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 June 30, 2003
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The number of shares of the registrant's common stock, no par value, outstanding
as of August 1, 2003 was 37,199,816.
ITEM 1. Financial Statements
EMCORE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended June 30, 2003 and 2002
(in thousands, except loss per share)
(unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------
Revenues:
Systems-related........................................ $15,145 $9,910 $39,764 $24,546
Materials-related...................................... 17,035 10,365 43,336 37,944
----------------------------------------------------
Total revenues....................................... 32,180 20,275 83,100 62,490
Cost of revenues:
Systems-related........................................ 10,028 6,859 26,200 19,123
Materials-related...................................... 16,377 10,889 46,148 47,425
----------------------------------------------------
Total cost of revenues............................... 26,405 17,748 72,348 66,548
----------------------------------------------------
Gross profit (loss)................................ 5,775 2,527 10,752 (4,058)
Operating expenses:
Selling, general and administrative.................... 7,673 6,522 20,844 23,003
Research and development............................... 5,480 9,398 14,514 32,970
Gain from debt extinguishment.......................... - - (6,614) -
Impairment and restructuring........................... - - - 35,939
----------------------------------------------------
Total operating expenses............................. 13,153 15,920 28,744 91,912
----------------------------------------------------
Operating loss..................................... (7,378) (13,393) (17,992) (95,970)
Other expenses:
Interest expense, net.................................. 1,821 1,761 5,343 4,371
Other expense, net..................................... - - - 13,262
Equity in net loss of unconsolidated affiliate......... 33 769 1,335 1,997
----------------------------------------------------
Total other expenses................................. 1,854 2,530 6,678 19,630
----------------------------------------------------
Net loss........................................... $(9,232) $(15,923) $(24,670) $(115,600)
====================================================
Per Share Data:
Weighted average basic and diluted shares outstanding
used in per share calculations........................... 37,051 36,683 36,922 36,496
----------------------------------------------------
Net loss per basic and diluted share..................... $(0.25) $(0.43) $(0.67) $(3.17)
====================================================
The accompanying notes are an integral part of these
consolidated financial statements.
2
EMCORE CORPORATION
CONSOLIDATED BALANCE SHEETS
As of June 30, 2003 and September 30, 2002
(in thousands)
As of As of
June 30, September 30,
ASSETS 2003 2002
(unaudited)
Current assets:
Cash and cash equivalents....................................................... $31,742 $42,716
Marketable securities........................................................... 6,252 41,465
Accounts receivable, net ....................................................... 21,220 23,817
Accounts receivable - related party............................................. 464 518
Inventories..................................................................... 30,307 31,027
Other current assets............................................................ 1,793 1,188
-----------------------------------------
Total current assets....................................................... 91,778 140,731
Property, plant and equipment, net................................................ 98,120 101,302
Goodwill.......................................................................... 30,366 20,384
Intangible assets, net............................................................ 5,729 3,042
Investments in unconsolidated affiliate........................................... 9,107 8,482
Other assets, net................................................................. 10,591 12,002
-----------------------------------------
Total assets............................................................... $245,691 $285,943
=========================================
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $11,068 $10,346
Accrued expenses................................................................ 13,243 12,875
Customer deposits............................................................... 1,372 5,604
Capitalized lease obligation - current.......................................... 65 81
-----------------------------------------
Total current liabilities.................................................. 25,748 28,906
Convertible subordinated notes.................................................... 161,750 175,000
Capitalized lease obligation, net of current portion.............................. 53 87
-----------------------------------------
Total liabilities.......................................................... 187,551 203,993
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.0001 par, 5,882 shares authorized, no shares
outstanding................................................................... - -
Common stock, no par value, 100,000 shares authorized, 37,172 shares
issued and 37,152 outstanding at June 30, 2003; 36,772 shares issued
and 36,752 outstanding at September 30, 2002................................... 334,908 334,051
Accumulated deficit............................................................ (275,583) (250,913)
Accumulated other comprehensive loss........................................... (219) (222)
Shareholders' notes receivable................................................. (34) (34)
Treasury stock, at cost; 20 shares............................................. (932) (932)
-----------------------------------------
Total shareholders' equity................................................. 58,140 81,950
-----------------------------------------
Total liabilities and shareholders' equity................................. $245,691 $285,943
=========================================
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
EMCORE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 2003 and 2002
(in thousands)
(unaudited)
Nine Months Ended June 30,
--------------------------------
2003 2002
--------------------------------
Cash flows from operating activities:
Net loss........................................................................ $(24,670) $(115,600)
--------------------------------
Adjustments to reconcile net loss to net cash used for operating activities:
Gain from debt extinguishment................................................ (6,614) -
Depreciation and amortization................................................ 14,616 13,633
Provision for doubtful accounts.............................................. 575 1,579
Equity in net loss of unconsolidated affiliate............................... 1,335 1,997
Compensatory stock issuances................................................. 564 573
Impairment of equity investment.............................................. - 13,262
Loss from impairment, restructuring and other charges........................ - 50,443
Reduction of note receivable................................................. 481 -
Decrease (increase) in assets:
Accounts receivable................................................. 2,022 6,768
Accounts receivable - related party................................. 54 1,683
Inventories......................................................... 7,249 3,315
Other current assets................................................ (605) 2,257
Other assets........................................................ (137) (586)
Increase (decrease) in liabilities:
Accounts payable.................................................... 722 (6,049)
Accrued expenses.................................................... (1,732) (3,971)
Customer deposits................................................... (4,232) 480
Other............................................................... 40 145
--------------------------------
Total adjustments.............................................. 14,338 85,529
--------------------------------
Net cash used for operating activities...................................... (10,332) (30,071)
--------------------------------
Cash flows from investing activities:
Purchase of property, plant, and equipment...................................... (1,319) (6,460)
Investments in unconsolidated affiliate......................................... (1,960) (1,960)
Proceeds from collection of related party notes receivable...................... - 5,000
Cash paid for acquisition, net of cash acquired................................. (26,450) (25,084)
Proceeds from sales of marketable securities, net............................... 35,176 35,916
--------------------------------
Net cash provided by investing activities................................... 5,447 7,412
--------------------------------
Cash flows from financing activities:
Repurchase of convertible subordinated notes.................................... (6,317) -
Payments on capital lease obligations........................................... (65) (67)
Proceeds from exercise of stock options and employee stock purchase plan........ 293 1,583
Proceeds from exercise of stock purchase warrants............................... - 4,194
--------------------------------
Net cash (used for) provided by financing activities........................ (6,089) 5,710
--------------------------------
Net decrease in cash and cash equivalents....................................... (10,974) (16,949)
Cash and cash equivalents, beginning of period.................................. 42,716 71,239
--------------------------------
Cash and cash equivalents, end of period........................................ $31,742 $54,290
================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest................................... $8,496 $8,229
================================
The accompanying notes are an integral part of these
consolidated financial statements.
4
EMCORE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended September 30, 2001 and 2002 and the nine months ended June 30, 2003 (unaudited)
(in thousands)
Accumulated
Common Common Other Shareholders' Total
Stock Stock Accumulated Comprehensive Notes Treasury Shareholders'
Shares Amount Deficit Income (Loss) Receivable Stock Equity
------------------------------------------------------------------------------------
Balance at September 30, 2000............. 33,972 $314,780 $(108,864) $5 $(6,360) $(239) $199,322
Net loss...................................... (12,288) (12,288)
Unrealized loss on marketable securities...... (8,085) (8,085)
Translation adjustment........................ (234) (234)
----------
Comprehensive loss.......................... (20,607)
Issuance of common stock in connection
with acquisitions........................... 41 1,840 1,840
Stock option exercise......................... 438 3,248 3,248
Stock purchase warrant exercise............... 1,111 5,509 5,509
Compensatory stock issuances.................. 34 1,505 1,505
Issuance of common stock - Employee Stock
Purchase Plan................................. 17 677 677
Treasury stock................................ (16) (693) (693)
Redemptions of shareholders' notes
receivable.................................... 6,326 6,326
------------------------------------------------------------------------------------
Balance at September 30, 2001............. 35,597 327,559 (121,152) (8,314) (34) (932) 197,127
Net loss...................................... (129,761) (129,761)
Impairment of equity investment............... 8,421 8,421
Unrealized loss on marketable securities...... (308) (308)
Translation adjustment........................ (21) (21)
----------
Comprehensive loss.......................... (121,669)
Stock option exercise......................... 159 1,023 1,023
Stock purchase warrant exercise............... 823 4,194 4,194
Compensatory stock issuances.................. 125 714 714
Issuance of common stock - Employee
Stock Purchase Plan........................... 48 561 561
------------------------------------------------------------------------------------
Balance at September 30, 2002............. 36,752 334,051 (250,913) (222) (34) (932) 81,950
Net loss...................................... (24,670) (24,670)
Unrealized loss on marketable securities...... (37) (37)
Translation adjustment........................ 40 40
----------
Comprehensive loss.......................... (24,667)
Stock option exercise......................... 68 122 122
Compensatory stock issuances.................. 243 564 564
Issuance of common stock - Employee
Stock Purchase Plan........................... 89 171 171
------------------------------------------------------------------------------------
Balance at June 30, 2003.................. 37,152 $334,908 $(275,583) $(219) $(34) $(932) $58,140
====================================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
5
EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of EMCORE Corporation and its subsidiaries (EMCORE). These statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation have
been included. Operating results for interim periods are not necessarily
indicative of results that may be expected for the full year.
Preparation of EMCORE's financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts in the financial
statements and accompanying notes. Actual results could differ from those
estimates. For further information, refer to the consolidated financial
statements and footnotes included in EMCORE's Annual Report on Form 10-K for the
fiscal year ended September 30, 2002.
Certain prior period information has been reclassified to conform with current
year presentation.
NOTE 2. Segment Data and Related Information
EMCORE has two reportable operating segments: the systems-related business and
the materials-related business. The segments reported are the segments of EMCORE
for which separate financial information is available and evaluated regularly by
executive management in deciding how to allocate resources and in assessing
performance.
The systems-related business is our TurboDisc(R) product line which designs,
develops and manufactures metal organic chemical vapor deposition (MOCVD)
systems and manufacturing processes. Revenues for the systems-related business
are derived primarily from sales of TurboDisc MOCVD systems, as well as spare
parts, services, and other related products.
The materials-related business is comprised of our Fiber Optics, Photovoltaics,
and Electronic Materials and Devices product lines. EMCORE's Fiber Optics
product line group designs, develops, and manufactures high speed optical
transmitter modules, receiver modules and transponders utilizing EMCORE's
leading-edge vertical cavity surface emitting lasers (VCSELs) and PIN (the "P",
"I", "N" represent P-type, intrinsic and N-type semiconductor materials,
respectively) photodiode array components for the data communications and
telecommunications markets. In January 2003, EMCORE purchased Agere System,
Inc.'s cable television transmission systems, telecom access and satellite
communications components business, formerly Ortel Corporation (Ortel), for
$26.2 million in cash. Ortel, which is a part of EMCORE's fibers optic group,
designs and manufactures high quality optoelectronic solutions that enable
voice, video and data networks. Ortel's product offerings include 1310 nm and
1550 nm analog lasers, dense wavelength division multiplexing (DWDM) lasers,
transmitter engines, photodiodes, fiber-to-the-home/curb/business components,
wideband lasers and receivers, and optical links for long-haul antenna remoting.
Photovoltaics revenues are derived primarily from the sales of satellite
communications products including solar cells, covered interconnect solar cells
(CICs) and solar panels. Revenues from the Electronic Materials and Devices
product line include wireless products, such as radio frequency (RF) materials
including heterojunction bipolar transistors (HBTs) and enhancement-mode
pseudomorphic high electron mobility transistors (pHEMTS), and also magneto
resistive (MR) sensors and process development technology.
6
EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Unaudited information about reported segments is as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands) Systems- Materials- Unallocated Systems- Materials- Unallocated
related related expenses TOTAL related related expenses TOTAL
2003 2003 2003 2003 2002 2002 2002 2002
STATEMENTS OF OPERATIONS
Three months ended June 30,
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues............................. $15,145 $17,035 - $32,180 $9,910 $10,365 - $20,275
Cost of revenues..................... 10,028 16,377 - 26,405 6,859 10,889 - 17,748
----------------------------------------------------------------------------------------
Gross profit (loss)................ 5,117 658 - 5,775 3,051 (524) - 2,527
Gross margin....................... 33.8% 3.9% - 17.9% 30.8% (5.1)% - 12.5%
Operating expenses:
Selling, general and
administrative..................... 2,350 5,323 - 7,673 2,905 3,617 - 6,522
Research and development........... 1,340 4,140 - 5,480 1,606 7,792 - 9,398
----------------------------------------------------------------------------------------
Total operating expenses......... 3,690 9,463 - 13,153 4,511 11,409 - 15,920
----------------------------------------------------------------------------------------
Operating income (loss)............ 1,427 (8,805) - (7,378) (1,460) (11,933) - (13,393)
Other expenses:
Interest expense, net.............. - - 1,821 1,821 - - 1,761 1,761
Equity in net loss of
unconsolidated affiliate........... - - 33 33 - - 769 769
----------------------------------------------------------------------------------------
Total other expenses............. - - 1,854 1,854 - - 2,530 2,530
----------------------------------------------------------------------------------------
Net income (loss).............. $1,427 $(8,805) $1,854 $(9,232) $(1,460) $(11,933) $2,530 $(15,923)
========================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands) Systems- Materials- Unallocated Systems- Materials- Unallocated
related related expenses TOTAL related related expenses TOTAL
2003 2003 2003 2003 2002 2002 2002 2002
STATEMENTS OF OPERATIONS
Nine months ended June 30,
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues............................. $39,764 $43,336 - $83,100 $24,546 $37,944 - $62,490
Cost of revenues..................... 26,200 46,148 - 72,348 19,123 47,425 - 66,548
----------------------------------------------------------------------------------------
Gross profit (loss)................ 13,564 (2,812) - 10,752 5,423 (9,481) - (4,058)
Gross margin....................... 34.1% (6.5)% 12.9% 22.1% (25.0)% (6.5)%
Operating expenses:
Selling, general and
administrative..................... 7,228 13,616 - 20,844 13,757 9,246 - 23,003
Research and development........... 4,031 10,483 - 14,514 9,436 23,534 - 32,970
Gain from debt extinguishment...... - - (6,614) (6,614) - - - -
Impairment and restructuring....... - - - - 4,672 31,267 - 35,939
----------------------------------------------------------------------------------------
Total operating expenses......... 11,259 24,099 (6,614) 28,744 27,865 64,047 - 91,912
----------------------------------------------------------------------------------------
Operating income (loss)........ 2,305 (26,911) 6,614 (17,992) (22,442) (73,528) - (95,970)
Other expenses:
Interest expense, net.............. - - 5,343 5,343 - - 4,371 4,371
Other expense, net................. - - - - - - 13,262 13,262
Equity in net loss of
unconsolidated affiliate........... - - 1,335 1,335 - - 1,997 1,997
----------------------------------------------------------------------------------------
Total other expenses............. - - 6,678 6,678 - - 19,630 19,630
----------------------------------------------------------------------------------------
Net income (loss).............. $2,305 $(26,911) $(64) $(24,670) $(22,442) $(73,528) $19,630 $(115,600)
========================================================================================
7
EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
During the second quarter of fiscal 2002, EMCORE recorded pre-tax charges to
income totaling $50.4 million, which included fixed asset impairment charges of
$34.8 million, excess inventory reserve of $11.9 million, loss provision for
accounts receivable of $2.6 million and restructuring charges of $1.1 million.
The reportable operating segments are each managed separately because they
manufacture and distribute distinct products and services. The table below
outlines EMCORE's four different product lines:
For the three months ended June 30, For the nine months ended June 30,
2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Product Lines Revenue % Revenue % Revenue % Revenue %
- ------------- ------- - ------- - ------- - ------- -
Systems-related:
TurboDisc.......................... $15,145 47% $9,910 49% $39,764 48% $24,546 40%
Material-related:
Fiber Optics....................... 11,192 35% 2,575 13% 23,163 28% 6,329 10%
Photovoltaics...................... 3,035 9% 3,055 15% 13,321 16% 15,842 25%
Electronic Materials & Devices..... 2,808 9% 4,735 23% 6,852 8% 15,773 25%
-----------------------------------------------------------------------------
TOTAL $32,180 100% $20,275 100% $83,100 100% $62,490 100%
======= ==== ======= ==== ======= ==== ======= ====
In January 2003, EMCORE acquired Ortel, which contributed approximately $8.2
million and $15.3 million of fiber optic revenues in the three and nine months
ended June 30, 2003, respectively.
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 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 consolidated revenues by
geographic region:
For the three months ended June 30, For the nine months ended June 30,
2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Region: Revenue % Revenue % Revenue % Revenue %
------- - ------- - ------- - ------- -
North America..................... $20,237 63% $14,471 71% $46,742 56% $46,348 74%
Asia.............................. 10,114 31% 4,089 20% 25,946 31% 8,883 14%
Europe............................ 1,829 6% 1,715 9% 10,412 13% 7,259 12%
-----------------------------------------------------------------------------
TOTAL $32,180 100% $20,275 100% $83,100 100% $62,490 100%
======= ==== ======= ==== ======= ==== ======= ====
NOTE 3. Acquisitions
In December 2002, EMCORE acquired certain assets of privately held Alvesta
Corporation of Sunnyvale, California. Alvesta Corporation was an industry leader
in the research and development of parallel optic transceivers for fiber optic
communication networks. Alvesta pioneered four channel parallel optic
transceivers for the Optical Internetworking Forum, 10G Fibre Channel, 10
Gigabit Ethernet and Infiniband applications. Alvesta's product revenues from
sales of its four-channel products were approximately $5.0 million in 2001. The
total cash purchase price, including acquisition costs, was approximately
$250,000. The transaction included the acquisition of intellectual property and
inventory. In addition, EMCORE hired six employees of Alvesta's key design team.
8
EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
In January 2003, EMCORE acquired Ortel for $26.2 million in cash. Ortel designs
and manufactures high quality optoelectronic solutions that enable voice, video
and data networks. Ortel contributed approximately $8.2 million and $15.3
million of fiber optic revenues in the three and nine months ended June 30,
2003, respectively. The following unaudited condensed consolidated pro forma
financial statement has been prepared to give effect to EMCORE's acquisition of
certain assets and liabilities of Ortel. It does not purport to represent what
the consolidated results of operations or financial position of EMCORE would
actually have been if the acquisition had occurred on the dates referred to
below, nor does it purport to project the results of operations or financial
position of EMCORE for any future period.
The unaudited condensed consolidated pro forma statement of operations data was
prepared by combining EMCORE's statement of operations for the year ended
September 30, 2002 with Ortel's statement of Net Sales, Cost of Sales and Direct
Operating Expenses for the year ended September 30, 2002, giving effect to the
acquisition as though it occurred on October 1, 2001.
The unaudited condensed consolidated pro forma statement of operations does not
give effect to any restructuring costs or any potential cost savings or other
operating efficiencies that could result from the acquisition, or any
non-recurring charges or credits resulting from the transaction such as
in-process research and development charges.
The unaudited condensed consolidated pro forma financial statement should be
read in conjunction with the historical financial statements of (i) EMCORE
included in its Annual Report on Form 10-K for the year ended September 30, 2002
(filed December 30, 2002), and (ii) Ortel included in EMCORE's Form 8-K/A (filed
April 7, 2003).
9
EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Condensed Consolidated Pro Forma Statement of Operations Data
For the year ended September 30, 2002
EMCORE Ortel Adjustments Footnotes Pro Forma
------ ----- ----------- --------- ---------
Revenues................................ $87,772 $55,800 - $143,572
Net loss................................ (129,761) (223,906) 191,471 1 (162,196)
========= ========= ======= =========
Net loss per basic and diluted share.... $(3.55) $(4.44)
======= =======
For the three months ended June 30, 2003
EMCORE Ortel Adjustments Footnotes Pro Forma
------ ----- ----------- --------- ---------
Revenues................................ $32,180 $8,212 $(8,212) 2 $32,180
Net loss................................ (9,232) (2,013) 2,013 2 (9,232)
======= ======= ===== =======
Net loss per basic and diluted share.... $(0.25) $(0.25)
======= =======
For the three months ended June 30, 2002
EMCORE Ortel Adjustments Footnotes Pro Forma
------ ----- ----------- --------- ---------
Revenues................................ $20,275 $13,288 - $33,563
Net loss................................ (15,923) (12,402) - (28,325)
======== ======== = ========
Net loss per basic and diluted share... $(0.43) $(0.76)
======= =======
For the nine months ended June 30, 2003
EMCORE Ortel Adjustments Footnotes Pro Forma
------ ----- ----------- --------- ---------
Revenues............................... $83,100 $25,400 $(15,329) 2 $93,171
Net loss............................... (24,670) (8,053) 3,581 2 (29,142)
======== ======= ===== ========
Net loss per basic and diluted share... $(0.67) $(0.79)
======= =======
For the nine months ended June 30, 2002
EMCORE Ortel Adjustments Footnotes Pro Forma
------ ----- ----------- --------- ---------
Revenues............................... $62,490 $44,334 - $106,824
Net loss............................... (115,600) (29,294) - (144,894)
========= ======== = =========
Net loss per basic and diluted share... $(3.17) $(3.97)
======= =======
10
EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) An adjustment was made to eliminate the various impairment and
restructuring charges recorded by Ortel during the periods related to the
acquired assets. The acquired assets are valued at fair market value.
Therefore, there would be no impairment and restructuring charges in the
condensed consolidated pro forma financial statements, as the acquired
assets would be recorded in purchase accounting at their fair market value
upon acquisition.
(2) An adjustment was made to eliminate the sales and net losses recorded twice
in the table above during the period from January 21, 2003, the date EMCORE
purchased Ortel, through June 30, 2003 ("Consolidation Period"). During
that period, Ortel's financial information was consolidated into EMCORE;
however, to accurately depict the financial position of both entities for
the three and nine months ended June 30, 2003, both sales and net loss were
shown on a 'stand alone' basis, and properly adjusted for by backing out
the amounts during the Consolidation Period to determine the pro forma
information.
The effects of the acquisition have been presented using the purchase method of
accounting. The total purchase price of the transaction has been allocated to
assets and liabilities based on management's estimate of their fair values. The
following represents the allocation of the purchase price over the estimated
fair values of the acquired assets and assumed liabilities of Ortel.
Cash................................................. $25,000
Acquisition costs.................................... 1,200
-------
Total purchase price............................. $26,200
=======
Allocation of purchase price based on fair values:
Assets acquired:
Inventories...................................... $6,473
Property, plant and equipment.................... 8,570
Identifiable intangible assets................... 3,274
Goodwill......................................... 9,983
Less: warranty reserve............................. (2,100)
-------
Net assets acquired.............................. $26,200
=======
NOTE 4. Joint Venture
In January 1999, General Electric Lighting and EMCORE 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. Under the terms
of the joint venture agreement, EMCORE has a 49% non-controlling interest in the
GELcore venture. EMCORE accounts for this related party investment of an
unconsolidated affiliate using the equity method of accounting.
11
EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 5. Balance Sheet Data
o Accounts receivable, net
The components of accounts receivable consisted of the following:
(in thousands) At At
June 30, 2003 September 30, 2002
------------- ------------------
Accounts receivable..................... $20,657 $24,029
Accounts receivable - unbilled.......... 2,395 3,135
------- -------
23,052 27,164
Allowance for doubtful accounts......... (1,832) (3,347)
------- -------
Total............................. $21,220 $23,817
======= =======
o Inventories, net
The components of inventories consisted of the following:
(in thousands) At At
June 30, 2003 September 30, 2002
------------- ------------------
Raw materials........................... $13,774 $17,497
Work-in-process......................... 11,785 11,152
Finished goods.......................... 4,748 2,378
------- -------
Total............................. $30,307 $31,027
======= =======
o Property, Plant and Equipment
The components of property, plant and equipment consisted of the following:
(in thousands) At At
June 30, 2003 September 30, 2002
------------- ------------------
Land.................................... $2,502 $2,502
Building and improvements............... 61,135 60,777
Equipment............................... 77,137 69,223
Furniture and fixtures.................. 6,034 4,843
Leasehold improvements.................. 1,742 1,729
Construction in progress................ 1,451 1,094
Property and equipment
under capital lease................... 429 429
------- --------
150,430 140,597
Less: accumulated depreciation and
amortization...................... (52,310) (39,295)
------- --------
Total........................... $98,120 $101,302
======= ========
12
EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
o Goodwill
All goodwill relates to the materials-related business. In March 2002,
EMCORE acquired certain assets, including equipment and intellectual property,
of the Applied Solar Division of Tecstar, Inc. and its subsidiary, Tecstar Power
Systems, Inc. (this acquired business is referred to herein as "Tecstar") and
allocated approximately $20.4 million to goodwill. In January 2003, EMCORE
purchased Ortel for $26.2 million in cash, and allocated approximately $10.0
million to goodwill.
o Intangible Assets, net
The components of intangible assets consisted of the following:
At June 30, 2003 At September 30, 2002
---------------- ---------------------
(in thousands) Gross Accumulated Net Gross Accumulated Net
Assets Amortization Assets Assets Amortization Assets
---------------------------------- -----------------------------------
Patents........................... $2,565 $(1,366) $1,199 $2,674 $(1,326) $1,348
Acquired intellectual property:
Ortel........................... 3,274 (324) 2,950 - - -
Tecstar......................... 1,900 (491) 1,409 1,900 (206) 1,694
Alvesta......................... 193 (22) 171 - - -
---------------------------------- -----------------------------------
Total......................... $7,932 $(2,203) $5,729 $4,574 $(1,532) $3,042
================================== ===================================
Future amortization expense as of June 30, 2003 is as follows:
(in thousands)
Year ending: Amortization
----------------
June 30, 2004 $1,506
June 30, 2005 1,412
June 30, 2006 1,287
June 30, 2007 943
June 30, 2008 269
Thereafter 312
----------------
Future amortization expense $5,729
================
o Accrued Expenses
The components of accrued expenses consisted of the following:
(in thousands) At At
June 30, 2003 September 30, 2002
----------------- --------------------
Compensation................... $4,885 $4,392
Interest....................... 1,033 3,281
Warranty....................... 3,132 2,134
Other.......................... 4,193 3,068
----------------- --------------------
Total........................ $13,243 $12,875
================= ====================
13
EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 6. Commitments and Contingencies
EMCORE leases certain facilities and equipment under non-cancelable operating
leases. Facility and equipment rent expense under such leases amounted to
approximately $0.6 million and $0.3 million for the three months ended June 30,
2003 and 2002, respectively. For the nine months ended June 30, 2003 and 2002,
rent expense was $1.4 million and $0.8 million, respectively. Future minimum
rental payments under EMCORE's non-cancelable operating leases with an initial
or remaining term of one year or more as of June 30, 2003 are as follows:
(in thousands) Operating
Year ending: lease expense
----------------
June 30, 2004 $2,027
June 30, 2005 1,679
June 30, 2006 1,455
June 30, 2007 1,139
June 30, 2008 915
----------------
Total minimum lease payments $7,215
================
In fiscal 2000, GELcore entered into a Revolving Loan Agreement (the "GELcore
Credit Facility") with General Electric Canada, Inc., an affiliate of GE, which
is the owner of a 51% controlling share of GELcore. The GELcore Credit Facility
provides for borrowings of up to Canadian $7.5 million (US $5.5 million at June
30, 2003) at a rate of interest based on prevailing Canadian interest rates.
Amounts outstanding under the GELcore Credit Facility are payable on demand, and
the GELcore Credit Facility expires in August 2003. It is GELcore's intent to
renew/renegotiate this credit facility. EMCORE has guaranteed 49% (i.e. its
proportionate share) of GELcore's obligations under the GELcore Credit Facility.
As of June 30, 2003, US $2.6 million was outstanding under the GELcore Credit
Facility.
14
EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 7. Stock Options
In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, Accounting for Stock-Based Compensation -- Transition and Disclosure,
an amendment of FASB Statement No. 123. SFAS 148 amends SFAS No. 123, Accounting
for Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the disclosure requirements
of SFAS 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. EMCORE
implemented SFAS 148 in the quarter ended March 31, 2003.
The following table illustrates the effect on net loss and net loss per share if
EMCORE had applied the fair value recognition provisions of SFAS No. 123 to
stock based compensation:
For the three months For the nine months ended
ended June 30, June 30,
-------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net loss................. $(9,232) $(15,923) $(24,670) $(115,600)
Deduct: Total stock
based employee
compensation expense
determined under fair
value based methods
for all awards, net of
related tax effects...... (947) (1,744) (2,337) (5,231)
----- ------- ------- -------
Pro forma net loss....... $(10,179) $(17,667) $(27,007) $(120,831)
========= ========= ========= ==========
The pro forma disclosures shown above were calculated for all options using
Black-Scholes option pricing model with the following assumptions:
For the three months For the nine months ended
ended June 30, June 30,
-------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Expected dividend
yield.................. 0% 0% 0% 0%
Expected stock price
volatility............. 113.44% 110.89% 113.44% 110.89%
Risk-free interest rate.. 2.82% 4.38% 2.81% 4.13%
Weighted average
expected life (in
years)................ 5 5 5 5
On September 30, 2002, EMCORE offered to all employees holding options with an
exercise price of at least $4.00 per share, excluding executive officers, the
opportunity to exchange those options for new options to be issued on May 1,
2003. On October 30, 2002, EMCORE accepted all options tendered for exchange and
canceled them all. On May 1, 2003, EMCORE issued 2,972,149 new options in
exchange for the tendered options. These new options had an exercise price of
$1.82, which was the closing price for EMCORE common stock on May 1, 2003. With
the exception of the new exercise price, the new options had the same terms as
the tendered options.
15
EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 8. Recent Financial Accounting Pronouncements
In November 2002, the FASB issued Financial Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 clarifies that a guarantor
is required to recognize, at the inception of the guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The initial
recognition and initial measurement provisions of FIN 45 are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002. FIN
45 also requires enhanced and additional disclosures of guarantees in financial
statements ending after December 15, 2002. As discussed in Footnote
6-Commitments and Contingencies, EMCORE has guaranteed a loan associated with
its GELcore joint venture.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. The changes in SFAS No. 149
improve financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly. In particular, SFAS No. 149 (1)
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative discussed in paragraph 6(b) of SFAS No.
133, (2) clarifies when a derivative contains a financing component, (3) amends
the definition of an underlying to conform it to language used in FIN 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, and (4) amends certain other
existing pronouncements. Those changes will result in more consistent reporting
of contracts as either derivatives or hybrid instruments. SFAS No. 149 is to be
applied prospectively to contracts entered into or modified after June 30, 2003,
with certain exceptions, and for hedging relationships designated after June 30,
2003. Management believes that adopting this statement will not have a material
impact on the financial position, results of operations, or cash flows of
EMCORE.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances) because that financial instrument embodies an obligation of the
issuer. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003, except for mandatorily
redeemable financial instruments of nonpublic entities. Management believes that
adopting this statement will not have a material impact on the financial
position, results of operations, or cash flows of EMCORE.
16
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. These forward-looking statements are based largely on our current
expectations and projections about future events and financial trends affecting
the financial condition of our business. Words such as "expects", "anticipates",
"intends", "plans", believes" and "estimates" and variations of these words and
similar expressions, identify these forward-looking statements. These
forward-looking statements include, without limitation:
o any statements or implications regarding EMCORE's ability to remain
competitive and a leader in its industry and the future growth of EMCORE,
the industry and the economy in general;
o statements regarding anticipated results from EMCORE's acquisition of
Ortel, and difficulties in integrating past or future acquisitions into
EMCORE's operations;
o statements regarding the expected level and timing of benefits to EMCORE
from its restructuring and realignment efforts, including:
o expected cost reductions and their impact on EMCORE's financial
performance, and
o expected improvement to EMCORE's product and technology development
programs,
o statements regarding EMCORE's ability to obtain or maintain ISO
qualifications;
o any and all guidance provided by EMCORE regarding its expected financial
performance in current or future periods, including, without limitation,
with respect to anticipated revenues for any period in fiscal 2003 and
subsequent periods.
These forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially from those projected, including
without limitation, the following:
o difficulties in integrating Ortel's operations into EMCORE's operations and
the uncertainty as to the results to be achieved by EMCORE in connection
with this acquisition;
o EMCORE's restructuring and realignment efforts may not be successful in
achieving their expected benefits, may be insufficient to align EMCORE's
operations with customer demand and the changes affecting our industry, or
may be more costly than currently anticipated;
o due to the current economic slowdown, in general, and setbacks in our
customers' businesses, in particular, our ability to predict EMCORE's
financial performance for future periods is far more difficult than in the
past; and
o other risks and uncertainties described in EMCORE's filings with the
Securities and Exchange Commission (including under the heading "Risk
Factors" in our most recent Annual Report on Form 10-K), such as:
o cancellations, rescheduling or delays in product shipments;
o manufacturing capacity constraints;
o lengthy sales and qualification cycles; difficulties in the production
process;
o changes in semiconductor industry growth; and
o increased competition; delays in developing and commercializing new
products.
We assume no obligation to update the matters discussed in this Quarterly
Report.
17
EMCORE Corporation designs, develops and manufactures compound
semiconductor wafers and devices and is a leading developer and manufacturer of
metal organic chemical vapor deposition (MOCVD) systems and manufacturing
processes used to fabricate compound semiconductor wafers, devices and modules.
Compound semiconductors are composed of two or more elements and usually consist
of a metal, such as gallium, aluminum or indium, and another element such as
arsenic, phosphorus or nitrogen. Many compound semiconductors have unique
physical properties that enable electrons to move through them at least four
times faster than through silicon-based devices and are therefore well suited to
serve the growing need for efficient, high performance electronic systems.
EMCORE is the only fully integrated commercial supplier of compound
semiconductor equipment and products. We offer a comprehensive portfolio of
products and systems for the broadband, wireless communications, photovoltaic
and solid-state lighting markets. We have developed extensive fiber optic module
design, solar panel design, materials science expertise, process technology and
MOCVD production system manufacturing expertise to address our customers' needs.
Customers can take advantage of our vertically integrated solutions approach by
purchasing custom-designed wafers and devices from us, or by manufacturing their
own devices in-house using one of our MOCVD production systems configured to
their specific needs. Our products and systems enable our customers to cost
effectively introduce new and improved high performance products to the market
faster in high volumes.
The design and manufacturing process involves extensive quality assurance
systems. EMCORE has acquired and maintains certification status for their
Quality Management Systems. EMCORE's MOCVD and Electronic Materials and Devices
groups are registered to ISO 9001-1994 + QS 9000-1998. EMCORE's Fiber Optics and
Photovoltaics groups are registered to ISO 9000-2000.
Growth in our industry had been driven by the widespread deployment of
fiber optic networks, introduction of new wireless networks and services,
build-out of satellite communication systems, increasing use of more power
efficient lighting sources, increasing use of electronics in automobiles and
emergence of advanced consumer electronic applications. We believe our expertise
in materials science and process technology provides us with a competitive
advantage to manufacture compound semiconductor wafers, devices and modules in
high volumes.
Systems-Related
EMCORE is a leading provider of compound semiconductor technology processes
and MOCVD production systems. We believe that our proprietary TurboDisc(R)
deposition technology makes possible one of the most cost-effective production
processes for the commercial volume manufacture of high-performance compound
semiconductor wafers and devices, which are integral to solid-state lighting and
global communications applications. While overall demand for MOVCD systems is
substantially below the levels experienced in fiscal 2001, it has however,
significantly increased since fiscal 2002. We believe our overall market share
has recently increased as a result of aggressive market penetration of new and
higher-end products. Continuing EMCORE's standing as the world leader in GaN
production platforms, EMCORE introduced the E300 GaNzilla(TM), the most powerful
tool available for the production of high brightness blue and green LEDs. It
offers the highest throughput in the industry for the growth of GaN materials.
This product release has been highly successful with 17 systems shipped through
June 30, 2003 and with installations in 3 continents. In addition, EMCORE
introduced its Enterprise(R) 300LDM MOCVD production tool designed to achieve
high quality materials and high yields for consumer electronic applications.
This new tool produces devices for several applications including DVD and
CD-ROMs. Engineered specifically for the high volume production of long
wavelength infrared and visible lasers, VCSELs and InP-based electronic
materials, EMCORE's 300LDM provides customers with run-to-run process control
and is designed to accomplish excellent uniformity of thickness, doping and
composition of epitaxial layers.
18
Materials-Related
EMCORE offers a broad array of compound semiconductor wafers and devices,
including fiber optic devices and components, photovoltaic products, and
electronic materials and devices.
Fiber Optic Devices and Components. The proliferation of the Internet and
the growth in volume of data being sent over local and wide area networks
has placed a strain on the networking infrastructure. The demand for
increased bandwidth has resulted in a need for both faster and more
expansive networks. EMCORE's family of vertical cavity surface emitting
lasers (VCSELs) and VCSEL array transceiver and transponder products, as
well as our photodiode array components, serve the high-speed data
communications network and telecommunications markets, including the
Gigabit Ethernet, Fibre Channel, VSR OC-192, the emerging VSR OC-768 and
related markets. EMCORE's strategy is to manufacture the otherwise high
cost optical components and subassemblies in-house, using our proprietary
technologies, to reduce the overall cost of our transceiver and transponder
modules. EMCORE plans to capitalize on its oxide VCSEL manufacturing
platform and expertise by providing the industry with 1 Gbps, 2.5 Gbps, 10
Gbps (OC-192), and 40 Gbps (OC-768) solutions through single-channel
serial, multi-channel parallel or wavelength-divisional multiplexing
approaches. Leading electronic systems manufacturers are integrating VCSELs
into a broad array of end-market applications including Internet access,
digital cross-connect telecommunications switches, Infiniband optical bus,
and fiber optic switching and routing, such as Gigabit Ethernet and SAN.
EMCORE's fiber optic devices and components are designed to help solve the
data bottle necking problems for distances under 300 meters in central
office and point-of-presence environments and provide a cost effective
alternative to more costly comparable serial interconnects.
In January 2003, EMCORE acquired the west coast optoelectronics division of
Agere Systems, Inc., formerly Ortel Corporation (Ortel), for $26.2 million
in cash. The transaction included assets, products, technology and
intellectual property related to Agere's cable TV optical components,
telecom access and satellite communications operations, which had revenues
of approximately $56.0 million in fiscal 2002. Ortel designs and
manufactures high quality optoelectronic solutions that enable voice, video
and data networks. Ortel's product offering includes 1310 nm and 1550 nm
analog lasers, dense wavelength division multiplexing (DWDM) lasers,
transmitter engines, photodiodes, fiber-to-the-home/curb/business
components, wideband lasers and receivers, and optical links for long-haul
antenna remoting.
Photovoltaics. EMCORE's compound semiconductor solar cells are used
primarily in satellite applications and have achieved industry-leading
efficiencies. Solar cells provide the electrical power for a satellite and
their efficiency dictates the amount of power and bears upon the weight,
launch costs and potential revenues of the satellite. In March 2002, EMCORE
acquired certain assets, including equipment and intellectual property, of
the Applied Solar Division of Tecstar, Inc. and its subsidiary, Tecstar
Power Systems, Inc. (this acquired business is referred to herein as
"Tecstar"). With the Tecstar acquisition, EMCORE has fully integrated the
production of solar panels using EMCORE's solar cells. The Tecstar
acquisition has augmented EMCORE's capability to penetrate the satellite
communications sector and enables EMCORE to provide satellite manufacturers
with proven integrated satellite power solutions that considerably improve
satellite economics. Satellite manufacturers and solar array integrators
can now rely on EMCORE as a single supply source that meets all of their
satellite power needs. EMCORE has completed GEO Qualification for SS/Loral
in support of the MT Sat-1R and has completed LEO Qualification for Astrium
in support of the CYRSOSat and for ABLE Engineering for the UltraFlex
Array. The combination of Tecstar's demonstrated success with well-known
space programs and EMCORE's industry-leading solar cell technology should
enable EMCORE to dramatically improve satellite economics. With a proven
qualification process and well-established partnerships with major
satellite manufacturers, EMCORE believes it will play an important role in
the evolution of telecommunications and data communications around the
world.
Electronic Materials and Devices. Radio frequency (RF) materials, including
heterojunction bipolar transistors (HBTs) and enhancement-mode
pseudomorphic high electron mobility transistors (pHEMTS), are compound
semiconductor materials used in wireless communications. Compound
semiconductor RF materials have a broader bandwidth and superior
performance at higher frequencies than silicon-based materials. EMCORE
currently produces 4-inch and 6-inch InGaP HBT materials including E-mode
devices that are used for power amplifiers for next generation wireless
infrastructure such as GSM, TDMA and CDMA multiband wireless handsets.
InGaP HBT materials provide higher linearity, higher power added efficiency
as well as greater reliability than first generation AlGaAs HBT
technologies.
19
EMCORE also manufactures magneto resistive (MR) sensors that are compound
semiconductor devices that possess sensing capabilities. MR sensors improve
vehicle performance through more accurate control of engine and crank shaft
timing which allows for improved spark plug efficiency and reduced
emissions. In January 1997, EMCORE initiated shipments of compound
semiconductor MR sensors using technology licensed to EMCORE from General
Motors. This license allows EMCORE to manufacture and sell products using
this technology.
HB-LED Joint Venture
In January 1999, General Electric Lighting and EMCORE formed GELcore, a joint
venture to develop and market HB-LED lighting products. HB-LEDs are solid state
compound semiconductor devices that emit light and are used in miniature
packages for everyday applications such as indicator lights on automobiles,
traffic lights, computers and other electronic equipment. 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. Under the terms
of the joint venture agreement, EMCORE has a 49% non-controlling interest in the
GELcore venture and accounts for its investment under the equity method of
accounting.
Segment Data and Related Information
EMCORE has two reportable operating segments: the systems-related business and
the materials-related business. The segments reported are the segments of EMCORE
for which separate financial information is available and evaluated regularly by
executive management in deciding how to allocate resources and in assessing
performance.
The systems-related business is our TurboDisc(R) product line which designs,
develops and manufactures MOCVD systems and manufacturing processes. Revenues
for the systems-related business are derived primarily from sales of TurboDisc
MOCVD systems, as well as spare parts, services, and other related products.
The materials-related business is comprised of our Fiber Optics,
Photovoltaics, and Electronic Materials and Devices product lines. EMCORE's
Fiber Optics product line group designs, develops, and manufactures high speed
optical transmitter modules, receiver modules and transponders utilizing
EMCORE's leading-edge VCSELs and PIN (the "P", "I", "N" represent P-type,
intrinsic and N-type semiconductor materials, respectively) photodiode array
components for the data communications and telecommunications markets. In
January 2003, EMCORE purchased Ortel, which is a part of EMCORE's fiber optic
group. Ortel designs and manufactures high quality optoelectronic solutions that
enable voice, video and data networks. Ortel's product offerings include 1310 nm
and 1550 nm analog lasers, DWDM lasers, transmitter engines, photodiodes,
fiber-to-the-home/curb/business components, wideband lasers and receivers, and
optical links for long-haul antenna remoting. Photovoltaics revenues are derived
primarily from the sales of satellite communications products including solar
cells, covered interconnect solar cells (CICs) and solar panels. Revenues from
the Electronic Materials and Devices product line include wireless products,
such as RF materials including HBTs and pHEMTS, and also MR sensors and process
development technology.
20
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands) Systems- Materials- Unallocated Systems- Materials- Unallocated
related related expenses TOTAL related related expenses TOTAL
2003 2003 2003 2003 2002 2002 2002 2002
STATEMENTS OF OPERATIONS
Three months ended June 30,
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues............................. $15,145 $17,035 - $32,180 $9,910 $10,365 - $20,275
Cost of revenues..................... 10,028 16,377 - 26,405 6,859 10,889 - 17,748
----------------------------------------------------------------------------------------
Gross profit (loss)................ 5,117 658 - 5,775 3,051 (524) - 2,527
Gross margin....................... 33.8% 3.9% - 17.9% 30.8% (5.1)% - 12.5%
Operating expenses:
Selling, general and
administrative..................... 2,350 5,323 - 7,673 2,905 3,617 - 6,522
Research and development........... 1,340 4,140 - 5,480 1,606 7,792 - 9,398
----------------------------------------------------------------------------------------
Total operating expenses......... 3,690 9,463 - 13,153 4,511 11,409 - 15,920
----------------------------------------------------------------------------------------
Operating income (loss)............ 1,427 (8,805) - (7,378) (1,460) (11,933) - (13,393)
Other expenses:
Interest expense, net.............. - - 1,821 1,821 - - 1,761 1,761
Equity in net loss of
unconsolidated affiliate........... - - 33 33 - - 769 769
----------------------------------------------------------------------------------------
Total other expenses............. - - 1,854 1,854 - - 2,530 2,530
----------------------------------------------------------------------------------------
Net income (loss).............. $1,427 $(8,805) $1,854 $(9,232) $(1,460) $(11,933) $2,530 $(15,923)
========================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands) Systems- Materials- Unallocated Systems- Materials- Unallocated
related related expenses TOTAL related related expenses TOTAL
2003 2003 2003 2003 2002 2002 2002 2002
STATEMENTS OF OPERATIONS
Nine months ended June 30,
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues............................. $39,764 $43,336 - $83,100 $24,546 $37,944 - $62,490
Cost of revenues..................... 26,200 46,148 - 72,348 19,123 47,425 - 66,548
----------------------------------------------------------------------------------------
Gross profit (loss)................ 13,564 (2,812) - 10,752 5,423 (9,481) - (4,058)
Gross margin....................... 34.1% (6.5)% 12.9% 22.1% (25.0)% (6.5)%
Operating expenses:
Selling, general and
administrative..................... 7,228 13,616 - 20,844 13,757 9,246 - 23,003
Research and development........... 4,031 10,483 - 14,514 9,436 23,534 - 32,970
Gain from debt extinguishment...... - - (6,614) (6,614) - - - -
Impairment and restructuring....... - - - - 4,672 31,267 - 35,939
----------------------------------------------------------------------------------------
Total operating expenses......... 11,259 24,099 (6,614) 28,744 27,865 64,047 - 91,912
----------------------------------------------------------------------------------------
Operating income (loss)........ 2,305 (26,911) 6,614 (17,992) (22,442) (73,528) - (95,970)
Other expenses:
Interest expense, net.............. - - 5,343 5,343 - - 4,371 4,371
Other expense, net................. - - - - - - 13,262 13,262
Equity in net loss of
unconsolidated affiliate........... - - 1,335 1,335 - - 1,997 1,997
----------------------------------------------------------------------------------------
Total other expenses............. - - 6,678 6,678 - - 19,630 19,630
----------------------------------------------------------------------------------------
Net income (loss).............. $2,305 $(26,911) $(64) $(24,670) $(22,442) $(73,528) $19,630 $(115,600)
========================================================================================
During the second quarter of fiscal 2002, EMCORE recorded pre-tax charges to
income totaling $50.4 million, which included fixed asset impairment charges of
$34.8 million, excess inventory reserve of $11.9 million, loss provision for
accounts receivable of $2.6 million and restructuring charges of $1.1 million.
21
The reportable operating segments are each managed separately because they
manufacture and distribute distinct products and services. The table below
outlines EMCORE's four different product lines:
For the three months ended June 30, For the nine months ended June 30,
2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Product Lines Revenue % Revenue % Revenue % Revenue %
- ------------- ------- - ------- - ------- - ------- -
Systems-related:
TurboDisc.......................... $15,145 47% $9,910 49% $39,764 48% $24,546 40%
Material-related:
Fiber Optics....................... 11,192 35% 2,575 13% 23,163 28% 6,329 10%
Photovoltaics...................... 3,035 9% 3,055 15% 13,321 16% 15,842 25%
Electronic Materials & Devices..... 2,808 9% 4,735 23% 6,852 8% 15,773 25%
-----------------------------------------------------------------------------
TOTAL $32,180 100% $20,275 100% $83,100 100% $62,490 100%
======= ==== ======= ==== ======= ==== ======= ====
In January 2003, EMCORE acquired Ortel, which contributed approximately $8.2
million and $15.3 million of fiber optic revenues in the three and nine months
ended June 30, 2003, respectively.
Customers
Since its inception, EMCORE has worked closely with its customers to design
and develop process technology and material science expertise for use in
production systems for its customers' end-use applications. EMCORE has leveraged
its process and materials science knowledge base to manufacture a broad range of
compound semiconductor wafers and devices such as VCSELs, photodetectors, RF and
electronic materials, solar cells, HB-LEDs and MR sensors. EMCORE's customer
base includes many of the largest semiconductor, telecommunications, consumer
goods and computer manufacturing companies in the world. Some of our customers
include Agere Systems, Inc., Agilent Technologies Ltd., Alcatel, Anadigics,
Inc., Boeing-Spectrolab, Corning, Inc., General Motors Corp., Hewlett Packard
Co., Honeywell International, Inc., Infineon Technologies AG, Intel Corp.,
Lockheed Martin Corp., Loral Space & Communications Ltd., LumiLeds Lighting (a
joint venture between Philips Lighting and Agilent Technologies), Motorola,
Inc., Nortel Networks Corp., Siemens AG's Osram GmbH subsidiary, TriQuint
Semiconductor, Inc., Tyco, Inc., many of the largest electronics manufacturers
in Japan and a number of Taiwanese, Chinese and Korean companies. EMCORE also
sells to a number of other customers whose names cannot be identified because of
confidentiality obligations.
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 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 consolidated revenues by
geographic region:
For the three months ended June 30, For the nine months ended June 30,
2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Region: Revenue % Revenue % Revenue % Revenue %
------- - ------- - ------- - ------- -
North America..................... $20,237 63% $14,471 71% $46,742 56% $46,348 74%
Asia.............................. 10,114 31% 4,089 20% 25,946 31% 8,883 14%
Europe............................ 1,829 6% 1,715 9% 10,412 13% 7,259 12%
---------------------------------------------------------------------------
TOTAL $32,180 100% $20,275 100% $83,100 100% $62,490 100%
======= ==== ======= ==== ======= ==== ======= ====
22
Backlog
As of June 30, 2003, EMCORE had a backlog of approximately $47.0 million,
consisting of approximately $28.2 million of system-related orders and $18.8
million of materials-related orders. This compares to a backlog of $45.5 million
as reported at September 30, 2002. The book-to-bill ratio for MOCVD systems was
0.91 and 1.1 for the three and nine months ended June 30, 2003, respectively.
The increase in backlog was attributable to the Ortel acquisition. Historically,
significant portions of our materials-related revenues are not reported in
backlog since our customers have reduced lead times. Many of our
materials-related sales usually occur within the same month when the purchase
order is received. The backlog does not include orders for product that have not
met qualification specifications, nor does it include anticipated service or
component orders, estimated at $8 million annually, since these orders have very
short lead times. We believe the entire backlog could be filled during the
following twelve months. However, especially given the current market
environment, customers may delay shipment of certain orders. Backlog also could
be adversely affected if customers unexpectedly cancel purchase orders accepted
by us.
Application of Critical Accounting Policies
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates. The significant accounting policies, which we believe are
the most critical to the understanding of reported financial results, include
the following:
o Accounts Receivable - EMCORE maintains allowances for doubtful
accounts for estimated losses resulting from the inability of our
customers to make required payments. If the financial condition of our
customers were to deteriorate, additional allowances may be required.
o Inventories - Inventories are stated at the lower of cost or market
with cost being determined using the first-in, first-out (FIFO)
method. EMCORE provides estimated inventory allowances for obsolete
and excess inventory based on assumptions about future demand and
market conditions. If future demand or market conditions are different
than those projected by management, adjustments to inventory
allowances may be required.
o Impairment of Long-lived Assets - In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, EMCORE
reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less cost to sell.
o Goodwill - In accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, EMCORE reviews goodwill for impairment at the
reporting unit level on an annual basis, or whenever an event occurs
or circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. If the
carrying amount of goodwill for a particular reporting unit exceeds
the implied fair value of that goodwill, an impairment loss not to
exceed the carrying amount of goodwill is recognized in an amount
equal to that excess. After the goodwill impairment loss is
recognized, the adjusted carrying amount of goodwill is its new
accounting basis.
o Revenue Recognition - Revenues from systems-related sales are
recognized upon shipment where product has met customer's
specifications and when the title, ownership and risk of loss have
passed to the customer. EMCORE's billing terms on system sales
generally include a holdback of 10-20 percent on the total purchase
price subject to completion of the installation and final acceptance
process at the customer site. EMCORE defers this portion of revenue
related to installation and final acceptance until such installation
and final acceptance has been completed.
23
Revenues from materials-related sales are recognized when the product
meets the customer's specifications and when title, ownership and risk
of loss have passed to the customer. For new applications of EMCORE's
products where performance cannot be assessed prior to meeting
specifications at the customer's site, no revenue is recognized until
such specifications are met.
EMCORE records revenues from solar panel contracts using the
percentage-of-completion method where the elapsed time from award of a
contract to completion of performance exceeds 6 months. Revenue is
recognized in proportion to actual costs incurred compared to total
anticipated costs expected to be incurred for each contract. If
estimates of costs to complete long-term contracts indicate a loss, a
provision is made for the total loss anticipated. EMCORE has numerous
contracts that are in various stages of completion. Such contracts
require estimates to determine the appropriate cost and revenue
recognition. EMCORE uses all available information in determining
dependable estimates of the extent of progress towards completion,
contract revenues and contract costs. Estimates are revised as
additional information becomes available.
EMCORE's research contracts require the development or evaluation of
new materials applications and generally have a duration of 6 to 48
months. Contracts with a duration of six months or less are accounted
for on the completed contract method. Contracts of greater than 6
months contain interim milestones, reporting and invoicing
requirements and are billed according to the contract. For
"Cost-Plus-Fixed-Fee" research contracts with the Government, EMCORE
recognizes revenue to the extent of costs incurred plus the estimated
gross profit as stipulated in such contracts, based upon contract
performance. For other long-term contracts, EMCORE recognizes the
revenues and associated costs on these contracts as each major
milestone in the contract is met. A contract is considered complete
when all significant costs have been incurred, and the research
reporting requirements to the customer have been met. Contract costs
include all direct material and labor costs and those indirect costs
related to contract performance, such as indirect labor, supplies,
tools, maintenance and depreciation costs, as well as coverage of
certain general and administrative costs. Provisions for estimated
losses on uncompleted contracts are made in the period in which such
losses are determined.
EMCORE also provides service for its products. Revenue from time and
materials based service arrangements is recognized as the service is
performed. Revenue from service contracts is recognized ratably over
the term of such service contracts. Service revenue is insignificant
for all periods presented.
In rare occurrences, at the customer's written request, EMCORE enters
into bill and hold transactions whereby title transfers to the
customer, but the product does not ship until a specified later date.
EMCORE recognizes revenues associated with the sale of product from
bill and hold arrangements when the product is complete, ready to
ship, and all bill and hold criteria have been met.
The impact of and any associated risks relating to these policies on our
business operations is discussed above and throughout Management's Discussion
and Analysis of Financial Condition and Results of Operations where such
policies affect our reported and expected financial results.
Recent Financial Accounting Pronouncements
In November 2002, the FASB issued Financial Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 clarifies that a guarantor
is required to recognize, at the inception of the guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The initial
recognition and initial measurement provisions of FIN 45 are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002. FIN
45 also requires enhanced and additional disclosures of guarantees in financial
statements ending after December 15, 2002. As discussed in Footnote 6 of the
financial statements, Commitments and Contingencies, EMCORE has guaranteed a
loan associated with its GELcore joint venture.
24
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. The changes in SFAS No. 149
improve financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly. In particular, SFAS No. 149 (1)
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative discussed in paragraph 6(b) of SFAS No.
133, (2) clarifies when a derivative contains a financing component, (3) amends
the definition of an underlying to conform it to language used in FIN 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, and (4) amends certain other
existing pronouncements. Those changes will result in more consistent reporting
of contracts as either derivatives or hybrid instruments. SFAS No. 149 is to be
applied prospectively to contracts entered into or modified after June 30, 2003,
with certain exceptions, and for hedging relationships designated after June 30,
2003. Management believes that adopting this statement will not have a material
impact on the financial position, results of operations, or cash flows of
EMCORE.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances) because that financial instrument embodies an obligation of the
issuer. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003, except for mandatorily
redeemable financial instruments of nonpublic entities. Management believes that
adopting this statement will not have a material impact on the financial
position, results of operations, or cash flows of EMCORE.
Results of Operations
The following table sets forth the condensed consolidated Statements of
Operations data of EMCORE expressed as a percentage of total revenues for the
three and nine months ended June 30, 2003 and 2002:
Statements of Operations Data:
For the three months For the nine months
ended June 30, ended June 30,
-------------------- -------------------
2003 2002 2003 2002
---- ---- ---- ----
Revenues.................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................ 82.1% 87.5% 87.1% 106.5%
----------------------------------------------
Gross profit (loss)....................... 17.9% 12.5% 12.9% (6.5)%
Operating expenses:
Selling, general and administrative....... 23.8% 32.1% 25.1% 36.8%
Research and development.................. 17.0% 46.4% 17.5% 52.8%
Gain on debt extinguishment............... - - (8.0)% -
Impairment and restructuring.............. - - - 57.5%
----------------------------------------------
Total operating expenses................ 40.8% 78.5% 34.6% 147.1%
----------------------------------------------
Operating loss........................ (22.9)% (66.0)% (21.7)% (153.6)%
Other expenses:
Interest expense, net..................... 5.7% 8.7% 6.4% 7.0%
Other expense, net........................ - - - 21.2%
Equity in net loss of unconsolidated
affiliate............................... 0.1% 3.8% 1.6% 3.2%
----------------------------------------------
Total other expenses.................... 5.8% 12.5% 8.0% 31.4%
Net loss.............................. (28.7)% (78.5)% (29.7)% (185.0)%
==============================================
Comparison of the three and nine months ended June 30, 2003 and 2002
Revenues. EMCORE's revenues increased 59% or $11.9 million from $20.3
million for the three months ended June 30, 2002 to $32.2 million for the three
months ended June 30, 2003. This represents the third consecutive increase in
quarterly revenues and the highest revenue quarter that EMCORE has experienced
since the quarter ended September 30, 2001. International sales accounted for
37% and 29% of revenues for the three months ended June 30, 2003 and 2002,
respectively. For the nine months ended June 30, 2003 and 2002, revenues
increased 33% or $20.6 million from $62.5 million to $83.1 million.
International sales accounted for 44% and 26% of revenues for the nine months
ended June 30, 2003 and 2002, respectively. In January 2003, EMCORE acquired
Ortel, which contributed approximately $8.2 million and $15.3 million of
materials-related revenues in the three and nine months ended June 30, 2003,
respectively. Fiscal 2003 fourth quarter revenues are expected to remain flat.
For the three months ended June 30, 2003 and 2002, systems-related revenues
increased 53% or $5.3 million from $9.9 million to $15.2 million.
Systems-related sales represented 47% and 49% of EMCORE's total consolidated
revenues for the quarters ended June 30, 2003 and 2002, respectively. The
capital equipment market continues to be dominated by demand for gallium nitride
LEDs. System shipments during the quarter were 75% LED related and 25%
consumer/other electronics related. For the three months ended June 30, 2003,
the number of MOCVD production systems shipped increased 33% from the prior
year. For the nine months ended June 30, 2003 and 2002, systems-related revenues
increased 62% or $15.3 million from $24.5 million to $39.8 million.
Systems-related sales represented 48% and 40% of EMCORE's total consolidated
revenues for the nine months ended June 30, 2003 and 2002, respectively. For the
nine months ended June 30, 2003, the number of MOCVD production systems shipped
increased 67% from the prior year. For the nine months ended June 30, 2003 and
2002, component and service revenue increased 17% or $0.9 million from $5.2
million to $6.1 million.
For the three months ended June 30, 2003 and 2002, materials-related
revenues increased 64% or $6.6 million from $10.4 million to $17.0 million. On a
product line basis, sales of fiber optic devices and components increased $8.6
million or 335%, photovoltaic products remained constant at $3.0 million, and
electronic materials and devices decreased $1.9 million or 41% from the prior
period. Materials-related sales represented 53% and 51% of EMCORE's total
consolidated revenues for the quarters ended June 30, 2003 and 2002,
respectively. For the nine months ended June 30, 2003 and 2002,
materials-related revenues increased 14% or $5.4 million from $37.9 million to
$43.3 million. On a product line basis, sales of fiber optic devices and
components increased $16.8 million or 266%, photovoltaic products decreased $2.5
million or 16%, and electronic materials and devices decreased $8.9 million or
57% from the prior period. Materials-related sales represented 52% and 60% of
EMCORE's total consolidated revenues for the nine months ended June 30, 2003 and
2002, respectively.
Sales of fiber optic products, which include VCSELs, VCSEL-based array
transceivers and transponders, photodetectors, and Ortel's product lines
represented 35% and 13% of EMCORE's total consolidated revenues for the three
months ended June 30, 2003 and 2002, respectively. For the nine months ended
June 30, 2003 and 2002, sales of fiber optic products represented 28% and 10%,
respectively, of EMCORE's total consolidated revenue. EMCORE continues to work
with customers to optimize our designs in packaged solutions. We expect these
products to generate significantly more revenue in fiscal 2003 than in fiscal
2002, due to the Ortel acquisition and as EMCORE finalizes the development and
commercialization of new fiber optic products.
Sales of photovoltaic products, which include solar cells, CICs and solar
panels, represented 9% and 15% of EMCORE's total consolidated revenues for the
three months ended June 30, 2003 and 2002, respectively. For the nine months
ended June 30, 2003 and 2002, sales of photovoltaic products represented 16% and
25%, respectively, of EMCORE's total consolidated revenue. The decrease in
revenue is attributable to delays in government program launch schedules. While
bookings and program wins have exceeded shipments, these delays may cause
volatility in quarterly photovoltaic revenues. Accordingly, we expect annual
photovoltaic revenues to be lower in fiscal 2003 compared to fiscal 2002.
Sales of electronic materials and device products, which include RF
materials and MR sensors, represented 9% and 23% of EMCORE's total consolidated
revenues for the three months ended June 30, 2003 and 2002, respectively. For
the nine months ended June 30, 2003 and 2002, sales of electronic materials and
device products represented 8% and 25%, respectively, of EMCORE's total
consolidated revenue. RF materials are compound semiconductor materials that
enable circuits and devices to operate at radio frequencies and are primarily
used in cellular phones and base stations. In fiscal 2002, Motorola was the
largest customer for the
26
materials-related segment and revenues from Motorola represented approximately
13% of EMCORE's total fiscal 2002 revenues. EMCORE broadened its relationship
with Motorola by entering into an agreement to sell them two EMCORE MOCVD
production systems, and to co-develop and transition into production certain RF
materials. In light of the fact that Motorola has now developed the capacity to
supply a portion of their needs internally and due to the delayed introduction
of InGaP HBTs into GSM handsets, RF materials related revenues have decreased
significantly since fiscal 2002. This market is highly competitive, raw
materials are extremely expensive and average selling prices have been declining
over the past two years. As a result of continued weakness in market conditions
for wireless infrastructure spending, we expect RF materials related revenue to
significantly decline in fiscal 2003 from fiscal 2002 and become less
significant or strategic to overall EMCORE revenues. Annual revenues from our
mature MR sensors product line decreased $0.8 million from the prior year as a
result of the phase out of certain automotive models at General Motors. Our
contract with General Motors expires in fiscal 2004.
Gross Profit. EMCORE's gross profit was $5.8 million for the three months
ended June 30, 2003 compared to $2.5 million for the three months ended June 30,
2002, representing a 132% increase totaling $3.3 million. For the three months
ended June 30, 2003 and 2002, gross margins increased from 13% to 18%. For the
nine months ended June 30, 2003 and 2002, gross profit increased 363% or $14.9
million from $(4.1) million to $10.8 million. For the nine months ended June 30,
2003 and 2002, gross margins increased from (7)% to 13%. The increase in gross
profit occurred in both the systems-related and materials-related segments. An
$11.9 million charge was recorded in the second quarter of fiscal 2002 to
reserve for excess inventory that EMCORE believed it was carrying as a result of
the market conditions. EMCORE continues to monitor its reserves and to the
extent that inventories that have been reserved as excess are ultimately sold,
such amounts will be disclosed in the future. Since EMCORE is operating at
approximately 20% capacity, we anticipate that gross profits and margins will
continue to be affected in the near term by any unabsorbed fixed costs.
For the three months ended June 30, 2003 and 2002, EMCORE's gross profit on
systems-related revenues increased 70% or $2.1 million from $3.0 million to $5.1
million. Gross margins for systems-related revenues increased to 34% from 31%,
for the three months ended June 30, 2003 and 2002, respectively. For the nine
months ended June 30, 2003 and 2002, gross profit on systems-related revenues
increased 152% or $8.2 million from $5.4 million to $13.6 million. Gross margins
for systems-related revenues increased to 34% from 22%, for the nine months
ended June 30, 2003 and 2002, respectively. This gross margin increase was a
result of a $4.2 million inventory charge in fiscal 2002 and differences in
pricing and product mix of MOCVD systems sales. The average selling price for
MOCVD systems sold during the third quarter of fiscal 2003 was approximately
$1.4 million as compared to $0.9 million in the third quarter of fiscal 2002.
For the three months ended June 30, 2003 and 2002, EMCORE's gross profit on
materials-related revenues increased 240% or $1.2 million from $(0.5) million to
$0.7 million. Gross margins for materials-related revenues increased to 4% from
(5)%, for the three months ended June 30, 2003 and 2002, respectively. For the
nine months ended June 30, 2003 and 2002, gross profit on materials-related
revenues increased 70% or $6.7 million from $(9.5) million to $(2.8) million.
Gross margins for materials-related revenues increased to (7)% from (25)%, for
the nine months ended June 30, 2003 and 2002, respectively. The most significant
factor contributing to these negative gross margins is unabsorbed overhead costs
associated with lower revenues. The significant increase in gross margins is a
direct result of a one-time $7.8 million inventory charge in fiscal 2002.
Regarding unabsorbed expenses, EMCORE has a significant amount of fixed expenses
relating to capital equipment and manufacturing overhead in its new facilities
where materials-related products are manufactured. By December 2001, EMCORE's
manufacturing facilities for its materials-related businesses were all completed
and placed into service with the anticipation of expanding market prospects.
Lower than forecasted materials-related revenues caused these fixed expenses to
be allocated across reduced production volumes, adversely affecting gross profit
and margins.
Selling, General and Administrative. EMCORE's selling, general and
administrative (SG&A) expenses increased 18%, or $1.2 million, from $6.5 million
for the three months ended June 30, 2002 to $7.7 million for the three months
ended June 30, 2003. The Ortel acquisition added approximately $1.7 million to
SG&A expenses in the third quarter of fiscal 2003. For the nine months ended
June 30, 2003 and 2002, SG&A expenses decreased 10% or $2.2 million from $23.0
million to $20.8 million. The decrease was primarily related to fiscal 2002
restructuring programs, which involved headcount reduction and a cutback on
marketing expenditures. As a percentage of revenue, SG&A expenses decreased from
37% for the nine months ended June 30, 2002 to 25% for the nine months ended
June 30, 2003. Assuming no further non-recurring charges and acquisitions,
management expects annual SG&A expenses in fiscal year 2003 to continue to
decrease in absolute dollars from fiscal 2002 as a result of implemented cost
control and restructuring programs.
27
Research and Development. EMCORE's research and development (R&D) expenses
decreased 41%, or $3.9 million, from $9.4 million for the three months ended
June 30, 2002 to $5.5 million for the three months ended June 30, 2003. The
Ortel acquisition added approximately $1.7 million to R&D expenses in the third
quarter of fiscal 2003. For the nine months ended June 30, 2003 and 2002, R&D
expenses decreased 56% or $18.5 million from $33.0 million to $14.5 million.
This decrease was due primarily to the deferral or elimination of certain
non-critical research and development projects as well as less R&D costs being
incurred on our fiber-optic product line as new components have been released
for commercial use. As a percentage of revenue, R&D expenses decreased from 53%
for the nine months ended June 30, 2002 to 18% in 2003. Assuming no
non-recurring charges and acquisitions, management expects annual R&D expenses
in fiscal year 2003 to be significantly less than fiscal 2002 as a result of
implemented cost control and restructuring programs.
Gain From Debt Extinguishment. In December 2002, EMCORE purchased, in
multiple transactions, $13.2 million principal amount of the notes at prevailing
market prices, for an aggregate of approximately $6.3 million. As a result of
the transaction, EMCORE recorded a gain of approximately $6.6 million after
netting unamortized debt issuance costs of approximately $0.3 million.
Impairment and Restructuring Charges. During the second quarter of fiscal
2002, EMCORE recorded pre-tax charges to income totaling $50.4 million, which
included impairment charges of $34.8 million, restructuring charges of $1.1
million, an $11.9 million inventory writedown and a $2.4 million writedown of
accounts receivable. All monetary obligations relating to these charges were
paid as of March 31, 2003.
Impairment charges: EMCORE recorded $34.8 million of non-cash impairment
charges related to its fixed assets. Of this charge, $11.3 million related
to certain manufacturing assets that were disposed of. The remainder of the
impairment charge related principally to EMCORE's Electronic Materials and
Devices and Fiber Optics groups. During fiscal 2000 and 2001, EMCORE
completed new facilities for these businesses in anticipation of expanding
market prospects. Fiscal 2002 business forecasts indicated significantly
diminished prospects for these units, primarily based on the downturn in
the telecommunications industry. As a result of these circumstances,
management determined that the long-lived assets of these groups should be
assessed for impairment. Based on the outcome of this assessment, pursuant
to SFAS 121, Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of, EMCORE recorded a $23.5 million
non-cash asset impairment charge to fixed assets in the second quarter of
2002. Of the impairment charges recorded in the second quarter of fiscal
2002, $4.0 million related to EMCORE's systems-related business segment and
$30.8 million related to the materials-related business segment.
Restructuring charges: EMCORE's fiscal 2002 restructuring program consisted
of a realignment of all engineering, manufacturing and sales/marketing
operations, as well as workforce reductions. Included in the provision for
impairment and restructuring charges were severance and fringe benefit
charges of $1.1 million related to employee termination costs for 120
employees. Of the severance charges recorded in the second quarter of
fiscal 2002, $0.6 million related to EMCORE's systems-related business
segment and $0.5 million related to the materials-related business segment.
Interest Expense, net. For the three months ended June 30, 2003 and 2002,
net interest expense was $1.8 million. For the nine months ended June 30, 2003
and 2002, net interest expense increased $0.9 million from $4.4 million reported
in the prior period, to $5.3 million due to less investments in marketable
securities.
Other Expense. In August 2001, EMCORE received common stock in Uniroyal
Technology Corporation (UTCI). During the quarter ended December 31, 2001,
management evaluated the relevant facts and circumstances, including the current
fair market value of UTCI common stock, and determined that an
other-than-temporary impairment of the investment existed. Accordingly, EMCORE
took a charge of $13.3 million to establish a new cost basis for the UTCI common
stock, which was recorded as other expense.
Equity in Unconsolidated Affiliate. Because EMCORE does not have a
controlling economic and voting interest in its joint venture with General
Electric Lighting, EMCORE accounts for it under the equity method of accounting.
For the three and nine months ended June 30, 2003, EMCORE incurred a net loss of
$33,000 and $1.3 million, respectively, related to the GELcore joint venture.
For the three and nine months ended June 30, 2002, EMCORE incurred a net loss of
$0.8 million and $2.0 million, respectively, related to the GELcore joint
venture. Management expects that GELcore's net loss will increase modestly in
the fourth quarter of Fiscal 2003 as GELcore increases sales and marketing
activities.
Income Taxes. As a result of its losses, EMCORE did not incur any income
tax expense in both the three and nine months ended June 30, 2003 and 2002.
28
Liquidity and Capital Resources
Working Capital
EMCORE has funded operations to date through product sales, sales of
equity, subordinated debt and borrowings under revolving credit facilities.
Significant financial transactions include the following:
o In May 2001, EMCORE issued $175.0 million of 5% convertible
subordinated notes;
o In March 2000, EMCORE raised approximately $127.5 million from an
additional equity offering.
At June 30, 2003, EMCORE had working capital of approximately $66.0
million. Working capital at September 30, 2002 was $111.8 million. Cash, cash
equivalents and marketable securities at June 30, 2003 totaled $38.0 million,
which reflects net cash usage of $46.2 million for the nine months ended June
30, 2003. The following four items accounted for $43.3 million of the cash
usage:
o $26.5 million Acquisitions: ORTEL Corporation and Alvesta Corporation
o $ 6.3 million Repurchase of convertible subordinated notes
o $ 8.5 million Semi-annual interest payment on convertible subordinated
notes
o $ 2.0 million Investment into GELcore joint venture
Net Cash Used For Operations
For the nine months ended June 30, 2003, net cash used for operations
totaled $10.3 million, an improvement of $19.8 million from the nine months
ended June 30, 2002, when net cash used for operating activities totaled $30.1
million. Included in EMCORE's fiscal 2003 net loss of $24.7 million were
non-cash items of $6.6 million related to the gain from partial debt
extinguishment, $14.6 million in depreciation and amortization expenses, and
$1.3 million equity loss in the GELcore joint venture. Changes in balance sheet
accounts for the nine months ended June 30, 2003 and 2002 totaled $3.4 million
and $4.0 million, respectively. Improvements in receivable collections and
inventory turnover more than offset payments made on liabilities during the nine
months ended June 30, 2003. During fiscal 2002, EMCORE proceeded with a
restructuring program, consisting of the realignment of all engineering,
manufacturing and sales/marketing operations, as well as workforce reductions.
This restructuring should enable us to achieve our goal of having positive cash
flow from operations in fiscal 2004.
Net Cash Provided by Investment Activities
For the nine months ended June 30, 2003 and 2002, net cash provided by
investment activities totaled $5.4 million and $7.4 million, respectively.
o Capital expenditures - For the nine months ended June 30, 2003 and 2002,
capital expenditures were $1.3 million and $6.5 million, respectively. As
part of our ongoing effort to conserve cash, EMCORE's capital expenditures
in fiscal 2003 consisted almost solely of sustaining capital purchases.
EMCORE estimates total capital expenditures in fiscal 2003 to be less than
$2.0 million.
o Acquisitions - In fiscal 2003, EMCORE purchased Ortel for $26.2 million in
cash and acquired certain assets of privately held Alvesta Corporation for
approximately $250,000. In fiscal 2002, EMCORE acquired certain assets of
Tecstar for $25.1 million in cash.
o Investments - For both the nine months ended June 30, 2003 and 2002,
investments in EMCORE's GELcore joint venture totaled approximately $2.0
million each. EMCORE expects to invest an additional $1.5 million into the
GELcore joint venture by September 30, 2003.
o Repayment of loan - In November 2001, EMCORE received payment from UTCI of
$5.0 million for a related party loan made in August 2001.
o Marketable securities - For the nine months ended June 30, 2003 and 2002,
EMCORE's net investment in marketable securities decreased by $35.2 million
and $35.9 million, respectively, in order to fund acquisitions and
operations.
29
Net Cash (Used For) Provided By Financing Activities
Net cash used for financing activities in the nine months ended June 30,
2003 amounted to approximately $6.1 million of which $6.3 million related to the
partial repurchase of our convertible subordinated notes. Net cash provided by
financing activities in the nine months ended June 30, 2002 amounted to
approximately $5.7 million of which $4.2 million related to proceeds received
from the exercise of common stock warrants.
Financing Transactions
In May 2001, EMCORE issued $175.0 million aggregate principal amount of its
5% convertible subordinated notes due in May 2006. Net proceeds received by
EMCORE, after costs of issuance, were approximately $168.8 million. Interest is
payable in arrears semiannually on May 15 and November 15 of each year, which
began on November 15, 2001. The notes are convertible into EMCORE common stock
at a conversion price of $48.76 per share, subject to certain adjustments, at
the option of the holder. The notes may be redeemed at EMCORE's option, on or
after May 20, 2004 at specific redemption prices. There are no financial
covenants related to these notes. For the three months ended June 30, 2003 and
2002, interest expense relating to the notes approximated $4.0 million and $4.4
million, respectively.
In May 2002, the Board of Directors authorized EMCORE from time to time to
repurchase a portion of the notes in one or more open market transactions, in
accordance with certain guidelines. In December 2002, EMCORE purchased, in
multiple transactions, $13.2 million principal amount of the notes at prevailing
market prices, for an aggregate purchase price of approximately $6.3 million. As
a result of the transaction, EMCORE recorded a gain from operations of
approximately $6.6 million after netting unamortized debt issuance costs of
approximately $0.3 million. As a result of the partial debt repurchase, annual
interest expense in future periods has been decreased by approximately $650,000.
EMCORE may continue to repurchase notes through various means, including but not
limited to one or more open market or privately negotiated transactions in
future periods. The timing and amount of repurchase, if any, whether de minimis
or material, will depend on many factors, including but not limited to, the
availability of capital, the prevailing market price of the convertible notes
and overall market conditions.
In fiscal 2000, GELcore entered into a Revolving Loan Agreement (the
"GELcore Credit Facility") with General Electric Canada, Inc., an affiliate of
GE, which is the owner of a 51% controlling share of GELcore. The GELcore Credit
Facility provides for borrowings of up to Canadian $7.5 million (US $5.5 million
at June 30, 2003) at a rate of interest based on prevailing Canadian interest
rates. Amounts outstanding under the GELcore Credit Facility are payable on
demand, and the GELcore Credit Facility expires in August 2003. It is GELcore's
intent to renew/renegotiate this credit facility. EMCORE has guaranteed 49%
(i.e., its proportionate share) of GELcore's obligations under the GELcore
Credit Facility. As of June 30, 2003, US $2.6 million was outstanding under the
GELcore Credit Facility.
As of June 30, 2003, EMCORE had remaining 2.0 million shares of common
stock available on a filed shelf registration statement previously declared
effective by the SEC.
Conclusion
EMCORE believes that its current liquidity should be sufficient to meet its
cash needs for working capital through the next twelve months. However, if 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 may be severely limited.
Such a limitation could have a material adverse effect on EMCORE's business,
financial condition, results of operations and cash flow.
30
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Although EMCORE may occasionally enter into transactions denominated in
foreign currencies, the total amount of such transactions is not material.
Accordingly, fluctuations in foreign currency value should not have a material
adverse effect on our future financial condition or results of operations.
ITEM 4. Controls and Procedures
(a) Evaluating Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
report. Based on such evaluation, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act.
(b) Internal Control Over Financial Reporting
There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
31
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in lawsuits and proceedings which arise in the
ordinary course of business. There are no matters pending that we
expect to be material in relation to our business, consolidated
financial condition, results of operations or cash flows.
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
31.1 Certificate of Chief Executive Officer pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated
August 14, 2003.
31.2 Certificate of Chief Financial Officer pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated
August 14, 2003.
32.1 Certificate of Chief Executive Officer pursuant to 18 USC
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 dated August 14, 2003.
32.2 Certificate of Chief Financial Officer pursuant to 18 USC
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 dated August 14, 2003.
(b) Reports on Form 8-K
Form 8-K/A, dated April 7, 2003; independent auditors report and
pro forma financial statements of Ortel
Form 8-K, dated May 7, 2003; earnings release for second fiscal
quarter
Form 8-K, dated May 14, 2003; earnings release for second fiscal
quarter and transcript of second quarter earnings release
conference call
32
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: August 14, 2003 By: /s/ Reuben F. Richards, Jr.
-------------------------------------------
Reuben F. Richards, Jr.
President and Chief Executive Officer
Date: August 14, 2003 By: /s/ Thomas G. Werthan
------------------------------------------
Thomas G. Werthan
Vice President and Chief Financial Officer
33
EXHIBIT INDEX
31.1 Certificate of Chief Executive Officer pursuant to Securities Exchange Act
Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 dated August 14, 2003.
31.2 Certificate of Chief Financial Officer pursuant to Securities Exchange Act
Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 dated August 14, 2003.
32.1 Certificate of Chief Executive Officer pursuant to 18 USC Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated August
14, 2003.
32.2 Certificate of Chief Financial Officer pursuant to 18 USC Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated August
14, 2003
34
Exhibit 31.1
CERTIFICATION
I, Reuben F. Richards, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of EMCORE Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 14, 2003
/s/ Reuben F. Richards, Jr.
- ----------------------------
Reuben F. Richards, Jr.
President and CEO
Exhibit 31.2
CERTIFICATION
I, Thomas G. Werthan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of EMCORE Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 14, 2003
/s/ Thomas G. Werthan
Thomas G. Werthan
Chief Financial Officer
Exhibit 32.1
STATEMENT REQUIRED BY 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of EMCORE Corporation (the
"Company") for the quarter ended June 30, 2003, as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Reuben F. Richards,
Jr., President and Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that: 1) the Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) the information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ Reuben F. Richards, Jr.
Reuben F. Richards, Jr.
August 14, 2003
A signed original of this written statement required by Section 906 has been
provided to EMCORE Corporation and will be retained by EMCORE Corporation and
furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
STATEMENT REQUIRED BY 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of EMCORE Corporation (the
"Company") for the quarter ended June 30, 2003, as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Thomas G. Werthan,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that: 1) the Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and 2) the information contained
in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
/s/ Thomas G. Werthan
Thomas G. Werthan
August 14, 2003
A signed original of this written statement required by Section 906 has been
provided to EMCORE Corporation and will be retained by EMCORE Corporation and
furnished to the Securities and Exchange Commission or its staff upon request.