10-K 1 form10k.htm ANADIGICS, INC 10-K 12-31-2013

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013.

Or
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File No. 0-25662

ANADIGICS, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
22-2582106
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
141 Mt. Bethel Road, Warren, New Jersey
07059
(Address of principal executive offices)
(Zip Code)
 
(908) 668-5000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value

The above securities are registered on the NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one): Large accelerated filer o Accelerated filer x Non-accelerated filer (Do not check if a smaller reporting company) o  Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of the voting common equity held by non-affiliates of the registrant as of June 29, 2013 was approximately $179 million, based upon the closing sales price of the registrant’s common equity as quoted on the NASDAQ Global Market on such date.

The number of shares outstanding of the registrant's common stock as of February 20, 2014 was 84,689,234 (excluding 114,574 shares held in treasury).

Documents incorporated by reference: Definitive proxy statement for the registrant’s 2014 annual meeting of shareholders (Part III).

TABLE OF CONTENTS

PART I
 
 
 
Glossary
 
Item 1:
4
Item 1A:
12
Item 1B:
20
Item 2:
20
Item 3:
21
Item 4:
21
 
 
 
PART II
 
 
Item 5:
21
Item 6:
22
Item 7:
22
Item 7A:
30
Item 8:
31
Item 9:
54
Item 9A:
54
Item 9B:
56
 
 
 
PART III
 
 
Item 10:
56
Item 11:
56
Item 12:
56
Item 13:
56
Item 14:
56
 
 
 
PART IV
 
 
Item 15:
57

FORWARD-LOOKING INFORMATION

CERTAIN STATEMENTS IN THIS REPORT OR DOCUMENTS INCORPORATED HEREIN BY REFERENCE 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. YOU ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISK AND UNCERTAINTIES, AS WELL AS ASSUMPTIONS THAT IF THEY MATERIALIZE OR PROVE INCORRECT, COULD CAUSE RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. FURTHER, ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACT, ARE STATEMENTS THAT COULD BE DEEMED FORWARD-LOOKING STATEMENTS.  WE ASSUME NO OBLIGATION AND DO NOT INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS, EXCEPT AS MAY BE REQUIRED BY LAW. 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 IN THIS ANNUAL REPORT ON FORM 10-K, AS WELL AS THOSE DISCUSSED ELSEWHERE HEREIN.

PART I

Glossary
Term
 
Definition
802.11
 
Is an IEEE set of standards for wireless local area networks.
CATV
 
Cable Television is the distribution of television programs, voice communications, and data access via radio frequency signals transmitted through coaxial cables.
CDMA
 
Code Division Multiple Access is a wireless standard for voice and data communication primarily used in the United States, South Korea, and Japan.
CMOS
 
Complementary Metal-Oxide Semiconductor is technology for constructing integrated circuits, typically in a silicon process, and often for digital applications, such as controller and logic circuits.
DOCSIS
 
Data Over Cable Service Interface Specification is an international standard for cable television data, video and voice communications.
EVDO
 
Evolution Data Optimized is the evolution of CDMA networks to deliver greater data throughput.
FEIC
 
Front-End Integrated Circuit is an RF die that typically contains the power amplifier, RF switch, and low noise amplifier to save space and reduce design time for manufacturers.
FEM
 
Front-End Module is an RF package of multiple die that typically contains the power amplifier, RF switch, low noise amplifier, and additional discrete components to save space and reduce design time for manufacturers.
GaAs
 
Gallium Arsenide is a process technology commonly used in the manufacturing of RF semiconductors.
GaN
 
Gallium Nitride is a process technology commonly used in the manufacturing of high power RF semiconductors, such as CATV infrastructure devices.
HBT
 
Heterojunction Bipolar Transistor is a structure that is commonly used for amplifying circuits.
HELP™
 
High-Efficiency-at-Low Power is a proprietary ANADIGICS technology that provides high efficiency at low and medium output power levels to increase talk-time in mobile communication devices.
HSPA
 
High Speed Packet Access is an evolution of the WCDMA wireless standard that is deployed around the world to provide greater data throughput
IC
 
Integrated Circuit.
IEEE
 
Institute of Electrical and Electronics Engineers is a professional organization that helps set standards for communication protocols.
ILD
 
Inter Layer Dielectric is material used to electrically separate closely spaced interconnect lines.
InGaP-Plus
 
Is a proprietary ANADIGICS Indium Gallium Phosphide technology that combines HBT amplifying structures and pHEMT RF switches on the same die to enable greater levels of performance and integration.
LAN
 
Local Area Network is an interconnection of computers and other electronic devices in a limited area, such as a home, school, or business.
LTE
 
Long Term Evolution is a 4G wireless standard that is currently being deployed around the world as a high-speed data connectivity compliment to existing CDMA/EVDO and WCDMA/HSPA networks.
M2M
 
Machine-to-Machine refers to technologies that allow systems and components to communicate with each other, such as sensors and meters.
MESFET
 
Metal Semiconductor Field Effect Transistor is a technology commonly used in RF semiconductors, such as CATV infrastructure devices.
MMIC
 
Monolithic Microwave Integrated Circuit is often associated with radio frequency devices, such as surface mount line amplifiers.
ODM
 
Original Design Manufacturers.
OEM
 
Original Equipment Manufacturers.
PA
 
Power Amplifier is a circuit that amplifies a signal.
pHEMT
 
Pseudomorphic High-Electron-Mobility Transistor is a structure that is commonly used for switching circuits.
ProEficient™
 
Is a proprietary ANADIGICS technology that provides high efficiency across all output power levels to increase battery-life, including data use operating time and talk-time in mobile devices.
ProEficient-Plus
 
Is a proprietary ANADIGICS technology that delivers the highest combined efficiency across all output power levels to maximize overall battery-life in mobile devices.
ProVantage™
 
Is a proprietary ANADIGICS technology that offers high efficiency at high power levels to increase battery life, while reducing overall cost and required external components to provide greater value.
RF
 
Radio Frequency describes communications properties.
RFIC
 
Radio Frequency Integrated Circuit is a semiconductor solution for communications, including voice, data, and video.
WCDMA
 
Wideband Code Division Multiple Access is a wireless standard for voice and data communications, commonly used around the world as a compliment to slower GSM/EDGE networks.
WiFi
 
Is a WLAN network product that adheres to IEEE 802.11 standards.
WiMAX
 
Worldwide Interoperability for Microwave Access is a 4G wireless broadband standard that is being deployed primarily in Asia and North America.
WLAN
 
Wireless Local Area Network links two or more devices using a wireless connection.
 
ITEM 1. BUSINESS.

Overview

ANADIGICS, Inc. (“we” or the “Company”) is a global leader in the design and manufacture of radio frequency semiconductor solutions for cellular, WiFi, wireless infrastructure and CATV applications.  We were incorporated in Delaware in 1984.  Our headquarters are located at 141 Mt. Bethel Road, Warren, New Jersey 07059, and our telephone number at that address is 908-668-5000.

We design and manufacture differentiated RF semiconductors.  Our business strategy is focused on enabling communications connectivity with RF solutions that offer greater performance and integration to enhance the user’s experience.  We are a customer-centric organization that works closely with leading equipment manufacturers, such as OEMs and ODMs.  We also partner with industry-leading chipset providers where our functionality enhances their reference designs.  These relationships enable us to provide targeted applications expertise that helps reduce time-to-market and design new products that target emerging trends in the market.

Our product portfolio includes power amplifiers, FEICs, FEMs and line amplifiers.  Many of these products leverage our patented InGaP-Plus™ and proven MESFET technologies.  InGaP-Plus provides greater flexibility to our engineers and product designers, enabling them to develop unique architectures that combine HBT amplifying structures and pHEMT RF switches on the same die.  We believe that when used in our customers’ communication device products, our solutions cost effectively enhance RF performance, reliability and overall functionality.
Our products are optimized for a variety of wireless and infrastructure communications applications.
 
· Our cellular power amplifiers and FEMs enable mobile handsets, smartphones, tablets, notebooks, datacards, automotive, M2M, and industrial devices to access 3G and 4G wireless networks.  These networks operate on international standards, such as LTE, HSPA, WCDMA, EVDO, CDMA, and WiMAX.
· Our WiFi FEICs and power amplifiers enable wireless LAN connectivity for mobile, multimedia and infrastructure devices, including smartphones, tablets, notebooks, televisions, set-top boxes, modems, routers, and access points.  These solutions are optimized for the latest WiFi standards, including 802.11ac and 802.11n.
· Our infrastructure solutions include both wireless infrastructure and CATV products.
o Our wireless infrastructure power amplifiers enable 3G and 4G small-cell base stations.
o Our CATV line amplifiers and other RF products provide the critical link in CATV network infrastructure devices, as well as set-top boxes and cable modems.

We expect our business will benefit in the long-term from three market dynamics directly related to the rapid global increase data consumption.

1.
Accelerating demand for data in wireless 3G and 4G devices. The migration to 3G and 4G high-speed data standards is driving the demand for mobile devices to include multiple modes and bands.  This increases the number of power amplifiers required for each device, expanding our market opportunity.  These data standards also increase the performance requirements placed upon the power amplifier.  Mobile devices typically operate in high power mode during data use and low/medium power mode during voice communication.  Our ProEficient™ and ProEficient-Plus™ power amplifiers are optimized for mid- to high-tier devices by delivering the industry’s highest efficiency across all power modes for longer battery-life. Additionally, our ProVantage™ power amplifiers are optimized for low- to mid-tier mobile devices by providing high efficiency with lower overall system cost to offer greater value.  These solutions also provide exceptional linearity to maintain a high quality wireless connection.
 
2.
The continued adoption of high-speed broadband WiFi connectivity.  Consumer demand for instantaneous information has paved the way for an unprecedented level of WiFi integration across a variety of end applications.  Users are able to reliably connect a wide range of mobile, desktop and multimedia devices using wireless LAN.  The 802.11ac and 802.11n standards enable speeds that rival traditional wireline Ethernet networks. Our new power amplifiers, optimized for infrastructure and multimedia applications, deliver industry-leading output power, gain and linearity to ensure reliable transmission of data at extended ranges.  They offer exceptional power saving performance to help customers manage the overall thermal design of their products.  Our FEICs feature exceptional integration and greater efficiency to maximize battery life and minimize space requirements in both mobile and WiFi infrastructure applications.
 
3. The deployment of infrastructure solutions to support these data requirements. The accelerated use of wireless mobile and WiFi data places larger demands on infrastructure.  CATV networks deliver high speed data services and the adoption of the latest DOCSIS 3.1 standard supports the increase in data consumption. Our newest DOCSIS 3.1 infrastructure solutions, including line amplifiers, offer outstanding performance for greater wireless data throughput and industry-leading reliability to maximize uptime. To increase cellular capacity in densely populated areas, mobile carriers are starting to leverage small-cell solutions.  Our small-cell power amplifiers offer an industry-leading combination of efficiency, linearity, output power and thermal characteristics, enabling manufacturers to develop wireless infrastructure devices that consume less power, and provide higher throughput and greater coverage.
 
We believe that our solutions are well positioned to address these market dynamics and will enable us to deliver value in the cellular, WiFi, wireless infrastructure and CATV markets.

Industry Background

Cellular Market

Wireless handsets and mobile data devices utilize a semiconductor chipset to enable communication with the network.  Key components of a wireless semiconductor chipset include a baseband, transceiver and one or more power amplifiers.  Each power amplifier boosts the transmitter RF output to deliver enough signal power to enable connection with the radio access network for data throughput and voice.

The number of wireless devices designed for 3G and 4G standards is expected to grow significantly faster than the overall market over the next several years.  Many of these devices include LTE, which is a 4G standard that continues to gain worldwide momentum as demand for high-speed data connectivity accelerates. A survey by the GSA (GSM Suppliers Association) in October 2013 found that 222 LTE networks have already launched, an increase of more than 100% over the previous year.  These new LTE networks are being deployed to complement existing WCDMA/HSPA and CDMA/EVDO networks.  This trend requires mobile devices to support multiple modes and multiple frequency bands.  The served available market consequently expands with each multimode multiband device requiring several power amplifiers.

These 3G and 4G standards coupled with increased data consumption place tremendous performance pressure on the RF power amplifier.  Specifically, exceptional linearity performance is required to maintain high data throughput, and outstanding efficiency is required to maximize battery-life. We believe our manufacturing processes and design technologies such as ProEficient, ProEficient-Plus, ProVantage, HELP provide a competitive advantage by enabling us to provide products that consume less battery power across the operating spectrum and extend operating time.

We continue to work closely with leading OEMs, ODMs, and reference design leaders to design our solutions.  As a qualified power amplifier supplier to top-tier handset manufacturers such as Samsung Electronics, Huawei Technologies, ZTE Corporation, and LG Electronics, we believe that we have strong visibility into next-generation products and can create our roadmap to support their development.  Similarly, we closely collaborate with reference design icons to develop our technology roadmaps.  Our products are specified on leading reference designs, which provides access to additional customers and helps strengthen the relationships with key OEMs and ODMs.  We believe our technology and product advantages coupled with these relationships position us to benefit from the continuing transition to 3G and 4G wireless technologies.

The key drivers of growth in the wireless market are:
· Deployment of 4G networks and services.
· Expansion of 3G footprint and subscriber base in China and other emerging markets.
· Accelerating mobile data consumption through converged devices with high-speed data access, high-definition video, and voice.
· New features and applications driving faster replacement cycles.
· Increased demand for smartphones and converged wireless devices.

WiFi Market

WiFi data consumption continues to increase as 802.11 functionality is embedded in a greater range of devices to provide consumers with ubiquitous connectivity.  According to a September of 2013 Strategy Analytics report WiFi-enabled devices are forecasted to grow to over two billion units per year in 2014.  Demand for the newest generation of ultra-high throughput WiFi devices that support the 802.11ac standard continues to accelerate in support of greater data consumption. As the market continues to adopt 802.11ac in both 2.4 GHz and 5 GHz bands for mobile, multimedia and infrastructure applications, we believe that we are well positioned through our WiFi power amplifier and FEIC product families to support this industry-wide transition.

The key drivers of growth in the WiFi market are:
· Adoption of 802.11ac in mobile and multimedia devices, and infrastructure upgrades to support the standard.
· Accelerating use of the internet as the pipeline for media and entertainment.
· Expansion of the WiFi footprint across a variety of applications.
· Rising mobile data consumption leading to cellular network data offloading.
Wireless Infrastructure Market

The accelerating data consumption of 3G and 4G devices is placing tremendous pressure on existing infrastructure.  It is anticipated that carriers will seek new pragmatic solutions to costly traditional infrastructure build outs to solve this challenge.  Small-cell base stations enable carriers to target specific areas of dense data, including urban areas, office, college campuses, and entertainment venues.  Our manufacturing processes and design technologies enable us to provide power amplifiers optimized for new small-cell wireless infrastructure equipment that will support this improvement in wireless networks.  Our small-cell infrastructure power amplifiers have a leadership position in this emerging market and are specified on leading reference designs.
 
CATV Infrastructure Market

We are a leading supplier of line amplifier radio frequency IC amplifiers to the CATV infrastructure market.  The demand for equipment upgrades is driven by the need of cable service providers to offer converged voice, data and video services over their broadband networks, especially in emerging markets.  The additional content requires greater bandwidth.  Our line amplifier MMICs and hybrid modules deliver high performance with industry-leading reliability to support these network upgrades.  Additionally, the migration to DOCSIS 3.1 is expected to drive the newest generation of infrastructure upgrades.  With significantly higher upstream and downstream data rates, DOCSIS 3.1 enables advanced video and higher speed connectivity services.  To achieve this level of performance DOCSIS 3.1 requires greater bandwidth up to 1.2 GHz.  Our newest family of DOCSIS 3.1 solutions has been optimized to support the latest upgrade cycle with line amplifiers, Edge QAM amplifiers and reverse amplifiers that deliver exceptional performance and reliability.  We anticipate that our new line amplifier products will expand our addressable market for CATV infrastructure. These include our traditional GaAs-based and new GaN-based products.  Historically, we have enjoyed long product life cycles in these markets.
 
Our Strategy

We aim to create value through innovative RF solutions that enable instantaneous connectivity anytime, anywhere to support the growing trend toward greater data consumption.  The key elements of our strategy include:

· Expand our serviceable available market (SAM) and target the high growth end market segments.  We believe the cellular, WiFi, wireless infrastructure and CATV markets offer the largest growth opportunity to create and extract value, and are addressing new applications of this market to expand our SAM. We target the fastest-growing segments of the wireless communications markets that demand the highest performance. These segments are cellular-enabled handsets and tablets, WiFi-enabled mobile, multimedia and base station devices, and small-cell infrastructure.  In addition, we expect to increase share in the CATV Infrastructure market by enabling the industry transition to DOCSIS 3.1 with a complete family of high-performance amplifier solutions.
 
· Work closely with industry-leading customers and reference design partners. We continue to develop and strengthen relationships with industry leaders, and reference design organizations, OEMs, and ODMs in the cellular, WiFi, and infrastructure markets.  Working closely with these entities, we believe that we are able to attain greater visibility into industry trends, develop more accurate technology roadmaps and attain insight in product next-generation product specifications.  By partnering with reference design leaders, we aim to achieve specification on, or in some cases, compatibility with leading reference design to expand our access to customers.
 
· Bring patented innovative RF technology to industry-leading products. Our longstanding commitment to innovation in process technology and design has resulted in best-in-class RF products. Our ProEficient and ProEficient-Plus power amplifier architectures create a competitive advantage by combining high efficiency in high power mode for greater 3G and 4G data use with low current consumption in low power mode for greater talk-time. Power amplifier products leveraging this new architecture deliver the highest average efficiency across all power levels for longer battery-life.  Our ProVantage power amplifiers similarly delivers high efficiency in high power mode, while lowering overall system cost to provide exceptional value and enable the next-generation of smartphones and tablets for emerging markets.  Our new WiFi power amplifiers provide an industry-leading combination of high gain, output power, and linearity to maximize data throughput. Developed specifically for infrastructure and multimedia applications, these power amplifiers ensure reliable transmission of HD video.  The performance advantages enabled by our unique technology helps our customers deliver differentiated products to market at competitive prices.
· Build upon our operational excellence and further realize economies of scale. Delivering leading technology products in volume requires expert execution and results in long-term value add throughout the supply chain, most importantly to our customers. We continue to focus on improving the product cost structure by leveraging our three level metal ILD process, lowering metallization cost, and implementing enhanced packaging techniques, such as flip-chip technology.  Business growth, driven by increased unit volume with high quality is critical to semiconductor companies, and are consistent with our core values and the industry’s outgoing demand expectation.
 
· Maintain flexible manufacturing through co-operation and partnerships. Leveraging third-party capabilities to supplement our existing manufacturing capabilities supports our ability to grow scale while limiting costly further capital investment in manufacturing. These capabilities encompass GaAs, GaN and CMOS wafer fabrication, in addition to assembly, packaging and test technologies.
 
· Improve our financial model by focusing on growth areas within key markets.  Over the long term, we seek to increase our gross margins and profitability by focusing on products for markets in which we can achieve a strong competitive position.  This is achieved by demonstrating technological innovation and leadership, by growing share and volumes while controlling our expenses.  Consequently, we intend to focus on supplying products in the following markets:  (1) power amplifiers and FEMs for the 3G and 4G cellular market, (2) power amplifiers and FEICs for the WiFi market, and (3) power amplifiers, line amplifiers, and other RF solutions for wireless and CATV infrastructure markets.  Concurrently, we expect to control research, development and sales expenses to enable a leveraged increase in profitability dollars and return on revenue percentage.
 
Products

We classify our revenues based upon the end application of the product in which our ICs are used.  Of our total net sales for the years ended December 31, 2013, 2012 and 2011, cellular accounted for approximately 55%, 74% and 78%, respectively, infrastructure accounted for approximately 15%, 21% and 19%, respectively, and WiFi accounted for approximately 30%, 5% and 3%, respectively.

Cellular
 
Our Cellular product line includes power amplifier modules for CDMA/EVDO, GSM/EDGE, WCDMA/HSPA, LTE and other wireless technologies for mobile handsets and data devices. The following table describes our principal products for these applications:

Product
Application
Power Amplifiers
Used in RF transmit chain of wireless handset, smartphone, datacard, or embedded module to amplify uplink signal to base station.
Dual-band PAs
Two independent amplification paths in a single package that enables operation in two different frequency bands at lower cost and with less board area compared with single-band PAs.
Penta-band PA Modules
Five PAs in a single package that enables operation in 21 different frequency bands over CDMA, WCDMA, and LTE at lower cost and significantly less board area compared with discrete PA implementations.
ProEficient PAs
ANADIGICS proprietary single-band PA design combines high efficiency at both low and high power levels extending battery-life in LTE, WCDMA/HSPA, and CDMA/EVDO devices.
ProEficient-Plus Pas
ANADIGICS proprietary dual-band power PA design provides the highest average efficiency across all power levels maximizing battery-life in WCDMA/HSPA and CDMA/EVDO converged devices, such as smartphones.
ProVantage PAs
ANADIGICS’ unique PA design that provides high efficiency at high power levels for longer battery life, while reducing external components to save space and reduce overall system cost for an exceptional value.
HELP™ PAs
ANADIGICS patented High-Efficiency-at-Low-Power PA design reduces average power consumption in LTE, WCDMA/HSPA and CDMA/EVDO devices.

8

WiFi
 
Our WiFi products include power amplifiers and front-end ICs for mobile handsets, data devices, entertainment devices, routers, access points and base stations. The following table outlines our principal WiFi products and their applications:

Product
Application
Power Amplifiers
Used in RF transmit chain in access points, routers, media gateways, set-top boxes, smart TVs, smartphones, tablets and notebooks.  Optimized for 2.4 GHz 802.11b/g/n and 5 GHz 802.11a/n/ac applications, our power amplifiers deliver exceptional gain, output power and linearity to enable ultra-high throughput at extended range.
Front-End ICs
An RF front-end solution, including the power amplifier, low noise amplifier, and RF switch contained on a single-die, that are used on the transmit chain of 2.4 GHz 802.11b/g/n/ac and 5 GHz 802.11a/n/ac wireless devices. Our FEICs help reduce the board space requirements and calibration time compared with discrete components.
 
Infrastructure
 
Our Infrastructure product line encompasses video, voice and data telecommunications systems, consisting of CATV, and Wireless Infrastructure applications. The following table outlines our principal Infrastructure products and their applications:

Product
Application
CATV Infrastructure Products
GaAs and GaN Line Amplifiers
Used to distribute RF signals from headends to subscribers.  Available in 12V and 24V configurations, as well as versions optimized for 870 MHz, 1 GHz and 1.2 GHz networks, including the DOCSIS 3.1 standard.
Edge QAM Amplifiers
Used to provide RF amplification for switched delivery services, such as video-on-demand, telephone, and Internet services. We offer Edge QAM amplifiers for DOCSIS 3.1 applications.
Reverse Amplifiers
Used to amplify the reverse path signal for upstream communications.  We offer “high-split” return path amplifiers optimized for DOCSIS 3.1 applications.
Gain Block Amplifiers
Used to amplify RF signals at intermediate points in the CATV network and at individual subscriber locations.
Optical Network RF Amplifiers
Used to amplify RF signals for Fiber-To-The-Premises.
 
 
Wireless Infrastructure Products
Power Amplifiers
Used in RF transmit chain of small-cell base stations to amplify the signal to the user equipment.  Optimized for picocells, enterprise-class femtocells, and consumer premises equipment.
   
WiMAX Products
Mobile WiMAX and LTE PAs
Used in RF transmit chain of handsets, smartphones, datacards, or embedded modules to amplify uplink signal to base station.
Fixed Point WiMAX PAs
Used in RF transmit chain of Consumer Premises Equipment and femtocells.

Marketing, Sales, Distribution and Customer Support

We sell our products primarily to our direct customers worldwide and have developed close working relationships with leading companies in the cellular, WiFi, wireless infrastructure and CATV markets.  Additionally, we selectively use independent manufacturers’ representatives and distributors to complement our direct sales and customer support efforts.  Our relationships with our distributors enable them to maintain local practices regarding inventories and payment terms while supporting our growth in Asian wireless and global broadband markets.  Working with distributors like Alltek Technology, Richardson Electronics and World Peace Group who have extensive sales networks, provides us access to tier-one customers in these markets.  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 unwavering commitment to building and maintaining close relationships with our customers.  Our sales and marketing staff, which are 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 in North America, Korea, Taiwan, China and Japan, located near key handset OEM’s and chipset providers.  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 cellular, WiFi, and wireless infrastructure communications markets will continue to play an important role in the future of these markets.  Therefore, we believe it is essential that we maintain strong relationships with these companies to define products that are compatible with leading reference designs, achieve specification on these designs and provide value to their OEM manufacturer customers.

Process Technology, Manufacturing, Assembly and Testing

We design, develop and manufacture RFICs primarily using GaAs compound semiconductor substrates with various process technologies, MESFET, pHEMT and 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 150mm (six-inch diameter) GaAs wafer fabrication facility (fab) has been operational since 1999. 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 and remain certified.

We have a strategic foundry agreement with WIN Semiconductors (Taiwan) to supplement our existing wafer fabrication capability and allow for additional and flexible capacity without the requisite capital investment.

Assembly

Fabricated GaAs wafers are shipped to contractors in Asia for packaging. Certain processes cannot be easily or economically integrated onto a single die, and consequently multi-chip modules that combine multiple die within a single package are now required, enabling the selection of the optimal process technology for each IC within the package.  This provides enhanced integration at the sub-system level and these solutions generate significant size reductions in wireless handset component circuitry.

Modules allow our customers to select a single product to replace several discrete components.  Our RF expertise includes development and manufacture of highly integrated modules that include multiple components and technologies in a single package.

Final Test

After assembly, packaged ICs are tested prior to shipment to our customers.  We outsource the majority 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 supports our initiative to reduce manufacturing costs.

Raw Materials

GaAs 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 unique processes, including product design, packaging and wafer fabrication, which we believe provide us with a competitive advantage.  Research and development expenses were $38.6 million, $43.9 million and $45.0 million in 2013, 2012 and 2011, respectively. In 2013, we improved cost efficiency in our projects as we continue to focus our research and development primarily on the design of advanced GaAs power amplifiers for 3G and 4G cellular applications, power amplifiers and FEICs for WiFi applications, power amplifiers for 3G and 4G small-cell applications, and line amplifiers, Edge QAM amplifiers, reverse amplifiers and gain blocks for CATV infrastructure applications.

Further, in support of our core products, we develop additional components, which use technologies, such as silicon CMOS and GaN, that we do not intend to manufacture in-house.  We believe there will be adequate external foundry capacity available to produce these components.  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 Samsung Electronics, Huawei Technologies and Murata accounted for 40%, 12% and 11%, respectively, of total net sales during 2013. No other customer accounted for 10% or more of total net sales during 2013.  See “Risk Factors—We depend on a few large customers for a significant portion of our revenue; a loss of a significant customer or a decrease in purchases and/or changes in purchasing or payment patterns by one of these customers could materially and adversely affect our revenues and our ability to forecast revenues.”

Employees

As of December 31, 2013, we had 477 employees.

Competition

We compete with U.S. and international semiconductor and IC manufacturers of all sizes.  Our key competitors are Avago Technologies Limited, RF Micro Devices, Inc., Skyworks Solutions, Inc. and TriQuint Semiconductor, Inc.

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.  As of December 31, 2013, we own 80 U.S. patents and have 27 pending U.S. patent applications.  The U.S. patents were issued between 1996 and 2013 and will expire between 2014 and 2032.
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.  All SEC filings are also available at the SEC’s Web site at www.sec.gov.

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ITEM 1A. RISK FACTORS

We have experienced losses in the past, and may experience losses in the future.

We have incurred substantial operating and net losses in the past, including in 2013, and we expect to continue to incur losses in 2014. If economic conditions worsen, or there is an abrupt change in our customers’ businesses or markets, our business, financial condition and results of operations will likely be materially and adversely affected.

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.  Further, the industry can have limited visibility into customers’ forecasts and inventory levels. 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: (i) changes in end-user demand for the products manufactured with our products and sold by our customers; (ii) the effects of competitive pricing pressures, including decreases in average selling prices of our products; (iii) industry production capacity levels and fluctuations in industry manufacturing yields; (iv) levels of inventory in our end markets; (v) availability and cost of products from our suppliers; (vi) the gain or loss of significant customers; (vii) our ability to develop, introduce and market new products and technologies on a timely basis; (viii) new product and technology introductions by competitors; (ix) changes in the mix of products produced and sold; (x) market acceptance of our products and our customers; and (xi) 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.

We depend on a few large customers for a significant portion of our revenue; a loss of a significant customer or a decrease in purchases and/or changes in purchasing or payment patterns by one of these customers could materially and adversely affect our revenues and our ability to forecast revenues.

We receive a significant portion of our revenues from a few significant customers and their subcontractors.  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. Further, if a customer encounters financial difficulties of its own as a result of a change in demand or for any other reason, the customer’s ability to make timely payments to us for non-returnable products could be impaired.

If we fail to sell a high volume of products, our operating results may be adversely affected.

We have both increased capacity in and underutilized our manufacturing facility in recent years.  In years in which we had excess capacity, this excess capacity meant we incurred higher fixed costs for our products relative to the revenues we generated.  Because large portions of our manufacturing costs are relatively fixed, our manufacturing volumes are critical to our operating results.  If we fail to achieve and maintain 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.  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, which would have an adverse effect on our results of operations. If we are unable to improve utilization levels and correctly manage capacity, the increased expense levels relative to revenue will have an adverse effect on our business, financial condition and results of operations.

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 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: (i) time-to-market; (ii) timely new product innovation; (iii) product quality, reliability and performance; (iv) product price; (v) features available in products; (vi) compliance with industry standards; (vii) strategic relationships with leading reference design providers and customers; (viii) access to and protection of intellectual property; (ix) market acceptance; and (x) maintaining access to raw materials, supplies and services at a competitive cost.

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, which has occurred to some extent in the past when we were unable to fully meet customer demand due to capacity constraints.  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 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 wireless 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.  This implementation may require us to modify the manufacturing process for our products, design new products to more stringent standards, and redesign some existing products, which may prove difficult for us and result in sub-optimal manufacturing yields, delays in product deliveries and increased expenses. 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. Although we have reduced production costs through decreasing raw wafer costs, increasing wafer size and fabrication yields, decreasing die size and achieving higher volumes, we might not be able to do so in the future. To offset these decreases, we must achieve yield improvements and other cost reductions for existing products, and introduce new products that can be manufactured at lower costs.

The short life cycles and nature of semiconductor production, including the potential for order cancellation and need to build product to a customer’s forecast 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 are subject to increased inventory risks and costs because we build our products based on forecasts provided by customers before receiving purchase orders for the products. As a result we incur inventory and manufacturing costs in advance of anticipated sales. 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 can result in obsolete or excess inventories, requiring a write off or a reduction in the inventory value. Such a charge could have an adverse effect on our operating results and financial condition.

If Original Equipment Manufacturers (OEMs) and Original Design Manufacturers (ODMs) of communications electronics products do not design our products into their equipment, we will have difficulty selling those products. Moreover, a “design win” from a customer does not guarantee future sales to that customer.

Our products are not sold directly to the end-user, but are components or subsystems of other products. As a result, we rely on OEMs and ODMs of wireless communications electronics products to select our products from among alternative offerings to be designed into their equipment. Without these “design wins,” we would have difficulty selling our products. If a manufacturer designs another supplier’s product into one of its product platforms, it is more difficult for us to achieve future design wins with that platform because changing suppliers involves significant cost, time, effort and risk on the part of that manufacturer. Also, achieving a design win with a customer does not ensure that we will receive significant revenues from that customer. Even after a design win, the customer is not obligated to purchase our products and can choose at any time to reduce or cease use of our products, including for example, if its own products are not commercially successful. We may not continue to achieve design wins or to convert design wins into actual sales, and failure to do so could materially and adversely affect our operating results.
Lengthy product development and sales cycles associated with many of our products may result in significant expenditures before generating any revenues related to those products.

After our product has been developed, tested and manufactured, our customers may need three to six months or longer to integrate, test and evaluate our product and an additional three to six months or more to begin volume production of equipment that incorporates the product. This lengthy cycle time increases the possibility that a customer may decide to cancel or change product plans, which could reduce or eliminate our sales to that customer. As a result of this lengthy sales cycle, we may incur significant research and development expenses, and selling and administrative expenses, before we generate the related revenues for these products. Furthermore, we may never generate the anticipated revenues from a product after incurring such expenses if our customer cancels or changes its product plans.

Uncertainties involving the ordering and shipment of our products could adversely affect our business.

Our sales are typically made pursuant to individual purchase orders and not under long-term supply arrangements with our customers. Our customers may cancel orders before shipment. Additionally, we sell a portion of our products through distributors, some of whom have certain rights to return unsold products. We may purchase and manufacture inventory based on estimates of customer demand for our products, which is difficult to predict. This difficulty may be compounded when we sell to OEMs or ODMs indirectly through distributors or contract manufacturers, or both, as our forecasts of demand will then be based on estimates provided by multiple parties. In addition, our customers may change their inventory practices on short notice for any reason. The cancellation or deferral of product orders, the return of previously sold products, or overproduction due to a change in anticipated order volumes could result in us holding excess or obsolete inventory, which could result in inventory write-downs and, in turn, could have a material adverse effect on our financial condition. In addition, shortened customer order lead times and opportunistic orders may not be filled timely due to a lack of, or inadequate level of uncommitted inventory resulting in lower revenues than possible. In addition, shortened customer order lead times may make it difficult to forecast revenues.

We face risks from failures in our manufacturing processes and the processes of our vendors.

The fabrication of ICs, particularly those made of GaAs, is a highly complex and precise process. Our ICs are primarily manufactured on wafers made of GaAs requiring multiple process 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, downtime on equipment, human error, interruptions in electrical supply or a number of other factors can cause a substantial interruption in our manufacturing processes.  Moreover, our manufacturing process is subject to fluctuations in our demand and fab utilization. In an environment of increasing manufacturing output and personnel to satisfy increasing demand, we may incur manufacturing disruptions limiting supply to customers.

Our customers specify quality, performance and reliability standards that we must meet. If our products do not meet these standards, we may be required to rework or replace the products. Our products may contain undetected defects or failures that only become evident after we commence volume shipments, which we may experience from time to time. Other defects or failures may also occur in the future. If such failures or defects occur, we could: (i) lose revenues; (ii) incur increased costs such as warranty expense and costs associated with customer support; (iii) experience delays, cancellations or rescheduling of orders for our products; (iv) experience increased product returns or discounts; or (v) damage our reputation which could make it difficult for us to sell our products to existing and prospective customers.

Additionally, our operations may be affected by lengthy or recurring disruptions of operations at our production facility 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.  Specifically, in the fourth quarter of 2011, one of our subcontractors was impacted by the floods in Thailand, resulting in a temporary interruption of supply, and in the fourth quarter of 2012, our New Jersey offices and manufacturing facility were impacted by the loss of power, access restrictions and delivery delays caused by Hurricane Sandy.  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 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. In the event we are unable to supply our customers with products previously assembled by our subcontractors on a timely basis, such customers may seek alternative suppliers.
Due to the highly specialized nature of the gallium arsenide IC manufacturing process, in the event of a disruption at the Warren, New Jersey semiconductor wafer fab, alternative gallium arsenide production capacity for certain processes 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.

We also depend on certain vendors for components, equipment and services. We maintain stringent policies regarding qualification of these vendors. However, if these vendors’ processes vary in reliability or quality, they could negatively affect our products, and thereby, our results of operations.

Our dependence on foreign semiconductor component suppliers, assembly and test operations contractors could lead to delays in or reductions of product shipments.

We do not assemble or test all of our ICs or multi-chip modules.  Instead, we provide the IC die and, in some cases, packaging and other components to assembly and test vendors located primarily in Asia.  Our products contain numerous component parts, substrates and silicon-based products, obtained from external suppliers. The use of external suppliers involves a number of risks, including the possibility of material disruptions in the supply of key components and the lack of control over delivery schedules, capacity constraints, manufacturing yields, quality, fabrication costs, warranty issues and protection of intellectual property. Further, we are dependent upon a few foreign semiconductor assembly and test subcontractors.  If these vendors’ processes vary in reliability or quality, they could negatively affect our products and, therefore, our results of operations. If we are unable to obtain sufficient high quality and timely component parts, assembly or test service, if we experience delays in transferring or requalifying our production between suppliers, assembly or test locations or if means of transportation to or from these locations are interrupted, we would experience increased costs, delays or reductions in product shipment, and/or reduced product yields, which could materially and adversely affect our financial condition and results of operations.

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 ICs. Epitaxial wafers, packaging and passive components are available from a limited number of sources. To the extent that we are unable to obtain these materials, packaging or passive components in the required quantities, as has occurred from time to time in the past, 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.

We have implemented cost restructuring programs in the past and may need to again in the future.

We implemented cost restructuring programs in the past, including in 2012, 2013, and the first quarter of 2014, and may need to implement such programs again in the future. Such restructuring programs are costly to implement and may inadequately address the operating environment. No assurance can be given that the implementation of cost reduction programs will generate the anticipated cost savings and other benefits or that future or additional measures may be required. We could incorrectly anticipate the extent and term of the market decline and weakness for our products and services and we may be forced to restructure further or may incur future operating charges due to poor business conditions.
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 IC’s design and our experience in manufacturing that type of IC.  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 ICs is a highly complex and precise process.  Problems in the fabrication process can cause a substantial percentage of wafers to be rejected or numerous ICs on each wafer to be nonfunctional, thereby reducing yields.  These difficulties can include: (i) defects in masks, which are used to transfer circuit patterns onto our wafers; (ii) impurities in the materials used; (iii) operator errors; (iv) contamination of the manufacturing environment; (v) equipment failure; and (vi) interruptions in electrical supply.

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 ICs 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.

Unfavorable general economic conditions in individual or world markets could negatively impact our financial performance.

Unfavorable general economic conditions, such as a recession or economic slowdown in the United States or in one or more of our other major markets, could result in lower demand for some of our products, longer sales cycles or increased price competition.  Our customer base includes OEMs and ODMs that are reliant on consumer demand. Consumers may seek to reduce discretionary spending, which could soften demand for our customers’ products and could negatively affect our financial performance. In addition our vendors may be unable to support our production requirements, resulting in delay or non-delivery of inventory shipments.

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, which exceed the costs of producing their silicon counterparts, to continue for the foreseeable future.  In addition, silicon semiconductor technologies are widely-used process technologies for certain ICs 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.

We face a risk that capital needed for our business will not be available when we need it.

Although we believe that our existing sources of capital, including our existing cash, cash equivalents and marketable securities of $24.4 million as of December 31, 2013, should be sufficient to fund our research and development, capital expenditures, working capital requirements, interest and other financing requirements for at least the next twelve months, there can be no assurance that the capital required to fund these expenditures or future growth opportunities will be available in the future.

Additionally, in April 2013, we established an $11 million revolving credit facility with PNC Bank, National Association, which was amended in December 2013 (the “Facility”). The Facility is secured by certain cash balances with borrowing availability based upon Accounts receivable and compliance with covenants, including minimum EBITDA (as defined in the agreement governing the Facility) and certain capital expenditure limits which may  limit our ability to borrow under the Facility, should they not be met.
Further, conditions existing in the U.S. Capital markets, as well as the then current condition of the Company may impact our ability to raise capital to meet our needs on a timely basis or at all.  Failure to obtain capital when required could have a material adverse effect on the Company.

 The liquidity and valuation of our investments in marketable securities could be affected by disruption in financial markets.

We maintain investments in financial instruments including fixed income securities, auction rate securities, and a corporate debt obligation. These investments must be supported by actively trading financial markets in order to be liquid investments. Financial markets can temporarily or permanently have an imbalance of buyers and sellers that can impact valuations and liquidity. Auction rate markets have experienced imbalances since late 2007 and may continue to be imbalanced. Such imbalances could negatively impact the fair value of our investments, requiring a charge against income as has occurred in the past, our access to cash and the liquidity of our marketable securities. We cannot assure you that our marketable securities could be sold for their carrying value or in our required time frame to support our intermediate term cashflow and liquidity needs.

Our success depends on our ability to attract, retain and motivate qualified personnel. The loss of a key executive could have a material adverse effect on our business.

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 manufacturing personnel, 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. We cannot be sure that we will be successful in retaining our key personnel or in attracting and retaining the highly qualified personnel noted above, especially during periods of poor operating performance and/or declines in the price of our common stock.  The loss of the services of one or more of our key employees or our inability to attract, retain and motivate qualified personnel could have a material effect on our ability to operate our business, to implement our business strategy and to respond to the rapidly changing market conditions in which we operate. We do not presently maintain key-man life insurance for any of our key executive officers.

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 have had significant volatility in our stock price which may continue 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: (i) our operating results and prospects; (ii) the operating results and prospects of our major customers; (iii) announcements by our competitors; (iv) the depth and liquidity of the market for our common stock; (v) investor perception of us and the industry in which we operate; (vi) changes in our earnings estimates or buy/sell recommendations by analysts covering our stock; (vii) general financial and other market conditions; and (viii) 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.

We may pursue selective investments, acquisitions and alliances; the management and integration of additional operations could be expensive and divert management time and acquisitions may dilute the ownership of our stockholders.

Although we have invested in the past, and intend to continue to invest, significant resources in internal research and development activities, the complexity and rapidity of technological changes and the significant expense of internal research and development make it impractical for us to pursue development of all technological solutions on our own. On an ongoing basis, we review investment, alliance and acquisition prospects that would complement our product offerings, augment our market coverage or enhance our technological capabilities. 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, and which we could be called upon to satisfy independent of the acquisition price.  Future acquisitions or alliances could result in the incurrence of debt, costs and contingent liabilities, all of which could materially adversely affect our financial condition and results of operations.  Any 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 equity securities in order to acquire another business, our stockholders’ interest in us, or the combined company, could be materially diluted. Further, in periods following an acquisition, we will be required to evaluate goodwill and acquisition-related intangible assets for impairment. When such assets are found to be impaired, they will be written down to estimated fair value, with a charge against earnings.

New regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and may result in damage to our reputation with customers.

On August 22, 2012, the SEC adopted a final rule to implement Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) which requires new disclosures for companies regarding the use of certain minerals and metals, known as “conflict minerals”, in their products, whether or not these products are manufactured by third parties. This final rule will require companies to perform due diligence, disclose and report whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries. The implementation of these new requirements could adversely affect the sourcing, availability and pricing of minerals used in the manufacture of semiconductor devices, including our products. In addition, we will incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products. Since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures that we implement, which may harm our reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products are certified as conflict mineral free. The new disclosure rules require the first report to be filed with the SEC by May 31, 2014 for the 2013 calendar year. We are currently implementing appropriate measures to comply with such requirements.

Certain provisions in our governing documents and of Delaware law could deter, delay or prevent a third party from acquiring us and that could deprive shareholders 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.  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. UNRESOLVED STAFF COMMENTS

Not applicable.

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, located within the industrial complex. 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 occupy approximately another 12,600 square feet of office space in a nearby building under a two-year lease expiring on October 31, 2014.

We also lease approximately 32,700 square feet in aggregate of office space in the following locations: Atlanta, Georgia; Tyngsboro, Massachusetts; San Diego, California; Taipei, Taiwan; China; South Korea; and Japan under lease agreements with remaining terms ranging from four months to five years that can be extended, at our option.
ITEM 3. LEGAL PROCEEDINGS.

For information on our legal proceedings see Note 14 Legal Proceedings to the Company’s Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data in this Form 10-K.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

PART II

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 2013
 
   
 
Fourth Quarter
 
$
2.20
   
$
1.71
 
Third Quarter
   
2.45
     
1.71
 
Second Quarter
   
2.34
     
1.67
 
First Quarter
   
2.87
     
1.74
 
 
               
Calendar 2012
               
Fourth Quarter
 
$
2.60
   
$
1.14
 
Third Quarter
   
1.90
     
1.05
 
Second Quarter
   
2.50
     
1.64
 
First Quarter
   
3.22
     
2.19
 

As of December 31, 2013 there were 84,322,167 shares of Common Stock outstanding (excluding shares held in Treasury) and 207 holders of record.

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.
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, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 have been derived from our audited financial statements included herein. The selected consolidated financial data set forth below as of December 31, 2011, 2010 and 2009 and for the years ended December 31, 2010 and 2009 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.

(amounts in thousands, except for per share amounts)
 
2013
   
2012
   
2011
   
2010
   
2009
 
RESULTS OF OPERATIONS
 
   
   
   
   
 
Net sales
 
$
134,242
   
$
112,643
   
$
152,827
   
$
216,714
   
$
140,484
 
Gross profit (loss)
   
8,320
     
(1,226
)
   
31,103
     
75,845
     
20,158
 
Operating loss
   
(55,993
)
   
(71,745
)
   
(50,119
)
   
(535
)
   
(55,323
)
(Loss) income before income taxes
   
(53,979
)
   
(69,853
)
   
(49,323
)
   
963
     
(57,404
)
Benefit from income taxes
   
-
     
-
     
-
     
(297
)
   
(321
)
Net (loss) income
   
(53,979
)
   
(69,853
)
   
(49,323
)
   
1,260
     
(57,083
)
 
                                       
(Loss) earnings per share:
                                       
Basic
 
$
(0.67
)
 
$
(0.99
)
 
$
(0.73
)
 
$
0.02
   
$
(0.92
)
Diluted
 
$
(0.67
)
 
$
(0.99
)
 
$
(0.73
)
 
$
0.02
   
$
(0.92
)
 
                                       
BALANCE SHEET DATA:
                                       
Total cash and marketable securities
 
$
24,394
   
$
51,510
   
$
93,578
   
$
106,093
   
$
92,526
 
Total assets
   
97,681
     
126,881
     
188,801
     
233,812
     
214,452
 
Total stockholders’ equity
   
78,409
     
106,025
     
166,525
     
202,964
     
189,058
 
 
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

We are a global leader in the design and manufacture of radio frequency semiconductor solutions for cellular, WiFi, and wireless infrastructure and CATV applications.  Our product portfolio includes power amplifiers, FEICs, FEMs, and line amplifiers.  Our cellular power amplifiers and FEMs enable mobile handsets, smartphones, tablets, notebooks, datacards, automotive, M2M, and industrial devices to access 3G and 4G wireless networks utilizing international standards, such as LTE, HSPA, WCDMA, EVDO, CDMA, and WiMAX.  Our WiFi FEICs and power amplifiers enable wireless LAN connectivity for mobile, multimedia and infrastructure devices, such as smartphones, tablets, notebooks, televisions, set-top boxes, modems, routers, and access points, optimizing the latest WiFi standards, including 802.11ac and 802.11n.  Our infrastructure solutions include both wireless infrastructure and CATV products.  Our wireless infrastructure power amplifiers enable 3G and 4G small-cell base stations.  Our CATV line amplifiers and other RF products provide the critical link in CATV network infrastructure devices, as well as set-top boxes and cable modems.  We believe that our solutions are well positioned to address these market dynamics and will enable us to deliver value in the cellular, WiFi, wireless infrastructure and CATV markets.

Our business strategy is focused on enabling communications connectivity with RF solutions that offer greater performance and integration to enhance the user’s experience.  We are a customer-centric organization that works closely with leading equipment manufacturers, such as OEMs and ODMs.  We also partner with industry-leading chipset providers where our functionality enhances their reference designs.  These relationships enable us to provide targeted applications expertise that helps reduce time-to-market and design new products that target emerging trends in the market.
We are focused on the design and manufacture of differentiated RF semiconductors.  Many of our products leverage our patented InGaP-Plus™ and proven MESFET technologies.  InGaP-Plus provides greater flexibility to our engineers and product designers.  This technology enables them to develop unique architectures that combine HBT amplifying structures and pHEMT RF switches on the same die.  We believe that our products cost-effectively enhance RF performance, reliability, and overall functionality.

Our six-inch diameter GaAs fab located at our corporate headquarters in Warren, New Jersey, has been operational since 1999.  In addition, we have a strategic foundry agreement with WIN Semiconductors of Taiwan to supplement our existing wafer fabrication capability and allow for additional and flexible capacity without the requisite capital investment.

Our 2013 revenues increased year over year, while remaining below levels reached in 2011.  Improvements to revenues and our cost structure, including restructurings, resulted in reduced sequential quarterly losses during 2013. In February 2014, we reduced our workforce by approximately 40 employees and anticipate recording approximately $1.4 million as a restructuring charge in the first quarter of 2014.  This workforce reduction along with other cost reduction actions were initiated with a view to achieving annualized savings of approximately $10 million.

We believe our markets are, and will continue to remain, competitive which could result in continued quarterly volatility in our net sales. This competition has resulted in, and is expected over the long-term to continue to result in, 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 3 to the accompanying consolidated financial statements.

CRITICAL ACCOUNTING POLICIES & SIGNIFICANT ESTIMATES

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.
 
Description
 
Judgments and Uncertainties
 
Effect if Actual Results Differ
From Assumptions
 
 
 
 
 
Revenue Recognition
 
Revenue from product sales is recognized when title to the products is transferred to the customer, which occurs upon shipment or delivery, depending upon the terms of the sales order.  We maintain revenue allowances for price protection and stock rotation for certain distributor sales. These allowances are recorded upon shipment and calculated based on distributors’ indicated intent, historical data, current economic conditions and contractual terms.
 
 
 
Our revenue recognition accounting methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the value of future credits to customers for price protection and stock rotation. Our estimates of the amount and timing of the reserves is based primarily on distributors’ indicated intent, historical data, current economic conditions and contractual terms.
 
 
 
We have not made any material changes in our accounting methodology used to record revenue allowances for the years ended December 31, 2013, 2012 and 2011. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions that would have a material impact to our consolidated financial statements.
 
 
 
 
 
 
Allowance for Doubtful Accounts
 
We maintain an allowance for doubtful accounts for estimated losses resulting from our customers’ failure to make payments. The reserve is based on historical experience and an analysis of credit risk.
 
 
 
Our allowance for doubtful accounts methodology contains uncertainties because it requires management to apply judgment to evaluate credit risk and collectability of aged accounts receivables based on historical experience and forward looking assumptions.
 
 
 
We have not made any material changes in our accounting methodology used to create and maintain the allowance for doubtful accounts for the years ended December 31, 2013, 2012 and 2011. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions that would have a material impact to our consolidated financial statements.
 
Description
 
Judgments and Uncertainties
Effect if Actual Results Differ
From Assumptions
 
Inventory Valuation
 
We value our inventory at lower of cost or market (LCM), using the first-in, first-out method. We establish reserves for excess and obsolete inventory based upon a review of forecasted short-term demand in relation to on-hand inventory, salability, general market conditions, and product life cycles.
 
 
 
Our inventory reserves contain uncertainties because the calculation requires management to make assumptions and to apply judgment regarding historical experience, forecasted demand and technological obsolescence.
 
 
 
We have not made any material changes to our inventory reserve methodology for the years ended December 31, 2013, 2012 and 2011. We do not believe that significant changes will be made in future estimates or assumptions we use to calculate these reserves. However, if our estimates are inaccurate or technological changes affect consumer demand we may be exposed to unforeseen gains or losses. A 10% difference in our inventory reserves at December 31, 2013 would affect our consolidated financial statements for the year then ended by approximately $0.4 million.
 
 
 
 
 
Warranty Costs
 
We provide for potential warranty claims by recording a current charge to income. We estimate potential claims by examining current and historical returns, current economic conditions and contractual terms to provide for an amount which we believe will cover future warranty obligations for products sold.
 
 
 
Our warranty reserve methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the value of future product returns by customers. Our estimates of the amount and timing of the reserves is based primarily on historical experience and specific contractual arrangements.
 
 
 
We have not made any material changes to our warranty reserve methodology for the years ended December 31, 2013, 2012 and 2011. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions that would have a material impact to our consolidated financial statements.
 
 
 
 
 
Marketable Securities
 
Available-for-sale securities are stated at fair value, as determined by quoted market prices or independent valuation models, which uses a combination of two calculations: (1) a discounted cash flow model and (2) a market comparables method. We review our investments on an ongoing basis for indications of possible impairment, and if an impairment is identified and considered other-than-temporary, it is recorded as a charge to income. The primary factors we consider in classifying the timing of an impairment are the extent to which and period of time that the fair value of each investment has declined below its cost basis. Unrealized improvement gains in value subsequent to recording an impairment charge to income are reflected in other comprehensive income, whereas realized gains and losses are recorded through Other income (expense). The amortized cost of debt securities is adjusted for accretion of market discounts over the effective life of the debt securities and recorded through interest income.
 
 
 
The valuations include numerous assumptions such as assessments of the underlying structure of each security, expected cash flows, discount rates, credit ratings, workout periods and overall capital market liquidity. Further, the determination of whether the impairment is temporary or other-than-temporary requires significant judgment regarding the extent and timing of declines in value versus its cost basis.
 
 
 
 
 
While we have not made any material changes to our valuation methodology for the years ended December 31, 2013, 2012 and 2011, capital market expectations, liquidity and rates have fluctuated in the periods. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions that would have a material impact to our consolidated financial statements.
 
Description
 
Judgments and Uncertainties
Effect if Actual Results Differ
From Assumptions
 
 
 
 
 
Stock-Based Compensation
 
We have a stock-based compensation plan which includes non-qualified stock options, share awards, and an employee stock purchase plan. See Note 9 of Item 8 for a discussion of our stock-based compensation programs. We determine the fair value of stock-based compensation for our non-qualified stock options and employee stock purchase plans at the date of grant using the Black Scholes options-pricing model. Our determination of fair value of share-based payment awards on the date of grant contains assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the award, risk-free rate, the expected life and potential forfeitures of awards. Management periodically evaluates these assumptions and updates stock-based compensation expense accordingly.
 
 
 
Option-pricing models and generally accepted valuation techniques require management to make assumptions and to apply judgment to determine the fair value of our awards. These assumptions and judgments include estimating the future rates of volatility of our stock price, employee turnover and employee stock option exercise behaviors. Changes in these assumptions can materially affect the fair value estimate and stock based compensation recognized by the Company.
 
 
 
We have not made any material changes in the accounting methodology we used to calculate stock-based compensation for the years ended December 31, 2013, 2012 and 2011.  We do not believe that there is a reasonable likelihood there will be a material change in future estimates or assumptions used to determine stock-based compensation expense.
 
Description
 
Judgments and Uncertainties
Effect if Actual Results Differ
From Assumptions
 
 
 
 
 
Valuation of Long-Lived Assets
 
Long-lived assets is primarily comprised of fixed 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. We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable.
 
 
 
Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate asset fair values, including estimating future cash flows, useful lives and selecting an appropriate discount rate that reflects the risk inherent in future cash flows.
 
 
 
We have not made any material changes in the accounting methodology we use to assess impairment loss for the years ended December 31, 2013, 2012 and 2011. As of December 31, 2013, we evaluated fixed assets for impairment and with the assistance of a third party valuation specialist, a valuation analysis was performed.  The results of the valuation analysis indicated that the assets are fully-recoverable.  We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may record material losses.
 
 
 
 
 
 Income Taxes
 
We account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between tax and financial reporting. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
 
 
 
Management judgment is required in developing our provision for income taxes, including the determination of deferred tax assets and liabilities and any valuation allowances that might be required against the deferred tax assets. We maintain a full valuation allowance on our deferred tax assets. Accordingly, we have not recorded a benefit or provision for income taxes.
 
 
 
We have not made any material changes in the accounting methodology we used to measure our deferred tax asset valuation allowance for the years ended December 31, 2013, 2012 and 2011. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to record our valuation allowances for deferred tax assets. However, if actual results are not consistent with our estimates and assumptions used in estimating future taxable income, we may record material income tax benefits.

RESULTS OF OPERATIONS

The following table sets forth statements of operations data as a percentage of net sales for the periods indicated:

 
 
2013
   
2012
   
2011
 
 
 
   
   
 
Net sales
   
100.0
%
   
100.0
%
   
100.0
%
Cost of sales
   
93.8
     
101.1
     
79.6
 
 
                       
Gross profit (loss)
   
6.2
%
   
(1.1
%)
   
20.4
%
Research and development expense
   
28.8
     
39.0
     
29.5
 
Selling and administrative expenses
   
17.7
     
21.5
     
23.0
 
Restructuring charges
   
1.4
     
2.1
     
0.7
 
 
                       
Operating loss
   
(41.7
%)
   
(63.7
%)
   
(32.8
%)
Interest income
   
0.2
     
0.5
     
0.4
 
Interest expense
   
(0.1
)
   
-
     
-
 
Other income, net
   
1.4
     
1.2
     
0.1
 
 
                       
Net loss
   
(40.2
%)
   
(62.0
%)
   
(32.3
%)

2013 COMPARED TO 2012

NET SALES. Net sales for the year ended December 31, 2013 increased 19.2% to $134.2 million, compared to net sales for the year ended December 31, 2012 of $112.6 million. The net sales increase primarily resulted from an increase in demand for WiFi products.

Net sales for the year ended December 31, 2013 of the Company’s cellular wireless products decreased 11.5% to $74.1 million compared to net sales for the year ended December 31, 2012 of $83.8 million.  The decrease in sales was primarily due to decreased demand in our CDMA market.

Net sales for the year ended December 31, 2013 of the Company’s infrastructure products decreased 17.4% to $19.6 million compared to net sales for the year ended December 31, 2012 of $23.7 million. The decrease in sales was primarily due to decreased demand for CATV applications.

Net sales for the year ended December 31, 2013 of the Company’s WiFi products increased 687.5% to $40.5 million compared to net sales for the year ended December 31, 2012 of $5.1 million.  The increase in sales was primarily due to increased market demand for our front-end modules in cellular handset and tablet applications.

GROSS MARGIN. Gross margin for 2013 increased to 6.2% of net sales, compared with (1.1%) of net sales in the prior year. The increase in gross margin was primarily due to increased revenues and fixed production costs decreasing as a percent of revenue.
 
RESEARCH & DEVELOPMENT. Company-sponsored Research and development (R&D) expenses decreased 12.1% during 2013 to $38.6 million from $43.9 million during 2012. The decrease was primarily due to improved cost efficiency on our projects and cost savings achieved from restructuring.

SELLING AND ADMINISTRATIVE. Selling and administrative expenses decreased 2.0% during 2013 to $23.8 million from $24.3 million in 2012.  The decrease was primarily due to primarily due to savings achieved from our cost reduction and restructuring actions, partly offset by increased sales expense for WiFi.
RESTRUCTURING CHARGES. In the first quarter of 2013, we implemented workforce reductions that eliminated approximately 25 positions throughout the Company, resulting in restructuring charges of approximately $1.9 million for severance, related benefits and other costs. During 2012, we implemented workforce reductions that eliminated approximately 40 positions throughout the Company, resulting in restructuring charges of $2.3 million for severance, related benefits and other costs.

OTHER INCOME, NET.  During 2013, Other income of $1.9 million was primarily from redemptions received on three of our ARS which were in excess of our amortized cost basis. During 2012, Other income of $1.4 million was primarily from redemption proceeds received on one of our auction rate securities (ARS) which was in excess of our amortized cost basis.

2012 COMPARED TO 2011

NET SALES. Net sales for the year ended December 31, 2012 decreased 26.3% to $112.6 million, compared to net sales for the year ended December 31, 2011 of $152.8 million. The net sales decrease primarily resulted from a decrease in market demand for WCDMA cellular device markets.

Net sales for the year ended December 31, 2012 of the Company’s cellular wireless products decreased 29.9% to $83.8 million compared to net sales for the year ended December 31, 2011 of $119.5 million.  The decrease in sales was primarily the result of decreased demand in our WCDMA cellular device markets primarily due to decreased demand from our former largest customer due to certain products reaching end of life and their change in chipset providers that do not utilize our power amplifiers.

Net sales for the year ended December 31, 2012 of the Company’s infrastructure products decreased 15.9% to $23.7 million compared to net sales for the year ended December 31, 2011 of $28.2 million. The decrease in sales was primarily due to decreased demand for tuner and splitter products in cable set-top box applications.

Net sales for the year ended December 31, 2012 of the Company’s WiFi products remained flat at $5.1 million compared to net sales for the year ended December 31, 2011.

GROSS MARGIN. Gross margin for 2012 decreased to (1.1%) of net sales, compared with 20.4% of net sales in the prior year. The decrease in gross margin was primarily due to lower production and sales volume and a concentration of fixed costs as a percent of smaller revenues. Fixed production costs include, but are not limited to depreciation, maintenance and operations’ support functions.
 
RESEARCH & DEVELOPMENT. Company-sponsored Research and development (R&D) expenses decreased 2.5% during 2012 to $43.9 million from $45.0 million during 2011. The decrease was primarily due to a management separation charge of $0.8 million included in the first quarter of 2011.

SELLING AND ADMINISTRATIVE. Selling and administrative expenses decreased 30.9% during 2012 to $24.3 million from $35.1 million in 2011.  The decrease was primarily due to cost savings from staff reductions from restructurings and the elimination of management separation charges recorded in the first and fourth quarters of 2011 which total $6.4 million.

RESTRUCTURING CHARGES. During 2012, we implemented workforce reductions that eliminated approximately 40 positions throughout the Company, resulting in restructuring charges of $2.3 million for severance, related benefits and other costs.  During the second quarter of 2011, we implemented workforce reductions, which eliminated approximately 40 positions throughout the Company, resulting in a restructuring charge of $1.0 million for severance and related benefits.

OTHER INCOME, NET.  During 2012, Other income of $1.4 million was primarily from redemption proceeds received on one of our auction rate securities (ARS) which was in excess of our amortized cost basis.

LIQUIDITY AND SOURCES OF CAPITAL

At December 31, 2013, we had $21.0 million of cash and cash equivalents and $3.4 million in marketable securities.
Operations used $42.0 million in cash during 2013, primarily as a result of our operating results adjusted for non-cash expenses, including $7.2 million of cash used for working capital.  Investing activities provided $18.0 million of cash during 2013, consisting of net sales of marketable securities of $24.4 million, which were partly offset by purchases of fixed assets of $6.4 million.  Financing activities provided $20.0 million of cash during 2013, primarily from net proceeds received from the issuance of stock in the 2013 Offering.

At December 31, 2013, the Company had unconditional purchase obligations of approximately $2.1 million.
 
We believe that our existing sources of capital, including our existing cash, cash equivalents and marketable securities, will be adequate to satisfy operational needs and anticipated capital needs for at least the next twelve months. We may elect to finance all or part of our future capital requirements through additional equity or debt financing. There can be no assurance that such additional financing would be available on satisfactory terms.  See “Risk Factors—We face a risk that capital needed for our business will not be available when we need it.”

The table below summarizes required cash payments as of December 31, 2013:

CONTRACTUAL OBLIGATIONS
 
PAYMENTS DUE BY PERIOD (in thousands)
 
 
 
Total
   
Less than 1 year
   
1 – 3 years
   
4 – 5 years
   
After 5 years
 
Operating leases
   
8,173
     
2,783
     
5,038
     
341
     
11
 
Unconditional purchase obligations
   
2,073
     
2,073
     
-
     
-
     
-
 
Total contractual cash obligations
 
$
10,246
   
$
4,856
   
$
5,038
   
$
341
   
$
11
 

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Changes to accounting principles generally accepted in the United States of America (“U.S. GAAP”) are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates to the FASB’s Accounting Standards Codification.

In February 2013, the FASB amended its disclosure requirements for those amounts reclassified out of accumulated other comprehensive income.  Entities are required to separately disclose each component of other comprehensive income, current period reclassifications out of accumulated other comprehensive income, and other amounts of current-period other comprehensive income.  Additional information is required about the effects on net income of significant amounts reclassified out of each component of accumulated other comprehensive income.  These additional disclosure requirements are required for reporting periods beginning after December 31, 2012.  Adoption of this guidance during the first quarter of 2013 resulted in us making the required disclosures in the Notes to our consolidated financial statements.

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

OFF-BALANCE SHEET ARRANGEMENTS

None.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Our cash and available-for-sale securities are exposed to changes in short-term interest rates. Our available-for-sale securities consist of certain auction rate securities, which are discussed more specifically below. 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, 2013, we held marketable securities with an estimated fair value of $3.4 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 short-term securities. As of December 31, 2013, the estimated principal amount and weighted average stated interest rate by expected maturity value are $5.1 million and 0.93%, respectively. This weighted average stated rate of interest may not approximate the actual yield of the securities which we currently hold since we have valued some of our marketable securities at other than face value. Additionally, some of the securities 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.

We invest the majority of our cash in money market funds in order to protect principal, maintain liquidity as well as fund operations. Fluctuations in interest rates will affect the yield on monies invested by the Company. 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.

All of our marketable securities are classified as available-for-sale and therefore reported on our balance sheet at market value. Within our $3.4 million in marketable securities at December 31, 2013, we held $0.4 million of an auction rate security (“ARS”), and $3.0 million as a former-auction corporate debt security originally purchased as an ARS prior to its exchange for the underlying 30 year notes due 2037. ARS were a short-term cash management instrument used by the market and the Company prior to 2008. The instrument used a monthly Dutch auction process to provide liquidity on long-term financial instruments by resetting the applicable interest rate and through the reset, allowed existing investors to rollover or liquidate their holdings at par value. During the second half of 2007 and the first quarter of 2008, ARS failed to auction due to sell orders exceeding buy orders and trading continues to be constrained. The funds associated with the failed auctions will not be accessible until a successful auction occurs, a suitable buyer is found outside of the auction process or an issuer redeems its security.

We anticipate selling the existing and former-auction corporate debt securities prior to a recovery in valuation and in January 2014, we redeemed our former-auction corporate debt security for $3.0 million, resulting in a realized gain of $1.2 million to be recorded in the first quarter of 2014 to Other Income, net.  We will continue to monitor and evaluate these investments for impairment. We may not be able to access cash by selling the aforementioned debt or preferred securities without the loss of principal until a buyer is located, a future auction for these investments is successful, they are redeemed by their issuers or they mature. If we are unable to sell these securities in the market or they are not redeemed, then we may be required to hold them to maturity or in perpetuity for the preferred ARS.  Based on our ability to access our cash, our expected operating cash flows, and our other sources of cash, we do not anticipate that the potential illiquidity of these investments will affect our ability to execute our current business plan.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
ANADIGICS, Inc.
 
We have audited the accompanying consolidated balance sheets of ANADIGICS, Inc. as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2013. Our audit also included 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 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 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 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. at December 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, 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.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), ANADIGICS, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated March 4, 2014 expressed an unqualified opinion thereon.

 
/s/ Ernst & Young LLP
 
 
MetroPark, New Jersey
 
March 4, 2014
 

ANADIGICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 
 
YEAR ENDED DECEMBER 31,
 
 
 
2013
   
2012
   
2011
 
 
 
   
   
 
Net sales
 
$
134,242
   
$
112,643
   
$
152,827
 
Cost of sales
   
125,922
     
113,869
     
121,724
 
 
                       
Gross profit (loss)
   
8,320
     
(1,226
)
   
31,103
 
Research and development expenses
   
38,585
     
43,892
     
45,037
 
Selling and administrative expenses
   
23,813
     
24,289
     
35,138
 
Restructuring charges
   
1,915
     
2,338
     
1,047
 
 
   
64,313
     
70,519
     
81,222
 
 
                       
Operating loss
   
(55,993
)
   
(71,745
)
   
(50,119
)
 
                       
Interest income
   
237
     
528
     
576
 
Interest expense
   
(82
)
   
-
     
(25
)
Other income, net
   
1,859
     
1,364
     
245
 
 
                       
Net loss
 
$
(53,979
)
 
$
(69,853
)
 
$
(49,323
)
 
                       
Basic and diluted loss per share
 
$
(0.67
)
 
$
(0.99
)
 
$
(0.73
)
 
                       
Weighted average basic and diluted common shares outstanding used in computing loss per share
   
80,991
     
70,721
     
67,771
 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(AMOUNTS IN THOUSANDS)

 
 
Year Ended December 31,
 
 
 
2013
   
2012
   
2011
 
Net loss
 
$
(53,979
)
 
$
(69,853
)
 
$
(49,323
)
Other comprehensive (loss) income:
                       
Unrealized gain (loss) on marketable securities
   
1,371
     
2,193
     
(143
)
Foreign currency translation adjustment
   
3
     
6
     
-
 
 
                       
Reclassification adjustment:
                       
Net recognized gain on marketable securities previously included in other comprehensive  (loss) income
   
(1,779
)
   
(1,393
)
   
(193
)
Comprehensive loss
 
$
(54,384
)
 
$
(69,047
)
 
$
(49,659
)
 
See accompanying notes.

ANADIGICS, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 
 
December 31,
 
 
 
2013
   
2012
 
ASSETS
 
   
 
Current assets:
 
   
 
Cash and cash equivalents
 
$
20,947
   
$
24,949
 
Short-term marketable securities
   
3,447
     
17,750
 
Accounts receivable, net of allowance for doubtful accounts of $172 at December 31, 2013 and December 31, 2012
   
15,156
     
12,233
 
Inventories
   
21,114
     
18,840
 
Prepaid expenses and other current assets
   
3,628
     
3,031
 
 
               
Total current assets
   
64,292
     
76,803
 
 
               
Marketable securities
   
-
     
8,811
 
Plant and equipment
               
Equipment and furniture
   
203,797
     
200,873
 
Leasehold improvements
   
46,850
     
46,810
 
Projects in process
   
4,832
     
1,964
 
 
   
255,479
     
249,647
 
Less accumulated depreciation and amortization
   
222,303
     
208,599
 
 
   
33,176
     
41,048
 
Other assets
   
213
     
219
 
 
 
$
97,681
   
$
126,881
 
LIABILITIES AND STOCKHOLDERS EQUITY
               
 
               
Current liabilities:
               
Accounts payable
 
$
13,043
   
$
14,099
 
Accrued liabilities
   
4,380
     
4,345
 
Accrued restructuring costs
   
245
     
395
 
Total current liabilities
   
17,668
     
18,839
 
 
               
Other long-term liabilities
   
1,604
     
2,017
 
 
               
Commitments and contingencies
               
 
               
Stockholders’ equity
               
Preferred stock, $0.01 par value, 5,000 shares authorized, none issued or outstanding
               
Common stock, convertible, non-voting, $0.01 par value, 1,000 shares authorized, none issued or outstanding
               
Common stock, $0.01 par value, 144,000 shares authorized at December 31, 2013 and 2012, and 84,437 and 71,853 issued at December 31, 2013 and 2012, respectively
   
844
     
719
 
Additional paid-in capital
   
637,922
     
611,279
 
Accumulated deficit
   
(561,745
)
   
(507,766
)
Accumulated other comprehensive income
   
1,647
     
2,052
 
Treasury stock at cost:  115 shares at December 31, 2013 and 2012
   
(259
)
   
(259
)
Total stockholders’ equity
   
78,409
     
106,025
 
 
 
$
97,681
   
$
126,881
 

See accompanying notes.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)

 
 
Common
Stock
Shares
   
Common
Stock
Amount
   
Treasury
Stock S
hares
   
Treasury
Stock
Amount
   
Additional
Paid-In
Capital
   
Accumulated
Deficit
   
Accumulated
Other
Comprehensive
Income
(loss)
   
Total
Stockholders’
Equity
 
 
 
   
   
   
   
   
   
   
 
Balance, December 31, 2010
   
66,916
   
$
669
     
(115
)
 
$
(259
)
 
$
589,562
   
$
(388,590
)
 
$
1,582
   
$
202,964
 
 
                                                               
Stock options exercised
   
441
     
4
                     
931
                     
935
 
Shares issued under employee stock purchase plan
   
384
     
4
                     
767
                     
771
 
Restricted stock activity, net of forfeitures
   
1,653
     
17
                     
(17
)
                   
-
 
Amortization of stock-based compensation
                                   
11,514
                     
11,514
 
Other comprehensive loss
                                                   
(336
)
   
(336
)
Net loss
                                           
(49,323
)
           
(49,323
)
 
                                                               
Balance, December 31, 2011
   
69,394
   
$
694
     
(115
)
 
$
(259
)
 
$
602,757
   
$
(437,913
)
 
$
1,246
   
$
166,525
 
 
                                                               
Stock options exercised
   
950
     
10
                     
1,913
                     
1,923
 
Shares issued under employee stock purchase plan
   
407
     
4
                     
823
                     
827
 
Restricted stock activity, net of forfeitures
   
1,102
     
11
                     
(11
)
                   
-
 
Amortization of stock-based compensation
                                   
5,797
                     
5,797
 
Other comprehensive income
                                                   
806
     
806
 
Net loss
                                           
(69,853
)
           
(69,853
)
 
                                                               
Balance, December 31, 2012
   
71,853
   
$
719
     
(115
)
 
$
(259
)
 
$
611,279
   
$
(507,766
)
 
$
2,052
   
$
106,025
 
 
                                                               
Issuance of common stock in public offering, net of expensess
   
10,704
     
107
     
-
     
-
     
19,568
     
-
     
-
     
19,675
 
Stock options exercised
   
70
     
-
                     
132
                     
132
 
Shares issued under employee stock purchase plan
   
271
     
3
                     
442
                     
445
 
Restricted stock activity, net of forfeitures
   
1,539
     
15
                     
(15
)
                   
-
 
Amortization of stock-based compensation
                                   
6,516
                     
6,516
 
Other comprehensive income
                                                   
(405
)
   
(405
)
Net loss
                                           
(53,979
)
           
(53,979
)
 
                                                               
Balance, December 31, 2013
   
84,437
   
$
844
     
(115
)
 
$
(259
)
 
$
637,922
   
$
(561,745
)
 
$
1,647
   
$
78,409
 

See accompanying notes.
 


ANADIGICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)

 
 
YEAR ENDED DECEMBER 31,
 
 
 
2013
   
2012
   
2011
 
 
 
   
   
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
   
   
 
Net loss
 
$
(53,979
)
 
$
(69,853
)
 
$
(49,323
)
Adjustments to reconcile net loss to net cash  used in operating activities:
                       
Depreciation
   
14,510
     
16,530
     
18,239
 
Amortization
   
97
     
636
     
405
 
Stock based compensation
   
6,516
     
5,797
     
11,514
 
Marketable securities recovery and accretion
   
(1,779
)
   
(1,393
)
   
(208
)
Gain on disposal of equipment
   
(177
)
   
(89
)
   
(41
)
Changes in operating assets and liabilities:
                       
Accounts receivable
   
(2,923
)
   
5,096
     
17,970
 
Inventories
   
(2,274
)
   
893
     
1,001
 
Prepaid expenses and other assets
   
(433
)
   
191
     
190
 
Accounts payable
   
(1,056
)
   
2,194
     
(6,045
)
Accrued and other liabilities
   
(525
)
   
(3,608
)
   
(2,509
)
Net cash used in operating activities
   
(42,023
)
   
(43,606
)
   
(8,807
)
 
                       
CASH FLOWS FROM INVESTING ACTIVITIES
                       
Purchases of plant and equipment
   
(6,464
)
   
(2,816
)
   
(5,229
)
Proceeds from sale of equipment
   
3
     
47
     
348
 
Purchases of marketable securities
   
(8,130
)
   
(34,530
)
   
(65,152
)
Proceeds from sales and redemptions of marketable securities
   
32,563
     
70,409
     
12,700
 
Net cash provided by (used in) investing activities
   
17,972
     
33,110
     
(57,333
)
 
                       
CASH FLOWS FROM FINANCING ACTIVITIES
                       
Issuances of common stock, net of related costs
   
20,252
     
2,750
     
1,706
 
Payment for financing fees
   
(203
)
   
-
     
-
 
Net cash provided by financing activities
   
20,049
     
2,750
     
1,706
 
 
                       
Net decrease in cash and cash equivalents
   
(4,002
)
   
(7,746
)
   
(64,434
)
Cash and cash equivalents at beginning of period
   
24,949
     
32,695
     
97,129
 
 
                       
Cash and cash equivalents at end of period
 
$
20,947
   
$
24,949
   
$
32,695
 
 
                       
Supplemental disclosures of cash flow information:
                       
Net taxes paid
 
$
133
   
$
152
   
$
136
 
Interest paid
   
24
     
-
     
-
 

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

ANADIGICS, Inc. (“the Company”) is a global leader in the design and manufacture of radio frequency semiconductor solutions for cellular, WiFi, and wireless infrastructure and CATV applications. The Company’s product portfolio includes power amplifiers, FEICs, FEMs, and line amplifiers.  The Company’s cellular products enable mobile handsets, smartphones, tablets, notebooks, datacards, automotive, M2M, and industrial devices to access 3G and 4G wireless networks utilizing international standards, such as LTE, HSPA, WCDMA, EVDO, CDMA and WiMAX. The Company’s WiFi products enable wireless LAN connectivity for mobile, multimedia and infrastructure devices, such as smartphones, tablets, notebooks, televisions, set-top boxes, modems, routers, and access points.  Our solutions are optimized for the latest WiFi standards, including 802.11ac and 802.11n.  The Company’s infrastructure solutions include both wireless infrastructure and CATV products.  The Company’s wireless infrastructure power amplifiers enable 3G and 4G small-cell base stations, while its CATV products provide the critical link in CATV network infrastructure devices.   The Company believes its solutions are well positioned to address these market dynamics and will enable it to outpace the overall end product unit growth in the cellular, WiFi, wireless infrastructure and CATV markets.

The Company designs, develops and manufactures RFICs primarily using GaAs compound semiconductor substrates with various process technologies, MESFET, pHEMT, and HBT. The Company’s patented technology, which utilizes InGaP-PlusTM, combines InGaP HBT and pHEMT processes on a single substrate, enabling it to integrate the PA function and the RF active switch function on the same die. The Company fabricates substantially all of its ICs in its six-inch diameter GaAs wafer fabrication facility.

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.

The Company has evaluated subsequent events and determined that, other than the workforce reduction disclosed in Note 2 and subsequent sale of a former-auction rate security disclosed in Note 4, there were no subsequent events to recognize or disclose in these consolidated financial statements.

USE OF ESTIMATES

The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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: allowance for doubtful accounts, recoverability and valuation of inventories, warranty reserve, valuation of stock-based compensation, reserves for distributor arrangements and returns, valuation of certain marketable securities, 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 and their affiliates who accounted for 10% or more of the Company’s total net sales and corresponding end application information are as follows:

 
 
YEAR ENDED DECEMBER 31
 
 
 
2013
   
2012
   
2011
 
Customer (primary application)
 
$
     
%
   
$
     
%
   
$
     
%
 
Samsung Electronics (Cellular / WiFi)
   
54,187
     
40
%
   
34,372
     
31
%
   
29,326
     
19
%
Huawei Technologies (Cellular)
   
15,731
     
12
%
   
15,169
     
14
%
 
<10
%
 
<10
%
Murata (WiFi)
   
14,274
     
11
%
 
<10
%
 
<10
%
 
<10
%
 
<10
%
ZTE Corporation (Cellular)
 
<10
%
 
<10
%
   
12,818
     
11
%
   
20,416
     
13
%
Research In Motion Limited (Cellular)
 
<10
%
 
<10
%
 
<10
%
 
<10
%
   
33,704
     
22
%

Accounts receivable at December 31, 2013 and 2012 from the greater than 10% customers accounted for 58% and 69% of total accounts receivable, respectively.

REVENUE RECOGNITION

Revenue from product sales is recognized when title to the products is transferred to the customer, which occurs upon shipment or delivery, depending upon the terms of the sales order. The Company sells to certain distributors who are granted limited contractual rights of return and exchange and certain pre-negotiated individual product-customer price protection. Revenue from sales of products to distributors is recognized, net of allowances, upon shipment of the products to the distributors. At the time of shipment, title transfers to the distributors and payment from the distributors is due on our standard commercial terms; payment terms are not contingent upon resale of the products. Revenue is appropriately reduced for the portion of shipments subject to return, exchange or price protection. Allowances for the distributors are recorded upon shipment and calculated based on the distributors’ indicated intent, historical data, current economic conditions and contractual terms.  The Company believes it can reasonably and reliably estimate allowances for credits to distributors in a timely manner. The Company charges customers for the costs of certain contractually-committed inventories that remain at the end of a product's life. Such amounts are recognized as cancellation revenue 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.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company establishes an allowance for doubtful accounts for estimated losses resulting from customers' failure to make payments, based upon historical experience.

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 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 3-7 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.

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 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. Accordingly, the Company has not recorded a benefit or provision for income taxes. The Company recognizes interest and penalties related to the underpayment of income taxes in income tax expense. No unrecognized tax benefits, interest or penalties were accrued at December 31, 2013 and 2012. The Company’s U.S. federal net operating losses have occurred since 1998 and as such, tax years subject to potential tax examination could apply from that date because carrying-back net operating loss opens the relevant year to audit.

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 to be cash equivalents.

MARKETABLE SECURITIES

Available for sale securities are stated at fair value, as determined by quoted market prices or as needed, independent valuation models, with unrealized gains and losses reported in other accumulated comprehensive income or loss. Unrealized losses are reviewed and those considered other than temporary are recorded as a charge to other income (expense). Subsequent gains or losses upon redemption or sale of these securities in excess of, or below, their adjusted cost basis are also recorded as other income (expense). The Company considers it more likely than not that it will sell certain auction rate securities prior to a full recovery in valuation. The cost of securities sold is based upon the specific identification method. The amortized cost of securities is adjusted for amortization of premium and accretion of market discounts over the securities’ effective life or maturity and recorded in interest income.  See Note 4 for a summary of marketable securities.

INVENTORY

Inventories are valued at the lower of cost or market ("LCM"), using the first-in, first-out method. The Company capitalizes production overhead costs to inventory on the basis of normal capacity of its production facility and in periods of abnormally low utilization charges the related expenses as a period cost in the statement of operations.  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. Once established, these write-downs are considered permanent adjustments to the cost basis of the excess inventory. If actual demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required.  In the event the Company sells inventory that had been covered by a specific inventory reserve, the sale is recorded at the actual selling price and the related cost of goods sold at the full inventory cost, net of the reserve.

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 dates. 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 earnings per share is computed by dividing net income (loss) 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 awards will not be included where their effect is anti-dilutive.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. 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. See Note 4 for additional fair value disclosures.

STOCK-BASED COMPENSATION

The Company has various stock-based compensation plans for employees and directors, which are described more fully in Note 10.  The Company records stock compensation expense for all stock-based payment awards made to its employees and directors. 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.

RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform to the current presentation.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Changes to accounting principles generally accepted in the United States of America (“U.S. GAAP”) are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates to the FASB’s Accounting Standards Codification.

In February 2013, the FASB amended its disclosure requirements for those amounts reclassified out of accumulated other comprehensive income.  Entities are required to separately disclose each component of other comprehensive income, current period reclassifications out of accumulated other comprehensive income, and other amounts of current-period other comprehensive income.  Additional information is required about the effects on net income of significant amounts reclassified out of each component of accumulated other comprehensive income.  These additional disclosure requirements are required for reporting periods beginning after December 31, 2012.   Adoption of this guidance during the first quarter of 2013 resulted in the Company making the required disclosures in the Notes to its consolidated financial statements.

In December 2011, the FASB and International Accounting Standards Board (“IASB”) issued joint requirements related to balance sheet disclosures related to offsetting assets and liabilities. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards (“IFRS”). Disclosures are required to be retrospective for all comparative periods presented. Adoption of this standard was required in the first quarter of 2013 and did not have a material impact on the Company’s consolidated financial statements.
2. RESTRUCTURING, MANAGEMENT SEPARATION CHARGES, AND SUBSEQUENT EVENT

RESTRUCTURING
During 2013, the Company implemented a workforce reduction that eliminated approximately 25 positions throughout the Company which resulted in the Company recording a restructuring charge of $1,915 for severance, related benefits and other costs.

During 2012 and 2011, the Company implemented workforce reductions that eliminated approximately 40 positions throughout the Company in each year, resulting in restructuring charges of $2,338 and $1,047, respectively, for severance, related benefits and other costs.

Activity and liability balances related to the restructurings were as follows:

   
Accrued
Restructuring Costs
 
December 31, 2011 balance
 
$
-
 
Restructuring expense
   
2,338
 
Payments
   
(1,943
)
December 31, 2012 balance
 
$
395
 
Restructuring expense
   
1,915
 
Payments
   
(2,065
)
December 31, 2013 balance
 
$
245
 

MANAGEMENT SEPARATION CHARGES

During the fourth quarter of 2011, the Company recorded a $4,234 management separation charge, inclusive of accelerated stock-based compensation of $1,775, within Selling and administrative expenses. The management separation charge arose from the resignation of our former Chief Financial Officer, and included contractual separation pay, accelerated vesting of certain equity awards, and certain other costs.

During the first quarter of 2011, the Company recorded certain management separation charges of $838 and $2,111, inclusive of accelerated stock-based compensation of $568 and $116, within Research and development and Selling and administrative expenses, respectively. The management separation charges arose from the resignations of our former Chief Executive Officer and another Executive Officer, and included contractual separation pay, accelerated vesting of certain equity awards, and certain other costs.

SUBSEQUENT EVENT

In February 2014, the Company implemented a workforce reduction that eliminated approximately 40 positions throughout the Company and anticipates recording approximately $1,350 of restructuring charges during the first quarter of 2014 covering severance, related benefits and other costs.

3. SEGMENTS

The Company has one reportable segment. Its ICs are primarily manufactured using common manufacturing facilities located in the same domestic geographic area. The method for determining what information to report is based on management’s use of financial information for the purposes of assessing performance and making operating decisions.  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 operating segment information.  The Company’s business units share similar long term business models, research and development expenses and selling and administrative expenses.  The Company has concluded at December 31, 2013 that it has only one reportable segment.  The Company will re-assess its conclusions at least annually.
The Company classifies its revenues based upon the end application of the product in which its ICs are used.  Net sales by end application are regularly reviewed by the chief operating decision maker and are as follows:

 
 
Year Ended December 31,
 
 
 
2013
   
2012
   
2011
 
Cellular
 
$
74,153
   
$
83,809
   
$
119,472
 
Infrastructure
   
19,578
     
23,690
     
28,162
 
WiFi
   
40,511
     
5,144
     
5,193
 
Total
 
$
134,242
   
$
112,643
   
$
152,827
 

The Company sells to five geographic regions: Asia, Europe, Latin America, USA and Other. The geographic region is determined by the destination of the shipped product.  Net sales to each of the five geographic regions are as follows:

 
 
Year Ended December 31,
 
 
 
2013
   
2012
   
2011
 
Asia
 
$
125,027
   
$
92,652
   
$
102,437
 
Europe
   
1,680
     
3,881
     
14,146
 
Latin America
   
5,669
     
9,101
     
29,027
 
USA
   
1,865
     
6,601
     
6,934
 
Other
   
1
     
408
     
283
 
Total
 
$
134,242
   
$
112,643
   
$
152,827
 

4. FAIR VALUE AND MARKETABLE SECURITIES

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Inputs used to measure fair value are classified in the following hierarchy:

Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2 Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability

Level 3 Unobservable inputs for the asset or liability

    The Company endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table presents a summary of fair value information for available-for-sale securities:
               
Fair Value Measurements at Reporting Date Using
 
Security Type
 
Amortized
Cost Basis
(1)
   
Fair Value
   
Quoted Prices in Active Markets for Identical Assets
(Level 1)
   
Significant Other Observable Inputs
(Level 2)
   
Significant Unobservable Inputs
(Level 3)
 
Fixed Income Securities (2)
 
$
10,235
   
$
10,240
   
$
-
   
$
10,240
   
$
-
 
U.S. Government Agency debt securities (2)
   
7,508
     
7,510
     
7,510
     
-
     
-
 
Former-auction corporate debt security (3)
   
1,740
     
3,078
     
-
     
3,078
     
-
 
Auction Rate Securities
                                       
Preferred Equity
   
2,404
     
4,081
     
-
     
2,513
     
1,568
 
State and Municipal Debt (3)
   
1,394
     
1,652
     
-
     
1,652
     
-
 
Total at December 31, 2012
 
$
23,281
   
$
26,561
   
$
7,510
   
$
17,483
   
$
1,568
 
 
                                       
Former-auction corporate debt security (3)
 
$
1,800
   
$
2,997
   
$
-
   
$
2,997
   
$
-
 
Auction Rate Security - Preferred Equity
   
-
     
450
     
-
     
-
     
450
 
Total at December 31, 2013
 
$
1,800
   
$
3,447
   
$
-
   
$
2,997
   
$
450
 
(1) Difference between amortized cost basis and fair value represents gross unrealized gain or loss.
(2) Available for sale debt securities with contractual maturities of one year or less.
(3) Available for sale debt securities with contractual maturities in excess of 10 years.

AUCTION RATE SECURITIES AND FORMER-AUCTION CORPORATE DEBT SECURITY

Auction rate securities (ARS) were a short-term cash management instrument used by the market and the Company prior to 2008. The instruments used a monthly Dutch auction process to provide liquidity on long-term financial instruments that reset the applicable interest rate and through the reset, allowed existing investors to rollover or liquidate their holdings at par value. During 2007 and early 2008, ARS failed to auction due to sell orders exceeding buy orders.  To date, trading continues to be constrained. The funds associated with the failed auctions will not be accessible until a successful auction occurs, a suitable buyer is found outside of the auction process or an issuer redeems its security.  The Company considers it more likely than not that it will sell their marketable debt securities prior to a recovery in valuation.

During 2013, two Level 2 and one Level 3 ARS redeemed for $6,739, resulting in a realized gain of $1,684, which was recorded to Other income, net.  In January 2014, the Level 2 former-auction corporate debt security was sold for $2,960, resulting in a realized gain of $1,160 to be recorded in the first quarter of 2014 to Other income, net.

Certain ARS market information was insufficient to determine the fair value of the Company’s investments in ARS resulting in Level 2 and Level 3 valuations. Given the complexity of ARS investments, the Company obtained the assistance of an independent valuation firm to assist management in assessing the fair value of its ARS portfolio in fiscal years 2012 and 2011. The third party valuations developed to estimate the ARS fair value were determined using a combination of two calculations (1) a discounted cash flow (DCF) model, where the expected cash flows of the ARS are discounted to the present using a yield that incorporates compensation for illiquidity, and (2) a market comparables (MC) method, where the ARS are valued based on indications, from the secondary market, of what discounts buyers demand when purchasing similar ARS. The valuations include numerous assumptions such as assessments of the underlying structure of each security, expected cash flows, discount rates, credit ratings, workout periods, and overall capital market liquidity.

Interest income of $93 and $118 was recognized to accrete the amortized cost basis of the Company’s existing and former-auction debt securities during the years ended December 31, 2013 and 2012, respectively.

The table below provides a reconciliation of the beginning and ending balances for each type of security valued using a Level 3 valuation.
 ($ in 000’s)
 
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
Years ended December 31, 2012 and 2013
 
 
Corporate
Debt
Security (a)
   
Preferred Equity
Security
Monoline
insurers (b)
   
Total
 
Balance at December 31, 2011
 
$
1,215
   
$
628
   
$
1,843
 
Transfers out of Level 3
   
-
     
-
     
-
 
Total gains or losses realized/unrealized
                       
Included in net loss
   
1,250
     
-
     
1,250
 
Included in other comprehensive income
   
(452
)
   
940
     
488
 
Redemptions
   
(2,013
)
   
-
     
(2,013
)
Ending Balance December 31, 2012
 
$
-
   
$
1,568
   
$
1,568
 
Transfers out of Level 3
   
-
     
-
     
-
 
Total gains or losses realized/unrealized
                       
Included in net loss
   
-
     
872
     
872
 
Included in other comprehensive income
   
-
     
10
     
10
 
Redemptions
   
-
     
(2,000
)
   
(2,000
)
Ending Balance December 31, 2013
 
$
-
   
$
450
   
$
450
 
Amount of total gains or losses for the period included in earnings(loss) attributable to the change in unrealized gains or losses relating to Level 3 assets still held at the reporting date
 
$
-
   
$
-
   
$
-
 
Level 3 security held at December 31, 2013:
                       
Face value
   
-
   
$
1,125
   
$
1,125
 
Financial ratings
   
-
   
NR
         
Weighted average interest rate (*)
   
-
     
0
%
   
0
%
Maturity date
   
-
     
N/
A
       
 
(a) Security issued by a publicly-held insurance company trust, which holds investments in  U.S. Government obligations, highly rated commercial paper and money market funds and other investments approved by two credit rating agencies. The $2,500 face value security was redeemed by the issuer at a discount in the first quarter of 2012 for $2,013, resulting in a gain over its amortized cost basis of $1,250.
(b) Preferred securities issued by subsidiaries of two publicly-held debt default insurers. During the second quarter of 2013, one of these securities redeemed at $2,000 par, resulting in an $872 realized gain recorded to Other income, net.

5. INVENTORIES

Inventories consist of the following:

 
 
December 31,
 
 
 
2013
   
2012
 
Raw materials
 
$
7,323
   
$
5,108
 
Work in progress
   
8,424
     
9,781
 
Finished goods
   
5,367
     
3,951
 
Total
 
$
21,114
   
$
18,840
 
6. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

 
 
December 31,
 
 
 
2013
   
2012
 
Accrued compensation
 
$
1,844
   
$
1,945
 
Warranty reserve
   
383
     
770
 
Other
   
2,153
     
1,630
 
 
 
$
4,380
   
$
4,345
 

Changes in the Company’s product warranty reserve are as follows:

 
 
Year ended December 31
 
 
 
2013
   
2012
   
2011
 
Beginning balance
 
$
770
   
$
430
   
$
571
 
Additions charged to costs and expenses
   
554
     
1,507
     
871
 
Claims processed
   
(941
)
   
(1,167
)
   
(1,012
)
Ending balance
 
$
383
   
$
770
   
$
430
 
 
7. COMMITMENTS AND CONTINGENCIES

The Company leases manufacturing, warehousing and office space under noncancelable operating leases that expire through 2016. Rent expense was $2,350, $2,567, $2,617, in 2013, 2012 and 2011, respectively. At December 31, 2013 and 2012, there were no capital lease obligations outstanding.  The future minimum lease payments under the noncancelable operating leases, excluding deferred rent adjustments. are as follows:

YEAR
 
Operating
Leases
 
2014
 
$
2,783
 
2015
   
2,630
 
2016
   
2,408
 
2017
   
210
 
2018
   
131
 
Thereafter
   
11
 
 
       
Total minimum lease payments
 
$
8,173
 

In addition to the above, at December 31, 2013, the Company had unconditional purchase obligations of approximately $2,073.

8. INCOME TAXES

There were no current and deferred components of income taxes for the years ended December 31, 2013, 2012, and 2011.

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, 2013 and 2012 are as follows:

 
December 31,
 
 
2013
   
2012
 
Deferred tax balances
       
Accruals/reserves
 
$
7,652
   
$
9,091
 
Net operating loss carryforwards
   
210,894
     
181,815
 
Research and experimentation credits
   
14,414
     
14,086
 
Deferred rent expense
   
614
     
772
 
Difference in basis of plant and equipment
   
9,791
     
9,483
 
Valuation allowance
   
(243,365
)
   
(215,247
)
Net deferred tax assets
   
-
     
-
 

As of December 31, 2013, the Company had net operating loss carryforwards of approximately $578,346 for federal and $290,117 for state tax reporting purposes. The federal carryforward will begin to expire in 2019, and the state carryforwards have begun to expire. A portion of net operating loss carryforwards and tax credit carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods due to the “change of ownership” provisions of the Internal Revenue Code and similar state provisions. A portion of these carryforwards may expire before becoming available to reduce future income tax liabilities.

At December 31, 2013, $25,149 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 vesting of restricted stock deduction over book. Such benefit, when realized, will be credited to additional paid-in capital. Included within the Company’s net operating loss tax carryforwards at December 31, 2013, the Company has excess tax benefits, related to stock-based compensation of $16,005  which are not recorded as a deferred tax asset as the amounts would not have resulted in a reduction in current taxes payable until all other tax attributes currently available to the Company were utilized. The benefit of these deductions will be recorded to additional paid-in capital at the time the tax deduction results in a reduction of current taxes payable.

The earnings associated with the Company’s investment in its foreign subsidiaries are considered to be permanently invested and no provision for U.S. federal and state income taxes on those earnings or translation adjustments has 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:

 
 
Year Ended December 31,
 
 
 
2013
   
2012
   
2011
 
Tax at U.S. statutory rate
 
$
(18,893
)
   
(35.0
)%
 
$
(24,448
)
   
(35.0
)%
 
$
(17,263
)
   
(35.0
)%
Effect of permanent items
   
6
     
-
     
163
     
0.2
     
(2
)
   
-
 
State and foreign tax (benefit), net of federal tax effect
   
(1,754
)
   
(3.2
)
   
(2,255
)
   
(3.2
)
   
(1,603
)
   
(3.3
)
Research and experimentation tax credits, net
   
(328
)
   
(0.6
)
   
(33
)
   
(0.1
)
   
(68
)
   
(0.1
)
Valuation allowance, net
   
28,118
     
52.1
     
23,802
     
34.1
     
16,181
     
32.8
 
Worthless stock deduction
   
(4,997
)
   
(9.3
)
   
-
     
-
     
-
     
-
 
Other
   
(2,152
)
   
(4.0
)
   
2,771
     
4.0
     
2,755
     
5.6
 
(Benefit from) provision for  income taxes
 
$
-
     
-
%
 
$
-
     
-
%
 
$
-
     
-
%

9. STOCKHOLDERS' EQUITY

In March 2013, the Company completed an underwritten public offering of 10,704 shares of common stock at a price of $2.00 per share which generated net proceeds to the Company of $19,675.

On December 17, 1998, the Company adopted a Shareholders’ Rights Agreement (“the Agreement”). Pursuant to the Agreement, as amended on November 30, 2000 and October 2, 2008, 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, 2018, 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.

10. EMPLOYEE BENEFIT PLANS

The Company records stock-based compensation expense for all stock-based payment awards made to our employees and directors. 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.

Equity Compensation Plans

The Company has two active equity compensation plans under which equity securities are authorized for issuance to employees and/or directors and two plans (the 1995 Plan and 1997 Plan, described below) which have been terminated:
 
§ 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 (terminated February 28, 2005) (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 Employee Stock Purchase Plan (ESP Plan).
Employees and outside directors have been granted restricted stock shares or units (collectively, restricted stock) and options to purchase shares of common stock under the Plans. An aggregate of 4,913, 5,100 and 24,850 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 stock and other share based awards to eligible employees and directors, as defined in the Plans. Option grants have terms of 10 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 and part-time Company employees, as defined in the ESP Plan, are eligible to participate in the ESP Plan. An aggregate of 6,694 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 271 ($1.64), 407 ($2.04) and 384 ($2.00) for the years ended December 31, 2013, 2012 and 2011, respectively.

Stock-based compensation expense arises from the amortization of restricted stock grants, unamortized stock option grants and from the ESP Plan. The Company uses the straight-line basis in calculating stock-based compensation expense.

The table below summarizes stock-based compensation by source and by financial statement line item:

 
For years ended December 31,
 
 
2013
   
2012
   
2011
 
Amortization of restricted stock awards
 
$
6,239
   
$
4,813
   
$
9,308
 
Amortization of ESP Plan
   
149
     
314
     
307
 
Amortization of stock option awards
   
128
     
670
     
1,899
 
Total stock-based compensation
 
$
6,516
   
$
5,797
   
$
11,514
 
 
                       
By Financial Statement line item
                       
Cost of sales
 
$
1,041
   
$
888
   
$
1,798
 
Research and development expenses
   
2,118
     
1,626
     
2,981
 
Selling and administrative expenses
   
3,428
     
3,218
     
6,815
 
Restructuring charges
   
(71
)