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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one):
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to__________
Commission File Number: 0-22175
EMCORE CORPORATION
(Exact name of Registrant as specified in its charter)
NEW JERSEY
(State or other jurisdiction of incorporation or organization)
22-2746503
(IRS Employer Identification No.)
145 BELMONT DRIVE
SOMERSET, NJ 08873
(Address of principal executive offices) (zip code)
(732) 271-9090
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes:[X] No:[ ]
The number of shares of the registrant's Common Stock, no par value,
outstanding as of February 1, 2001 was 34,357,651.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EMCORE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
---------------------------
2000 1999
---------------------------
Revenues:
Systems-related................................. $26,785 $11,977
Materials-related............................... 13,279 4,524
---------------------------
Total revenues............................. 40,064 16,501
Cost of revenues:
Systems-related................................. 14,972 7,518
Materials-related............................... 8,564 2,260
---------------------------
Total cost of revenues..................... 23,536 9,778
---------------------------
Gross profit............................... 16,528 6,723
Operating expenses:
Selling, general and administrative ............ 6,983 4,724
Goodwill amortization........................... 734 1,098
Research and development........................ 13,179 4,708
---------------------------
Total operating expenses .......................... 20,896 10,530
---------------------------
Operating loss............................. (4,368) (3,807)
Other (income) expense:
Interest income, net............................. (1,492) (78)
Imputed warrant interest expense, non-cash....... - 163
Equity in net loss of unconsolidated affiliates 4,132 2,766
---------------------------
Total other expense................................ 2,640 2,851
---------------------------
Net loss................................... ($7,008) ($6,658)
===========================
PER SHARE DATA:
Net loss per basic and diluted share
(see note 4)...................................... ($0.21) ($0.25)
---------------------------
Weighted average basic and diluted shares
outstanding used in per share data calculations.... 34,004 27,480
---------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
EMCORE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------
2000 2000
------------------------------
ASSETS (UNAUDITED)
------
Current assets:
Cash and cash equivalents................... $26,903 $50,849
Marketable securities....................... 40,425 50,896
Accounts receivable, net of allowance for
doubtful accounts of $1,015 and $1,065 at
December 31, 2000 and September 30, 2000,
respectively.............................. 31,928 18,240
Accounts receivable, related parties........ 1,620 2,334
Inventories, net............................ 36,559 30,724
Other current assets........................ 2,711 1,829
------------------------------
Total current assets....................... 140,146 154,872
Property, plant and equipment, net............ 89,188 69,701
Goodwill, net................................. - 734
Investments in unconsolidated affiliates...... 14,810 17,015
Other assets, net............................. 2,141 1,580
------------------------------
Total assets............................... $246,285 $243,902
==============================
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
Current liabilities:
Accounts payable.......................... $17,492 $16,512
Accrued expenses.......................... 9,760 6,083
Advanced billings......................... 22,989 20,278
Capital lease obligations - current....... 73 72
Other current liabilities................. 340 340
------------------------------
Total current liabilities................ 50,654 43,285
Capital lease obligations, net of current
portion..................................... 98 75
Other liabilities............................. 1,136 1,220
------------------------------
Total liabilities........................ 51,888 44,580
------------------------------
Shareholders' Equity:
Preferred stock, $.0001 par value,
5,882,353 shares authorized................. - -
Common stock, no par value, 100,000,000
shared authorized, 34,159,774 shares
issued and 34,153,502 outstanding at
December 31, 2000; 33,974,698 shares
issued and 33,968,426 outstanding at
September 30, 2000.......................... 316,937 314,780
Accumulated deficit........................... (115,872) (108,864)
Notes receivable.............................. (6,349) (6,355)
Treasury stock................................ (239) (239)
Accumulated other comprehensive loss.......... (80) -
------------------------------
Total shareholders' equity................ 194,397 199,322
------------------------------
Total liabilities and shareholders'
equity.................................. $246,285 $243,902
==============================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
EMCORE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
--------------------
2000 1999
--------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................. ($7,008) ($6,658)
--------------------
Adjustments to reconcile net loss to
net cash (used for) provided by operating
activities:
Depreciation and amortization.......... 4,990 3,870
Provision for doubtful accounts........ 114 120
Non-cash charges on warrant issuances.. - 163
Equity in net loss of unconsolidated affiliates 3,771 2,766
Compensatory stock issuances........... 169 93
Change in assets and liabilities:
Accounts receivable - trade... (13,802) (1,802)
Accounts receivable - related parties 714 40
Inventories................... (5,835) (4,875)
Other current assets.......... (882) (109)
Other assets.................. (621) (126)
Accounts payable.............. 1,131 6,231
Accrued expenses.............. 3,511 1,084
Advanced billings............. 2,711 (593)
Other..................................... (165) -
--------------------
Total adjustments.. (4,194) 6,862
--------------------
Net cash (used for) provided by operating
activities.......................... (11,202) 204
--------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment (23,684) (4,801)
Investments in unconsolidated affiliates (1,171) (17)
Investment in marketable securities, net 10,478 -
--------------------
Net cash used for investing activities (14,377) (4,818)
--------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations..... 39 (188)
Proceeds from exercise of stock options... 1,594 233
Dividends paid on preferred stock......... - (66)
Proceeds from exercise of stock purchase warrants - 143
Proceeds from shareholders' notes receivable - 49
--------------------
Net cash provided by financing activities 1,633 171
--------------------
Net decrease in cash and cash equivalents. (23,946) (4,443)
Cash and cash equivalents, beginning of period 50,849 7,165
--------------------
Cash and cash equivalents, end of period.. $26,903 $2,722
====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $10 $173
====================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
EMCORE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 2000
AND THE THREE MONTHS ENDED DECEMBER 31, 2000
(IN THOUSANDS)
(UNAUDITED)
Common Stock Shareholders' Total
------------------ Accumulated Notes Shareholders'
Shares Amount Deficit Receivable Other Equity
------- ---------- ------------ ----------- ----------- ------------
BALANCE AT SEPTEMBER 30, 1998.......... 18,752 $87,443 ($60,196) ($7,667) - $19,580
Preferred stock dividends.................... (319) (319)
Accretion of redeemable preferred stock to
redemption value........................... (52) (52)
Issuance of common stock purchase warrants... 2,596 2,596
Issuance of common stock from public offering,
net of issuance cost of $5,000............. 6,000 52,000 52,000
Stock option exercise........................ 220 376 376
Stock purchase warrant exercise.............. 643 2,450 2,450
Conversion of mandatorily redeemable
convertible preferred stock into
common stock............................... 1,040 7,125 7,125
Redemptions of shareholders' notes
receivable................................. 120 120
Compensatory stock issuance.................. 53 436 436
Net loss..................................... (22,689) (22,689)
------- ---------- ------------ ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1999........... 26,708 $152,426 ($83,256) ($7,547) - $61,623
Preferred stock dividends.................... (83) (83)
Accretion of redeemable preferred stock to
redemption value........................... (40) (40)
Issuance of common stock purchase warrants... 689 689
Issuance of non-qualified stock options to
equity investee............................ 835 835
Issuance of common stock from public offering,
net of issuance cost of $8,500............. 2,000 127,500 127,500
Stock option exercise........................ 506 2,197 2,197
Stock purchase warrant exercise.............. 1,996 10,874 10,874
Conversion of mandatorily redeemable
convertible preferred stock into
common stock............................... 2,060 14,193 14,193
Purchase of treasury stock................... (6) (239) (239)
Redemptions of shareholders' notes
receivable................................. 1,192 1,192
Compensatory stock issuance.................. 23 566 566
Conversion of convertible subordinated notes
into common stock.......................... 682 5,500 5,500
Net loss..................................... (25,485) (25,485)
------- ---------- ------------ ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 2000........... 33,969 $314,780 ($108,864) ($6,355) ($239) $199,322
====== ======== ========== ======== ====== ========
Stock option exercise........................ 181 1,594 1,594
Compensatory stock issuance.................. 4 169 169
Accretion of non-qualified stock options to
equity investee............................ 394 394
Accumulated other comprehensive loss......... (80) (80)
Redemptions of shareholders' notes
receivable................................. 6 6
Net loss..................................... (7,008) (7,008)
------- ---------- ------------ ----------- ----------- -----------
BALANCE AT DECEMBER 31, 2000......... 34,154 $316,937 ($115,872) ($6,349) ($319) $194,397
====== ======== ========== ======== ====== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
EMCORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL INFORMATION AND DESCRIPTION OF BUSINESS
The accompanying unaudited condensed consolidated financial statements
of EMCORE Corporation ("EMCORE" or the "Company") reflect all adjustments
considered necessary by management to present fairly the Company's consolidated
financial position as of December 31, 2000, the consolidated results of
operations for the three-month periods ended December 31, 2000 and 1999 and the
consolidated cash flows for the three-month periods ended December 31, 2000 and
1999. All adjustments reflected in the accompanying unaudited condensed
consolidated financial statements are of a normal recurring nature unless
otherwise noted. Prior period balances have been reclassified to conform with
the current period financial statement presentation. The results of operations
for the three-month period ended December 31, 2000 are not necessarily
indicative of the results for the fiscal year ending September 30, 2001 or any
future interim period.
EMCORE has two reportable operating segments: the systems-related
business unit and the materials-related business unit. The systems-related
business unit designs, develops and manufactures tools and manufacturing
processes used to fabricate compound semiconductor wafer and devices. This
business unit assists our customers with device design, process development and
optimal configuration of TurboDisc production systems. Revenues for the
systems-related business unit consist of sales of EMCORE's TurboDisc(R)
production systems as well as spare parts and services related to these systems.
The materials-related business unit designs, develops and manufactures compound
semiconductor materials. Revenues for the materials-related business unit
include sales of semiconductor wafers, devices and process development
technology. EMCORE's vertically-integrated product offering allows it to provide
a complete compound semiconductor solution to its customers. The segments
reported are the segments of the Company for which separate financial
information is available and for which gross profit amounts are evaluated
regularly by executive management in deciding how to allocate resources and in
assessing performance. The Company does not allocate assets or operating
expenses to the individual operating segments. Services are performed for each
other however there are no intercompany sales transactions between the two
operating segments. Available segment information has been presented in the
Statements of Operations.
NOTE 2. JOINT VENTURES
In May 1999, General Electric Lighting and the Company formed GELcore,
a joint venture to develop and market High Brightness Light-Emitting Diode ("HB
LED") lighting products. General Electric Lighting and the Company have agreed
that this joint venture will be the exclusive vehicle for each party's
participation in solid state lighting. Under the terms of the joint venture
agreement, the Company has a 49% non-controlling interest in the GELcore venture
and accounts for its investment under the equity method of accounting. For the
three-month period ended December 31, 2000, the Company recognized a loss of
$1.3 million related to this joint venture which has been recorded as a
component of other income and expense. As of December 31, 2000, the Company's
net investment in this joint venture amounted to $8.6 million.
In March 1997, the Company and a subsidiary of Uniroyal Technology
Corporation formed Uniroyal Optoelectronics LLC, a joint venture, to
manufacture, sell and distribute HB LED wafers and package-ready devices. Under
the terms of the joint venture agreement, the Company has a 49% non-controlling
interest in this joint venture and accounts for its investment under the equity
method of accounting. In December 2000, the Company invested an additional $1.5
million in this venture. For the three-month period ended December 31, 2000, the
Company recognized a loss of $2.8 million related to this joint venture, which
has been recorded as a component of other income and expense. As of December 31,
2000, the Company's net investment in this joint venture amounted to $6.2
million.
EMCORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. INVENTORIES
The components of inventories, net of reserves, consisted of the
following:
As of As of
(Amounts in thousands) December 31, 2000 September 30, 2000
----------------- ------------------
Raw materials................... $23,931 $19,594
Work-in-process................. 9,633 8,831
Finished goods.................. 2,995 2,299
------- -------
Total................ $36,559 $30,724
======= =======
NOTE 4. EARNINGS PER SHARE
The Company accounts for earnings per share under the provision of
Statement of Financial Accounting Standards No. 128 "Earnings per share". Basic
earnings per common share were calculated by dividing net loss by the weighted
average number of common stock shares outstanding during the period. The effect
of outstanding common stock purchase options and warrants have been excluded
from the earnings per share calculation since the effects of such securities are
anti-dilutive. The following table reconciles the number of shares utilized in
the earnings per share calculations for the three-month periods ending December
31, 2000 and 1999, respectively.
Three Months
Ended December 31,
-------------------
2000 1999
---- ----
Net loss........................... ($7,008) ($6,658)
Preferred stock dividends.... - (66)
Periodic accretion of
redeemable preferred stock
to mandatory redemption
value........................ - (37)
---- ----
Net loss attributable to
common shareholders................ (7,008) (6,761)
======= =======
Net loss per basic and
diluted share...................... ($0.21) ($0.25)
======= =======
Weighted average of outstanding
common shares - basic.............. 34,004 27,480
Effect of dilutive securities:
Stock option and warrants.... - -
---- ----
Weighted average of outstanding
common shares - diluted............ 34,004 27,480
====== ======
EMCORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. RELATED PARTIES
The President of Hakuto Co. Ltd. ("Hakuto"), the Company's Asian
distributor, is a member of the Company's Board of Directors and Hakuto is a
minority shareholder of the Company. During the three months ended December 31,
2000 and 1999, sales made through Hakuto amounted to approximately $1.9 million
and $2.0 million, respectively.
NOTE 6. RECENT ACCOUNTING PRONOUNCEMENTS
Effective October 1, 2000, EMCORE adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments and requires recognition of all derivatives
as assets or liabilities in the statement of financial position and measurement
of these instruments at fair value. This statement did not have any impact on
the financial position, results of operations or cash flows of EMCORE.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101. ("SAB 101") "Revenue Recognition in
Financial Statements," which provides guidance on the recognition, presentation,
and disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. The Company
will adopt SAB 101 by the fourth quarter of fiscal year 2001. Currently, the
Company recognizes revenue from system sales upon shipment, when title passes to
the customer. Subsequent to product shipment, the Company incurs certain
installation costs at the customer's facility that are estimated and accrued at
the time the sale is recognized. SAB 101 will require the Company to defer
revenue and costs related to this installation portion until the service is
completed. Had the Company adopted SAB 101, management has determined the impact
of such adoption would have resulted in a deferral of approximately $2.8 million
of system revenue and an increase in net loss of approximately $2.4 million
during the three months ended December 31, 2000. Generally, system installation
takes 2-4 weeks, therefore, revenue deferral would be predominantly recognized
in the ensuing quarter and the adoption of SAB 101 would be considered only a
timing difference predominately on systems shipped during the last month of a
quarter. SAB 101 will not have an effect on the Company's material and device
revenues.
NOTE 7. OTHER COMPREHENSIVE LOSS
Other comprehensive loss includes foreign currency translation
adjustments.
Three Months
Ended December 31,
2000 1999
-------------- -------------
Net loss............................. ($7,008) ($6,658)
Accumulated other comprehensive loss (80) -
-------------- -------------
Total comprehensive loss...... ($7,088) ($6,658)
============== =============
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This report contains forward-looking statements based on our current
expectations, estimates, and projections about our industry, management's
beliefs, and certain assumptions made by us. Words such as "anticipates",
"expects", "intends", "plans", "believes", "seeks", "estimates", "may", "will"
and variations of these words or similar expressions are intended to identify
forward-looking statements. In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking
statements. These statements are not a guarantee of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, our actual results could differ materially and adversely
from those expressed in any forward-looking statements as a result of various
factors, including, but not limited to: rapid growth which places a strain on
our resources; our expectation of continued operating losses; rapid technology
changes in the compound semiconductor industry that require us to continually
improve existing products, design and sell new products and manage the costs of
research and development in order to effectively compete; fluctuations in our
quarterly operating results which may negatively impact our stock price; the
fact that our joint venture partners, who have control of these ventures, may
make decisions that we do not agree with and thereby adversely affect our net
income; our exposure to export risks since a large percentage of our revenues
are from foreign sales; the potential for us to lose sales if we are unable to
obtain government authorization to export our products; the fact that our
products are difficult to manufacture and small manufacturing defects can
adversely affect our production yields and our operating results; lengthy sales
and qualifications cycles for our products that are typical of our industry and,
in many cases, require us to invest a substantial amount of time and funds
before we receive orders; industry demand for skilled employees, particularly
scientific and technical personnel with compound semiconductor experience which
exceeds the number of skilled personnel available; protecting our trade secrets
and obtaining patent protection which is critical to our ability to compete for
business; licenses that may be required to continue to manufacture and sell
certain of our compound semiconductor wafers and devices, the expense of which
may adversely affect our results of operations; interruptions in our business
and a significant loss of sales to Asia which may result if our primary Asian
distributor fails to effectively market and service our products; our
management's stock ownership which gives them the power to control business
affairs and prevent a takeover that could be beneficial to unaffiliated
shareholders; the consequences of unsuccessful control of the hazardous raw
materials used in our manufacturing process which could result in costly
remediation fees, penalties or damages under environmental and safety
regulations; our business or our stock price which could be adversely affected
by issuance of preferred stock; certain provisions of New Jersey Law and our
charter which may make a takeover of our company difficult even if such takeover
could be beneficial to some of our shareholders; fluctuations in the price of
our common stock which may continue in the future. Our Annual Report on Form
10-K and other SEC filings discuss some of the important risk factors that may
affect our business, results of operations and financial condition. We undertake
no obligation to revise or update publicly and forward-looking statements for
any reason.
OVERVIEW:
EMCORE Corporation, a New Jersey Corporation, designs, develops and
manufactures compound semiconductor materials and is a leading developer and
manufacturer of the tools and manufacturing processes used to fabricate compound
semiconductor wafers and devices. Established in 1986, EMCORE offers a
comprehensive portfolio of compound semiconductor products for the rapidly
expanding broadband and wireless communications and solid state lighting
markets. EMCORE's integrated product philosophy embodies state of the art
technology, material science expertise and a shared vision of our customers'
goals and objectives to be leaders and pioneers in the rapidly growing world of
compound semiconductors. EMCORE's product line features: optical components for
high-speed data and telecommunications; solar cells for global satellite
communications; electronic materials for high bandwidth communications systems,
such as Internet access and wireless telephones; MOCVD tools for the growth of
GaAs, AIGaAs, InP, InGaP, InGaAIP, InGaAsP, GaN, InGaN, AIGaN, and SiC epitaxial
materials used in numerous applications, including data and telecommunications
modules, cellular telephones, solar cells and high brightness LEDs. Our
customers include Agilent Technologies Ltd., AMP, Inc., Anadigics Inc., Corning,
Inc., General Motors Corp., Hewlett Packard Co., Honeywell Int'l Inc.,
Boeing-Spectrolab, Loral Space & Communications Ltd., Lucent Technologies, Inc.,
Motorola, Inc., Nortel Networks Corp., Siemens AG's Osram GmbH subsidiary,
TriQuint Semiconductor, Inc. and more than a dozen of the largest electronics
manufacturers in Japan. For further information about EMCORE, visit
http://www.emcore.com.
In order to facilitate the development and manufacture of new products
in targeted growth areas, EMCORE has established a number of strategic
relationships through joint ventures, long-term supply agreements and
acquisitions. The most significant strategic relationships are summarized below:
o In June 2000, EMCORE and JDS Uniphase executed a Joint Development
Manufacturing and Marketing Agreement (the "Agreement"). Under the
Agreement, EMCORE and JDS Uniphase will jointly develop, manufacture
and market a family of fiber optic array transceivers based on
EMCORE's laser technology that facilitate light to logic (electronic
signal in/modulated light signal out) for fiber optic communications
products used in switches, routers and computer backplanes for OC-192,
OC-768 and other proprietary network designs. EMCORE will manufacture
VCSEL arrays and design gigabit speed control circuits,
photodetectors, optical links and other components. JDS Uniphase will
handle all marketing, worldwide sales, application support, customer
service and distribution functions and will assist EMCORE with
technical support for the optical packaging and testing for the
products. The initial product to be developed and commercialized under
the Agreement with JDS Uniphase will be an array transceiver with
twelve channels each operating at 1.25 Gigabits/second, yielding a
compact, high speed data link. These products are designed to make
possible short distance links between dense wavelength division
multiplexing systems (DWDM), high-speed routers and SONET (long-haul
telecommunications) equipment. Recent industry forecasts indicate that
the market opportunity for high-speed optical transceivers, including
2.5 gigabit per channel arrays and 10 gigabit serial devices will
exceed $3.4 billion by the year 2004. EMCORE has completed alpha
testing and began shipping prototype array transceivers in December
2000;
o In May 2000, EMCORE signed an agreement with Motorola to meet their
requirements for epitaxial tools, wireless electronic materials and
technology. This relationship includes supplying Motorola with
epitaxial process technology and multiple MOCVD production tools, as
well as purchase orders for electronic device epitaxial wafers.
Motorola also announced that EMCORE was awarded their Standard
Supplier Designation, making EMCORE the only qualified supplier of
MOCVD tools for Motorola's compound semiconductor factories;
o In January 2000, EMCORE entered into a three-year supply agreement
with Agilent, a leading supplier of fiber optic transceivers and
integrated circuits for infrastructure products for the Internet.
Under this agreement, EMCORE will manufacture Gigarray(R) VCSEL arrays
for use in parallel optical transceivers. The initial purchase order
under the agreement is contingent upon EMCORE's development of a
component that meets Agilent's specifications. EMCORE began shipping
commercial product in December 2000;
o In May 1999, EMCORE and General Electric Lighting formed GELcore, a
joint venture to develop and market HB LED lighting products. General
Electric Lighting and EMCORE have agreed that this joint venture will
be the exclusive vehicle for each party's participation in solid state
lighting. GELcore seeks to combine EMCORE's materials science
expertise, process technology and compound semiconductor production
systems with General Electric Lighting's brand name recognition and
extensive marketing and distribution capabilities. GELcore's long-term
goal is to develop products to replace traditional lighting. EMCORE
has invested $17.9 million in GELcore and has seconded various
employees to the joint venture to assist in the development of
products. In September 2000, GELcore acquired Ecolux, Inc. adding
LED-signaling products to GELcore's growing line of LED products;
o In November 1998, EMCORE signed a long-term supply agreement with
Space Systems/Loral, a wholly owned subsidiary of Loral Space &
Communications. Under this agreement, EMCORE supplies compound
semiconductor high-efficiency gallium arsenide solar cells for Loral's
satellites. To date, EMCORE has received purchase orders from Space
Systems/Loral that total $31.5 million and services this agreement at
EMCORE's new facility in Albuquerque, New Mexico.
EMCORE has generated a significant portion of its sales to customers
outside the United States. EMCORE anticipates that international sales will
continue to account for a significant portion of revenues. Historically, EMCORE
has received substantially all payments for products and services in U.S.
dollars and therefore EMCORE does not currently anticipate that fluctuations in
any currency will have a material effect on its financial condition or results
of operations.
The following chart contains a breakdown of EMCORE's worldwide
revenues by geographic region.
For the fiscal years ended September 30,
- ----------------------------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------
(in thousands) Revenue % of revenue Revenue % of revenue Revenue % of revenue
---------- ------------- -------- ------------- -------- -------------
Region:
North America $64,174 62% $27,698 48% $26,648 61%
Asia 34,656 33% 28,211 48% 15,527 35%
Europe 5,676 5% 2,432 4% 1,585 4%
----------------- ---------- ------------- -------- ------------- -------- -------------
TOTAL $104,506 100% $58,341 100% $43,760 100%
======== ==== ======= ==== ======= ====
For the three months ended December 30,
---------------------------------------------------------------------------
2000 1999
----------------- ------------------------------ --------------------------
(in thousands) Revenue % of revenue Revenue % of
revenue
-------------- --------------- ------------- ------------
Region
North America $26,958 67% $8,571 52%
Asia 7,870 20% 4,572 28%
Europe 5,236 13% 3,358 20%
----------------- -------------- --------------- ------------- ------------
TOTAL $40,064 100% $16,501 100%
======= ==== ======= ====
As of December 31, 2000, EMCORE had an order backlog of $155.0 million
scheduled to be shipped through December 31, 2001. This represents an increase
of 233% or $108.4 million since December 31, 1999. December 2000 backlog also
increased $30.0 million or 24% from the sequential backlog reported at September
30, 2000 of $125.0 million. EMCORE includes in backlog only customer purchase
orders that have been accepted by EMCORE and for which shipment dates have been
assigned within the 12 months to follow and research contracts that are in
process or awarded. Wafer and device agreements extending longer than one year
in duration are included in backlog only for the ensuing 12 months. EMCORE
receives partial advance payments or irrevocable letters of credit on most
production system orders.
EMCORE has two reportable operating segments: the systems-related
business unit and the materials-related business unit. The systems-related
business unit designs, develops and manufactures tools and manufacturing
processes used to fabricate compound semiconductor wafer and devices. This
business unit assists our customers with device design, process development and
optimal configuration of TurboDisc production systems. Revenues for the
systems-related business unit consist of sales of EMCORE's TurboDisc production
systems as well as spare parts and services related to these systems. The
materials-related business unit designs, develops and manufactures compound
semiconductor materials. Revenues for the materials-related business unit
include sales of semiconductor wafers, devices, packaged devices, modules and
process development technology. EMCORE's vertically-integrated product offering
allows it to provide a complete compound semiconductor solution to its
customers. The segments reported are the segments of EMCORE for which separate
financial information is available and for which gross profit amounts are
evaluated regularly by executive management in deciding how to allocate
resources and in assessing performance. EMCORE does not allocate assets or
operating expenses to the individual operating segments. Services are performed
for each other however there are no intercompany sales transactions between the
two operating segments.
Results of Operations
The following table sets forth the condensed consolidated Statement of
Operations data of EMCORE expressed as a percentage of total revenues for the
three months ended December 31, 2000 and 1999:
STATEMENT OF OPERATIONS DATA:
THREE MONTHS ENDED
DECEMBER 31,
---------------------
2000 1999
---------------------
Revenues................................. 100.0% 100.0%
Cost of revenues......................... 58.7% 59.3%
---------------------
Gross profit................... 41.3% 40.7%
Operating expenses:
Selling, general and administrative... 17.4% 28.6%
Goodwill amortization................. 1.8% 6.7%
Research and development.............. 32.9% 28.5%
---------------------
Total operating expenses...... 52.1% 63.8%
---------------------
Operating loss................. (10.8%) (23.1%)
Interest income, net................ (3.7%) (0.5%)
Imputed warrant interest expense - 1.0%
Equity in net loss of unconsolidated
affiliates........................ 10.3% 16.8%
---------------------
Total other expenses......... 6.6% 17.3%
---------------------
Net loss................................. (17.4%) (40.4%)
=====================
COMPARISON OF THREE-MONTH PERIODS ENDED DECEMBER 31, 1999 AND 2000
Revenues. EMCORE's revenues increased 143% or $23.6 million from $16.5
million for the three-month period ended December 31, 1999 to $40.1 million for
the three-month period ended December 31, 2000. On a sequential basis, revenues
increased 18% or $6.0 million from $34.1 million reported in the prior quarter.
This increase in revenues was attributable to both systems- and
materials-related product lines. Systems-related revenues increased 124% or
$14.8 million from $12.0 million to $26.8 million. On a sequential basis,
systems related revenues increased 17% or $3.9 million from $22.9 million
reported in the prior quarter. The number of MOCVD production systems shipped
during the quarter increased 89% from 9 in 1999 to 17 systems in 2000.
Management expects system shipments to increase over 85% in fiscal year 2001 to
approximately 75 MOCVD systems. Materials-related revenues increased 194% or
$8.8 million from $4.5 million to $13.3 million. On a sequential basis,
materials-related revenues increased 19% or $2.1 million from $11.2 million
reported in the prior quarter. This revenue growth was primarily related to
sales of solar cells, pHEMT and HBT epitaxial wafers and VCSELs, which increased
252%, 780% and 184%, respectively, from the prior year. As a percentage of
revenues, systems- and materials-related revenues accounted for 73% and 27%,
respectively, for the three-month period ended December 31, 1999 and improved to
67% and 33.0%, respectively, for the three-month period ended December 31, 2000.
EMCORE expects the product mix between systems and materials to continue to
approach 50% as other new products are introduced and production of commercial
volumes of these materials commences. International sales accounted for 48% of
revenues for the three months ended December 31, 1999 and 33% of revenues for
the three months ended December 31, 2000. The increase in domestic sales is a
direct result of significant materials-related design wins at several large U.S.
semiconductor and wireless communication companies.
Gross Profit. EMCORE's gross profit increased 146% or $9.8 million
from $6.7 million for the three-month period ended December 31, 1999 to $16.5
million for the three-month period ended December 31, 2000. On a sequential
basis, gross profit increased 18% or $2.5 million from $14.1 million. Gross
profit earned on systems-related revenues increased 165% or $7.4 million from
$4.5 million to $11.8 million. On a sequential basis, gross profit from
systems-related revenues increased 17% or $1.7 million from $10.1 million earned
in the prior quarter. This increase is due primarily to the rise in production
system sales, discussed above, as well as, improved manufacturing efficiencies.
Component and service related revenues continue to increase since EMCORE's
production system installed base now exceeds 300 MOCVD systems. Gross profit
earned on materials-related revenues increased 108% or $2.5 million from $2.3
million to $4.7 million. On a sequential basis, gross profit from
materials-related revenues increased 20% or $0.8 million from $3.9 million
earned in the prior quarter. Management expects gross profits on
materials-related sales to increase due to recent yield improvements in
manufacturing processes and expected increased production output due to EMCORE's
strong order backlog of material-related products.
Selling, General and Administrative. Selling, general and
administrative expenses increased by 48% or $2.3 million from $4.7 million for
the three-month period ended December 31, 1999 to $7.0 million for the
three-month period ended December 31, 2000. On a sequential basis, selling,
general and administrative expenses increased 15% or $0.9 million from $6.1
million incurred in the prior quarter. A significant portion of the increase was
due to headcount increases in marketing and sales personnel to support domestic
and foreign markets and other administrative headcount additions to sustain
internal support. As a percentage of revenue, selling, general and
administrative expenses decreased from 29% for the three-month period ended
December 31, 1999 to 17% for the three-month period ended December 31, 2000. On
a sequential basis, as a percentage of revenue, selling, general and
administrative expenses decreased from 18% realized in the prior quarter.
Goodwill Amortization. Goodwill of $13.2 million was recorded in
connection with our acquisition of MODE in December 1997. During the three
months ended December 31, 2000, EMCORE amortized $0.7 million, the remaining
portion of goodwill.
Research and Development. Research and development expenses increased
180% or $8.5 million from $4.7 million in the three-month period ended December
31, 1999 to $13.2 million in the three month-period ended December 31, 2000. On
a sequential basis, research and development decreased 24% or $4.2 million from
$17.3 million incurred in the last quarter. During the quarter ended September
30, 2000, EMCORE incurred $7.0 million of additional research and development
expenses in connection with EMCORE's array transceiver program, a design and
development program under an agreement with JDS Uniphase. In addition, EMCORE
accelerated certain fiber optic and wireless programs to meet customer driven
market windows. To maintain growth and to continue to pursue market leadership
in materials science technology, management expects to continue to invest a
significant amount of its resources in research and development. As a percentage
of revenue, research and development expenses decreased from 51% for the three
months ended September 30, 2000 to 33% for the three months ended December 31,
2000. In fiscal year 2001, management expects research and development expenses
to increase approximately 25%, but continue to decrease as a percentage of
revenues.
Interest Income, net. For the three-month period ended December 31,
2000, net interest income increased $1.4 million from $0.1 million in 1999 to
$1.5 million. In March 2000, EMCORE completed the issuance of an additional 2.0
million common stock shares (adjusted for 2:1 stock split in September 2000)
through a public offering, which resulted in proceeds of $127.5 million, net of
issuance costs. A portion of the proceeds was used to repay all outstanding bank
loans, thereby reducing interest expense and generating interest income on the
retained proceeds. Higher interest rates in fiscal year 2000 also contributed to
increased interest income.
Equity in unconsolidated affiliates. Because EMCORE does not have a
controlling economic and voting interest in its joint ventures, EMCORE accounts
for these joint ventures under the equity method of accounting. For the
three-month period ended December 31, 1999, EMCORE incurred a net loss of $1.4
million related to the Uniroyal joint venture and a $1.3 million net loss
related to the GELcore joint venture. For the three-month period ended December
31, 2000, EMCORE incurred a net loss of $2.8 million related to the Uniroyal
joint venture and a $1.3 million net loss related to the GELcore joint venture.
Income Taxes. As a result of its losses, EMCORE did not incur any
income tax expense in both the three-month periods ended December 31, 1999 and
2000.
EMCORE has experienced and expects to continue to experience significant
fluctuations in quarterly results. Factors which have had an influence on and
may continue to influence EMCORE's operating results in a particular quarter
include, but are not limited to, the timing of receipt of orders, cancellation,
rescheduling or delay in product shipment or supply deliveries, product mix,
competitive pricing pressures, EMCORE's ability to design, manufacture and ship
products on a cost effective and timely basis, including the ability of EMCORE
to achieve and maintain acceptable production yields for wafers and devices,
regional economic conditions and the announcement and introduction of new
products by EMCORE and by its competitors. The timing of sales of EMCORE's
TurboDisc production systems may cause substantial fluctuations in quarterly
operating results due to the substantially higher per unit price of these
products relative to EMCORE's other products. If the compound semiconductor
industry experiences downturns or slowdowns, EMCORE's business, financial
condition and results of operations may be materially and adversely affected.
Liquidity and Capital Resources
EMCORE has funded operations to date through sales of equity, bank
borrowings, subordinated debt and revenues from product sales. In June 1999,
EMCORE completed a secondary public offering and raised approximately $52.0
million, net of issuance costs. In March 2000, EMCORE completed an additional
public offering and raised approximately $127.5 million, net of issuance costs.
As of December 31, 2000, EMCORE had working capital of approximately $89.5
million, including $67.3 million in cash, cash equivalents and marketable
securities.
Cash used from operating activities approximated $11.2 million during
the three-month period ended December 31, 2000 as a result of EMCORE's net loss
and increases in both inventory and accounts receivable. The increase in
accounts receivable was within expectations of the 143% increase in revenues
from the prior year. Accounts receivable turnover continues to approximate 7.8
turns per year or 46 DSO and the Company historically has not had a problem with
collectability. Net cash used for investment activities amounted to $14.4
million, which represents an increase of 198% or $9.6 million from the prior
year. For the three months ended December 31, 2000, EMCORE's capital
expenditures totaled $23.7 million, which was used primarily for capacity
expansion at both New Jersey and New Mexico's manufacturing facilities. EMCORE
quadrupled its production capacity for GaInP HBTs and pHEMTs to meet wireless
and fiber optic market demands. Completed in January 2001, EMCORE tripled its
cleanroom manufacturing capacity in New Mexico by adding on an additional 36,000
square feet to the existing 50,000 square foot building which houses EMCORE's
solar cell, optical components and networking products. EMCORE's planned capital
expenditures are expected to total approximately $50.0 million during fiscal
year 2001. Capital spending in fiscal year 2001 also includes the purchase of
and continued upgrades to manufacturing facilities, continued investment in
analytical and diagnostic research and development equipment, upgrading and
purchasing computer equipment and the manufacture of TurboDisc MOCVD production
systems used internally for production of materials-related products. EMCORE's
net investment in marketable securities was reduced by $10.5 million during the
quarter ended December 31, 2000. Net cash provided by financing activities for
the three-month period ended December 31, 2000 amounted to approximately $1.6
million from proceeds of stock option exercises.
EMCORE believes that its current liquidity, together with available
credit, should be sufficient to meet its cash needs for working capital through
fiscal year 2001. However, if the available credit facilities, cash generated
from operations and cash on hand are not sufficient to satisfy EMCORE's
liquidity requirements, EMCORE will seek to obtain additional equity or debt
financing. Additional funding may not be available when needed or on terms
acceptable to EMCORE. If EMCORE is required to raise additional financing and if
adequate funds are not available or not available on acceptable terms, the
ability to continue to fund expansion, develop and enhance products and
services, or otherwise respond to competitive pressures will be severely
limited. Such a limitation could have a material adverse effect on EMCORE's
business, financial condition or operations.
In 1992, EMCORE received a royalty bearing, non-exclusive license
under a patent held by Rockwell International Corporation which relates to an
aspect of the manufacturing process used by its TurboDisc systems. In October
1996, EMCORE initiated discussions with Rockwell to receive additional licenses
to permit EMCORE to use this technology to manufacture and sell compound
semiconductor wafers and devices. In November 1996, EMCORE suspended these
negotiations because of litigation surrounding the validity of the Rockwell
patent. EMCORE also ceased making royalty payments to Rockwell under the license
during the pendency of the litigation. In January 1999, the case was settled and
a judgment was entered in favor of Rockwell. As a result, EMCORE may be required
to pay royalties to Rockwell for certain of its past sales of wafers and devices
to its customers who did not hold licenses directly from Rockwell. Management
has reviewed and assessed its likely royalty obligations and believes that it
has the appropriate amounts reserved at December 31, 2000. If EMCORE is required
to pay Rockwell amounts in excess of its reserves, its business, financial
condition and results of operations could be materially and adversely affected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three months ended December 31, 2000, EMCORE invested some
of the proceeds from its March 2000 public offering into high-grade corporate
debt, commercial paper, government securities and other investments at fixed
interest rates that vary by security. No other material changes in market risk
were identified. EMCORE has no debt outstanding as of December 31, 2000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K:
- No reports on Form 8-K were filed during the quarter ended
December 31, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMCORE CORPORATION
Date: February 14, 2001 By: /s/ Reuben F. Richards, Jr.
---------------------------------------------
Reuben F. Richards, Jr.
President and Chief Executive Officer
Date: February 14, 2001 By: /s/ Thomas G. Werthan
---------------------------------------------
Thomas G. Werthan
Vice President, Finance and Administration
5
3-MOS
SEP-30-2001
DEC-31-2000
26,903
40,425
34,563
(1,015)
36,559
2,711
123,877
(34,689)
246,285
50,654
0
0
0
316,937
(122,540)
246,285
40,064
40,064
23,536
23,536
23,532
0
4
(7,008)
0
(7,008)
0
0
0
(7,008)
(0.21)
(0.21)