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ANADIGICS INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) OVERVIEW ANADIGICS, Inc. (we or the Company) is a global leader in the design and manufacture of radio frequency semiconductor solutions for cellular, WiFi, wireless infrastructure and CATV applications. Our product portfolio includes power amplifiers, FEICs, FEMs, and line amplifiers. Our cellular power amplifiers and FEMs enable mobile handsets, smartphones, tablets, notebooks, datacards, automotive, M2M, and industrial devices to access 3G and 4G wireless networks utilizing international standards, such as LTE, HSPA, WCDMA, EVDO, CDMA, and WiMAX. Our WiFi FEICs and power amplifiers enable wireless LAN connectivity for mobile, multimedia and infrastructure devices, such as smartphones, tablets, notebooks, televisions, set-top boxes, modems, routers and access points, optimizing the latest WiFi standards, including 802.11ac and 802.11n. Our infrastructure solutions include both wireless infrastructure and CATV products. Our wireless infrastructure power amplifiers enable 3G and 4G small-cell base stations. Our CATV line amplifiers and other RF products provide the critical link in CATV network infrastructure devices, as well as set-top boxes and cable modems. We believe that our solutions are well positioned to address these market dynamics and will enable us to deliver value in the cellular, WiFi, wireless infrastructure and CTAV communications markets. Our business strategy is focused on enabling communications connectivity with RF solutions that offer greater performance and integration to enhance the user's experience. We are a customer-centric organization that works closely with leading equipment manufacturers, such as OEMs and ODMs. We also partner with industry-leading chipset providers where our functionality enhances their reference designs. These relationships enable us to provide targeted applications expertise that helps reduce time-to-market and design new products that target emerging trends in the market. We are focused on the design and manufacture of differentiated RF semiconductors. Many of our products leverage our patented InGaP-Plus™ and proven MESFET technologies. InGaP-Plus provides greater flexibility to our engineers and product designers. This technology enables them to develop unique architectures that combine HBT amplifying structures and pHEMT RF switches on the same die. We believe that our products cost-effectively enhance RF performance, reliability, and overall functionality. Our six-inch diameter GaAs fab located at our corporate headquarters in Warren, New Jersey, has been operational since 1999. In addition, we have a strategic foundry agreement with WIN Semiconductors of Taiwan to supplement our existing wafer fabrication capability and allow for additional and flexible capacity without the requisite capital investment. During the first quarter of 2014, the Company implemented a workforce reduction that eliminated approximately 40 positions throughout the Company which resulted in the Company recording a restructuring charge of $1.45 million. The workforce reduction, along with other cost reduction actions were initiated with a view to achieving annualized savings of approximately $10 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 competitive or 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. 14-------------------------------------------------------------------------------- Index RESULTS OF OPERATIONS The following table sets forth unaudited consolidated statements of operations data as a percent of net sales for the periods presented: Three months ended March 29, 2014 March 30, 2013 Net sales 100.0 % 100.0 % Cost of sales 90.2 % 102.7 % Gross margin 9.8 % (2.7 )%Research and development expenses 36.9 % 39.0 % Selling and administrative expenses 22.0 % 23.7 %Restructuring charges 6.2 % 7.3 % Operating loss (55.3 )% (72.7 )% Interest income - 0.4 % Interest expense (0.2 )% - Other income, net 5.0 % 0.2 % Net loss (50.5 )% (72.1 )% FIRST QUARTER 2014 (ENDED MARCH 29, 2014) COMPARED TO FIRST QUARTER 2013 (ENDED MARCH 30, 2013) NET SALES. Net sales decreased 11.8% during the first quarter of 2014 to $23.3 million from $26.4 million in the first quarter of 2013. The net sales decrease primarily resulted from a decrease in market demand in the cellular wireless device market. Sales of cellular wireless products decreased 21.4% during the first quarter of 2014 to $12.8 million from $16.3 million in the first quarter of 2013. The decrease in sales was primarily due to decreased demand in the cellular CDMA device market. Sales of infrastructure products increased 2.0% during the first quarter of 2014 to $5.4 million from $5.3 million in the first quarter of 2013. The increase in sales was primarily due to increased demand in infrastructure applications. Sales of WiFi products increased 5.7% during the first quarter of 2014 to $5.1 million from $4.8 million in the first quarter of 2013. The increase in sales was primarily due to increased market demand for our latest generation front-end modules. GROSS MARGIN. Gross margin during the first quarter of 2014 increased to 9.8% of net sales from (2.7)% of net sales in the first quarter of 2013. The increase in gross margin in the first quarter of 2014 was primarily due to ongoing product and manufacturing cost improvements as well as cost savings achieved from restructuring. RESEARCH AND DEVELOPMENT. Company-sponsored research and development expenses decreased 16.6% to $8.6 million during the first quarter of 2014 from $10.3 million during the first quarter of 2013. The decrease was primarily due to cost savings achieved from restructuring and improved focus on our key projects spending. SELLING AND ADMINISTRATIVE. Selling and administrative expenses decreased 17.9% to $5.1 million during the first quarter of 2014 from $6.2 million during the first quarter of 2013. The decrease was primarily due to savings achieved from restructuring and ongoing cost reduction actions. RESTRUCTURING CHARGE. During the first quarter of 2014, we implemented a workforce reduction that eliminated approximately 40 positions throughout the Company which resulted in the Company recording a restructuring charge of approximately $1.5 million for severance, related benefits and other costs. During the first quarter of 2013, we implemented a workforce reduction that eliminated approximately 25 positions throughout the Company which resulted in the Company recording a restructuring charge of approximately $1.9 million for severance, related benefits and other costs. OTHER INCOME, NET. During the first quarter of 2014, other income of $1.2 million was primarily from redemption proceeds received on one of our auction rate securities (ARS) which was in excess of our amortized cost basis. 15-------------------------------------------------------------------------------- Index LIQUIDITY AND CAPITAL RESOURCES As of March 29, 2014, we had $13.6 million in cash and cash equivalents and $0.5 million in marketable securities. Operating activities used $9.9 million in cash during the three month period ended March 29, 2014, primarily as a result of our operating results adjusted for non-cash expenses, along with $2.2 million of cash used to fund working capital. Investing activities provided $2.6 million of cash during the three month period ended March 29, 2014 consisting principally of net sales of marketable securities of $3.0 million, partly offset by purchases of fixed assets of $0.4 million. We had unconditional purchase obligations at March 29, 2014 of approximately $1.7 million. We believe that our existing sources of capital, including our existing cash and marketable security, 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. There can be no assurance that such additional financing would be available on satisfactory terms. 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 to the FASB's Accounting Standards Codification. In April 2014, the FASB issued amendments to guidance for reporting discontinued operations and disposals of components of an entity. The amended guidance requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity's financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. The amendments are effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014 (early adoption is permitted only for disposals that have not been previously reported). Adoption of the amended guidance is not expected 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, 2013. 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. |