UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO
SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the
quarterly period ended: June
30, 2006
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)
(732)
271-9090
(Registrant's
telephone number)
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. x
Yes o
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check
one): o
Large
accelerated filer x Accelerated
filer o
Non-accelerated filer
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
o
Yes x
No
The
number of shares outstanding of the registrant’s no par value common stock as of
August 4, 2006 was 50,889,524.
TABLE
OF CONTENTS
EMCORE
CORPORATION
Condensed
Consolidated Statements of Operations
For
the three and nine months ended June 30, 2006 and 2005
(in
thousands, except per share data)
(unaudited)
|
|
|
Three
Months Ended
June
30,
|
|
Nine
Months Ended
June
30,
|
|
||||||||
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Revenue
|
|
$
|
41,954
|
$
|
33,234
|
|
$
|
123,007
|
$
|
90,628
|
|
||
|
Cost
of revenue
|
|
|
33,336
|
|
26,503
|
|
|
98,864
|
|
76,293
|
|
||
|
Gross
profit
|
|
|
8,618
|
|
6,731
|
|
|
24,143
|
|
14,335
|
|
||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
||||
|
Selling,
general and administrative
|
|
|
8,182
|
|
7,902
|
|
|
26,445
|
|
18,589
|
|
||
|
Research
and development
|
|
|
5,152
|
|
4,061
|
|
|
14,550
|
|
13,189
|
|
||
|
Total
operating expenses
|
|
|
13,334
|
|
11,963
|
|
|
40,995
|
|
31,778
|
|
||
|
Operating
loss
|
|
|
(4,716
|
)
|
|
(5,232
|
)
|
|
(16,852
|
)
|
|
(17,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Other
(income) expenses:
|
|
|
|
|
|
|
|
|
|
||||
|
Interest
income
|
|
|
(263
|
)
|
|
(297
|
)
|
|
(838
|
)
|
|
(779
|
)
|
|
Interest
expense
|
|
|
1,331
|
|
1,202
|
|
|
3,987
|
|
3,606
|
|
||
|
Loss
from convertible subordinated notes
exchange
offer
|
|
|
-
|
|
-
|
|
|
1,078
|
|
-
|
|
||
|
Equity
in net loss of Velox investment
|
|
|
-
|
|
-
|
|
|
332
|
|
-
|
|
||
|
Equity
in net loss (income) of GELcore
investment
|
|
|
129
|
|
778
|
|
|
(21
|
)
|
|
703
|
||
|
Total
other expenses
|
|
|
1,197
|
|
1,683
|
|
|
4,538
|
|
3,530
|
|||
|
Loss
from continuing operations
|
|
|
(5,913
|
)
|
|
(6,915
|
)
|
|
(21,390
|
)
|
|
(20,973
|
)
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
||||
|
Gain
on disposal of discontinued operations
|
|
|
-
|
|
-
|
|
|
2,012
|
|
12,476
|
|
||
|
Income
from discontinued operations
|
|
|
-
|
|
-
|
|
|
2,012
|
|
12,476
|
|
||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net
loss
|
|
$
|
(5,913
|
)
|
$
|
(6,915
|
)
|
$
|
(19,378
|
)
|
$
|
(8,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Per
share data:
|
|
|
|
|
|
|
|
|
|
||||
|
Basic
and diluted per share data:
|
|
|
|
|
|
|
|
|
|
||||
|
Loss
from continuing operations
|
|
$
|
(0.12
|
)
|
$
|
(0.15
|
)
|
$
|
(0.43
|
)
|
$
|
(0.44
|
)
|
|
Income
from discontinued operations
|
|
|
-
|
|
-
|
|
|
0.04
|
|
0.26
|
|
||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net
loss
|
|
$
|
(0.12
|
)
|
$
|
(0.15
|
)
|
$
|
(0.39
|
)
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted
average number of shares outstanding
used
in basic and diluted per share calculations
|
|
|
50,430
|
|
47,426
|
|
|
49,336
|
|
47,228
|
|
||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
EMCORE
CORPORATION
Condensed
Consolidated Balance Sheets
As
of June 30, 2006 and September 30, 2005
(in
thousands)
(unaudited)
|
|
|
|
As
of
June
30,
2006
|
|
|
As
of
September
30,
2005
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
16,138
|
|
$
|
19,525
|
|
|
Restricted
cash
|
|
|
1,303
|
|
|
547
|
|
|
Marketable
securities
|
|
|
7,900
|
|
|
20,650
|
|
|
Accounts
receivable, net
|
|
|
27,388
|
|
|
22,633
|
|
|
Receivables,
related parties
|
|
|
482
|
|
|
4,197
|
|
|
Inventory,
net
|
|
|
24,940
|
|
|
18,348
|
|
|
Prepaid
expenses and other current assets
|
|
|
3,224
|
|
|
3,638
|
|
|
Total
current assets
|
|
|
81,375
|
|
|
89,538
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
56,997
|
|
|
56,957
|
|
|
Goodwill
|
|
|
40,476
|
|
|
34,643
|
|
|
Intangible
assets, net
|
|
|
6,624
|
|
|
5,347
|
|
|
Investments
in unconsolidated affiliates
|
|
|
12,388
|
|
|
12,698
|
|
|
Receivables,
related parties
|
|
|
169
|
|
|
169
|
|
|
Other
assets, net
|
|
|
5,526
|
|
|
6,935
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
203,555
|
|
$
|
206,287
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
and SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
20,692
|
$
|
15,587
|
|
|
|
Accrued
expenses and other current liabilities
|
|
|
13,540
|
|
19,078
|
|
|
|
Notes
payable, current portion
|
|
|
430
|
|
-
|
|
|
|
Convertible
subordinated notes, current portion
|
|
|
-
|
|
1,350
|
|
|
|
Total
current liabilities
|
|
|
34,662
|
|
36,015
|
|
|
|
|
|
|
|
|
|
||
|
Notes
payable, long-term
|
|
|
277
|
|
-
|
|
|
|
Convertible
subordinated notes, long-term
|
|
|
95,895
|
|
94,709
|
|
|
|
Total
liabilities
|
|
|
130,834
|
|
130,724
|
|
|
|
|
|
|
|
|
|
||
|
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, 50,805
shares
issued and 50,646 shares outstanding at June 30, 2006;
48,023
shares issued and 48,003 shares outstanding at September 30,
2005
|
|
|
410,153
|
|
392,466
|
|
|
|
Accumulated
deficit
|
|
|
(335,349
|
)
|
|
(315,971
|
)
|
|
Treasury
stock, at cost
159
shares at June 30, 2006; 20 shares at September 30, 2005
|
|
|
(2,083
|
)
|
|
(932
|
)
|
|
Total
shareholders’ equity
|
|
|
72,721
|
|
75,563
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
203,555
|
|
$
|
206,287
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
EMCORE
CORPORATION
Condensed
Consolidated Statements of Cash Flows
For
the nine months ended June 30, 2006 and 2005
(in
thousands)
(unaudited)
|
|
|
Nine
Months Ended
June
30,
|
|||||
|
|
|
|
2006
|
|
|
2005
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(19,378
|
)
|
$
|
(8,497
|
)
|
|
Adjustments
to reconcile net loss to net cash used for operating
activities:
|
|
|
|
|
|||
|
Gain
on disposal of discontinued operations
|
|
|
(2,012
|
)
|
|
(12,476
|
)
|
|
Stock
option compensation expense
|
|
|
3,086
|
|
-
|
||
|
Depreciation
and amortization expense
|
|
|
10,297
|
|
10,861
|
||
|
Accretion
of loss from convertible subordinated notes exchange offer
|
|
|
116
|
|
-
|
||
|
Loss
on convertible subordinated notes exchange offer
|
|
|
1,078
|
|
-
|
||
|
Provision
for doubtful accounts
|
|
|
56
|
|
(170
|
)
|
|
|
Equity
in net (income) loss of GELcore
|
|
|
(21
|
)
|
|
703
|
|
|
Equity
in net loss of Velox
|
332
|
-
|
|||||
|
Compensatory
stock issuances
|
|
|
591
|
|
579
|
||
|
Forgiveness
of shareholders’ notes receivable
|
|
|
2,613
|
|
34
|
||
|
Reduction
of note receivable due for services received
|
|
|
390
|
|
390
|
||
|
Total
non-cash adjustments
|
|
|
16,526
|
|
(79
|
)
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
||||
|
Accounts
receivable
|
|
|
(4,072
|
)
|
|
(6,328
|
)
|
|
Receivables,
related parties
|
|
|
(49
|
)
|
|
(317
|
)
|
|
Inventory
|
|
|
(5,931
|
)
|
|
(2,761
|
)
|
|
Prepaid
expenses and other current assets
|
|
|
389
|
|
941
|
||
|
Other
assets
|
|
|
(928
|
)
|
|
(402
|
)
|
|
Accounts
payable
|
|
|
3,320
|
|
(2,070
|
)
|
|
|
Accrued
expenses and other current liabilities
|
|
|
(7,904
|
)
|
|
(1,664
|
)
|
|
Total
change in operating assets and liabilities
|
|
|
(15,175
|
)
|
|
(12,601
|
)
|
|
Net
cash used for operating activities
|
|
|
(18,027
|
)
|
|
(21,177
|
)
|
|
|
|
|
|
||||
|
Cash
flows from investing activities:
|
|
|
|
||||
|
Cash
proceeds from disposition of discontinued operations
|
|
|
-
|
|
13,197
|
||
|
Investment
in GELcore
|
|
|
-
|
|
(1,470
|
)
|
|
|
Purchase
of plant and equipment
|
|
|
(4,008
|
)
|
|
(3,280
|
)
|
|
Proceeds
from (investment in) K2 Optronics
|
|
|
500
|
|
|
(1,000
|
)
|
|
Cash
purchase of businesses, net of cash acquired
|
|
|
610
|
|
|
(2,783
|
)
|
|
Purchase
of marketable securities
|
|
|
(350
|
)
|
|
(11,225
|
)
|
|
Funding
of restricted cash
|
|
|
(703
|
)
|
|
-
|
|
|
Sale
of marketable securities
|
|
|
13,100
|
|
22,875
|
||
|
Net
cash provided by investing activities
|
|
|
9,149
|
|
16,314
|
||
|
|
|
|
|
||||
|
Cash
flows from financing activities:
|
|
|
|
||||
|
Payments
on debt obligations
|
|
|
(176
|
)
|
|
(31
|
)
|
|
Proceeds
from exercise of stock options
|
|
|
6,023
|
|
503
|
||
|
Proceeds
from employee stock purchase plan
|
|
|
1,108
|
|
1,006
|
||
|
Convertible
debt/equity issuance costs
|
|
|
(114
|
)
|
|
-
|
|
|
Principal
payment on convertible debt obligation
|
(1,350
|
)
|
-
|
||||
|
Net
cash provided by financing activities
|
|
|
5,491
|
|
|
1,478
|
|
|
|
|
|
|
|
|||
|
Net
decrease in cash and cash equivalents
|
|
|
(3,387
|
)
|
|
(3,385
|
)
|
|
Cash
and cash equivalents, beginning of period
|
|
|
19,525
|
|
|
19,422
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
16,138
|
|
$
|
16,037
|
|
|
|
|
|
|
|
|
||
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
||
|
Cash
paid during the period for interest
|
|
$
|
5,067
|
|
$
|
4,806
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in conjunction with acquisitions
|
|
$
|
6,460
|
|
$
|
-
|
|
|
|
|
|
|
|
|
||
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
||
|
Acquisition
of property and equipment under capital leases
|
|
$
|
126
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in liabilities for purchase of plant and
equipment
|
$
|
670
|
$
|
-
|
|||
|
Manufacturing
equipment received in lieu of earn-out proceeds from disposition
of
discontinued operations
|
|
$
|
2,012
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
EMCORE
Corporation
Notes
to Condensed Consolidated Financial Statements
As
of June 30, 2006 and September 30, 2005 and
For
the three and nine months ended June 30, 2006 and 2005
(unaudited)
NOTE
1. Basis of Presentation.
The
accompanying unaudited condensed consolidated financial statements include
the
accounts of EMCORE Corporation and its subsidiaries (EMCORE). All intercompany
accounts and transactions have been eliminated. Certain amounts in prior
period
financial statements have been reclassified to conform to the current year
presentation. These reclassifications had no effect on previously reported
shareholders’ equity.
These
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (US GAAP) for interim information,
and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the
Securities and Exchange Commission (SEC). Accordingly, they do not include
all
of the information and footnotes required by US GAAP for annual financial
statements. In the opinion of management, all information considered necessary
for a fair presentation of the financial statements has been included. Operating
results for interim periods are not necessarily indicative of results that
may
be expected for an entire fiscal year. The condensed consolidated balance
sheet
as of September 30, 2005 has been derived from the audited financial statements
as of such date. For a more complete understanding of EMCORE’s financial
position, operating results, risk factors and other matters, please refer
to
EMCORE's Annual Report on Form 10-K for the fiscal year ended September 30,
2005.
The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the financial statements and the reported amounts of revenues
and
expenses during the reported period. Management bases estimates on historical
experience and on various assumptions about the future that are believed
to be
reasonable based on available information. EMCORE’s reported financial position
or results of operations may be materially different under changed conditions
or
when using different estimates and assumptions. In the event that estimates
or
assumptions prove to differ from actual results, adjustments are made in
subsequent periods to reflect more current information.
NOTE
2. Recent Accounting Pronouncements.
SFAS
No. 123(R)
-
Effective October 1, 2005, EMCORE adopted Statement of Financial Accounting
Standards (SFAS) No. 123(R), Share-Based
Payment (Revised 2004),
on a
modified prospective basis. As a result, EMCORE included stock-based
compensation expense in its results of operations for all periods presented
in
fiscal 2006, as more fully described in Note 3 to EMCORE’s condensed
consolidated financial statements.
SFAS
No. 151
-
Effective October 1, 2005, EMCORE adopted SFAS No. 151, Inventory
Costs, an amendment of ARB No. 43, Chapter 4.
SFAS
151 clarifies the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage). SFAS 151 requires
that
those items be recognized as current-period charges regardless of whether
they
meet the criterion of "so abnormal". In addition, it requires that allocation
of
fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. The adoption of this pronouncement
did
not have a material impact on EMCORE’s financial statements.
SFAS
No. 154
-
Effective October 1, 2005, EMCORE adopted SFAS No. 154, Accounting
Changes and Error Corrections, a replacement of APB Opinion No. 20,
Accounting Changes,
and
Financial Accounting Standards Board (FASB) Statement No. 3, Reporting
Accounting Changes in Interim Financial Statements.
The
Statement applies to all voluntary changes in accounting principle, and changes
the requirements for accounting for and reporting of a change in accounting
principle. SFAS 154 requires retrospective application to prior periods’
financial statements of a voluntary change in accounting principle unless
it is
impracticable. SFAS 154 requires that a change in method of depreciation,
amortization, or depletion for long-lived, non-financial assets be accounted
for
as a change in accounting estimate that is affected by a change in accounting
principle. Opinion 20 previously required that such a change be reported
as a
change in accounting principle. The adoption of this pronouncement did not
have
a material impact on EMCORE’s financial statements.
FIN
47
-
Effective October 1, 2005, EMCORE adopted FASB Interpretation No. 47,
Accounting
for Conditional Asset Retirement Obligations, an Interpretation of FASB
Statement No. 143.
This
interpretation clarifies the timing of liability recognition for legal
obligations associated with the retirement of tangible long-lived assets
when
the timing and/or method of settlement of the obligations are conditional
on a
future event and where an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. The adoption of
this
pronouncement did not have a material impact on EMCORE’s financial statements.
FIN
48
- In
June 2006, the FASB issued Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109.
FIN 48
clarifies the accounting for income taxes by prescribing the minimum recognition
threshold a tax position is required to meet before being recognized in the
financial statements. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 applies to all tax positions related
to income taxes subject to FASB Statement No. 109,
Accounting for Income Taxes.
FIN 48
is effective for fiscal years beginning after December 15, 2006. Differences
between the amounts recognized in the statements of financial position prior
to
the adoption of FIN 48 and the amounts reported after adoption should be
accounted for as a cumulative-effect adjustment recorded to the beginning
balance of retained earnings. EMCORE does not believe the adoption of FIN
48 on
October 1, 2007 will have a material impact on its financial
statements.
EITF
No. 05-6
-
In
June
2005, the Emerging Issues Task Force (EITF) issued No. 05-6, Determining
the Amortization Period for Leasehold Improvements.
The
pronouncement requires that leasehold improvements acquired in a business
combination or purchased subsequent to the inception of the lease be amortized
over the lesser of the useful life of the asset or the lease term that includes
reasonably assured lease renewals as determined on the date of the acquisition
of the leasehold improvement. This pronouncement should be applied prospectively
and EMCORE adopted it during the first quarter of fiscal 2006. This
pronouncement did not have a material impact on the financial statements.
FSP
115-1
- In
November 2005, FASB issued Staff Position (FSP) 115-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments,
which
provides guidance on determining when investments in certain debt and equity
securities are considered impaired, whether that impairment is
other-than-temporary, and on measuring such impairment loss. FSP 115-1 also
includes accounting considerations subsequent to the recognition of an
other-than-temporary impairment and requires certain disclosure about unrealized
losses that have not been recognized as other-than-temporary impairments.
FSP
115-1 is effective for annual reporting periods beginning after December
15,
2005. EMCORE does not believe the adoption of FSP 115-1 on October 1, 2006
will
have a material impact on its financial statements.
NOTE
3. Stock-based Compensation.
Stock
Options
EMCORE
has stock option plans to provide long-term incentives to eligible employees,
officers, and directors in the form of stock options. Most of the stock
options vest and become exercisable over four to five years and have ten-year
terms. EMCORE maintains two incentive stock option plans: the 2000 Stock
Option
Plan (2000 Plan), and the 1995 Incentive and Non-Statutory Stock Option Plan
(1995 Plan and, together with the 2000 Plan, the Option Plans). The 1995
Plan
authorizes the grant of options to purchase up to 2,744,118 shares of EMCORE's
common stock. As of June 30, 2006, no options were available for issuance
under
the 1995 Plan. The 2000 Plan authorizes the grant of options to purchase
up to
9,350,000 shares of EMCORE's common stock. As of June 30, 2006, 1,433,874
options were available for issuance under the 2000 Plan. Certain options
under
the Option Plans are intended to qualify as incentive stock options pursuant
to
Section 422A of the Internal Revenue Code.
During
the three and nine months ended June 30, 2006, 211,750 and 1,740,707 options
were granted pursuant to the 2000 Plan, respectively. All options were issued
at
the closing market price on the date of grant. The stock option issue prices
for
the three months ended June 30, 2006 ranged from $7.97 to $12.57 per share.
The
stock option issue prices for the nine months ended June 30, 2006 ranged
from
$5.18 to $12.57 per share. These options are subject to a five-year vesting
period for new-hire grants and a four-year vesting period for retention grants,
and have a contractual life of ten years. The weighted average grant date
fair
value for the options issued during the three and nine months ended June
30,
2006 was $7.89 and $6.33, respectively. No executive officers received any
stock
option grants during fiscal 2006. As of June 30, 2006, 2,408,896 options
were exercisable. EMCORE issues new shares of common stock upon exercise
of
stock options.
The
following table summarizes the activity under the Option Plans:
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Life
(in
years)
|
|
|
Aggregate
Intrinsic Value
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
as of September 30, 2005
|
|
|
6,166,226
|
|
$
|
4.16
|
|
|
|
|
|
||
|
Granted
|
|
|
1,740,707
|
7.93
|
|
|
|
|
|
||||
|
Exercised
|
|
|
(1,524,542
|
)
|
3.95
|
|
|
|
|
|
|||
|
Cancelled
|
|
|
(222,409
|
)
|
|
3.46
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|||||
|
Outstanding
as of June 30, 2006
|
|
|
6,159,982
|
$
|
5.30
|
|
|
7.46
|
|
$
|
29,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Exercisable
as of June 30, 2006
|
|
|
2,408,896
|
$
|
5.53
|
|
|
5.36
|
|
$
|
12,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Non-vested
as of June 30, 2006
|
|
|
3,751,086
|
$
|
5.16
|
|
|
8.81
|
|
$
|
16,716
|
|
As
of
June 30, 2006 there was $12.7 million of total unrecognized compensation
expense
related to non-vested share-based compensation arrangements granted under
the
Option Plans. This expense is expected to be recognized over a weighted average
life of 3.3 years. The total intrinsic value of options exercised during
the
three and nine months ended June 30, 2006 was $1.6 million and $7.4 million,
respectively. The total fair value of shares vested during the three and
nine
months ended June 30, 2006 was $0.9 million and $2.6 million,
respectively. EMCORE received $0.6 million and $6.0 million in cash from
the exercise of stock options during the three and nine months ended June
30,
2006, respectively.
At
June
30, 2006, stock options outstanding were as follows:
|
Exercise
Price
|
|
|
Options
Outstanding
|
|
|
Weighted
Average Remaining
Contractual
Life (in years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<$1
|
|
|
1,920
|
1.43
|
$0.23
|
|
||||
|
>$1
to <$5
|
|
|
3,572,590
|
7.39
|
2.70
|
|
||||
|
>$5
to <$10
|
|
|
2,332,582
|
7.92
|
7.60
|
|
||||
|
>$10
|
|
|
252,890
|
4.42
|
20.88
|
|
||||
|
|
|
|
|
|||||||
|
|
|
|
6,159,982
|
7.46
|
$5.30
|
|
At
June
30, 2006, stock options exercisable were as follows:
|
Exercise
Price
|
|
|
Options
Exercisable
|
|
|
Weighted
Average Remaining
Contractual
Life (in years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<$1
|
|
|
1,920
|
1.43
|
$0.23
|
|
||||
|
>$1
to <$5
|
|
|
1,504,644
|
6.34
|
2.37
|
|
||||
|
>$5
to <$10
|
|
|
675,992
|
3.73
|
7.03
|
|
||||
|
>$10
|
|
|
226,340
|
3.79
|
22.07
|
|
||||
|
|
|
|
|
|||||||
|
|
|
|
2,408,896
|
5.36
|
$5.53
|
|
Employee
Stock Purchase Plan
In
fiscal
2000, EMCORE adopted an Employee Stock Purchase Plan (ESPP). The ESPP provides
employees of EMCORE an opportunity to purchase common stock through payroll
deductions. The ESPP is a 6-month duration plan, with new participation periods
beginning the first business day of January and July of each year. The purchase
price is set at 85% of the market price for EMCORE's common stock on either
the
first or last day of the participation period, whichever is lower and
contributions are limited to 10% of an employee's compensation. The number
of
shares of common stock available for issuance under the ESPP is 2,000,000
shares. The amount of shares issued for the ESPP are as
follows:
|
|
|
|
Number
of Shares
|
|
|
|
|
|
|
|
|
Amount
of shares reserved for the ESPP
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
Number
of shares issued in December 2000 for calendar year 2000
|
|
|
(16,534
|
)
|
|
Number
of shares issued in December 2001 for calendar year 2001
|
|
|
(48,279
|
)
|
|
Number
of shares issued in December 2002 for calendar year 2002
|
|
|
(89,180
|
)
|
|
Number
of shares issued in December 2003 for calendar year 2003
|
|
|
(244,166
|
)
|
|
Number
of shares issued in June 2004 for first half of calendar year
2004
|
|
|
(166,507
|
)
|
|
Number
of shares issued in December 2004 for second half of calendar year
2004
|
|
|
(167,546
|
)
|
|
Number
of shares issued in June 2005 for first half of calendar year
2005
|
|
|
(174,169
|
)
|
|
Number
of shares issued in December 2005 for second half of calendar year
2005
|
(93,619
|
)
|
||
|
Number
of shares issued in June 2006 for first half of calendar year
2006
|
|
|
(123,857
|
)
|
|
|
|
|
|
|
|
Remaining
shares reserved for the ESPP as of June 30, 2006
|
|
|
876,143
|
|
Future
Issuances
As
of June 30, 2006, EMCORE has reserved a total of 20,841,970 shares of its
common stock for future issuances as follows:
|
|
|
|
Number
of Shares
|
|
|
|
|
|
|
|
|
For
exercise of outstanding warrants to purchase common stock
|
|
|
31,535
|
|
|
For
exercise of outstanding common stock options
|
|
|
6,159,982
|
|
|
For
conversion of subordinated notes
|
|
|
12,016,930
|
|
|
For
future issuances to employees under the ESPP plan
|
|
|
876,143
|
|
|
For
future common stock option awards
|
|
|
1,433,874
|
|
|
|
|
|
|
|
|
Total
reserved
|
|
|
20,518,464
|
|
Valuation
of Stock-Based Compensation
Effective
October 1, 2005, EMCORE adopted SFAS 123(R), using the modified prospective
application transition method, which establishes accounting for stock-based
awards exchanged for employee services. Accordingly, stock-based compensation
expense is measured at grant date, based on the fair value of the award,
over
the requisite service period. EMCORE previously applied Accounting Principles
Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees,
and
related Interpretations, as permitted by SFAS No. 123, Accounting
for Stock-Based Compensation.
Periods
prior to the adoption of SFAS 123(R)
- Prior
to the adoption of SFAS 123(R), EMCORE provided the disclosures required
under
SFAS No. 123 as amended by SFAS No. 148, Accounting
for Stock-Based Compensation - Transition and Disclosures.
EMCORE
did not recognize stock-based compensation expense in its statement of
operations for periods prior to the adoption of SFAS 123(R) since options
granted had an exercise price equal to the market value of the underlying
common
stock on the date of grant. The following table illustrates the effect on
net
loss and net loss per share as if EMCORE had applied the fair value recognition
provisions of SFAS 123(R) to options granted under EMCORE’s stock-based
compensation plans prior to the adoption. For purposes of this pro forma
disclosure, the value of the options was estimated using a Black-Scholes
option
pricing formula and amortized on a straight-line basis over the respective
vesting periods of the awards. Disclosures for the three months and nine
months
ended June 30, 2006 are not presented because stock-based compensation was
accounted for under SFAS 123(R)’s fair-value method during this
period.
|
(in thousands,
except per share amounts)
|
|
|
Three
Months Ended
June
30, 2005
|
|
|
Nine
Months
Ended
June
30, 2005
|
|
|
|
|
|
|
|
|
||
|
Reported
net loss
|
|
$
|
(6,915
|
)
|
$
|
(8,497
|
)
|
|
Less:
|
|
|
|
|
|
|
|
|
Pro
forma stock-based compensation expense determined under the fair
value
based method, net of tax
|
|
|
(788
|
)
|
|
(2,132
|
)
|
|
|
|
|
|
|
|
|
|
|
Pro
forma net loss
|
|
$
|
(7,703
|
)
|
$
|
(10,629
|
)
|
|
|
|
|
|
|
|
|
|
|
Reported
net loss per basic and diluted share
|
|
$
|
(0.15
|
)
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
|
Pro
forma net loss per basic and diluted share
|
|
$
|
(0.16
|
)
|
$
|
(0.23
|
)
|
Adoption
of SFAS 123(R)
- During
the three and nine months ended June 30, 2006, EMCORE recorded stock-based
compensation expense totaling $1.0 million and $3.1 million, respectively.
As
required by SFAS 123(R), management has made an estimate of expected forfeitures
and is recognizing compensation expense only for those equity awards expected
to
vest. The effect of recording stock-based compensation expense for the three
and
nine months ended June 30, 2006 was as follows:
|
(in thousands,
except per share amounts)
|
|
|
Three
Months Ended
June
30, 2006
|
|
|
Nine
Months
Ended
June
30, 2006
|
|
|
|
|
|
|
|
|
||
|
Stock-based
compensation expense by award type:
|
|
|
|
|
|
|
|
|
Employee
stock options
|
|
$
|
(904
|
)
|
$
|
(2,557
|
)
|
|
Employee
stock purchase plan
|
|
|
(119
|
)
|
|
(529
|
)
|
|
|
|
|
|
||||
|
Total
stock-based compensation expense
|
|
$
|
(1,023
|
)
|
$
|
(3,086
|
)
|
|
|
|
|
|
||||
|
Net
effect on net loss per basic and diluted share
|
|
$
|
(0.02
|
)
|
$
|
(0.06
|
)
|
The
stock-based compensation expense for the three and nine months ended June
30,
2006 was distributed as follows:
|
Stock-Based
Compensation Expense by Segment
For
the three months ended June 30, 2006
(in
thousands)
|
|
|
COGS
|
|
|
SG&A
|
|
|
R&D
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Fiber
Optics
|
|
$
|
202
|
|
$
|
257
|
|
$
|
255
|
|
$
|
714
|
|
|
Photovoltaics
|
|
|
52
|
117
|
44
|
213
|
|
||||||
|
Electronic
Materials and Devices
|
|
|
41
|
28
|
27
|
96
|
|
||||||
|
Total
stock-based compensation expense
|
|
$
|
295
|
|
$
|
402
|
|
$
|
326
|
|
$
|
1,023
|
|
|
Stock-Based
Compensation Expense by Segment
For
the nine months ended June 30, 2006
(in
thousands)
|
|
|
COGS
|
|
|
SG&A
|
|
|
R&D
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Fiber
Optics
|
|
$
|
494
|
|
$
|
1,014
|
|
$
|
677
|
|
$
|
2,185
|
|
|
Photovoltaics
|
125
|
409
|
89
|
623
|
|
||||||||
|
Electronic
Materials and Devices
|
92
|
115
|
71
|
278
|
|
||||||||
|
Total
stock-based compensation expense
|
|
$
|
711
|
|
$
|
1,538
|
|
$
|
837
|
|
$
|
3,086
|
|
Valuation
Assumptions
EMCORE
estimated the fair value of stock options using a Black-Scholes model. The
fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option valuation model and the straight-line attribution approach
using the following weighted-average assumptions:
|
Stock
Option Plans
|
|
Three
Months Ended
June
30,
|
|
Nine
Months Ended
June
30,
|
|
||||||||
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Expected
dividend yield
|
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
|
Expected
stock price volatility
|
|
|
97
|
%
|
|
106
|
%
|
|
97
|
%
|
|
106
|
%
|
|
Risk-free
interest rate
|
|
|
4.7
|
%
|
|
3.9
|
%
|
|
4.7
|
%
|
|
3.8
|
%
|
|
Expected
term (in years)
|
|
|
6
|
|
|
5
|
|
|
6
|
|
|
5
|
|
Expected
Dividend Yield: The
Black-Scholes valuation model calls for a single expected dividend yield
as an
input. EMCORE has not issued any dividends.
Expected
Stock Price Volatility: The
fair
values of stock based payments were valued using the Black-Scholes valuation
method with a volatility factor based on EMCORE’s historical stock prices.
Risk-Free
Interest Rate:
EMCORE
bases the risk-free interest rate used in the Black-Scholes valuation method
on
the implied yield currently available on U.S. Treasury zero-coupon issues
with
an equivalent remaining term. Where the expected term of EMCORE’s stock-based
awards do not correspond with the terms for which interest rates are quoted,
EMCORE performed a straight-line interpolation to determine the rate from
the
available maturities.
Expected
Term: EMCORE’s
expected term represents the period that EMCORE’s stock-based awards are
expected to be outstanding and was determined based on historical experience
of
similar awards, giving consideration to the contractual terms of the stock-based
awards, vesting schedules and expectations of future employee behavior as
influenced by changes to the terms of its stock-based awards.
Estimated
Pre-vesting Forfeitures: When
estimating forfeitures, EMCORE considers voluntary termination behavior as
well
as future workforce reduction programs.
NOTE
4. Investments.
In
January 1999, General Electric Lighting and EMCORE formed GELcore, a joint
venture to address the solid-state lighting market with high-brightness
light-emitting diode-based (HB-LED) lighting systems. 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. EMCORE has a 49%
non-controlling interest in the GELcore venture, and accounts for this
investment using the equity method of accounting. As of June 30, 2006, EMCORE's
net investment in this joint venture amounted to approximately $11.4
million.
In
April
2005, EMCORE divested product technology focused on gallium nitride (GaN)-based
power electronic devices for the power device industry. The new company,
Velox Semiconductor Corporation (Velox), raised $6.0 million from various
venture capital partnerships. Five EMCORE employees transferred to Velox
as full-time personnel and EMCORE contributed intellectual property and
equipment receiving a 19.2% stake in Velox. For the three months ended
December 31, 2005 and March 31, 2006, EMCORE had recognized a loss of $0.2
million and $0.1 million, respectively, related to Velox, which was recorded
as
a component of other income and expenses. During fiscal 2006, EMCORE
reduced its voting percentage and relinquished its Velox Board seat, and
its
right to a Velox Board seat. As a result of these modifications, EMCORE
now reports its investment in Velox under the cost method of accounting rather
than the equity method of accounting. Under the cost method of accounting,
the
Velox investment will be carried at cost and adjusted only for
other-than-temporary declines in fair value, distribution of earnings and
additional investments. As of June 30, 2006, EMCORE's net investment in Velox
amounted to approximately $1.0 million.
NOTE
5. Acquisitions.
On
January 12, 2006, EMCORE entered into an Agreement and Plan of Merger (Merger
Agreement) with K2 Optronics, Inc. (K2), a privately held company located
in
Sunnyvale, CA and EMCORE Optoelectronics Acquisition Corporation, a wholly
owned
subsidiary of EMCORE (Merger Sub). Pursuant to the Merger Agreement,
EMCORE acquired K2 in a transaction in which Merger Sub merged with and into
K2,
with K2 becoming a wholly owned subsidiary of EMCORE. EMCORE, an investor
in K2, paid approximately $4.1 million in EMCORE common stock, and paid
approximately $0.7 million in transaction-related expenses, to acquire the
remaining part of K2 that EMCORE did not already own. Prior to the transaction
EMCORE owned a 13.6% equity interest in K2 as a result of a $1.0 million
investment that EMCORE made in K2 in October 2004. In addition, K2 was a
supplier to EMCORE of analog external cavity lasers for CATV applications.
In
connection with the merger, EMCORE issued a total of 548,688 shares of EMCORE
common stock, no par value, (based on a 20-trading day weighted average price),
to K2’s shareholders. EMCORE has filed a shelf registration statement with
respect to the resale of the EMCORE shares on July 7, 2006. Including EMCORE’s
initial $1.0 million investment in K2, the
purchase price, on a preliminary basis, was allocated as follows: $1.1 million
in cash, $0.1 million in other current assets, $0.8 million in fixed assets,
$1.5 million in intellectual property, $2.4 million in accounts payable and
accrued liabilities, $0.8 million in debt and $4.8 million in residual goodwill.
Furthermore, in connection with this K2 acquisition, EMCORE and JDS Uniphase
(JDSU) amended their May 2005 Purchase Agreement relating to EMCORE’s
acquisition of JDSU’s analog CATV and RF over fiber specialty businesses.
As a result, JDSU retained its K2 investment (on a pre-merger basis), and
repaid
$0.5 million to EMCORE.
On
November 8, 2005, EMCORE entered into an Asset Purchase Agreement with
Phasebridge, Inc., a privately held company located in Pasadena, California.
In
connection with the asset purchase, based on a 10-trading day weighted average
price, EMCORE issued 128,205 shares of EMCORE common stock, no par value,
that
were valued in the transaction at $0.7 million. The acquisition included
Phasebridge’s products, technical and engineering staff, certain assets and
intellectual properties and technologies. On a preliminary basis, the purchase
price was allocated as follows: $0.1 million in fixed assets, $0.7 million
in
intellectual property and $0.1 million in accrued liabilities.
On
December 18, 2005, EMCORE entered into an Asset Purchase Agreement with Force,
Inc., a privately held company located in Christiansburg, Virginia. In
connection with the asset purchase, EMCORE issued 240,000 shares of EMCORE
common stock, no par value, with a market value of $1.6 million at the
measurement date and $0.5 million in cash. The acquisition included Force’s
fiber optic transport and video broadcast products, technical and engineering
staff, certain assets and intellectual properties and technologies. On a
preliminary basis, the purchase price was allocated as follows: $0.4 million
in
accounts receivable, $0.8 million in inventory, $0.2 million in fixed assets,
$1.2 million in intellectual property, $1.3 million in accounts payable and
accrued liabilities and $0.8 million in residual goodwill.
These
transactions were accounted for as purchases in accordance with SFAS
No. 141, Business
Combinations;
therefore, the tangible assets acquired were recorded at fair value on the
acquisition date. These acquisitions were not significant on a pro-forma
basis,
and therefore, pro-forma financial statements are not provided. The operating
results of the businesses acquired are included in the accompanying consolidated
statement of operations from the date of acquisition. The primary areas of
the
purchase price allocations that are not yet finalized relate to the valuation
of
accrued liabilities, intellectual property, and residual goodwill. The acquired
businesses are part of EMCORE's Fiber Optics operating segment.
NOTE
6. Discontinued Operations.
In
November 2003, EMCORE sold its TurboDisc capital equipment business in an
asset
sale to a subsidiary of Veeco Instruments Inc. (Veeco). The selling price
was
$60.0 million in cash at closing, with a potential additional earn-out up
to
$20.0 million over the next two years, calculated based on the net sales
of
TurboDisc products. In March 2005, EMCORE received $13.2 million of earn-out
payment from Veeco in connection with its first year of net sales of TurboDisc
products. After offsetting this receipt against expenses related to the
discontinued operation, EMCORE recorded a net gain from the disposal of
discontinued operations of $12.5 million. In March 2006, EMCORE earned $2.0
million as a final earn-out payment from Veeco in connection with Veeco’s second
year of net sales of TurboDisc products. The cumulative additional
earn-out totaled $15.2 million or 76% of the maximum available payout of
$20.0
million.
NOTE
7. Receivables.
Accounts
receivable consisted of the following:
|
Accounts
Receivable, net
(in
thousands)
|
|
|
As
of
June
30,
2006
|
|
|
As
of
September
30,
2005
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
25,977
|
|
$
|
21,721
|
|
|
Accounts
receivable - unbilled
|
|
|
1,732
|
|
|
1,240
|
|
|
Subtotal
|
|
|
27,709
|
|
|
22,961
|
|
|
Allowance
for doubtful accounts
|
|
|
(321
|
)
|
|
(328
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27,388
|
|
$
|
22,633
|
|
In
September 2005, EMCORE entered into a non-recourse receivables purchase
agreement (AR Agreement) with Silicon Valley Bank (SVBank). Under the
terms of the AR Agreement, EMCORE from time to time may sell, without recourse,
certain account receivables to SVBank up to a maximum aggregate outstanding
amount of $20.0 million. The AR Agreement expires on December 31, 2006,
unless the term is extended by mutual agreement by all parties. In June 2006
and
September 2005, EMCORE sold approximately $6.5 million and $2.2 million of
account receivables to SVBank, respectively.
Receivables
from related parties consisted of the following:
|
Receivables,
Related Parties
(in
thousands)
|
|
|
As
of
June
30,
2006
|
|
|
As
of
September
30,
2005
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
GELcore-related
|
|
$
|
200
|
|
$
|
185
|
|
|
Velox-related
|
|
|
282
|
|
|
249
|
|
|
Employee
loans
|
|
|
-
|
|
|
3,000
|
|
|
Employee
loans - interest portion
|
|
|
-
|
|
|
763
|
|
|
Subtotal
|
|
|
482
|
|
|
4,197
|
|
|
|
|
|
|
|
|
||
|
Long-term
assets:
|
|
|
|
|
|
|
|
|
Employee
loans
|
|
|
169
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
651
|
|
$
|
4,366
|
|
Employee
Loans
From
time
to time, prior to July 2002, EMCORE loaned money to certain of its executive
officers and directors. Pursuant to due authorization from EMCORE's Board
of
Directors, EMCORE loaned $3.0 million to Mr. Reuben Richards, the Chief
Executive Officer in February 2001 (Note). The Note matured on February 22,
2006
and bore interest compounded at a rate of (a) 5.18% per annum through May
23,
2002 and (b) 4.99% from May 24, 2002 through maturity. All interest was payable
at maturity. On February 13, 2006, Mr. Richards tendered 139,485 shares of
EMCORE common stock in partial payment of the Note. Principal plus accrued
interest on the Note totaled approximately $3.83 million. The Compensation
Committee of EMCORE’s Board of Directors specifically approved the tender
of shares, as permitted by the Note, at the price of $8.25 per share, which
was
the closing price of EMCORE common stock on February 13, 2006. On February
28,
2006, the Compensation Committee resolved to forgive the remaining balance
of
the Note (approximately $2.7 million), effective as of March 10, 2006. Mr.
Richards’ tender of common stock on February 13, 2006 was accepted as full
payment and satisfaction of the Note, including principal and accrued
interest. Additionally, the Compensation Committee resolved to accelerate
and vest the final tranche of each of the incentive stock option grants made
in
fiscal 2004 and 2005 to Mr. Richards, which constitute a combined accelerated
vesting of 111,250 shares. In considering this matter, the Compensation
Committee carefully considered Mr. Richards’ past performance, including the
recent appreciation in the stock price and EMCORE’s improved financial
performance, the facts and circumstances surrounding the loan, Mr. Richards’
current compensation, Mr. Richards’ willingness to repay a portion of the Note
and all resulting taxes totaling $1.3 million, and the desire to retain Mr.
Richards’ continued service to EMCORE. EMCORE recorded a one-time, non-cash
charge of approximately $2.7 million in March 2006 for the partial forgiveness
of the Note, plus a non-cash charge of approximately $0.3 million in stock-based
compensation expense under SFAS 123(R) relating to the accelerated ISO grants.
In
addition, pursuant to due authorization of EMCORE's Board of Directors, EMCORE
also loaned $82,000 to the Chief Financial Officer (CFO) of EMCORE in December
1995. This loan does not bear interest and provides for offset of the loan
via
bonuses payable to the CFO over a period of up to 25 years. The remaining
related party receivable balance of $87,260 relates to multiple loans from
EMCORE to an officer (who is not an executive officer) that were made during
1997 through 2000 and are payable on demand.
NOTE
8. Inventory, net.
Inventory
is stated at the lower of cost or market, with cost being determined using
the
standard cost method that includes material, labor and manufacturing overhead
costs. Inventory consisted of the following:
|
Inventory,
net
(in
thousands)
|
|
|
As
of
June
30,
2006
|
|
|
As
of
September
30,
2005
|
|
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
18,430
|
$
|
15,482
|
|
|
|
Work-in-process
|
|
|
4,323
|
|
5,101
|
|
|
|
Finished
goods
|
|
|
8,930
|
|
5,911
|
|
|
|
Subtotal
|
|
|
31,683
|
|
26,494
|
|
|
|
|
|
|
|
|
|||
|
Less:
reserves
|
|
|
(6,743
|
)
|
|
(8,146
|
)
|
|
|
|
|
|
|
|
||
|
Total
|
|
$
|
24,940
|
$
|
18,348
|
|
NOTE
9. Property, Plant and Equipment, net.
Property,
plant and equipment consisted of the following:
|
Property,
Plant and Equipment, net
(in
thousands)
|
|
|
As
of
June
30,
2006
|
|
|
As
of
September
30,
2005
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
1,502
|
$
|
1,502
|
|
|
|
Building
and improvements
|
|
|
39,730
|
|
37,944
|
|
|
|
Equipment
|
|
|
71,844
|
|
71,854
|
|
|
|
Furniture
and fixtures
|
|
|
5,639
|
|
5,002
|
|
|
|
Leasehold
improvements
|
|
|
3,170
|
|
2,935
|
|
|
|
Construction
in progress
|
|
|
8,618
|
|
3,390
|
|
|
|
Property
and equipment under capital lease
|
|
|
466
|
|
466
|
|
|
|
Subtotal
|
|
|
130,969
|
|
123,093
|
|
|
|
|
|
|
|
|
|
||
|
Less:
accumulated depreciation and amortization
|
|
|
(73,972
|
)
|
|
(66,136
|
)
|
|
|
|
|
|
|
|
||
|
Total
|
|
$
|
56,997
|
$
|
56,957
|
|
NOTE
10. Goodwill and Intangible Assets, net.
The
following table sets forth changes in the carrying value of goodwill by
reportable segment:
|
(in
thousands)
|
|
|
Fiber
Optics
|
|
|
Photovoltaics
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of September 30, 2005
|
|
$
|
14,259
|
|
$
|
20,384
|
|
$
|
34,643
|
|
|
Acquisition
- Force Inc.
|
|
|
800
|
|
|
-
|
|
|
800
|
|
|
Acquisition
- JDSU CATV purchase price adjustment
|
20
|
-
|
20
|
|||||||
|
Acquisition
- K2 Optronics
|
|
|
4,750
|
|
|
-
|
|
|
4,750
|
|
|
Acquisition
- Earn out payments
|
|
|
263
|
|
|
-
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Balance
as of June 30, 2006
|
|
$
|
20,092
|
|
$
|
20,384
|
|
$
|
40,476
|
|
The
following table sets forth changes in the carrying value of intangible assets
by
reportable segment:
|
(in
thousands)
|
|
As
of June 30, 2006
|
As
of September 30, 2005
|
||||||||||||||||
|
|
|
|
Gross
Assets
|
|
|
Accumulated
Amortization
|
|
|
Net
Assets
|
|
|
Gross
Assets
|
|
|
Accumulated
Amortization
|
|
|
Net
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiber
Optics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
495
|
|
$
|
(192)
|
$
|
303
|
|
$
|
368
|
|
$
|
(136)
|
$
|
232
|
|
||
|
Ortel
acquired IP
|
|
|
3,274
|
|
|
(2,232)
|
|
1,042
|
|
|
3,274
|
|
|
(1,746)
|
|
1,528
|
|
||
|
JDSU
acquired IP
|
|
|
1,040
|
|
|
(264)
|
|
776
|
|
|
1,650
|
|
|
(110)
|
|
1,540
|
|
||
|
Alvesta
acquired IP
|
|
|
193
|
|
|
(138)
|
|
55
|
|
|
193
|
|
|
(107)
|
|
86
|
|
||
|
Molex
acquired IP
|
|
|
558
|
|
|
(307)
|
|
251
|
|
|
558
|
|
|
(223)
|
|
335
|
|
||
|
Corona
acquired IP
|
|
|
1,000
|
|
|
(417)
|
|
583
|
|
|
1,000
|
|
|
(267)
|
|
733
|
|
||
|
Phasebridge
acquired IP
|
|
|
700
|
|
|
(108)
|
|
592
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
Force
acquired IP
|
|
|
1,200
|
|
|
(161)
|
|
1,039
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
K2
Optronics acquired IP
|
|
|
1,500
|
|
|
(141)
|
|
1,359
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
Subtotal
|
|
|
9,960
|
|
|
(3,960)
|
|
6,000
|
|
|
7,043
|
|
|
(2,589)
|
|
4,454
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Photovoltaics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Patents
|
|
|
352
|
|
|
(144)
|
|
208
|
|
|
271
|
|
|
(101)
|
|
170
|
|
||
|
Tecstar
acquired IP
|
|
|
1,900
|
|
|
(1,663)
|
|
237
|
|
|
1,900
|
|
|
(1,350)
|
|
550
|
|
||
|
Subtotal
|
|
|
2,252
|
|
|
(1,807)
|
|
445
|
|
|
2,171
|
|
|
(1,451)
|
|
720
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Electronic
Materials & Devices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Patents
|
|
|
433
|
|
|
(254)
|
|
179
|
|
|
390
|
|
|
(217)
|
|
173
|
|
||
|
Total
|
|
$
|
12,645
|
|
$
|
(6,021)
|
$
|
6,624
|
|
$
|
9,604
|
|
$
|
(4,257)
|
$
|
5,347
|
|
||
Based
on
the carrying amount of the intangible assets, the estimated future amortization
expense is as follows:
|
Amortization
Expense
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Period
ending:
|
|
|
|
|
|
3-month
period ended September 30, 2006
|
|
$
|
644
|
|
|
Year
ended September 30, 2007
|
|
|
2,174
|
|
|
Year
ended September 30, 2008
|
|
|
1,505
|
|
|
Year
ended September 30, 2009
|
|
|
1,104
|
|
|
Year
ended September 30, 2010
|
|
|
855
|
|
|
Thereafter
|
|
|
342
|
|
|
Total
future amortization expense
|
|
$
|
6,624
|
|
NOTE
11. Accrued Expenses and Other Current Liabilities.
The
components of accrued expenses and other current liabilities consisted of
the
following:
|
Accrued
Expenses and Other Current Liabilities
(in
thousands)
|
|
|
As
of
June
30,
2006
|
|
|
As
of
September
30,
2005
|
|
|
|
|
|
|
|
|
|
|
|
Compensation-related
|
|
$
|
4,909
|
|
$
|
4,974
|
|
|
Interest
|
|
|
619
|
|
|
1,814
|
|
|
Warranty
|
|
|
1,072
|
|
|
1,268
|
|
|
Deferred
revenue and customer deposits
|
|
|
697
|
|
|
1,539
|
|
|
Professional
fees
|
|
|
671
|
|
|
1,082
|
|
|
Royalty
|
|
|
475
|
|
|
551
|
|
|
Acquisition-related
|
|
|
2,351
|
|
|
5,006
|
|
|
Self
insurance
|
|
|
817
|
|
|
646
|
|
|
Other
|
|
|
1,929
|
|
|
2,198
|
|
|
Total
|
|
$
|
13,540
|
|
$
|
19,078
|
|
Product
Warranty Reserves.
EMCORE
provides its customers with limited rights of return for non-conforming
shipments and warranty claims for certain products. In accordance with FASB
Interpretation No. 45, Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others,
EMCORE
makes estimates using historical experience rates as a percentage of revenue
and
accrues estimated warranty expense as a cost of revenue. Warranty
obligations are estimated based on historical experience of known product
failure rates, use of materials to repair or replace defective products and
service delivery costs incurred in correcting product failures. In addition,
from time to time, specific warranty accruals may be made if unforeseen
technical problems arise. Should actual experience relative to these factors
differ from estimates, additional warranty reserves may be required.
Alternatively, if more reserves were estimated than needed, a portion of
such
provisions may be reversed in future periods. The following table sets forth
changes in the product warranty accrual account:
|
Warranty
Reserve
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of October 1, 2005
|
|
$
|
1,268
|
|
|
Accruals
for warranty expense
|
|
|
192
|
|
|
Reversals
due to use or expiration of liability
|
|
|
(388
|
)
|
|
Balance
as of June 30, 2006
|
|
$
|
1,072
|
|
NOTE
12. Convertible Subordinated Notes.
In
May
2001, EMCORE issued $175.0 million aggregate principal amount of its 5%
convertible subordinated notes due in May 2006 (2006 Notes). In December
2002,
EMCORE purchased $13.2 million principal amount of the 2006 Notes at prevailing
market prices for an aggregate of approximately $6.3 million, resulting in
a
gain of approximately $6.6 million after netting unamortized debt issuance
costs
of approximately $0.3 million. In February 2004, EMCORE exchanged approximately
$146.0 million, or 90.2%, of its remaining 2006 Notes for approximately $80.3
million aggregate principal amount of new 5% Convertible Senior Subordinated
Notes due May 15, 2011 (2011 Notes) and approximately 7.7 million shares
of
EMCORE common stock. Interest on the 2011 Notes is payable in arrears
semiannually on May 15 and November 15 of each year. The notes are convertible
into EMCORE common stock at a conversion price of $8.06 per share, subject
to
adjustment under customary anti-dilutive provisions. They also are redeemable
should EMCORE's common stock price reach $12.09 per share. As a result of
this
transaction, EMCORE reduced debt by approximately $65.7 million, and recorded
a
gain from early debt extinguishment of approximately $12.3 million.
In
November 2005, EMCORE exchanged $14,425,000 aggregate principal amount of
EMCORE’s 2006 Notes for $16,580,460 aggregate principal amount of newly issued
Convertible Senior Subordinated Notes due May 15, 2011 (New 2011 Notes) pursuant
to an Exchange Agreement (Agreement) with Alexandra Global Master Fund Ltd.
(Alexandra). The terms of the New 2011 Notes are identical in all
material respects to EMCORE’s 2011 Notes. The New 2011 Notes are
ranked pari passu with the existing 2011 Notes. The New 2011 Notes will be
convertible at any time prior to maturity, unless previously redeemed or
repurchased by EMCORE, into the shares of EMCORE common stock, no par value,
at
the conversion rate of 124.0695 shares of common stock per $1,000 principal
amount. The effective conversion rate is $8.06 per share of common stock,
subject to adjustment under customary anti-dilutive provisions. They also
are
redeemable should EMCORE's common stock price reach $12.09 per share. As a
result of this transaction, EMCORE recognized a non-cash loss of approximately
$1.1 million in the first quarter of fiscal 2006. EMCORE will also incur
an
additional non-cash loss of approximately $1.1 million over the life of the
subordinated notes issued to Alexandra, which will be charged as interest
expense. Furthermore, the 2006 Notes exchanged by Alexandra represented
approximately 91.4% of the $15,775,000 total amount of existing 2006 Notes
outstanding at the time of the transaction. EMCORE paid the remaining
$1,350,000 of 2006 Notes on the May 15, 2006 maturity date.
NOTE
13. Commitments and Contingencies.
EMCORE
is
involved in lawsuits and proceedings that 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.
EMCORE
guarantees 49% of any amounts borrowed under GELcore’s revolving credit line. As
of June 30, 2006, GELcore’s outstanding borrowings were $4.9 million. The
maximum borrowing currently permitted under the credit line is approximately
$10.0 million.
NOTE
14. Segment Data and Related Information.
EMCORE
has three operating segments: Fiber Optics, Photovoltaics, and Electronic
Materials and Devices:
·
EMCORE's
Fiber Optics revenues are derived primarily from sales of optical components
and
subsystems for cable television (CATV), fiber to the premise (FTTP), enterprise
routers and switches, telecom grooming switches, core routers, high performance
servers, supercomputers, and satellite communications data links.
·
EMCORE's
Photovoltaics revenues are derived primarily from the sales of solar power
conversion products, including solar cells, covered interconnect solar cells,
and solar panels.
·
EMCORE's
Electronic Materials and Devices revenues are derived primarily from sales
of
wireless components, such as radio frequency (RF) materials including
hetero-junction bipolar transistors and enhancement-mode pseudomorphic high
electron mobility transistors, GaN materials for wireless base stations,
and
process development technology.
EMCORE
evaluates its reportable segments in accordance with SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information. EMCORE’s
Chief Executive Officer is EMCORE’s Chief Operating Decision Maker pursuant to
SFAS 131, and he allocates resources to segments based on their business
prospects, competitive factors, net revenue, operating results and other
non-GAAP financial ratios.
The
following tables set forth the revenues and percentage of total revenues
attributable to each of EMCORE's operating segments for the three and nine
months ended June 30, 2006 and 2005.
|
Revenues
by Segment
(in
thousands)
|
|
Three
months ended
June
30, 2006
|
Three
months ended
June
30, 2005
|
||||||||||
|
|
|
|
Revenue
|
|
|
%
of Revenue
|
|
|
Revenue
|
|
|
%
of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Fiber
Optics
|
|
$
|
25,968
|
|
|
61.9
|
%
|
$
|
21,109
|
|
63.5
|
%
|
|
|
Photovoltaics
|
|
|
10,354
|
|
|
24.7
|
|
|
8,807
|
|
26.5
|
|
|
|
Electronic
Materials and Devices
|
|
|
5,632
|
|
|
13.4
|
|
|
3,318
|
|
10.0
|
|
|
|
Total
revenues
|
|
$
|
41,954
|
|
|
100.0
|
%
|
$
|
33,234
|
|
100.0
|
%
|
|
|
Revenues
by Segment
(in
thousands)
|
|
Nine
months ended
June
30, 2006
|
Nine
months ended
June
30, 2005
|
||||||||||
|
|
|
|
Revenue
|
|
|
%
of Revenue
|
|
|
Revenue
|
|
|
%
of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Fiber
Optics
|
|
$
|
76,825
|
|
|
62.5
|
%
|
$
|
57,828
|
|
|
63.8
|
%
|
|
Photovoltaics
|
|
|
31,342
|
|
|
25.5
|
|
|
24,084
|
|
|
26.6
|
|
|
Electronic
Materials and Devices
|
|
|
14,840
|
|
|
12.0
|
|
|
8,716
|
|
|
9.6
|
|
|
Total
revenues
|
|
$
|
123,007
|
|
|
100.0
|
%
|
$
|
90,628
|
|
|
100.0
|
%
|
The
following tables set forth EMCORE's consolidated revenues by geographic region.
Revenue was assigned to geographic regions based on the customers’ or contract
manufacturers’ shipment locations.
|
Geographic
Revenues
(in
thousands)
|
|
Three
months ended
June
30, 2006
|
Three
months ended
June
30, 2005
|
||||||||||
|
|
|
|
Revenue
|
|
|
%
of Revenue
|
|
|
Revenue
|
|
|
%
of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
North
America
|
|
$
|
32,201
|
|
76.8
|
%
|
$
|
28,969
|
|
87.2
|
%
|
||
|
South
America, Africa and Asia
|
|
|
8,573
|
|
20.4
|
|
|
2,893
|
|
8.7
|
|
||
|
Europe
|
|
|
1,180
|
|
2.8
|
|
|
1,372
|
|
4.1
|
|
||
|
Total
revenues
|
|
$
|
41,954
|
|
100.0
|
%
|
$
|
33,234
|
|
100.0
|
%
|
||
|
Geographic
Revenues
(in
thousands)
|
|
Nine
months ended
June
30, 2006
|
Nine
months ended
June
30, 2005
|
||||||||||
|
|
|
|
Revenue
|
|
|
%
of Revenue
|
|
|
Revenue
|
|
|
%
of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
North
America
|
|
$
|
100,272
|
|
|
81.5
|
%
|
$
|
74,681
|
|
82.4
|
%
|
|
|
South
America, Africa and Asia
|
|
|
19,517
|
|
|
15.9
|
|
|
10,915
|
|
12.0
|
||