ITEM 1. BUSINESS.
Overview
ANADIGICS, Inc. (“we” or the “Company”) is a leading provider of semiconductor solutions in the rapidly growing broadband wireless and wireline communications markets. Our products include power amplifiers (PAs), tuner integrated circuits, active splitters, line amplifiers and other components, which can be sold individually or packaged as integrated radio frequency (RF) and front end modules. We believe that we are uniquely positioned to capitalize on the rapidly-growing voice, data and video segments of the broadband wireless and wireline communications markets. We offer third generation (3G) products that use the Wideband Code-Division Multiple Access (W-CDMA) and Enhanced Data Rates for Global System for Mobile Communication (GSM) Evolution (EDGE) standards, beyond third generation (3.5G) products that use the High Speed Down Line Packet Access (HSDPA) and High Speed Uplink Line Packet Access (HSUPA) standards, fourth generation (4G) products for Worldwide Interoperability for Microwave Access (WiMAX) and Wireless Broadband (WiBRO) systems, Wireless Fidelity (WiFi) products that use the 802.11 a/b/g and 802.11 n (draft-n, Multiple Input Multiple Output (MIMO)) standards, cable television (CATV) set-top box products, CATV infrastructure products and Fiber-To-The-Premises (FTTP) products.
Our business strategy focuses on developing RF front end solutions and partnering with industry-leading wireless chipset providers to incorporate our solutions into their reference designs. Our integrated solutions enable our customers to improve RF performance, power efficiency, reliability, time-to-market and the integration of chip components into single packages, while reducing the size, weight and cost of their products. We have established longstanding relationships with several of the industry-leading chipset suppliers and tier-one customers. For example, our relationships with Cisco Systems, Inc. (Cisco), Intel Corporation (Intel), Motorola, Inc. (Motorola) and Qualcomm Incorporated (Qualcomm) have enabled us to develop RF products used in 3G, 3.5G, 4G WiMAX, WiFi and CATV products and to be the primary supplier with respect to such partners and customers. Other leading chipset suppliers and tier-one customers with whom we have longstanding relationships include Atheros Communications, Inc. (Atheros), High Tech Computer Corp. (HTC), Huawei Technologies Co., Ltd. (Huawei), KYOCERA Corporation (Kyocera), Lenovo Group Limited (Lenovo), LG Electronics Inc. (LG Electronics), Marvell Technology Group Ltd. (Marvell), MediaTek AEI, Inc. (MediaTek), Murata Manufacturing Co., Ltd. (Murata), Novatel Wireless, Inc. (Novatel), Palm, Inc. (Palm), Research In Motion Limited (RIM), Samsung Electronics Co., Ltd. (Samsung), Sierra Wireless, Inc. (Sierra Wireless), TCL Mobile Communication Co., Ltd. (TCL), TDK Electronics Corporation (TDK), Texas Instruments Incorporated (Texas Instruments) and ZTE Corporation (ZTE).
We were incorporated in Delaware in 1984. Our corporate headquarters are located at Mt. Bethel Road, Warren, New Jersey 07059, and our telephone number at that address is 908-668-5000.
Current Trends and Developments
We believe our business is benefiting from three key factors: (1) high growth in the markets for 3G, 3.5G, 4G WiMAX, WiFi and CATV products, (2) an increased dollar content of our solutions within the products in these end markets, and (3) greater financial leverage in our business model derived from increased utilization of our production capacity and our high-margin product mix. We believe that the combination of these three factors has enabled us to outpace the overall end product unit growth in the broadband wireless and wireline communications markets. For example, additional PAs with higher performance levels and integration are required in 3G and 3.5G wireless handsets as compared to prior standards. The complexity of 3G, 3.5G and 4G designs coupled with our selection in Qualcomm’s reference designs makes it more difficult for our competitors to displace our products and allows us to capitalize on the growth in the 3G, 3.5G and 4G markets. In the WiFi market, our business is benefiting from both the continued unit growth in the overall WiFi market as well as the growing adoption of the 802.11 a/b/g and 802.11 n (draft-n, MIMO) standards, which require multiple PAs in the same chipset as compared to one PA, which was required under prior standards. We are experiencing growth in our semiconductor tuner and active splitter business as a result of the increasing popularity of cable set-top boxes that incorporate enhanced functionality such as digital video recorders (DVRs) and high definition television (HDTV) reception. In addition, we believe that digital television (DTV), television in personal computer (TV-in-PC) applications and a new generation of cable modems based on the Data Over Cable Service Interface Specification 3.0 (DOCSIS-3.0) standard will increase the addressable market for our semiconductor tuners and active splitters. We believe our infrastructure business will benefit from the launch of 1 GHz CATV products from Cisco, which we expect will drive an upgrade from the existing 870 MHz standard in the U.S., from increased demand in the European and Chinese markets for such CATV products and from optical network amplifiers used in FTTP systems such as Verizon Communication Inc.’s (Verizon) FiOS.
We continue to focus on leveraging our technological and manufacturing advantages to remain a leading supplier of semiconductor solutions for broadband wireless and wireline communications. We believe our patented InGaP-plus technology, which combines the bipolar technology of a PA (HBT PA) with the surface device technology of an RF active switch (pHEMT) on the same die, provides us with a competitive advantage in the marketplace. Additionally, we believe our InGaP-plus process and design technologies such as High Efficiency at Low Power (HELP) provide a competitive advantage by enabling us to provide PAs that consume less battery power and extend talk time for products in the 3G, 3.5G and 4G markets.
Our primary fabrication facility (fab), a state-of-the-art six-inch diameter Gallium Arsenide (GaAs) fab located at our corporate headquarters in Warren, New Jersey, has been operational since 1999. The increased utilization of our fab’s manufacturing capacity has increased our gross margins, which has provided us with greater financial leverage. We anticipate that with incremental capital expenditures our Warren, New Jersey fab will fulfill our manufacturing needs into 2009. We are actively exploring future sources of additional manufacturing capacity through the construction or acquisition of manufacturing facilities in low-cost manufacturing countries such as China, as well as pursuing relationships with foundries in Taiwan. Unlike traditional CMOS silicon fabs that have short technology lifecycles and require frequent capital investments, GaAs fabs are more similar to analog fabs that have long lifecycles and do not become quickly outdated. Our six-inch wafer fab allows us to produce more than twice the RF die per wafer compared with the four-inch wafer fabs still used by some of our competitors. We believe our strong fabrication capability and available capacity, combined with integrated product design and logistics expertise, allow us to quickly develop and manufacture products for which demand has grown.
Industry Background
Wireless 3G Market
Growth in the unit shipments of wireless handsets that use the 2.5G EDGE and 3G standards is expected to significantly outpace the growth in the overall number of wireless handset unit shipments in the next several years. According to International Data Corporation (IDC), the number of wireless handsets manufactured to these new technological standards is expected to grow from 127.4 million units shipped in 2005 to 836.0 million units by 2010, representing a 45.7% compound annual growth rate, as compared to the overall number of wireless handsets manufactured, which is expected to grow from 833.0 million units in 2005 to more than 1.3 billion units in 2010, representing a compound annual growth rate of 9.5% during the same period. As the primary PA supplier on Qualcomm's MSM SURF reference design, which is the leading design based on the HSDPA, HSUPA and the EVDO standards, we believe we are well positioned to benefit from the transition to 3G and 3.5G.
Traditionally, a single PA supported a chipset contained in a wireless handset. However, the adoption of 3G and 3.5G technologies and the deployment of 3G and 3.5G networks by telecommunications carriers have led to wireless handset designs that use multiple PAs capable of working with both older frequencies and newer multiple W-CDMA frequencies. These wireless handsets also require PAs with higher power performance specifications and levels of integration.
The key drivers of growth in the wireless handset market are:
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Deployment of 3G and 3.5G networks and services.
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New subscribers in emerging markets.
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Availability of new features and functionality driving replacements.
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Convergence of voice, data and video services.
The wireless capabilities of wireless handsets are provided primarily by a semiconductor chipset. The key components of a wireless chipset are typically a PA, transceiver and baseband. The PA boosts the transmit signal, thereby providing the necessary range and data throughput. As additional features and functionality are incorporated into wireless handsets to leverage the 3G and 3.5G broadband networks that enable streaming voice, data and video services, increasing demands are placed on the wireless handset battery, thereby reducing battery life. The high-performance PA is a critical component in the chipset as it directly impacts battery life and, consequently, available talk time. We believe our differentiated InGaP-plus process and design technologies such as HELP provide a competitive advantage by enabling us to provide PAs that consume less battery power and extend talk time. The adoption of 3G and 3.5G networks with HSDPA and HSUPA standards for voice and multimedia is a positive catalyst for our 3G and 3.5G PAs since we are the primary PA supplier on Qualcomm’s MSM SURF reference design, which is currently the leading design based on the HSDPA and HSUPA standards. 3G and 3.5G networks not only enable data and multimedia applications, but also provide for a lower cost per subscriber, and as a result are being quickly adopted by network service providers.
In addition to wireless handsets and data cards, 3G and 3.5G capabilities are also increasingly being embedded within notebook computers produced by companies such as Dell Inc. We are a leading participant in this market through the use of our technologies in the reference designs of Novatel, Option N.V., Sierra Wireless and other providers in this growing market.
4G WiMAX Market
The 4G WiMAX standard has gained momentum since 2006, as Clearwire Corporation, Intel, Motorola and Sprint Nextel Corp. have committed to launch mobile WiMAX systems in the U.S. According to IDC, worldwide unit shipments of WiMAX customer premise equipment (CPE) are expected to increase at a 175.2% compound annual growth rate from 2005 to 2010. IDC also predicts that (i) in 2008, 8% of notebook computers, or 9 million units shipped that year, (ii) in 2009, 18% of notebook computers, or 25 million units shipped that year, and (iii) in 2010, 33% of notebook computers, or 52 million units shipped that year, will be WiMAX enabled. We currently ship WiMAX PAs for point-to-point connectivity to customers such as Airspan Network, Inc. and Alvarion, Ltd. based on Intel’s reference designs, as well as WiBRO (a WiMAX standard) PAs to Samsung. We believe that our relationships with these and other leading equipment and chipset vendors have positioned us to be one of the market-leading providers of PAs in the point-to-point and mobile WiMAX markets.
Wireless Fidelity (WiFi)
As with wireless handsets, the wireless capabilities of WiFi, or wireless LAN (WLAN), networking products are provided primarily by a semiconductor chipset. A WiFi chipset typically contains a PA, radio transceiver and a digital media access controller. The PA boosts the transmit signal, thereby improving the range and data throughput. Traditionally, a single PA supported each WiFi chipset. In 2006, WiFi products for mobile computing began requiring dual-band designs which incorporate an additional PA.
Over the past few years, technology based upon the widely adopted 802.11 b specification has been replaced by the 802.11 g and dual-band 802.11 a/b/g specifications, which have become the mainstream WiFi technology. The industry is now rapidly migrating to the multi-band 802.11 n (draft-n, MIMO) standards, which require multiple PAs to operate instead of one PA. The worldwide unit shipments of multi-band 802.11 n (draft-n, MIMO) semiconductor chipsets are expected to have a 162.6% compound annual growth rate from 2005 to 2010 according to IDC. We offer a strong portfolio of differentiated products in this high-growth market. For example, we are currently the primary supplier to Intel, the leading manufacturer of WiFi chipsets for the notebook computer market, and expect to benefit from both the unit growth and increased PA content in dual-band and multi-band WiFi chips.
Not only are notebook computers increasingly being shipped with embedded WiFi functionality, but WiFi functionality is now being embedded in other consumer electronic devices such as cameras, printers, audio devices, mobile phones and gaming consoles. We are currently designed into wireless access points and printers through Broadcom and smart handheld wireless devices alongside Marvell’s chipset, and we are actively engaged in discussions to be included in the reference designs of other leading WiFi chipset providers for these applications.
Cable Set-Top Box and Cable Modem Markets
The market for CATV set-top boxes is being shaped by several key trends. Set-top boxes are incorporating advanced functionality, to leverage the convergence of voice, data and video services over the broadband network, such as DVR, HDTV, wireless internet access, interactive services, home networking and gaming. These new features are driving demand for both new and replacement set-top boxes. High-end set-top boxes with DVRs require multiple semiconductor tuners and an active splitter. As the demand for this type of high-end set-top box continues to grow, the demand for the components we manufacture increases even more rapidly, thereby outpacing the growth of the end markets into which they are sold. As a long-term supplier to Cisco and Motorola, we are well positioned to benefit from these trends. We also believe that the rollouts of DTV in China and parts of Europe, and Verizon’s FiOS in the U.S., are creating increased demand for digital set-top boxes. According to IDC, worldwide unit shipments of set-top boxes for digital cable and IPTV are expected to increase at a 29.2% compound annual growth rate from 2005 to 2010. We also believe that as the cable modem market transitions to the new DOCSIS 3.0 standard it will provide an additional opportunity for our semiconductor tuners and other components. The DOCSIS 3.0 standard uses multiple channels simultaneously to provide wider bandwidth and higher data throughput and we are developing new products for this standard.
CATV Infrastructure and FTTP
We are a leading supplier of 12V and 24V line amplifier radio frequency integrated circuits (RFICs) and drop amplifiers to the CATV infrastructure market. This market is experiencing growth globally as a result of increasing CATV infrastructure bandwidth requirements, the need of cable service providers to offer converged voice, data and video services over their broadband networks and the increased deployment of CATV fiber nodes, LAN, MAN and SAN. We are participating in the upgrade in infrastructure bandwidth to 1 GHz through our collaboration with Cisco, and as a result of the rollout of digital cable in China and parts of Europe. Historically, we have enjoyed long product life cycles in these markets. Additionally, we are providing optical network RF amplifiers in the FTTP market for use in systems such as Verizon’s FiOS, which is currently being introduced in the U.S.
Our Strategy
Our objective is to be the leading supplier of RF semiconductor solutions to enable broadband delivery in the wireless and wireline communications markets. The key elements of our strategy include:
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Pursue growth opportunities in selected broadband wireless and wireline markets. We believe that the technologies we have developed are most suited for providing semiconductor solutions for the broadband wireless and wireline communications markets. We also believe that the growing convergence of voice, data and video services has created opportunities for further implementation of our solutions. We intend to focus on these opportunities by continuing to develop solutions for (1) 3G, 3.5G, 4G WEDGE, HSDPA, HSUPA and WiMAX, (2) WiFi 802.11 a/b/g and 802.11 n, and (3) CATV DVR set-top boxes, DOCSIS-3.0 and CATV and FTTP infrastructure.
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Focus on gross margin expansion. We seek to increase our gross margins and profitability by focusing on those products and markets where we currently enjoy a leading market position and have strong technological leadership. We intend to focus on supplying products in the following markets for this purpose: (1) 3G, 3.5G, 4G WEDGE, HSDPA, HSUPA and WiMAX, (2) WiFi 802.11 a/b/g and 802.11 n, and (3) CATV DVR set-top box, DOCSIS-3.0 and CATV and FTTP infrastructure. In addition, we believe that our gross margins will increase to the extent we achieve increased utilization of our fab.
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Expand existing relationships with industry leaders. Because only a few wireless chipset providers lead the wireless handset market, selection in these companies’ reference designs is critical to driving component sales to wireless handset manufacturers. We have been selected in reference designs at MediaTek, Qualcomm and Texas Instruments, three of the leading wireless chipset providers, and by leaders in the WiMAX/WiBRO market, such as Intel and Samsung. We believe that expanding our relationships with these companies will continue to contribute to future growth and market share gains.
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Focus on tier-one customers. Our customers include tier-one manufacturers in our target markets, such as Cisco, Intel, LG Electronics, Motorola and Samsung. We believe that as industry leaders these companies will benefit from the positive trends in their respective markets. We intend to continue to focus on building customer relationships with these market leaders, as well as to expand our tier-one customer base.
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Continue to focus on the RF front end. In the wireless handset and WiFi markets, we intend to remain primarily focused on developing solutions in the RF front end. By remaining focused on the RF front end we will leverage our efficient use of research and development spending and our high degree of business compatibility with our chipset partners.
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Expand business in Asia. We believe that sales to wireless handset manufacturers and ODMs in Asian markets represent a significant growth opportunity for our business. These manufacturers represent global tier-one suppliers such as LG Electronics and Samsung, ODMs and leading Asian wireless handset manufacturers such as HTC, Huawei, TCL and ZTE. Not only do these manufacturers export their products to North America, South America and Europe, but they also use our products in wireless handsets to supply their growing domestic markets. Asian handset manufacturers tend to more closely follow the reference designs of leading wireless chipset providers. As a result, we intend to leverage our selection in the reference designs of MediaTek, Qualcomm and Texas Instruments to further penetrate the growing Asian market.
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Leverage our RF design, differentiated leading-edge technology and manufacturing capabilities. We intend to use our RF design and manufacturing capabilities to continue to develop products with high performance, power efficiency and reliability, while reducing their size, weight and cost. We expect to continue to apply our patented InGaP-plus technology to achieve a high level of integration in our products and reduce our costs of production. In addition, we will focus on increasing the utilization of our six-inch wafer fab, which allows us to produce more than twice the RF die per wafer compared with the four-inch wafer fabs still used by some of our competitors.
Products
We classify our revenues based upon the end application of the product in which our integrated circuits are used. For the years ended December 31, 2004, 2005 and 2006, wireless handset applications accounted for approximately 50%, 49% and 54%, respectively, of our total net sales, while broadband applications accounted for approximately 50%, 51% and 46%, respectively, of our total net sales.
Wireless Handsets
The following table sets forth information regarding our principal products in the wireless handset market:
Product
Application
Handset Products
Power Amplifier (PA)
Used in RF transmit chain of wireless handset to amplify signal to base station.
Single-band PA module
Encapsulates InGaP HBT PA die and certain passive components in multi-layer laminate module. Used primarily in Code Division Multiple Access (CDMA) and W-CDMA handsets.
HELP PA Module
High Efficiency at Low Power PA that lowers average power consumption by 50%. Used primarily in CDMA and W-CDMA handsets.
Quad-band PA module
Encapsulates InGaP HBT PA die, CMOS bias control chip, and certain passive components in multi-layer laminate module. Used primarily in GSM and EDGE handsets.
PowerPlexer
Transmit module, which encapsulates two InGaP HBT PA die, CMOS, bias and power control chip, antenna switch, coupler, harmonic filter and passives in multi-layer laminate module. Used in GSM handsets.
RF Switches
Used in wireless handsets and other wireless applications to switch between receive and transmit modes and multiple frequency bands.
Front End Module
Highly integrated module that encapsulates PAs, RF coupler, transmit filter, duplexer and antenna switch
Broadband Communications
Our Broadband product line encompasses video and data telecommunications systems, primarily consisting of CATV, WiFi, WiMAX and FTTP applications.
The following table outlines our principal CATV products and their applications:
Product
Application
CATV Infrastructure Products
Line Amplifiers
Used to distribute RF signals from headends to subscribers.
Drop Amplifiers
Used to amplify RF signals at individual subscriber locations.
Optical Network RF Amplifiers
Used to amplify RF signals for FTTP and FiOS.
The following table sets forth information regarding our principal products in the WiFi market:
Product
Application
WiFi Products
2.4 GHz PAs (802.11 b/g)
Used in wireless network interface cards (NIC), embedded notebook computers (mini-PCI) and access point (AP) applications to boost the transmit signal for increased range and data throughput.
GHz PAs (802.11 a)
Used in wireless rich-media applications, such as streaming audio/video, to boost the transmit signal for increased range and data throughput.
Dual Band PAs (802.11 a/b/g)
Used in wireless network systems that require seamless transition between frequencies to mitigate interference and congestion.
MIMO PAs (802.11 n, draft-n)
Used in multimedia applications for higher data throughput and greater WiFi coverage.
The following table sets forth information regarding our principal products in the WiMAX market:
Product
Application
WiMAX Products
Mobile WiMAX PAs
PA modules used in 2.5 and 3.3 GHz bands for mobility applications.
Mobile WiBRO PAs
PA modules used in 1.8, 1.9, 2.5, 2.57 and 3.5 GHz bands for mobility applications.
Fixed Point WiMAX PAs
PA modules used in 2.5, 3.3 and 3.5 GHz bands for point-to-point CPE applications.
Marketing, Sales, Distribution and Customer Support
We primarily sell our products to our direct customers worldwide and have developed close working relationships with leading companies in the broadband wireless and wireline communications markets. Additionally, we selectively use independent manufacturers’ representatives and distributors to complement our direct sales and customer support efforts. In certain geographies such as Asia, we increasingly use value-added distributors such as Richardson Electronics Ltd. (Richardson Electronics), Takachiho Koheki Co., Ltd. and World Peace Group, one of the largest distribution businesses in Asia. Many of our customers are serviced through Richardson Electronics in the United States, Europe and Korea, while World Peace Group primarily focuses on China and Taiwan. Our relationship with World Peace Group enables us to manage our inventories and payment terms in China with a single entity. World Peace Group’s vast sales network also provides us access to tier-one customers in China. We believe this is critical to our objective of expanding our customer base, especially as we expand our product portfolio.
We believe that the technical nature of our products and markets demands an extraordinary commitment to building and maintaining close relationships with our customers. Our sales and marketing staff, which is assisted by our technical staff and senior management, visit prospective and existing customers worldwide on a regular basis. Our design and applications engineering staff actively communicate with customers during all phases of design and production. We have highly specialized field application engineering teams near our customers in Korea, Taiwan and China, as well as a system application team in Denmark, which is located near Texas Instruments’ reference design team in Denmark. We believe that these contacts are vital to the development of close, long-term working relationships with our customers, and in obtaining regular forecasts, market updates and information regarding technical and market trends.
We believe that reference-design manufacturers in the broadband wireless and wireline communications markets will play an ever-increasing role in the future of these markets. Therefore, we believe it is essential that we maintain strong relationships in partnering with these companies to penetrate these market opportunities.
Process Technology, Manufacturing, Assembly and Testing
We design, develop and manufacture RFICs primarily using GaAs compound semiconductor substrates with various process technologies, Metal Semiconductor Field Effect Transistors (MESFET), Pseudomorphic High Electron Mobility Transistors (pHEMT), and Heterojunction Bipolar Transistors (HBT). Our patented technology, which utilizes InGaP-plus, combines InGaP HBT and pHEMT processes on a single substrate, enabling us to integrate the PA function and the RF active switch function on the same die.
Manufacturing
We fabricate substantially all of our ICs in our six-inch diameter GaAs wafer fab in Warren, New Jersey. Our Warren facility has a 19,000 square foot fab, including 10,000 square feet of Class 100 clean room space. At December 31, 2006, our weekly capacity was approximately 950 equivalent six-inch HBT wafers. We believe that based upon the available clean room space in our Warren facility we have the ability, with incremental capital expenditures, to increase the weekly production capacity to as much as 1,500 equivalent six-inch HBT wafers in response to market conditions.
Our Warren fab was first certified as ISO 9001 compliant in December 1993. Since that time, we have updated our compliance to the ISO 9001:2000 upgrade of this standard. In 2004, we also received ISO 14001 certification.
We anticipate that with incremental capital expenditures our Warren, New Jersey fab will fulfill our manufacturing needs into 2009. We are actively exploring future sources of additional manufacturing capacity through the construction or acquisition of manufacturing facilities in low-cost manufacturing countries such as China, as well as pursuing relationships with foundries in Taiwan.
Assembly
Fabricated GaAs wafers are shipped to contractors in Asia for packaging into standard plastic lead frame-based packaging or modules.
Since the processes cannot be easily or economically integrated onto a single die, multi-chip modules that combine multiple die within a single package have taken hold, enabling the selection of the optimal process technology for each IC within the package. This provides enhanced integration at the sub-system level. These solutions generate significant size reductions in wireless handset component circuitry.
Modules allow our customers to get their product to market more rapidly at a lower overall end product cost due largely to the reduced parts count and reduction in required engineering effort. We believe we are well positioned to address the shift toward more complex multi-chip modules because we possess both extensive process breadth (a key advantage, as modules typically incorporate numerous process technologies) and a large portfolio of RF expertise (e.g., PAs, switches, transceivers, filters, and discretes).
Final Test
After assembly, packaged ICs are tested prior to shipment to our customers. We outsource most of our production RF testing operations, which are performed near our module assembly contractors in Asia. This adds considerable efficiencies to the device manufacturing process in reducing product cycle times and manufacturing costs and supports our initiative to reduce manufacturing costs by lowering the average test cost per unit.
Raw Materials
GaAs wafers, InP wafers, HBT/pHEMT epitaxial wafers, passive components, other raw materials, and equipment used in the production of our ICs are available from a limited number of sources. See “Risk Factors-Sources for certain components, materials and equipment are limited, which could result in delays or reductions in product shipments.”
Research and Development
We have made significant investments in our proprietary processes, including product design and wafer fabrication, which we believe gives us a competitive advantage. Research and development expenses were $33.3 million, $29.9 million and $35.6 million in 2004, 2005 and 2006, respectively. We continue to focus our research and development on PAs and front end modules for GSM, GPRS, EDGE, CDMA and W-CDMA in the wireless handset market, and on semiconductor tuners, active splitters, WiFi, WiMAX, CATV infrastructure and FTTP in the broadband market.
Our wireless PA capability has expanded from plastic-packaged GaAs RFIC products to RF modules incorporating multiple technologies. This capability is critical to encapsulating RF intellectual property and know-how into a module that may be used to shrink the time-to-market for wireless handset manufacturers. Our RF PA modules use a multi-layer laminate substrate to combine our patented InGaP-plus HBT PA ICs with custom-designed CMOS controllers and passive components.
Module integration capability required extending our design tools in several dimensions. Electromagnetic simulation of laminate substrates to design embedded passive components and model parasitic effects were added to our RF design tool set. In addition, the ability to simulate at the module level was greatly enhanced through our partnership with a leading manufacturer of electronic design automation tools.
Additionally, several silicon CMOS components were developed to support our module efforts. We currently do not intend to manufacture this technology in-house, as we believe there will be adequate external foundry capacity available. See “Risk Factors-Sources for certain components, materials and equipment are limited, which could result in delays or reductions in product shipments.”
Customers
Sales to Intel and World Peace Group accounted for 18% and 17%, respectively, of total net sales during 2006. No other customer accounted for 10% or more of total net sales during 2006. See “Risk Factors-We depend on a small number of customers; a loss of or a decrease in purchases and/or change in purchasing patterns by one of these customers would materially and adversely affect our revenues and our ability to forecast revenue.”
Employees
As of December 31, 2006, we had 508 employees, including 8 employees in Denmark, 6 of whom were members of the Danish Engineering Union. We believe our labor relations to be good and we have never experienced a work stoppage.
Competition
We compete with U.S. and international semiconductor and integrated circuit manufacturers of all sizes. Our key competitors in the wireless handset market are Avago Technologies Limited, RF Micro Devices, Inc., Skyworks Solutions, Inc. and TriQuint Semiconductor, Inc.
Within our broadband market, which includes the cable set-top box, WiFi, WiMAX and CATV infra-structure markets, our competitors are also primarily manufacturers of both discrete components and ICs. Our key competitors are Microsemi Corp., Microtune, Inc., SiGe Semiconductor, Inc. and Sirenza Micro Devices.
Many of our competitors have significantly greater financial, technical, manufacturing and marketing resources than we do. Increased competition could adversely affect our revenue and profitability through price reductions or reduced demand for our products. See “Risk Factors-We face intense competition, which could result in a decrease in our products’ prices and sales.”
Patents, Licenses and Proprietary Rights
It is our practice to seek U.S. patent and copyright protection on our products and developments where appropriate and to protect our valuable technology under U.S. laws affording protection for trade secrets and for semiconductor chip designs. We own 56 U.S. patents and have 18 pending U.S. patent applications. The U.S. patents were issued between 1991 and 2007 and will expire between 2010 and 2025.
We rely primarily upon trade secrets, technical know-how and other unpatented proprietary information relating to our product development and manufacturing activities. To protect our trade secrets, technical know-how and other proprietary information, our employees are required to enter into agreements providing for maintenance of confidentiality and the assignment of rights to inventions made by them while in our employ. We have also entered into non-disclosure agreements to protect our confidential information delivered to third parties in conjunction with possible corporate collaborations and for other purposes. See “Risk Factors-We may not be successful in protecting our intellectual property rights or in avoiding claims that we infringe on the intellectual property rights of others.”
Environmental Matters
Our operations are subject to federal, state and local environmental laws, regulations and ordinances that govern activities or operations that may have adverse effects on human health or the environment. These laws, regulations or ordinances may impose liability for the cost of remediating, and for certain damages resulting from, sites of past releases of hazardous materials. We believe that we currently conduct, and have conducted, our activities and operations in substantial compliance with applicable environmental laws and regulations, and that costs arising from existing environmental laws and regulations will not have a material adverse effect on our results of operations. We cannot assure you, however, that such environmental laws and regulations will not become more stringent in the future or that we will not incur significant costs in the future in order to comply with these laws and regulations. See “Risk Factors-We are subject to stringent environmental laws and regulations both domestically and abroad.”
Available Information
Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through our website (www.anadigics.com) as soon as reasonably practicable after we electronically file the material with, or furnish it to, the Securities and Exchange Commission.
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ITEM 1A.
ITEM 1A. RISK FACTORS
CERTAIN STATEMENTS IN THIS REPORT ARE FORWARD-LOOKING STATEMENTS (AS THAT TERM IS DEFINED IN THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED) THAT INVOLVE RISKS AND UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS CAN GENERALLY BE IDENTIFIED AS SUCH BECAUSE THE CONTEXT OF THE STATEMENT WILL INCLUDE WORDS SUCH AS WE "BELIEVE", "ANTICIPATE", "EXPECT" OR WORDS OF SIMILAR IMPORT. SIMILARLY, STATEMENTS THAT DESCRIBE OUR FUTURE PLANS, OBJECTIVES, ESTIMATES OR GOALS ARE FORWARD-LOOKING STATEMENTS. THE CAUTIONARY STATEMENTS MADE IN THIS REPORT SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS REPORT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS AND DEVELOPMENTS TO BE MATERIALLY DIFFERENT FROM THOSE EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS PRESENTED HEREIN INCLUDE THE RISK FACTORS DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE HEREIN.
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS REPORT, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE COMPANY AND IN ANALYZING OUR FORWARD-LOOKING STATEMENTS.
Risks Related to ANADIGICS
We have a history of recent losses, and may continue to incur losses.
We have incurred operating and net losses in each of the three years in the period ended December 31, 2006, and may continue to incur losses in 2007. Although we continue to gain increased market acceptance for certain of our products, we cannot assure you as to when or whether we will become profitable again.
We face intense competition, which could result in a decrease in our products’ prices and sales.
The markets for our products are intensely competitive and are characterized by rapid technological change. We compete with U.S. and international semiconductor and integrated circuit (IC) manufacturers of all sizes, some of whom have significantly greater financial, technical, manufacturing and marketing resources than we do. We currently face significant competition in our markets and expect that intense price and product competition will continue. This competition has resulted in, and is expected to continue to result in, declining average selling prices for our products and increased challenges in maintaining or increasing market share. We believe that the principal competitive factors for suppliers in our markets include, among others:
·
time-to-market;
·
timely new product innovation;
·
product quality, reliability and performance;
·
product price;
·
features available in products;
·
compliance with industry standards;
·
strategic relationships with leading reference design providers and customers; and
·
access to and protection of intellectual property.
Certain of our competitors may be able to adapt more quickly than we can to new or emerging technologies and changes in customer requirements or may be able to devote greater resources to the development, promotion and sale of their products than we can.
Current and potential competitors have established or may in the future establish, financial or strategic relationships among themselves or with customers, distributors, reference design providers or other third parties with whom we have or may in the future have relationships. If our competitors are able to strengthen existing, or establish new, relationships with these third parties they may rapidly acquire market share at our expense. We cannot assure you that we will be able to compete successfully against current and potential competitors. Increased competition could result in pricing pressures, decreased gross margins and loss of market share and may materially and adversely affect our financial condition and results of operations.
We will need to keep pace with rapid product and process development and technological changes as well as product cost reductions to be competitive.
The markets for our products are characterized by rapid changes in both product and process technologies based on the continuous demand for product enhancements, higher levels of integration, decreased size and reduced power consumption. Because the continuous evolution of these technologies and frequent introduction of new products and enhancements have generally resulted in short product life cycles for our products, we believe that our future success will depend, in part, upon our ability to continue to improve the efficiency of our products and process technologies and rapidly develop new products and process technologies. The successful development of our products is highly complex and depends on numerous factors, including our ability to anticipate customer and market requirements and changes in technology and industry standards, our ability to differentiate our products from offerings of our competitors, and our ability to protect, develop or otherwise obtain adequate intellectual property for our new products. If a competing technology emerges that is, or is perceived to be, superior to our existing technology and we are unable to develop and/or implement the new technology successfully or to develop and implement a competitive and economically acceptable alternative technology, our financial condition and results of operations could be materially and adversely affected. We will need to make substantial investments to develop these enhancements and technologies, and we cannot assure investors that we will have funds available for these investments or that these enhancements and technologies will be successful.
Our gallium arsenide semiconductors may cease to be competitive with silicon alternatives.
Among our product portfolio, we manufacture and sell gallium arsenide semiconductor devices and components, principally PAs and switches, which tend to be more expensive than their silicon counterparts. The cost differential is due to higher costs of raw materials for gallium arsenide and higher unit costs associated with smaller sized wafers and lower production volumes. We expect the cost of producing gallium arsenide devices will continue for the foreseeable future to exceed the costs of producing their silicon counterparts. In addition, silicon semiconductor technologies are widely-used process technologies for certain integrated circuits and these technologies continue to improve in performance. Therefore, to remain competitive, we must offer gallium arsenide products that provide superior performance over their silicon-based counterparts. If we do not continue to offer products that provide sufficiently superior performance to justify their higher cost, our financial condition and results of operations could be materially and adversely affected. We cannot assure you that there will continue to be products and markets that require the performance attributes of gallium arsenide solutions.
Sources for certain components, materials and equipment are limited, which could result in delays or reductions in product shipments.
We do not manufacture any of the starting wafers, packaging or passive components used in the production of our gallium arsenide integrated circuits. Wafers, packaging and passive components are available from a limited number of sources. If we are unable to obtain these wafers, packaging or passive components in the required quantities, we could experience delays or reductions in product shipments, which could materially and adversely affect our financial condition and results of operations.
We depend on a limited number of vendors to supply the equipment used in our manufacturing processes. When demand for semiconductor manufacturing equipment is high, lead times for delivery of such equipment can be substantial. We cannot assure you that we would not lose potential sales if required manufacturing equipment is unavailable and, as a result, we are unable to maintain or increase our production levels. A delay for any reason in increasing capacity would limit our ability to increase sales volumes, which could harm our relationships with customers.
In the event we are not able to satisfy a significant increase in demand from any one of our customers or our customers in the aggregate, we may not be viewed as a dependable high volume supplier and our customers may source their demand elsewhere.
In some areas of our business, we have customers, particularly those in the wireless handset market, that ship their completed products in very large unit volumes. These customers may require large inventories of our products on short notice. While we anticipate that with incremental capital expenditures our Warren, New Jersey fab will fulfill our manufacturing needs into 2009, in the event we are unable to meet our customers’ demands during periods when their production volumes increase, we may be considered an undependable supplier and our customers may seek alternate suppliers. If our customers consider us to be an undependable supplier, our operating results could be adversely affected as we may not be able to find alternative sources of revenue.
We depend on a small number of customers; a loss of or a decrease in purchases and/or change in purchasing patterns by one of these customers could materially and adversely affect our revenues and our ability to forecast revenue.
We receive a significant portion of our revenues from a few significant customers and their subcontractors. Sales to Intel and World Peace Group, one of the largest distribution businesses in Asia, accounted for approximately 18% and 17%, respectively, of our total net sales during 2006. Sales to our greater than 10% customers have exceeded 30% of total net sales in each of the last three fiscal years. Our financial condition and results of operations have been materially and adversely affected in the past by the failure of anticipated orders to be realized and by deferrals or cancellations of orders as a result of changes in customer requirements. If we were to lose any of our major customers, or if sales to these customers were to decrease materially, our financial condition and results of operations could be materially and adversely affected.
If we fail to sell a high volume of products, our operating results may be harmed.
Because large portions of our manufacturing costs are relatively fixed, our manufacturing volumes are critical to our operating results. If we fail to achieve acceptable manufacturing volumes or experience product shipment delays, our results of operations could be harmed. During periods of decreased demand, our high fixed manufacturing costs negatively affect our results of operations. We base our expense levels in part on our expectations of future orders and these expense levels are predominantly fixed in the short term. If we receive fewer customer orders than expected or if our customers delay or cancel orders, we may not be able to reduce our manufacturing costs in the short term and our operating results may be harmed.
The short life cycles of some of our products may leave us with obsolete or excess inventories.
The life cycles of some of our products depend heavily upon the life cycles of the end products into which our products are designed. For example, we estimate that current life cycles for wireless handsets, and in turn our wireless products, are approximately 9 to 12 months. Products with short life cycles require us to manage production and inventory levels closely. We cannot assure you that obsolete or excess inventories, which may result from unanticipated changes in the estimated total demand for our products and/or the estimated life cycles of the end products into which our products are designed, will not result in significant charges that will negatively affect our operating profit and net income.
We may face interruptions in our manufacturing processes.
Our manufacturing operations are complex and subject to disruption, including for causes beyond our control. The fabrication of integrated circuits is an extremely complex and precise process consisting of multiple steps. It requires production in a highly controlled, clean environment. Minor impurities, contamination of the clean room environment, errors in any step of the fabrication process, defects in the masks used to print circuits on a wafer, defects in equipment or materials, human error, or a number of other factors can cause a substantial interruption in our manufacturing processes.
Additionally, our operations may be affected by lengthy or recurring disruptions of operations at any of our production facilities or those of our subcontractors. These disruptions may include electrical power outages, fire, earthquakes, flooding, international conflicts, war, acts of terrorism, or other natural or man-made disasters. Disruptions of our manufacturing operations could cause significant delays in our shipments unless and until we are able to shift the manufacturing of such products from an affected facility to another facility or the disruption is remedied. Furthermore, many of our customers require that they qualify a new manufacturing source before they will accept products from such source. This qualification process may be expensive and time consuming. In the event of such delays, we cannot assure you that the required alternative capacity, particularly wafer production capacity, would be available on a timely basis or at all. Even if alternative manufacturing capacity or assembly and test capacity is available, we may not be able to obtain it on favorable terms, which could result in higher costs and/or a loss of customers. We may be unable to obtain sufficient manufacturing capacity to meet demand, either at our own facilities or through external manufacturing.
Due to the highly specialized nature of the gallium arsenide integrated circuit manufacturing process, in the event of a disruption at the Warren, New Jersey semiconductor wafer fab, alternative gallium arsenide production capacity would not be readily available from third-party sources. Any disruptions could have a material adverse effect on our business, financial condition and results of operations.
The variability of our manufacturing yields may affect our gross margins.
Our manufacturing yields vary significantly among products, depending on the complexity of a particular integrated circuit’s design and our experience in manufacturing that type of integrated circuit. We have experienced difficulties in achieving planned yields in the past, particularly in pre-production and upon initial commencement of full production volumes, which have adversely affected our gross margins.
Regardless of the process technology used, the fabrication of integrated circuits is a highly complex and precise process. Problems in the fabrication process can cause a substantial percentage of wafers to be rejected or numerous integrated circuits on each wafer to be nonfunctional, thereby reducing yields. These difficulties can include:
·
defects in masks, which are used to transfer circuit patterns onto our wafers;
·
impurities in the materials used;
·
operator errors;
·
contamination of the manufacturing environment; and
·
equipment failure.
Many of our manufacturing costs are fixed and average selling prices for our products tend to decline over time. Therefore, it is critical for us to increase the number of shippable integrated circuits per wafer and increase the production volume of wafers in order to maintain or improve our results of operations. Yield decreases can result in substantially higher unit costs, which could materially and adversely affect our financial condition and results of operations and have done so in the past. We cannot assure you that we will not suffer periodic yield problems, particularly during the early production of new products or introduction of new process technologies. If any new yield problems were to arise or any existing yield problems were to continue, our financial condition and results of operations could be materially and adversely affected.
Our dependence on foreign semiconductor assembly and test operations contractors could lead to delays in or reductions of product shipments.
We do not assemble or test all of our integrated circuits or multi-chip modules. Instead, we provide the integrated circuit die and, in some cases, packaging and other components to assembly and test vendors located primarily in Asia. We maintain two qualified service locations for the bulk of all assembly and test processes. If we are unable to obtain sufficient high quality and timely assembly or test service, or if our contractors lose one of their current assembly or test service locations, or if we experience delays in transferring our production between assembly or test locations, or if means of transportation to these locations are interrupted, we would experience delays or reductions in product shipment, and/or reduced product yields, which could materially and adversely affect our financial condition and results of operations.
Our results of operations can vary significantly due to the cyclical nature of the semiconductor industry and our end markets.
The semiconductor industry and our end markets have been cyclical, seasonal and subject to significant downturns. In past years, the industry has experienced periods marked by market weaknesses that created lower order demand, production overcapacity, high inventory levels, and accelerated declines in average selling prices for our products. These factors negatively affected our financial condition and results of operations during these periods and may negatively affect our financial condition and results of operations in the future.
Our results of operations also may be subject to significant quarterly and annual fluctuations. These fluctuations are due to a number of factors, many of which are beyond our control, including, among others:
·
changes in end-user demand for the products manufactured and sold by our customers;
·
the effects of competitive pricing pressures, including decreases in average selling prices of our products;
·
industry production capacity levels and fluctuations in industry manufacturing yields;
·
levels of inventory in our end markets;
·
availability and cost of products from our suppliers;
·
the gain or loss of significant customers;
·
our ability to develop, introduce and market new products and technologies on a timely basis;
·
new product and technology introductions by competitors;
·
changes in the mix of products produced and sold;
·
market acceptance of our products and our customers; and
·
intellectual property disputes.
As a result, we may experience substantial period-to-period fluctuations in future operating results. Investors should not rely on our results of operations for any previous period as an indicator of what results may be for any future period. Failure of our operating results to meet the expectations of analysts or investors could materially and adversely affect the price of our common stock.
Our products have experienced significant declines in unit prices.
In each of the markets where we compete, prices of established products tend to decline significantly over time and in some cases rapidly. Accordingly, in order to remain competitive, we believe that we must continue to develop product enhancements and new technologies that will either slow the price declines of our products or reduce the cost of producing and delivering our products. If we fail to do so, our financial condition and results of operations could be materially and adversely affected.
We face a risk that capital needed for our business will not be available when we need it.
In the future, we may need to access sources of financing to fund our growth. Taking into consideration our cash balance as of December 31, 2006, including marketable securities, of $83.5 million, together with the net proceeds of this offering, we believe that our existing sources of liquidity, together with cash expected to be generated from operations, will be sufficient to fund our research and development, capital expenditures, working capital requirements, interest payment obligations under our $38.0 million in outstanding convertible senior unsecured notes due October 2009 and other financing requirements for at least the next twelve months.
However, there is no assurance that the capital required to fund these expenses will be available in the future. Conditions existing in the U.S. capital markets, as well as the then current condition of our company, will affect our ability to raise capital, as well as the terms of any financing. We may not be able to raise enough capital to meet our capital needs on a timely basis or at all. Failure to obtain capital when required could have a material adverse affect on us.
In addition, any strategic investments and acquisitions that we may make to help us grow our business may require additional capital. We cannot assure you that the capital required to fund these investments and acquisitions will be available in the future.
Our success depends on our ability to attract and retain qualified personnel.
A small number of key executive officers manage our business. Their departure could have a material adverse effect on our operations. We believe that our future success will also depend in large part on our continued ability to attract and retain highly qualified technical sales and marketing personnel, design and application engineers, as well as senior management. We believe that there is, and will continue to be, intense competition for qualified personnel in the semiconductor industry as the emerging broadband wireless and wireline communications markets develop, and we cannot assure you that we will be successful in retaining our key personnel or in attracting and retaining highly qualified technical sales and marketing personnel, design and application engineers, as well as senior management. We do not presently maintain key-man life insurance on any of our key executive officers.
We are subject to risks due to our international customer base and our subcontracting operations.
Sales to customers located outside the United States and Canada (based on shipping addresses and not on the locations of ultimate end users) accounted for 61%, 61% and 62% of our net sales for the years ended December 31, 2004, 2005 and 2006, respectively. We expect that international sales will continue to represent a significant portion of our net sales. In addition, independent third parties located in Asia supply a substantial portion of the starting wafers and packaging components that we use in the production of gallium arsenide integrated circuits, and assemble and test nearly all of our products.
Due to our reliance on international sales and on foreign suppliers, assemblers and test houses, we are subject to risks of conducting business outside of the United States, including primarily those arising from local economic and political conditions, international health epidemics, natural disasters, restrictive governmental actions (e.g., exchange controls, duties, etc.), limitation of protecting intellectual property rights in foreign jurisdictions and potential acts of terrorism.
We are subject to stringent environmental laws and regulations both domestically and abroad.
We are subject to a variety of federal, state, local and foreign laws and regulations governing the protection of the environment. These environmental laws and regulations include those related to the use, storage, handling, discharge and disposal of toxic or otherwise hazardous materials used in or resulting from our manufacturing processes. Failure to comply with environmental laws and regulations could subject us to substantial liability or force us to significantly change our manufacturing operations. In addition, under some of these laws and regulations, we could be held financially responsible for remedial measures if our properties are contaminated, even if we did not cause the contamination. Although we are aware of contamination resulting from historical third-party operations at one of our facilities, a prior owner of such facility has been performing, and paying for the costs associated with, remediation of this property pursuant to an agreement with the state environmental regulatory authority. However, we cannot assure you that such prior owner will continue to do so or that we will not incur any material costs or liabilities associated with compliance with environmental laws in the future.
We may not be successful in protecting our intellectual property rights or in avoiding claims that we infringe on the intellectual property rights of others.
Our success depends in part on our ability to obtain patents and copyrights. Despite our efforts to protect our intellectual property, unauthorized third parties may violate our patents or copyrights. In addition to intellectual property that we have patented and copyrighted, we also rely on trade secrets, technical know-how and other non-patented proprietary information relating to our product development and manufacturing activities, which we seek to protect, in part, by entering into confidentiality agreements with our collaborators and employees. We cannot assure you that these agreements will not be breached, that we would have adequate remedies for any breach or that our trade secrets and proprietary know-how will not otherwise become known or independently discovered by others.
We seek to operate without infringing on the intellectual property rights of third parties. As is typical in the semiconductor industry, we have been notified, and may be notified in the future, that we may be infringing on certain patents and/or other intellectual property rights of other parties. We cannot assure you that we will not be subject to litigation to defend our products or processes against claims of patent infringement or other intellectual property claims. Any such litigation could result in substantial costs and diversion of our resources. If we infringe on the intellectual property rights of others, we cannot assure investors that we would be able to obtain any required licenses on commercially reasonable terms and we may be required to pay substantial damages, including treble damages, and cease production of our work product or use of one or more manufacturing processes. Even if we are ultimately successful, patent litigation can be time consuming, disruptive to management and expensive. If any of the foregoing were to occur, our financial condition and results of operations could be materially adversely affected.
We may pursue selective acquisitions and alliances and the management and integration of additional operations could be expensive and could divert management time and acquisitions may dilute the ownership of our stockholders.
Our ability to complete acquisitions or alliances is dependent upon, and may be limited to, the availability of suitable candidates and capital. In addition, acquisitions and alliances involve risks that could materially adversely affect our financial condition and results of operations, including the management time that may be diverted from operations in order to pursue and complete such transactions and difficulties in integrating and managing the additional operations and personnel of acquired companies. We cannot assure you that we will be able to obtain the capital necessary to consummate acquisitions or alliances on satisfactory terms, if at all. Further, any businesses that we acquire will likely have their own capital needs, which may be significant, which we could be called upon to satisfy independent of the acquisition price. Future acquisitions or alliances could result in additional debt, costs and contingent liabilities, all of which could materially adversely affect our financial condition and results of operations. Any additional debt could subject us to substantial and burdensome covenants. The growth that may result from future acquisitions or alliances may place significant strains on our resources, systems and management. If we are unable to effectively manage such growth by implementing systems, expanding our infrastructure and hiring, training and managing employees, our financial condition and results of operations could be materially adversely affected. In addition, if we issue additional shares of our common stock in order to acquire another business, our stockholders’ interest in us, or the combined company, could be materially diluted.
We have had significant volatility in our stock price and it may fluctuate in the future. Therefore, you may be unable to sell shares of our common stock at or above the price you paid for such shares.
The trading price of our common stock has and may continue to fluctuate significantly. Such fluctuations may be influenced by many factors, including:
·
our operating results and prospects;
·
the operating results and prospects of our major customers;
·
announcements by our competitors;
·
the depth and liquidity of the market for our common stock;
·
investor perception of us and the industry in which we operate;
·
changes in our earnings estimates or buy/sell recommendations by analysts covering our stock;
·
general financial and other market conditions; and
·
domestic and international economic conditions.
Public stock markets have experienced extreme price and trading volume volatility, particularly in the technology sectors of the market. This volatility significantly affected and may in the future affect the market prices of securities of many technology companies for reasons frequently unrelated to or disproportionately impacted by the operating performance of these companies. These broad market fluctuations may materially and adversely affect the market price of our common stock.
In addition, fluctuations in our stock price and our price-to-earnings multiple may have made our stock attractive to momentum, hedge or day-trading investors who often shift funds into and out of stocks rapidly, exacerbating price fluctuations in either direction, particularly when viewed on a quarterly basis.
Certain provisions in our amended and restated certificate of incorporation, our amended and restated bylaws and our stockholders’ rights agreement and of Delaware law could deter, delay or prevent a third party from acquiring us and that could deprive you of an opportunity to obtain a takeover premium for our common stock.
Our amended and restated certificate of incorporation, our amended and restated bylaws and Delaware law contain provisions that could have the effect of making it more difficult for a third party to acquire us, or of discouraging a third party from attempting to acquire control of us. See “Description of Capital Stock.” In addition, we have a stockholders’ rights agreement that under certain circumstances would significantly impair the ability of third parties to acquire control of us without prior approval of our board of directors.
Together, our amended and restated certificate of incorporation, our amended and restated by-laws, certain provisions of Delaware law and our stockholders’ rights agreement may discourage transactions that otherwise could provide for the payment of a premium over prevailing market prices for our common stock and could also limit the price that investors may be willing to pay in the future for our common stock.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
ITEM 2. PROPERTIES.
Our executive offices and primary fabrication facility are located at 141 Mt. Bethel Road, Warren, New Jersey 07059. We currently lease space in several buildings in Warren, New Jersey, all of which are located in the same industrial park. Approximately 150,000 square feet of manufacturing and office space is occupied in a building located at 141 Mt. Bethel Road in Warren, New Jersey under a twenty-year lease expiring on December 31, 2016.
We also lease approximately 22,000 square feet of manufacturing space in Camarillo, California and approximately 29,000 square feet in aggregate of office space in the following locations: Richardson, Texas; Atlanta, Georgia; Aalborg, Denmark; Taipei, Taiwan; China; and South Korea under lease agreements with remaining terms ranging from four to thirty two months that can be extended, at our option.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
We are a party to ordinary course litigation arising out of the operation of our business. We believe that the ultimate resolution of such litigation should not have a material adverse effect on our financial condition or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company’s security holders during the fourth quarter of 2006.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our $0.01 par value Common Stock, (“Common Stock”) has been quoted on the NASDAQ Global Market under the symbol "ANAD" since the commencement of trading on April 21, 1995 following our initial public offering of our Common Stock. The following table sets forth for the periods indicated the high and low sale prices for our Common Stock.
High
Low
Calendar
Fourth Quarter
$
10.38
$
6.80
Third Quarter
8.60
5.03
Second Quarter
9.26
6.08
First Quarter
8.24
5.35
Calendar
Fourth Quarter
$
6.30
$
3.05
Third Quarter
3.55
1.70
Second Quarter
1.95
1.26
First Quarter
3.80
1.43
As of December 31, 2006, there were 49,108,435 shares of Common Stock outstanding (excluding Treasury) and 727 holders of record of the Common Stock.
We have never paid cash dividends on our capital stock. We currently anticipate that we will retain available funds for use in the operation and expansion of our business, and do not anticipate paying any cash dividends in the foreseeable future.
See also “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” under Part III, Item 12 of this report.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data set forth below should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", and our financial statements, related notes and other financial information included herein. The selected consolidated financial data set forth below as of December 31, 2006 and 2005 and for the years ended December 31, 2006, 2005, and 2004 have been derived from our audited financial statements included herein. The selected consolidated financial data set forth below as of December 31, 2004, 2003 and 2002 and for the years ended December 31, 2003 and 2002 have been derived from our audited financial statements that are not included herein or incorporated by reference herein. Our historical results are not necessarily indicative of the results that may be expected for any future period.
RESULTS OF OPERATIONS
Net sales
$
82,564
$
75,212
$
91,350
$
108,281
$
169,885
Gross profit
7,262
3,285
13,995
22,352
50,710
Operating loss
(65,565
)
(50,998
)
(41,822
)
(28,727
)
(9,480
)
Loss before income taxes
(52,183
)
(51,139
)
(43,082
)
(31,233
)
(8,850
)
Net loss
(55,886
)
(50,757
)
(43,082
)
(31,233
)
(8,850
)
Loss per share:
Basic and diluted
$
(1.83
)
$
(1.65
)
$
(1.33
)
$
(0.92
)
$
(0.20
)
BALANCE SHEET DATA:
Total cash and marketable securities
$
155,518
$
121,630
$
104,051
$
86,357
$
83,482
Working capital
110,151
81,100
89,517
52,007
100,895
Total assets
255,671
207,898
185,895
168,273
182,602
Total capital lease obligations
-
2,032
1,775
Long-term debt, including current portion
66,700
66,700
84,700
84,700
38,000
Total stockholders’ equity
171,088
121,046
84,615
58,135
115,760
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
We are a leading provider of semiconductor solutions in the rapidly growing broadband wireless and wireline communications markets. Our products include PAs, tuner integrated circuits, active splitters, line amplifiers and other components, which can be sold individually or packaged as integrated RF and front end modules. We believe that we are uniquely positioned to capitalize on the rapidly-growing voice, data and video segments of the broadband wireless and wireline communications markets. We offer 3G products that use the W-CDMA and EDGE standards, 3.5G products that use the HSDPA and HSUPA standards, 4G products for WiMAX and WiBRO systems, WiFi products that use the 802.11 a/b/g and 802.11 n (draft-n, MIMO) standards, CATV set-top box products, CATV infrastructure products and FTTP products.
Our business strategy focuses on developing RF front end solutions and partnering with industry-leading wireless chipset providers to incorporate our solutions into their reference designs. Our integrated solutions enable our customers to improve RF performance, power efficiency, reliability, time-to-market and the integration of chip components into single packages, while reducing the size, weight and cost of their products. We have established longstanding relationships with several of the industry-leading chipset suppliers and tier-one customers. For example, our relationships with Cisco, Intel, Motorola and Qualcomm have enabled us to develop RF products used in 3G, 3.5G, 4G WiMAX, WiFi and CATV products and to be the primary supplier with respect to such partners and customers. Other leading chipset suppliers and tier-one customers with whom we have longstanding relationships include Atheros, HTC, Huawei, Kyocera, Lenovo, LG Electronics, Marvell, MediaTek, Murata, Novatel, Palm, RIM, Samsung, Sierra Wireless, TCL, TDK, Texas Instruments and ZTE.
We continue to focus on leveraging our technological and manufacturing advantages to remain a leading supplier of semiconductor solutions for broadband wireless and wireline communications. We believe our patented InGaP-plus technology, which combines the bipolar technology of a PA (HBT PA) with the surface device technology of an RF active switch (pHEMT) on the same die, provides us with a competitive advantage in the marketplace. Additionally, we believe our InGaP-plus process and design technologies such as HELP provide a competitive advantage by enabling us to provide PAs that consume less battery power and extend talk time for products in the 3G, 3.5G and 4G markets.
Our primary fab, a state-of-the-art six-inch diameter GaAs fab located at our corporate headquarters in Warren, New Jersey, has been operational since 1999. The increased utilization of our fab’s manufacturing capacity has increased our gross margins, which has provided us with greater financial leverage. We anticipate that with incremental capital expenditures our Warren, New Jersey fab will fulfill our manufacturing needs into 2009. We are actively exploring future sources of additional manufacturing capacity through the construction or acquisition of manufacturing facilities in low-cost manufacturing countries such as China, as well as pursuing relationships with foundries in Taiwan. Unlike traditional CMOS silicon fabs that have short technology lifecycles and require frequent capital investments, GaAs fabs are more similar to analog fabs that have long lifecycles and do not become quickly outdated. Our six-inch wafer fab allows us to produce more than twice the RF die per wafer compared with the four-inch wafer fabs still used by some of our competitors. We believe our strong fabrication capability and available capacity, combined with integrated product design and logistics expertise, allow us to quickly develop and manufacture products for which demand has grown.
We have fixed expenses particularly relating to capital equipment and manufacturing overhead. Accordingly, as unit volume throughput increased in recent years, our fixed production costs decreased as a percentage of revenue and our gross margin and profitability improved. Decreases in volume would have the inverse effect. We will continue to invest in selected strategic research and development programs to maintain our competitive position.
We experienced net sales growth approximating 20% during 2004 and 2005 as our Broadband and Wireless businesses benefited from unit growth in addition to accelerated demand, a better pricing environment and acceptance of new product developments. These trends were felt across our end markets and continued in 2006.
In 2006, our businesses grew over 50%, as new product offerings were well timed to market demand and benefited from increased RF content and functionality. This trend was observed throughout the year and we ended 2006 by recording our seventh consecutive quarter of sales growth. The sales growth and leverage of our fixed manufacturing expense base, led to gross margin increases and substantially lessened our operating and net losses during the period.
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 to continue to result in, declining average selling prices for our products and increased challenges in maintaining or increasing market share.
We have only one reportable segment. For financial information related to such segment and certain geographic areas, see Note 4 to the accompanying consolidated financial statements.
CRITICAL ACCOUNTING POLICIES
GENERAL
We believe the following accounting policies are critical to our business operations and the understanding of our results of operations. Such accounting policies may require management to exercise a higher degree of judgment and make estimates used in the preparation of our consolidated financial statements.
REVENUE RECOGNITION
Revenue from product sales is recognized when the title, risk and rewards of product ownership are transferred to the customer, price and terms are fixed, no significant vendor obligation exists and collection of the resulting receivable is reasonably assured. We sell to certain distributors who are granted rights of return and exchange and certain price protection. Revenue is not recognized for the portion of shipments subject to return, exchange or price protection until such rights expire. We charge customers for the costs of certain contractually-committed inventories that remain at the end of a product's life. Cancellation revenue is recognized when cash is received. The value of the inventory related to cancellation revenue may, in some instances, have been reserved during prior periods in accordance with our inventory obsolescence policy.
WARRANTY COSTS
We provide for potential warranty claims by recording a current charge to income. We estimate potential claims by examining historical returns and other information deemed critical and provide for an amount which we believe will cover future warranty obligations for products sold during the year. The accrued liability for warranty costs is included in accrued liabilities in the consolidated balance sheets.
LONG-LIVED ASSETS
Long-lived assets include fixed assets, goodwill and other intangible assets. We regularly review these assets for indicators of impairment and assess the carrying value of the assets against market values. When an impairment exists, we record an expense to the extent that the carrying value exceeds fair market value.
Goodwill and intangibles impairment
We have intangible assets related to goodwill and other acquired intangibles. Significant judgements are involved in the determination of the estimated useful lives for our other intangibles and whether the goodwill or other intangible assets are impaired. In assessing the recoverability of goodwill and other intangibles, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets.
Impairment of long-lived assets
We record impairment losses on long-lived assets used in operations or expected to be disposed of when events and circumstances indicate that the undiscounted cash flows estimated to be generated by these assets is less than the carrying amounts of those assets. Management considers sensitivities to capacity, utilization and technological developments in making its assumptions.
DEFERRED TAXES
We record a valuation allowance to reduce deferred tax assets when it is more likely than not that some portion of the amount may not be realized. During 2001, we determined that it was no longer more likely than not that we would be able to realize all or part of our net deferred tax asset in the future, and an adjustment to provide a valuation allowance against the deferred tax asset was charged to income. We continue to maintain a full valuation allowance on our deferred tax assets.
While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future, an adjustment to the deferred tax asset would increase income in the period such determination was made.
INVENTORY
Inventories are valued at the lower of cost or market ("LCM"), using the first-in, first-out method. In addition to LCM limitations, we reserve against inventory items for estimated obsolescence or unmarketable inventory. Our reserve for excess and obsolete inventory is primarily based upon forecasted short-term demand for the product and any change to the reserve arising from forecast revisions is reflected in cost of sales in the period the revision is made.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
We maintain an allowance for doubtful accounts for estimated losses resulting from our customers' failure to make payments. If the financial condition of our customers were to erode, making them unable to make payments, additional allowances may be required.
STOCK-BASED COMPENSATION
Effective January 1, 2006, we account for stock-based compensation costs in accordance with Financial Accounting Standards Board Statement No. 123R Share Based Payment (FAS 123R), which requires the measurement and recognition of compensation expense for all stock-based payment awards made to our employees and directors. Under the fair value recognition provisions of FAS 123R, stock based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period which in most cases is the vesting period. Determining the fair value of stock-based awards at the grant date requires considerable judgement, including estimating expected volatility, expected term and risk-free rate. Our expected volatility is a combination of both Company and peer company historical volatility. The expected term of the stock options is based on several factors including historical observations of employee exercise patterns and expectations of employee exercise behavior in the future giving consideration to the contractual terms of the stock-based awards. The risk free interest rate assumption is based on the yield at the time of grant of a U.S. Treasury security with an equivalent remaining term. If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past.
RESULTS OF OPERATIONS
The following table sets forth statements of operations data as a percentage of net sales for the periods indicated:
Net sales
100.0
%
100.0
%
100.0
%
Cost of sales
84.7
79.4
70.1
Gross profit
15.3
20.6
29.9
Research and development expense
36.5
27.6
21.0
Selling and administrative expenses
24.6
19.6
14.5
Restructuring and other charges
-
(0.1
)
-
Operating loss
(45.8
)
(26.5
)
(5.6
)
Interest income
2.4
2.3
3.2
Interest expense
(4.5
)
(4.6
)
(2.8
)
Gain on repurchase of Convertible notes
0.4
-
-
Other income
0.3
-
-
Net loss
(47.2
%)
(28.8
%)
(5.2
%)
COMPARED TO 2005
NET SALES. Net sales during 2006 increased 56.9% to $169.9 million, compared to $108.3 million for 2005. The net sales improvement was primarily due to new demand from the market’s evolution to third generation (EDGE, WEDGE and W-CDMA) PAs, an increase in demand for our traditional CDMA and GSM technologies used in wireless handsets and hand-held devices, and increased demand for broadband products such as WLAN PAs, used in wireless personal computer access and RFICs, used in infrastructure applications.
Sales during 2006 of RFICs used for cellular and personal communication system applications increased 71.8% during 2006 to $91.3 million from $53.2 million in 2005. This increase in sales of integrated circuits for wireless applications for the year ended December 31, 2006 compared with 2005 was primarily due to increased demand for our 3G, CDMA and GSM PAs amounting to $23.3 million, $9.7 million and $5.8 million, respectively.
Specifically, net sales of RFICs used for broadband applications increased 42.6% to $78.6 million in 2006 from $55.1 million in 2005. This increase in sales was primarily due to an increase in demand for infrastructure products and increased average selling prices for WLAN products accounting for increases in sales of $5.6 million and $17.4 million, respectively. Sales of WLAN PAs benefited from the market transition from 802.11b/g PAs to 802.11a/b/g PAs that have a higher selling price for the increased functionality.
GROSS MARGIN. Gross margin for 2006 improved to 29.9% of net sales, compared with 20.6% of net sales in the prior year. The increase in gross margin from the prior year is the result of the increase in net sales and production volumes with the consequent absorption of fixed costs.
RESEARCH & DEVELOPMENT. Company sponsored research and development expenses increased 19.1% during 2006 to $35.6 million from $29.9 million during 2005 primarily due to accelerated customer demand for new product development, which led to increased staffing and costs in addition to increased stock-based compensation of $2.1 million.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased 15.4% during to $24.6 million from $21.3 million in 2005. The increase was primarily due to increased stock-based compensation of $2.4 million.
RESTRUCTURING AND OTHER CHARGES. During 2005, we settled an exit obligation for certain redundant leasehold premises resulting in a savings of $0.1 million against a previously recorded restructuring charge.
INTEREST INCOME. Interest income increased 120.4% to $5.4 million during 2006 from $2.5 million in 2005. The increase was primarily due to higher average funds invested as a result of our underwritten public offering of 10.4 million shares of common stock in March of 2006 (the “March 2006 Offering”) and higher interest rates.
INTEREST EXPENSE. Interest expense decreased to $4.8 million in 2006 from $5.0 million in 2005. Interest expense arose from obligations under our 5% Convertible Senior Notes due in 2006 (“2006 Notes”) and our 5%Convertible Senior Notes due in 2009 (“2009 Notes”). In November 2006, we repaid the remaining $46.7 million aggregate principal amount outstanding of our 2006 Notes.
COMPARED TO 2004
NET SALES. Net sales in 2005 increased 18.5% to $108.3 million, compared to $91.3 million for 2004. The increase in net sales of $17.0 million was primarily due to i) an increase of $16.4 million in our sales of GSM PA products used in wireless handsets, ii) an increase of $8.2 million in our sales of WLAN PAs used in the network computer market and iii) an increase of $2.4 million in our sales of tuner and active splitter products used in the cable set-top box market. Partially offsetting these increases were i) a decrease of $5.9 million in our sales of CDMA PAs and ii) a decrease of $2.3 million in our sales of switch products used in wireless handsets. The decline in net sales of CDMA PAs was primarily due to a transition in 2005 to lower-priced next generation PA modules and declines in average selling prices. The decline in net sales of switch products was primarily due to our decision to reduce our research and development expenditures in this product line.
Specifically, net sales in 2005 of our wireless products increased 17.1% to $53.2 million compared to $45.4 million for 2004. Net sales in 2005 of our broadband products increased 19.9% to $55.1 million compared to $46.0 million in 2004.
GROSS MARGIN. Gross margin for 2005 improved to 20.6% of net sales, compared with 15.3% of net sales in the prior year. The increase in gross margin from the prior year is the result of increased sales and production volumes with consequent absorption of fixed costs. The decrease in our depreciation expense of $4.1 million offset declines in average selling prices.
RESEARCH & DEVELOPMENT. Company sponsored research and development expenses decreased 10.2% during 2005 to $29.9 million from $33.3 million during 2004 primarily due to decreased headcount and related compensation expense.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses decreased 5.4% during 2005 to $21.3 million from $22.5 million in 2004. The decrease was primarily due to decreased headcount, compensation expense and related costs within sales and marketing.
RESTRUCTURING AND OTHER CHARGES. During 2005, we settled an exit obligation for certain redundant leasehold premises resulting in a savings of $0.1 million against a previously recorded restructuring charge.
Activity and liability balances related to the restructuring and other charges for the years ended December 31, 2004 and 2005 are as follows (in millions):
Lease Related
Year ended December 31, 2004:
Beginning balance
$
2.0
Deductions
(1.3
)
December 31, 2004 restructuring balance
0.7
Year ended December 31, 2005:
Deductions
(0.6
)
Savings on settlement of obligation
(0.1
)
December 31, 2005 restructuring balance
-
INTEREST INCOME. Interest income increased 12% to $2.5 million during 2005 from $2.2 million in 2004. The increase was due to higher average interest rates.
INTEREST EXPENSE. Interest expense increased to $5.0 million in 2005 from $4.1 million in 2004. Interest expense arises from obligations under our 2006 Notes and our Notes. In September 2004, we repurchased $20.0 million aggregate principal amount of our 2006 Notes and consequently reduced the outstanding principal balance to $46.7 million, and concurrently issued $38.0 million aggregate principal amount of our 2009 Notes.
GAIN ON REPURCHASE OF CONVERTIBLE NOTES. During 2004, we recognized a gain of $0.3 million, on the repurchase of $20.0 million aggregate principal amount of our 2006 Notes, after adjusting for accrued interest and the write-off of a proportionate share of unamortized offering costs.
LIQUIDITY AND SOURCES OF CAPITAL
At December 31, 2006 we had $13.7 million of cash and cash equivalents on hand and $69.8 million in marketable securities. We had $38.0 million aggregate principal amount of our 2009 Notes outstanding as of December 31, 2006.
Operations required the use of $0.5 million in cash during 2006. Investing activities used $8.6 million of cash during 2006, consisting principally of purchases of equipment of $13.4 million, partially offset by net proceeds on sales of marketable securities of $4.7 million. Financing activities provided $10.9 million of cash in 2006, primarily consisting of proceeds received from the issuance of stock, principally from the March 2006 Offering, and was partially offset by the $46.7 million repayment of our 2006 Convertible Notes.
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. Our anticipated capital needs may include acquisitions of complimentary businesses or technologies, investments in other companies or repurchases of our outstanding debt or equity. 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. Our ability to pay principal and interest on our $38.0 million in outstanding convertible senior unsecured notes, which are due in October of 2009, and our other debt and to fund our planned capital expenditures depends on our future operating performance.
The table below summarizes required cash payments as of December 31, 2006:
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 2006, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 151 (FAS 151), Inventory Costs, an amendment of Accounting Research Bulletin No. 43 (ARB No. 43), Chapter 4. FAS 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted materials should be recognized as current period charges. In addition, FAS requires that allocation of fixed production overhead to inventory be based on the normal capacity of the production facilities. The adoption of FAS 151 did not have a material impact on the condensed consolidated financial statements.
In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting and disclosure for uncertainty in tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The Company adopted FIN48 on January 1, 2007 and currently believes it will not have a material impact on its consolidated financial statements.
In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements” (FAS 157) which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company has not yet determined the impact FAS 157 may have on our results from operations or financial position.
In February, 2007, the FASB issued FASB Statement No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities (FAS 159), which permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. FAS 159 is effective for fiscal years beginning after November 15, 2007. The Company has not yet determined the impact FAS 159 may have on our results of operations or financial position.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to changes in interest rates primarily from our investments in certain available-for-sale securities. Our available-for-sale securities consist primarily of fixed income investments, including corporate bonds, commercial paper and Federal, state, municipal, and agency securities. We continually monitor our exposure to changes in interest rates and the credit ratings of issuers with respect to our available-for-sale securities. Accordingly, we believe that the effects of changes in interest rates and the credit ratings of these issuers are limited and would not have a material impact on our financial condition or results of operations. However, it is possible that we would be at risk if interest rates or the credit ratings of these issuers were to change in an unfavorable direction. The magnitude of any gain or loss would be a function of the difference between the fixed rate of the financial instrument and the market rate and our financial condition and results of operations could be materially affected.
At December 31, 2006, we held marketable securities with an estimated fair value of $69.8 million. Our primary interest rate exposure results from changes in short-term interest rates. We do not purchase financial instruments for trading or speculative purposes. All of our marketable securities are classified as available-for-sale securities. The following table provides information about our marketable securities at December 31, 2006:
The stated rates of interest expressed in the above table may not approximate the actual yield of the securities which we currently hold since we have purchased some of our marketable securities at other than face value. Additionally, some of the securities represented in the above table may be called or redeemed, at the option of the issuer, prior to their expected due dates. If such early redemptions occur, we may reinvest the proceeds realized on such calls or redemptions in marketable securities with stated rates of interest or yields that are lower than those of our current holdings, which would affect both future cash interest streams and future earnings. In addition to investments in marketable securities, we invest some of our cash in money market funds in order to keep cash available to fund operations and to hold cash pending investments in marketable securities. Fluctuations in short term interest rates will affect the yield on monies invested in such money market funds. Such fluctuations can have an impact on our future cash interest streams and future earnings, but the impact of such fluctuations are not expected to be material.
Our Notes are convertible and bear a fixed rate of interest of 5%. A change in interest rates on long-term debt is assumed to impact fair value but not earnings or cash flow because the interest rate is fixed. At December 31, 2006, the fair value of our outstanding convertible notes, estimated based upon dealer quotes, was approximately $71.5 million.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
ANADIGICS, Inc.
We have audited the accompanying consolidated balance sheets of ANADIGICS, Inc. as of December 31, 2006 and 2005, and the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for the years then ended. Our audits also included the consolidated financial statement schedule for the year ended December 31, 2006 and 2005 listed in the Index at Item 15(a). These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. Our audits included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ANADIGICS, Inc. as of December 31, 2006 and 2005, and their consolidated results of operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related consolidated financial statement schedule for the years ended December 31, 2006 and 2005, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in note 12 to the consolidated financial statements, ANADIGICS, Inc. adopted Statement of Financial Accounts Standards No. 123(R), “Share-Based Payment” effective January 1, 2006.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of ANADIGICS, Inc.'s internal control over financial reporting as of December 31, 2006, based on criteria established in "Internal Control Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2007 expressed an unqualified opinion thereon.
/s/ J.H. Cohn LLP
Roseland, New Jersey
February 27, 2007
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
ANADIGICS, Inc.
We have audited the accompanying consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows of ANADIGICS, Inc. for the year ended December 31, 2004. Our audit also included the information for the year ended December 31, 2004 included in the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of ANADIGICS, Inc.’s operations and cash flows for the year ended December 31, 2004 in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the information for the year ended December 31, 2004 in the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
March 2,
ANADIGICS, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
See accompanying notes.
ANADIGICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(AMOUNTS IN THOUSANDS)
See accompanying notes.
ANADIGICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
Common Stock Shares
Common Stock Amount
Treasury Stock Shares
Treasury Stock Amount
Additional Paid-In Capital
Accumulated Deficit
Accumulated Other Comprehensive Income (loss)
Total Stockholders’ Equity
Balance, December 31, 2003
31,226
$
-
$
-
$
335,477
$
(214,881
)
$
$
121,046
Stock options exercised
1,355
1,360
Shares issued under employee stock purchase plan
Shares issued as contingent acquisition consideration
4,640
4,648
Restricted stock grant, net of forfeitures
(4
)
-
Amortization of stock-based compensation
Other comprehensive loss
(624
)
(624
)
Net loss
(43,082
)
(43,082
)
Balance, December 31, 2004
33,072
-
-
342,733
(257,963
)
(486
)
84,615
Stock options exercised
1,160
1,164
Shares issued under employee stock purchase plan
1,025
1,028
Treasury share purchase
(114
)
(258
)
(258
)
Restricted stock grant, net of forfeitures
1,190
(12
)
-
Amortization of stock-based compensation
2,649
2,649
Other comprehensive income
Net loss
(31,233
)
(31,233
)
Balance, December 31, 2005
35,007
(114
)
(258
)
347,555
(289,196
)
(316
)
58,135
Stock options exercised
3,778
3,788
Shares issued under employee stock purchase plan
1,005
1,007
Issuance of common stock in public offering, net of expenses
10,446
53,006
53,110
Restricted stock grant, net of forfeitures
2,577
(26
)
-
Amortization of stock-based compensation
8,354
8,354
Other comprehensive income
Net loss
(8,850
)
(8,850
)
Balance, December 31, 2006
49,200
$
(114
)
$
(258
)
$
413,672
$
(298,046
)
$
(100
)
$
115,760
See accompanying notes.
ANADIGICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
See accompanying notes.
ANADIGICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
We are a leading provider of semiconductor solutions in the rapidly growing broadband wireless and wireline communications markets. Our products include power amplifiers (PAs), tuner integrated circuits, active splitters, line amplifiers and other components, which can be sold individually or packaged as integrated radio frequency (RF) and front end modules. We offer third generation (3G) products that use the Wideband Code-Division Multiple Access (W-CDMA) and Enhanced Data Rates for Global System for Mobile Communication (GSM) Evolution (EDGE) standards, beyond third generation (3.5G) products that use the High Speed Down Line Packet Access (HSDPA) and High Speed Uplink Line Packet Access (HSUPA) standards, fourth generation (4G) products for Worldwide Interoperability for Microwave Access (WiMAX) and Wireless Broadband (WiBRO) systems, Wireless Fidelity (WiFi) products that use the 802.11 a/b/g and 802.11 n (draft-n, Multiple Input Multiple Output (MIMO)) standards, cable television (CATV) set-top box products, CATV infrastructure products and Fiber-To-The-Premises (FTTP) products. Our integrated solutions enable our customers to improve RF performance, power efficiency, reliability, time-to-market and the integration of chip components into single packages, while reducing the size, weight and cost of their products.
We design, develop and manufacture RFICs primarily using GaAs compound semiconductor substrates with various process technologies, Metal Semiconductor Field Effect Transistors (MESFET), Pseudomorphic High Electron Mobility Transistors (pHEMT), and Heterojunction Bipolar Transistors (HBT). Our proprietary technology, which utilizes InGaP-plusTM, combines InGaP HBT and pHEMT processes on a single substrate, enabling us to integrate the PA function and the RF active switch function on the same die. We fabricate substantially all of our ICs in our six-inch diameter GaAs wafer fabrication facility. We believe our strong fabrication capability combined with integrated product design and logistics expertise, allow quick development and manufacture of products to meet market and customer requirements.
The consolidated financial statements include the accounts of ANADIGICS, Inc. and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. Significant estimates that affect the financial statements include, but are not limited to: recoverability of inventories, useful lives and amortization periods and recoverability of long-lived assets.
CONCENTRATION OF CREDIT RISK
The Company grants trade credit to its customers, who are primarily foreign manufacturers of wireless communication devices, cable and broadcast television receivers and fiber optic communication devices. The Company performs periodic credit evaluations of its customers and generally does not require collateral. Sales and accounts receivable from customers are denominated in U.S. dollars. The Company has not experienced significant losses related to receivables from these individual customers.
Net sales to individual customers who accounted for 10% or more of the Company’s total net sales and corresponding end application information are as follows:
Accounts receivable at December 31, 2005 and 2006 from the greater than 10% customers accounted for 29% and 34% of total accounts receivable, respectively.
REVENUE RECOGNITION
Revenue from product sales is recognized when the title, risk and rewards of product ownership are transferred to the customer, price and terms are fixed, no significant vendor obligation exists and collection of the resulting receivable is reasonably assured. The Company sells to certain distributors who are granted rights of return and exchange and certain price protection. Revenue is not recognized for the portion of shipments subject to return, exchange or price protection until such rights expire. The Company charges customers for the costs of certain contractually-committed inventories that remain at the end of a product's life. Cancellation revenue is recognized when cash is received. The value of the inventory related to cancellation revenue may, in some instances, have been reserved during prior periods in accordance with the Company’s inventory obsolescence policy. The Company maintains an allowance for doubtful accounts for estimated losses resulting from customers' failure to make payments.
WARRANTY COSTS
The Company provides, by a current charge to income, an amount it estimates, by examining historical returns and other information it deems critical, will be needed to cover future warranty obligations for products sold during the year. The accrued liability for warranty costs is included in accrued liabilities in the consolidated balance sheets.
PLANT AND EQUIPMENT
Plant and equipment are stated at cost. Depreciation of plant, furniture and equipment has been provided on the straight-line method over 3-5 years. Leasehold improvements are amortized and included in depreciation over the useful life of the leasehold or the life of the lease, whichever is shorter.
The cost of equipment acquired under capital leases was $9,781 and $9,806 at December 31, 2005 and 2006, respectively, and accumulated amortization was $7,726 and $8,072 at December 31, 2005 and 2006, respectively. Equipment acquired under a capital lease is amortized and included in depreciation over the useful life of the leased equipment or the life of the lease, whichever is shorter.
GOODWILL AND OTHER INTANGIBLES
Goodwill, process technology, customer list and a covenant-not-to-compete were recorded as part of the Company's acquisitions. Goodwill is not subject to amortization but is reviewed for potential impairment annually or upon the occurrence of an impairment indicator using a two-phase process. The first phase screens for impairment; while the second phase measures the impairment. Process technology, the customer list and the covenant continued to be amortized using the straight-line method over three to four year lives. The carrying amount of the Company’s intangibles are reviewed on a regular basis for any signs of an impairment. The Company determines if the carrying amount is impaired based on anticipated cash flows. In the event of impairment, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the asset. For each of the reporting units, fair value is determined primarily using the anticipated cash flows, discounted at a rate commensurate with the associated risk.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets used in operations are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and fair value. Long-lived assets held for sale are reported at the lower of cost or fair value less costs to sell.
INCOME TAXES
Deferred income taxes reflect the net effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the income tax basis of such assets and liabilities. The Company maintains a full valuation allowance on its deferred tax assets.
RESEARCH AND DEVELOPMENT COSTS
The Company charges all research and development costs associated with the development of new products to expense when incurred.
CASH EQUIVALENTS
The Company considers all highly liquid marketable securities with a maturity of three months or less when purchased as cash equivalents.
MARKETABLE SECURITIES
Available for sale securities are stated at fair value, as determined by quoted market prices, with unrealized gains and losses reported in other accumulated comprehensive income or loss. The cost of securities sold is based upon the specific identification method. The amortized cost of debt securities is adjusted for amortization of premium and accretion of discounts to maturity. Such amortization, realized gains and losses, interest and dividends are included in interest income. See Note 7 for a summary of available for sale securities.
INVENTORY
Inventories are valued at the lower of cost or market ("LCM"), using the first-in, first-out method. In addition to LCM limitations, the Company reserves against inventory items for estimated obsolescence or unmarketable inventory. The reserve for excess and obsolete inventory is primarily based upon forecasted short-term demand for the product and any change to the reserve arising from forecast revisions is reflected in cost of sales in the period the revision is made.
DEFERRED RENT
Aggregate rental expense is recognized on a straight-line basis over the lease terms of operating leases that contain predetermined increases in rentals payable during the lease term.
FOREIGN CURRENCY TRANSLATION
The financial statements of subsidiaries outside of the United States are measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet date. The resultant translation adjustments are included in other accumulated comprehensive income or loss. Income and expense items are translated at the average monthly rates of exchange. Gains and losses from foreign currency transactions of these subsidiaries are included in the determination of net income or loss.
EARNINGS PER SHARE
Basic and diluted earnings per share are calculated in accordance with FASB Statement No. 128, Earnings Per Share. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised resulting in the issuance of common stock of the Company. Any dilution arising from the Company's outstanding stock options or shares potentially issuable upon conversion of the Convertible notes are not included as their effect is anti-dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The fair value of each of the following instruments approximates their carrying value because of the short maturity of these instruments: cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities. At December 31, 2005 and 2006, the fair value of the Company's outstanding Convertible senior notes, estimated based upon dealer quotes, were approximately $93,694 and $71,516, respectively compared to their carrying values of $84,700 and $38,000, respectively.
STOCK-BASED COMPENSATION
The Company has various stock-based compensation plans for employees and directors, which are described more fully in Note 12 “Employee Benefits Plans”. Effective January 1, 2006, the Company accounts for these plans under Financial Accounting Standards Board (FASB) Statement No. 123R Share Based Payment (FAS 123R).
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 2006, the Company adopted FASB Statement No. 151 (FAS 151), Inventory Costs, an amendment of Accounting Research Bulletin No. 43 (ARB No. 43), Chapter 4. FAS 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted materials should be recognized as current period charges. In addition, FAS 151 requires that allocation of fixed production overhead to inventory be based on the normal capacity of the production facilities. The adoption of FAS 151 did not have a material impact on the condensed consolidated financial statements.
In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting and disclosure for uncertainty in tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The Company adopted FIN 48 on January 1, 2007 and currently believes it will not have a material impact on its consolidated financial statements.
In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements” (FAS 157) which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company has not yet determined the impact FAS 157 may have on our results from operations or financial position.
In February, 2007, the FASB issued FASB Statement No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (FAS 159), which permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. FAS 159 is effective for fiscal years beginning after November 15, 2007. The Company has not yet determined the impact FAS 159 may have on our results of operations or financial position.
2.
INTANGIBLES AND GOODWILL
As of December 31, 2005 and 2006, the Company's intangible assets consist of the following:
Annual amortization expense related to intangible assets is calculated over their estimated useful lives of three to four years and was $194, $240 and $115 in the years ended December 31, 2004, 2005 and 2006, respectively. The $11 unamortized balance at December 31, 2006 relating to process technology will be fully amortized in 2007.
3. RESTRUCTURING AND OTHER CHARGES
The January 1, 2005 restructuring balance related to lease-related costs. Certain lease-related obligations were settled during 2005 and resulted in a savings to the Company of $120.
Activity and liability balances related to the restructuring and other charges for the years ended December 31, 2004, 2005 and 2006 are as follows:
Balance
January 1, 2004 restructuring balance
$
1,994
Deductions
(1,268
)
December 31, 2004 restructuring balance
Deductions
(566
)
Savings on settlement of obligation
(120
)
December 31, 2005 restructuring balance
Deductions
(40
)
December 31, 2006 restructuring balance
$
-
4. SEGMENTS
The Company operates in one segment. Its integrated circuits are primarily manufactured using common manufacturing facilities located in the same domestic geographic area. All operating expenses and assets of the Company are combined and reviewed by the chief operating decision maker on an enterprise-wide basis, resulting in no additional discrete financial information or reportable segment information.
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:
The Company primarily sells to three geographic regions: Asia, USA and Canada, and Other. The geographic region is determined based on shipping addresses, not on the locations of the ultimate users. Net sales to each of the three geographic regions are as follows:
5. LONG-TERM DEBT
On September 24, 2004, the Company issued $38,000 aggregate principal amount of 5% Convertible Senior Notes (“2009 Notes”) due October 15, 2009. The 2009 Notes are convertible into shares of the Company’s common stock at any time prior to their maturity, at an initial conversion rate, subject to adjustment, of 200 shares for each $1,000 principal amount, which is equivalent to a conversion price of $5.00 per share (7,600 shares contingently issuable). Pursuant to the indenture, dated as of September 24, 2004, between the Company and U.S. Bank Trust Association, as trustee, in the event of a “fundamental change” on or prior to July 15, 2009, the Company will pay a make whole premium upon the repurchase or conversion of the 2009 Notes. Subject to certain exceptions, the make whole premium will be 1% of the principal amount of the 2009 Notes, plus an additional premium based on the date such “fundamental change” becomes effective and the price paid per share of the Company’s common stock in the transaction constituting the “fundamental change”. Interest on the 2009 Notes is payable semi-annually in arrears on April 15 and October 15 of each year.
On November 27, 2001, the Company issued $100,000 aggregate principal amount of 5% Convertible Senior Notes ("2006 Notes") due November 15, 2006. The 2006 Notes were convertible into shares of common stock at a rate of 47.619 shares for each $1,000 principal amount (convertible at a price of $21.00 per share), subject to adjustment. During 2002, the Company repurchased and retired $33,300 aggregate principal amount of the 2006 Notes. In addition, in the third quarter of 2004 and concurrent with the issuance of the 2009 Notes, the Company repurchased and retired $20,000 aggregate principal amount of the 2006 Notes for $19,758 in cash, inclusive of accrued interest of $358. The Company recognized a gain of $327 on the repurchase, after adjusting for the write-off of a proportionate share of unamortized offering costs. On November 15, 2006, the Company repaid the remaining $46,700 balance of the 2006 Notes obligation.
Unamortized debt issuance costs of $1,999 and $1,273 at December 31, 2005 and 2006, respectively, consisting principally of underwriters' fees, were included in other assets and are being amortized over the life of the notes.
6. COMMITMENTS AND CONTINGENCIES
The Company leases manufacturing, warehousing and office space and manufacturing equipment under noncancelable operating leases that expire through 2016. The Company also leases certain equipment under capital lease that expires in 2011. Rent expense, net of sublease income was $3,063, $2,447 and $2,101 in 2004, 2005 and 2006, respectively. Sublease income was $780, $270 and $24 in 2004, 2005 and 2006, respectively. The future minimum lease payments under the noncancelable operating leases and the present value of the minimum capital lease payments are as follows:
YEAR
Capital Leases
Operating Leases
2,243
1,961
1,892
1,859
1,858
Thereafter
-
10,398
Total minimum lease payments
2,133
20,211
Less: amount representing interest
(369
)
-
$
1,764
$
20,211
In addition to the above, at December 31, 2006, the Company had unconditional purchase obligations of approximately $10,495.
7. MARKETABLE SECURITIES
The following is a summary of available-for-sale securities:
Management has the ability and intent, if necessary, to liquidate any of its marketable securities in order to meet the Company’s liquidity needs in the next 12 months. Accordingly, certain securities with contractual maturities greater than one year from year-end have been classified as short-term on the accompanying consolidated balance sheet. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations. The amortized cost and estimated fair value of marketable securities at December 31, 2006, are shown below:
8. INVENTORIES
Inventories consist of the following:
9. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
Warranty reserve movements in the years ended December 31, 2005 and 2006 for returns were $397 and $726, respectively. The periodic charges for estimated warranty costs were $634 and $677 in the years ended December 31, 2005 and 2006.
10. INCOME TAXES
The current and deferred components of income taxes for each of the years ended December 31, 2004, 2005 and 2006 were zero.
Deferred tax assets require a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets may not be realized. Whereas realization of the deferred tax assets is dependent upon the timing and magnitude of future taxable income prior to the expiration of the deferred tax attributes, management began recording a full valuation allowance in 2001. The amount of the deferred tax assets considered realizable, however, could change if estimates of future taxable income during the carry-forward period are changed.
Significant components of the Company’s net deferred taxes as of December 31, 2005 and 2006 are as follows:
As of December 31, 2006, the Company had net operating loss carryforwards of approximately $298,000 for both federal and state tax reporting purposes. The federal carryforward will begin to expire in 2019, and the state carryforwards have begun to expire. At December 31, 2006, $27,403 of the deferred tax asset related to net operating loss carryforwards and an equivalent amount of deferred tax asset valuation allowance represented tax benefits associated with the exercise of non-qualified stock options and restricted stock deduction over book. Such benefit, when realized, will be credited to additional paid-in capital.
The earnings associated with the Company’s investment in its foreign subsidiaries is considered to be permanently invested and no provision for U.S. federal and state income taxes on those earnings or translation adjustments have been provided.
The reconciliation of income tax expense computed at the U.S. federal statutory rate to the benefit from income taxes is as follows:
11. STOCKHOLDERS' EQUITY
In March 2006, the Company completed an underwritten public offering of 10,446 shares of common stock at a price of $5.50 which generated net proceeds to the Company of $53,110.
On December 17, 1998, the Company adopted a Shareholders’ Rights Agreement (the “Agreement”). Pursuant to the Agreement, as amended on November 30, 2000, rights were distributed as a dividend at the rate of one right for each share of ANADIGICS, Inc. common stock, par value $0.01 per share, held by stockholders of record as of the close of business on December 31, 1998. The rights will expire on December 17, 2008, unless earlier redeemed or exchanged. Under the Agreement, each right will entitle the registered holder to buy one one-thousandth of a share of Series A Junior Participating Preferred Stock at a price of $75.00 per one one-thousandth of a share, subject to adjustment in accordance with the Agreement. The rights will become exercisable only if a person or group of affiliated or associated persons acquires, or obtains the right to acquire, beneficial ownership of ANADIGICS, Inc. common stock or other voting securities that have 18% or more of the voting power of the outstanding shares of voting stock, or upon the commencement or announcement of an intention to make a tender offer or exchange offer, the consummation of which would result in such person or group acquiring, or obtaining the right to acquire, beneficial ownership of 18% or more of the voting power of ANADIGICS, Inc. common stock or other voting securities.
12. EMPLOYEE BENEFIT PLANS
Effective January 1, 2006, the Company adopted the provisions of FAS 123R in accounting for share based payments to employees, having previously followed the provisions of Accounting Principles Board Opinion Number 25, “Accounting for Stock Issued to Employees”, as permitted by FAS 123. The Company has adopted FAS 123R using the modified-prospective transition method, which requires the recognition of compensation expense over the remaining vesting period for all awards that remain unvested as of January 1, 2006. The Company adopted the alternative transition method provided in FASB Staff Position No. FAS 123R-3 “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards” for calculating the tax effects of stock-based compensation. The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in-capital pool (APIC pool) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and consolidated statements of cash flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of FAS 123R.
Equity Compensation Plans
The Company had 4 equity compensation plans under which equity securities are authorized for issuance to employees and/or directors:
§
The 1995 Long-Term Incentive and Share Award Plan for Officers and Directors (terminated February 28, 2005) (“1995 Plan”);
§
The 1997 Long Term Incentive and Share Award Plan (“1997 Plan”);
§
The 2005 Long Term Incentive and Share Award Plan (“2005 Plan”, collectively with the 1995 Plan and the 1997 Plan, “the Plans”); and
§
The ESP Plan.
Employees and outside directors have been granted restricted stock and options to purchase shares of common stock under stock option plans adopted in 1995, 1997 and 2005. An aggregate of 4,913, 5,100 and 5,450 shares of common stock were reserved for issuance under the 1995 Plan, the 1997 Plan and the 2005 Plan, respectively. The Plans provide for the granting of stock options, stock appreciation rights, restricted shares and other share based awards to eligible employees and directors, as defined in the Plans. Option grants have terms of ten years and become exercisable in varying amounts over periods of up to three years. To date, no stock appreciation rights have been granted under the Plans.
In 1995, the Company adopted the ESP Plan under Section 423 of the Internal Revenue Code. All full-time employees of ANADIGICS, Inc. and part-time employees, as defined in the ESP Plan, are eligible to participate in the ESP Plan. An aggregate of 2,694 shares of common stock were reserved for offering under the ESP Plan. Offerings are made at the commencement of each calendar year and must be purchased by the end of that calendar year. Pursuant to the terms of the ESP Plan, shares purchased and the applicable per share price were 182 ($3.11), 328 ($3.13) and 187 ($5.36), respectively for the years ended December 31, 2004, 2005 and 2006, respectively.
Under FAS 123R, stock-based compensation expense arises from the amortization of restricted stock grants, unamortized stock option grants and from the ESP Plan whereas in 2004 and 2005, only amortization of restricted stock grants was required. The Company is using the straight-line basis in calculating stock-based compensation expense.
The following table illustrates the effect on net loss and loss per common share as if the Company had applied the fair value method to measure stock-based compensation, required under the disclosure provisions of FAS 123R (1):
(1)
Pro forma disclosure for 2004 and 2005 presents the full effect of share based compensation expense as required under FAS 123R, which was adopted effective January 1, 2006 using the modified-prospective method. As reported historical GAAP results for periods prior to January 1, reflect only that portion of share based compensation expense required by GAAP prior to the adoption of FAS 123R.
Restricted Stock Awards
Commencing in August 2004, the Company began granting restricted shares under the Plans. The value of the restricted stock awards are fixed upon the date of grant and amortized over the related vesting period of one to three years. Restricted stock awards are subject to forfeiture if employment terminates prior to vesting. The restricted stock awards carry voting and dividend rights commencing upon grant but may not be traded or transferred prior to vesting. Grant, vest and forfeit activity and related weighted average (WA) price per share for restricted stock and for stock options during the period from January 1, 2004 to December 31, 2006 is presented in tabular form below:
* shares were repurchased by the Company to fund withholding tax obligations.
Exercisable options and their related average exercise prices were 6,172 ($7.94), 5,759 ($7.83) and 4,644 ($8.30) as of December 31, 2004, 2005 and 2006, respectively. The total fair value of restricted shares vested during the years ended December 31, 2005 and 2006 were $808 and $4,003, respectively. The intrinsic value of exercised options during the years ended December 31, 2004, 2005 and 2006 were $2,098, $932 and $3,801, respectively.
In January 2007, the Company granted an additional 608 restricted shares under the 2005 Plan at a market price equal to $9.53, which represented the fair market value at the date of grants.
Weighted average information as of December 31, 2006
Options currently exercisable
Shares issuable upon exercise
4,644
Weighted average exercise price
$
8.30
Weighted average remaining contractual term
4.8 years
Weighted average remaining contractual term for outstanding options
5.7 years
Intrinsic value of exercisable options
$
12,490
Intrinsic value of outstanding options
$
12,885
Unrecognized stock-based compensation cost
Option plans
$
5,171
Restricted stock
$
11,443
Weighted average remaining vest period for option plans
2.0 years
Weighted average remaining vest period for restricted stock
0.9 years
Stock options outstanding at December 31, 2006 are summarized as follows:
On July 3, 2003, the Company announced a voluntary stock option exchange program for employees and officers. Directors of the Company were not eligible for the exchange program. Pursuant to the terms and conditions of the offer, which expired on August 4, 2003, the Company accepted for cancellation options to purchase 1,674 shares of common stock having a weighted average exercise price of $19.49. On February 6, 2004, participating employees were issued 552 stock options, under this one for three exchange program, for the cancelled options. The new options have an exercise price equal to $7.27, which represented the fair market value at the date of grant and are now fully vested.
On December 22, 2004, the Company authorized the immediate vesting of eligible employees’ unvested share options with an exercise price greater than $5.00 per share. Directors were not eligible. In total, 1,772 options with an average exercise price of $7.26 immediately vested and had an average remaining contractual life of 9.1 years. The unamortized fair value associated with these accelerated-vest shares in the amount of $2,654 amortized immediately. Had the accelerated-vest program not occurred, the related cost in the years ended December 31, 2006 and 2007 would have included $751 and $57, respectively. In addition to its employee-retention value, the Company’s decision to accelerate the vesting of these “out-of-the-money” options was based upon the accounting of such costs moving from disclosure-only in 2004 to being included in the Company’s consolidated statement of operations in 2005 based upon the Company’s expected adoption of FAS 123R prior to its required adoption date being deferred. For the year ended December 31, 2005, $1,846 would have been included in the pro forma disclosure.
Valuation for ESP Plan and Stock Option Awards
The fair value of these equity awards was estimated at the date of grant using a Black-Scholes option pricing model. The weighted average assumptions and fair values for stock-based compensation grants used for the years ended December 31, 2004, 2005 and 2006 are summarized below:
In adopting FAS 123R on January 1, 2006, the Company evaluated the assumptions used in the Black Scholes model and modified its methodology for computing the expected volatility and expected term. Expected volatility was modified from being based solely on Company historical volatility to a combination of both Company and peer company historical volatility. The expected term of the stock options was modified from being based solely on historical observations of employee exercise patterns to being also combined with expectations of employee exercise behavior in the future giving consideration to the contractual terms of the stock-based awards. The risk free interest rate assumption has consistently been based on the yield at the time of grant of a U.S. Treasury security with an equivalent remaining term. The Company has never paid cash dividends and does not currently intend to pay cash dividends and has consistently assumed a 0% dividend yield.
ANADIGICS, Inc. also sponsors an Employee Savings and Protection Plan under Section 401(k) of the Internal Revenue Code which is available to all full-time employees. Employees can make voluntary contributions up to limitations prescribed by the Internal Revenue Code. This plan was amended in 2001 and the Company now matches 50% of employee contributions up to 6% of their gross pay. The Company recorded expense of $730, $675 and $746 for the years ended December 31, 2004, 2005 and 2006, respectively, relating to plan contributions.
13. EARNINGS PER SHARE
The reconciliation of shares used to calculate basic and diluted earnings per share consists of the following:
* Any dilution arising from the Company's outstanding stock options or shares potentially issuable upon conversion of the Convertible notes are not included as their effect is anti-dilutive.
14. OTHER ACCUMULATED COMPREHENSIVE INCOME (LOSS)
The components of other accumulated comprehensive income (loss) are as follows:
Foreign Currency Translation Adjustments
Unrealized Gain (loss) on available-for-sale securities
Total
Balance at December 31, 2004
$
$
(511
)
$
(486
)
Unrealized gain on available-for-sale securities
-
Foreign currency translation adjustment
(72
)
-
(72
)
Balance at December 31, 2005
(47
)
(269
)
(316
)
Unrealized gain on available-for-sale securities
-
Foreign currency translation adjustment
-
Balance at December 31, 2006
$
(38
)
$
(62
)
$
(100
)
15. LEGAL PROCEEDINGS
ANADIGICS is a party to litigation arising out of the operation of our business. We believe that the ultimate resolution of such litigation should not have a material adverse effect on our consolidated financial condition or results of operation.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
and 2006 Quarterly Financial Data
The following table sets forth certain unaudited results of operations for each quarter during 2006 and 2005. The unaudited information has been prepared on the same basis as the audited consolidated financial statements and includes all adjustments which management considers necessary for a fair presentation of the financial data shown. The operating results for any quarter are not necessarily indicative of the results to be attained for any future period. Basic and diluted loss per share are computed independently for each of the periods presented. Accordingly, the sum of the quarterly loss per share may not agree to the total for the year (in thousands, except for per share data).
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
For information regarding the Company’s change in independent registered public accounting firm from Ernst & Young LLP to J.H. Cohn LLP during its fiscal year ended December 31, 2005, please refer to the Company’s current report on Form 8-K filed with the SEC on June 3, 2005. The Company had no disagreements during its 2005 and 2006 fiscal years with its independent auditors regarding accounting or financial disclosure matters.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer, or CEO and Chief Financial Officer, or CFO, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2006. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported as specified within the SEC’s rules and forms.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework of Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2006.
Our management’s evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2006 has been audited by J.H. Cohn LLP, an independent registered public accounting firm, as stated in their report which is included below.
There was no change in the Company’s internal control over financial reporting during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations of Controls
Because of their inherent limitations, disclosure controls and procedures and internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
ANADIGICS, Inc.
We have audited management's assessment, included in Item 9A, Management's Report on Internal Control over Financial Reporting, that ANADIGICS, Inc. maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. ANADIGICS, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that ANADIGICS, Inc. maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in "Internal Control - Integrated Framework" issued by the Committee of the Sponsoring Organizations of the Treadway Commission. Also, in our opinion, ANADIGICS, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on such criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of ANADIGICS, Inc. as of December 31, 2006, and the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for the year then ended, and our report dated February 27, 2007 expressed an unqualified opinion thereon.
/s/ J.H. Cohn LLP
Roseland, New Jersey
February 27, 2007
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The Company has adopted a Code of Conduct and Business Ethics that applies to directors, officers and employees, including the President and Chief Executive Officer, and Chief Financial Officer and has posted such code on its website at (www.anadigics.com). Changes to and waivers granted with respect to the Company’s Code of Conduct and Business Ethics for officers and directors that are required to be disclosed pursuant to the applicable rules and regulations will be filed on a current report on Form 8-K and posted on the Company website.
The registrant incorporates by reference herein information to be set forth in its definitive proxy statement for its 2007 annual meeting of shareholders that is responsive to the information required with respect to this Item.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The registrant incorporates by reference herein information to be set forth in its definitive proxy statement for its 2007 annual meeting of shareholders that is responsive to the information required with respect to this Item.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The registrant incorporates by reference herein information to be set forth in its definitive proxy statement for its 2007 annual meeting of shareholders that is responsive to the information required with respect to this Item.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
The registrant incorporates by reference herein information to be set forth in its definitive proxy statement for its 2007 annual meeting of shareholders that is responsive to the information required with respect to this Item.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The registrant incorporates by reference herein information to be set forth in its definitive proxy statement for its 2007 annual meeting of shareholders that is responsive to the information required with respect to this Item.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) 1. Financial Statements
Financial Statements are included in Item 8, "Financial Statements and Supplementary Data" as follows:
-
Reports of Independent Registered Public Accounting Firms
-
Consolidated Balance Sheets - December 31, 2005 and
-
Consolidated Statements of Operations - Year ended December 31, 2004, 2005 and
-
Consolidated Statements of Comprehensive Loss - Year ended December 31, 2004, 2005 and
-
Consolidated Statements of Stockholders’ Equity - Year ended December 31, 2004, 2005 and 2006
-
Consolidated Statements of Cash Flows - Year ended December 31, 2004, 2005 and
-
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
(b) Exhibit List
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 27th day of February 2007.
ANADIGICS, INC.
BY: /s/ Bami Bastani
-----------------------------------------
Dr. Bami Bastani
CHIEF EXECUTIVE OFFICER
AND PRESIDENT
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Bami Bastani and Thomas Shields as his attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign and file any and all amendments to this Annual Report on Form 10-K, with all exhibits thereto and hereto, and other documents with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF ANADIGICS, INC. IN THE CAPACITIES AND ON THE DATES INDICATED:
Name
Title
Date
/s/ Bami Bastani
President, Chief Executive Officer and Director (Principal Executive Officer)
February 27, 2007
Dr. Bami Bastani
/s/ Thomas C. Shields
Executive Vice President and Chief Financial Officer (Principal Financial Accounting Officer)
February 27, 2007
Thomas C. Shields
/s/ Ronald Rosenzweig
Chairman of the Board of Directors
February 27, 2007
Ronald Rosenzweig
/s/ Paul S. Bachow
Director
February 27, 2007
Paul S. Bachow
/s/ Garry McGuire
Director
February 27, 2007
Garry McGuire
/s/ Harry T. Rein
Director
February 27, 2007
Harry T. Rein
/s/ Lewis Solomon
Director
February 27, 2007
Lewis Solomon
/s/ Dennis F. Strigl
Director
February 27, 2007
Dennis F. Strigl
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Description
(Dollars in Thousands)
Balance at beginning of period
Additions charged to costs and expenses
Deductions
Balance at end of period
Year ended December 31, 2006:
Deducted from asset account:
Allowance for doubtful accounts
$
1,060
$
$
(70
)
(1
)
$
1,115
Reserve for excess and obsolete inventory
2,902
1,704
(823
)
(2
)
3,783
Reserve for warranty claims
(726
)
(3
)
Year ended December 31, 2005:
Deducted from asset account:
Allowance for doubtful accounts
$
$
$
(18
)
(1
)
$
1,060
Reserve for excess and obsolete inventory
4,074
(1,441
)
(2
)
2,902
Reserve for warranty claims
(397
)
(3
)
Year ended December 31, 2004
Deducted from asset account:
Allowance for doubtful accounts
$
$
$
(4
)
(1
)
$
Reserve for excess and obsolete inventory
4,745
1,636
(2,307
)
(2
)
4,074
Reserve for warranty claims
(331
)
(3
)
(1) Uncollectible accounts written-off to the allowance account.
(2) Inventory write-offs to the reserve account.
(3) Warranty expenses incurred to the reserve for warranty claims.
EXHIBIT
Subsidiaries of ANADIGICS, Inc.
Name of Subsidiary
State of Jurisdiction of Incorporation
% Owned
ANADIGICS (U.K.) Limited
United Kingdom
100%
ANADIGICS, Limited
Israel
100%
ANADIGICS Denmark ApS
Denmark
100%
ANADIGICS Acquisition Corp
Delaware
100%
ANADIGICS Holding Corp.
Delaware
100%
Broadband & Wireless Investors, Incorporated
Delaware
100%
Telcom Devices Corp.
California
100%
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-125971 and Form S-8 No. 333-136280) pertaining to the ANADIGICS, Inc. 2005 Long-Term Incentive and Share Award Plan and Amended and Restated Employee Stock Purchase Plan and the Registration Statement (Form S-8 No. 33-91750) pertaining to the ANADIGICS, Inc. Stock Option Plan, 1994 Long-Term Incentive and Share Award Plan, 1995 Long-Term Incentive Share Award Plan and Employee Stock Purchase Plan, in the Registration Statements (Form S-8 No. 33-32533 and Form S-8 No. 333-63836) pertaining to the ANADIGICS, Inc. 1997 Long-Term Incentive and Share Award Plan for Employees and in the Registration Statements (Form S-3 No. 333-75040, Form S-3 No. 333-110538, Form S-3 No. 333-120947 and Form S-3 No. 333-139124) of our reports dated February 27, 2007, with respect to the consolidated financial statements and schedule of ANADIGICS, Inc. and ANADIGICS, Inc. management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of ANADIGICS, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2006.
/s/ J.H. Cohn LLP
Roseland, New Jersey
February 27, 2007
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-91750) pertaining to the ANADIGICS, Inc. Stock Option Plan, 1994 Long-Term Incentive and Share Award Plan, 1995 Long-Term Incentive Share Award Plan and Employee Stock Purchase Plan, in the Registration Statements (Form S-8 No. 333-32533 and Form S-8 No. 333-63836) pertaining to the ANADIGICS, Inc. Long-Term Incentive and Share Award Plan for Employees, in the Registration Statement (Form S-8 No. 333-125971) pertaining to the ANADIGICS, Inc. 2005 Long Term Incentive and Share Award Plan and the Amended and Restated Employee Stock Purchase Plan, in the Registration Statement (Form S-8 No. 333-136280) pertaining to the ANADIGICS, Inc. Amended and Restated 2005 Long-Term Incentive and Share Award Plan and in the Registration Statements (Form S-3 No. 333-75040, Form S-3 No. 333-110538 Form S-3 No. 333-120947 and Form S-3 No. 333-139124) of our report dated March 2, 2005, with respect to the consolidated statement of operations, comprehensive loss, stockholders’ equity and cash flows of ANADIGICS, Inc. for the year ended December 31, 2004 and the information for the year ended December 31, 2004 included in the related financial statement schedule of ANADIGICS, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2006.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
February 27, 2007