable securities.

Operating activities used $32.1 million in cash during the nine month period ended September 29, 2012, including $5.2 million of cash generated by reducing working capital. Investing activities provided $7.9 million of cash during the nine month period ended September 29, 2012 consisting principally of net sales of marketable securities of $10.2 million, partly offset by purchases of fixed assets of $2.4 million. Financing activities provided $1.9 million of cash proceeds received from stock option exercises.

We had unconditional purchase obligations at September 29, 2012 of approximately $2.7 million.

Within our $51.9 million in marketable securities at September 29, 2012, we held a total of $20.9 million of fixed income securities, $21.5 of U.S. government agency debt securities, $1.1 million of municipal notes, $5.6 million of auction rate securities (ARS) and $2.8 million as a former auction corporate debt security originally purchased as an ARS prior to its exchange for the underlying 30 year notes due 2037. The ARS instruments used a monthly Dutch auction process to provide liquidity on long-term financial instruments by resetting the applicable interest rate and through the reset, allowed existing investors to rollover or liquidate their holdings at par value. During 2007 and early 2008, ARS failed to auction due to sell orders exceeding buy orders and trading continues to be constrained. The funds associated with the $5.6 million failed auction securities will not be accessible until a successful auction occurs, a suitable buyer is found outside of the auction process or an issuer redeems its security. If the credit ratings of the security issuers deteriorate and any decline in market value below our amortized cost basis is determined to be other-than-temporary, we would be required to adjust the carrying value of the investment through an additional impairment charge.

We anticipate selling the existing and former-auction corporate debt securities prior to a recovery in valuation. We will continue to monitor and evaluate these investments for impairment and for short term classification purposes. We may not be able to access cash by selling the aforementioned auction rate debt or preferred securities without the loss of principal until a buyer is located, a future auction for these investments is successful, they are redeemed by their issuers or they mature. If we are unable to sell these securities in the market or they are not redeemed, then we may be required to hold them to maturity or in perpetuity for the preferred ARS. Based on our ability to access our cash, our expected operating cash flows, and our other sources of cash, we do not anticipate that the potential illiquidity of these investments will affect our ability to execute our current business plan.

We believe that our existing sources of capital, including our existing cash and marketable securities, will be adequate to satisfy operational needs and anticipated capital needs for at least the next twelve months. We may elect to finance all or part of our future capital requirements through additional equity or debt financing.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Changes to accounting principles generally accepted in the United States of America are established by the Financial Accounting Standards Board (FASB) in the form of Accounting Standards Updates (ASU's) to the FASB's Accounting Standards Codification.

In May 2011, the FASB issued guidance on fair value measurements and disclosure requirements. The guidance provides a consistent definition of fair value to ensure fair value measurement and disclosure requirements are similar between U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards. This guidance is effective for interim and annual periods beginning on or after December 15, 2011. Adoption of this guidance did not have a material impact on our consolidated financial statements.

In June and December 2011, the FASB issued guidance on the presentation of other comprehensive income (OCI). This guidance eliminates the option to present the components of OCI as part of the statement of changes in stockholders' equity and also requires presentation of reclassification adjustments from OCI to net income on the face of the financial statements. This guidance is effective for fiscal years and interim periods beginning after December 15, 2011, with the exception of the requirement to present reclassification adjustments from OCI to net income on the face of the financial statements, which has been deferred pending further deliberation by the FASB. Adoption of this guidance did not have a material impact on our consolidated financial statements.


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In December 2011, the FASB and International Accounting Standards Board ("IASB") issued joint requirements related to balance sheet disclosures related to offsetting assets and liabilities. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards ("IFRS"). Disclosures are required to be retrospective for all comparative periods presented. We are required to adopt this standard for the first quarter of 2013. We do not expect this accounting standard to have a material impact on our condensed consolidated financial statements.

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains projections and other forward-looking statements (as that term is defined in the Securities Exchange Act of 1934, as amended). These projections and forward-looking statements reflect the Company's current views with respect to future events and financial performance and can generally be identified as such because the context of the statement will include words such as "believe", "anticipate", "expect", or words of similar import. Similarly, statements that describe our future plans, objectives, estimates or goals are forward-looking statements. No assurances can be given, however, that these events will occur or that these projections will be achieved, and actual results and developments could differ materially from those projected as a result of certain factors. Such factors include, but are not limited to, those risk factors listed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and in this quarterly report on Form 10-Q. The Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

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