PAGE
|
|||
3
|
|||
ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|
27
|
||
47
|
|||
48
|
|||
49
|
|||
51
|
|||
51
|
|||
51
|
|||
51
|
|||
51
|
|||
52
|
|||
53
|
|||
Three
Months Ended
December
31,
|
|||||||
2008
|
2007
|
||||||
Product
revenue
|
$
|
51,554
|
$
|
44,501
|
|||
Service
revenue
|
2,502
|
2,386
|
|||||
Total
revenue
|
54,056
|
46,887
|
|||||
Cost
of product revenue
|
50,772
|
36,611
|
|||||
Cost
of service revenue
|
1,695
|
173
|
|||||
Total
cost of revenue
|
52,467
|
36,784
|
|||||
Gross
profit
|
1,589
|
10,103
|
|||||
Operating
expenses:
|
|||||||
Selling,
general, and administrative
|
12,159
|
11,863
|
|||||
Research
and development
|
8,110
|
7,420
|
|||||
Impairment
of goodwill and intangible assets
|
33,781
|
-
|
|||||
Total
operating expenses
|
54,050
|
19,283
|
|||||
Operating
loss
|
(52,461
|
)
|
(9,180
|
)
|
|||
Other
(income) expense:
|
|||||||
Interest income
|
(50
|
)
|
(427
|
)
|
|||
Interest expense
|
195
|
1,205
|
|||||
Impairment
of investment
|
366
|
-
|
|||||
Stock–based
compensation expense from tolled options
|
-
|
4,374
|
|||||
Loss
on disposal of equipment
|
-
|
86
|
|||||
Foreign exchange loss (gain)
|
472
|
(12
|
)
|
||||
Total
other expense
|
983
|
5,226
|
|||||
Net
loss
|
$
|
(53,444
|
)
|
(14,406
|
)
|
||
Foreign
exchange translation adjustment
|
108
|
(7
|
)
|
||||
Comprehensive
loss
|
$
|
(53,336
|
)
|
$
|
(14,413
|
)
|
|
Per
share data:
|
|||||||
Basic
and diluted per share data:
|
|||||||
Net
loss
|
$
|
(0.69
|
)
|
$
|
(0.28
|
)
|
|
Weighted-average
number of basic and diluted shares outstanding
|
77,816
|
52,232
|
December
31, 2008
|
September
30, 2008
|
||||||
ASSETS
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
15,318
|
$
|
18,227
|
|||
Restricted
cash
|
1,827
|
1,854
|
|||||
Available-for-sale
securities
|
612
|
2,679
|
|||||
Accounts
receivable, net of allowance of $3,299 and $2,377,
respectively
|
61,329
|
60,313
|
|||||
Inventory,
net
|
64,592
|
64,617
|
|||||
Investments
in unconsolidated affiliates
|
8,240
|
-
|
|||||
Prepaid
expenses and other current assets
|
7,020
|
7,100
|
|||||
Total
current assets
|
158,938
|
154,790
|
|||||
Property,
plant, and equipment, net
|
80,622
|
83,278
|
|||||
Goodwill
|
20,384
|
52,227
|
|||||
Other
intangible assets, net
|
25,186
|
28,033
|
|||||
Investments
in unconsolidated affiliates
|
-
|
8,240
|
|||||
Available-for-sale
securities, non-current
|
1,400
|
1,400
|
|||||
Long-term
restricted cash
|
569
|
569
|
|||||
Other
non-current assets, net
|
597
|
741
|
|||||
Total
assets
|
$
|
287,696
|
$
|
329,278
|
|||
LIABILITIES
and SHAREHOLDERS’ EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Line
of credit
|
$
|
15,443
|
$
|
-
|
|||
Accounts
payable
|
45,460
|
52,266
|
|||||
Accrued
expenses and other current liabilities
|
22,659
|
23,290
|
|||||
Total
current liabilities
|
83,562
|
75,556
|
|||||
Long-term
debt
|
910
|
-
|
|||||
Total
liabilities
|
84,472
|
75,556
|
|||||
Commitments
and contingencies
|
|||||||
Shareholders’
equity:
|
|||||||
Preferred
stock, $0.0001 par, 5,882 shares authorized, no shares
outstanding
|
-
|
-
|
|||||
Common
stock, no par value, 200,000 shares authorized, 78,398 shares issued and
78,239 outstanding at December 31, 2008; 77,920 shares issued and 77,761
shares outstanding at September 30, 2008
|
682,858
|
680,020
|
|||||
Accumulated
deficit
|
(478,208
|
)
|
(424,764
|
)
|
|||
Accumulated
other comprehensive loss
|
657
|
549
|
|||||
Treasury
stock, at cost; 159 shares as of December 31, 2008 and September 30,
2008
|
(2,083
|
)
|
(2,083
|
)
|
|||
Total
shareholders’ equity
|
203,224
|
253,722
|
|||||
Total
liabilities and shareholders’ equity
|
$
|
287,696
|
$
|
329,278
|
Three
Months Ended December 31,
|
|||||||
Cash
flows from operating activities:
|
2008
|
2007
|
|||||
Net
loss
|
$
|
(53,444
|
)
|
$
|
(14,406
|
)
|
|
Adjustments
to reconcile net loss to net cash used for operating
activities:
|
|||||||
Impairment
of goodwill and intangible assets
|
33,781
|
-
|
|||||
Stock-based
compensation expense
|
2,150
|
5,448
|
|||||
Depreciation
and amortization expense
|
4,293
|
2,465
|
|||||
Inventory
reserve adjustments
|
4,362
|
372
|
|||||
Provision
for doubtful accounts
|
922
|
42
|
|||||
Impairment
of investment
|
366
|
-
|
|||||
Loss
on disposal of equipment
|
97
|
86
|
|||||
Compensatory
stock issuances
|
18
|
209
|
|||||
Reduction
of note receivable due for services received
|
-
|
130
|
|||||
Accretion
of loss from convertible subordinated notes
|
-
|
31
|
|||||
Total
non-cash adjustments
|
45,989
|
8,783
|
|||||
Changes
in operating assets and liabilities, net of effect of
acquisitions:
|
|||||||
Accounts
receivable
|
(1,938
|
)
|
(3,173
|
)
|
|||
Inventory
|
(4,337
|
)
|
(790
|
)
|
|||
Prepaid
expenses and other current assets
|
80
|
249
|
|||||
Other
assets
|
144
|
(1,020
|
)
|
||||
Accounts
payable
|
(6,806
|
)
|
1,625
|
||||
Accrued
expenses and other current liabilities
|
(832
|
)
|
(2,267
|
)
|
|||
Total
change in operating assets and liabilities
|
(13,689
|
)
|
(5,376
|
)
|
|||
Net
cash used in operating activities
|
(21,144
|
)
|
(10,999
|
)
|
|||
Cash
flows from investing activities:
|
|||||||
Purchase
of plant and equipment
|
(597
|
)
|
(4,985
|
)
|
|||
Proceeds
from (funding of) restricted cash
|
27
|
(269
|
)
|
||||
Purchase
of available-for-sale securities
|
-
|
(7,000
|
)
|
||||
Sale
of available-for-sale securities
|
1,700
|
20,931
|
|||||
Net
cash provided by investing activities
|
1,130
|
8,677
|
|||||
Cash
flows from financing activities:
|
|||||||
Proceeds
from borrowing - line of credit
|
15,443
|
-
|
|||||
Proceeds
from borrowing - long-term debt
|
910
|
-
|
|||||
Payments
on capital lease obligations
|
-
|
(2
|
)
|
||||
Proceeds
from exercise of stock options
|
32
|
4,776
|
|||||
Proceeds
from employee stock purchase plan
|
613
|
-
|
|||||
Net
cash provided by financing activities
|
16,998
|
4,774
|
|||||
Effect
of foreign currency
|
107
|
7
|
|||||
Net
(decrease) increase in cash and cash equivalents
|
(2,909
|
)
|
2,459
|
||||
Cash
and cash equivalents, beginning of period
|
18,227
|
12,151
|
|||||
Cash
and cash equivalents, end of period
|
$
|
15,318
|
$
|
14,610
|
|||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|||||||
Cash
paid during the period for interest
|
$
|
132
|
$
|
2,349
|
|||
Cash
paid for income taxes
|
$
|
-
|
$
|
-
|
·
|
A
reduction in personnel of approximately 160 people, or 17% of the total
workforce, which should result in annualized cost savings of approximately
$9.0 million;
|
·
|
A
significant reduction of our fiscal 2008 employee incentive bonus plan
payout and the elimination of fiscal 2009 employee merit
increases;
|
·
|
A
significant reduction of capital expenditures when compared to the prior
year;
|
·
|
The
potential sale of certain assets;
|
·
|
A
greater emphasis on managing our working capital, specifically
receivables, inventory, and accounts payables;
and,
|
·
|
Further
restrictions on employee travel and other discretionary
expenditures.
|
SFAS 141(R) -
In December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard (“SFAS”) 141(R), Business Combinations.
This statement replaces SFAS 141, Business Combinations,
and requires an acquirer to recognize the assets acquired, the liabilities
assumed, including those arising from contractual contingencies, any
contingent consideration, and any noncontrolling interest in the acquiree
at the acquisition date, measured at their fair values as of that date,
with limited exceptions specified in the statement. SFAS 141(R) also
requires the acquirer in a business combination achieved in stages
(sometimes referred to as a step acquisition) to recognize the
identifiable assets and liabilities, as well as the noncontrolling
interest in the acquiree, at the full amounts of their fair values (or
other amounts determined in accordance with SFAS 141(R)). In addition,
SFAS 141(R)'s requirement to measure the noncontrolling interest in the
acquiree at fair value will result in recognizing the goodwill
attributable to the noncontrolling interest in addition to that
attributable to the acquirer. SFAS 141(R) amends SFAS No. 109, Accounting for Income
Taxes, to require the acquirer to recognize changes in the amount
of its deferred tax benefits that are recognizable because of a business
combination either in income from continuing operations in the period of
the combination or directly in contributed capital, depending on the
circumstances. It also amends SFAS 142, Goodwill and Other Intangible
Assets, to, among other things, provide guidance on the impairment
testing of acquired research and development intangible assets and assets
that the acquirer intends not to use. SFAS 141(R) applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after
December 15, 2008. Management is currently assessing the potential impact
that the adoption of SFAS 141(R) could have on the Company’s financial
statements in fiscal 2010.
|
Number
of Shares
|
Weighted
Average Exercise Price
|
Weighted
Average
Remaining
Contractual Life
(in
years)
|
|||||||||||
Outstanding
as of September 30, 2008
|
8,929,453
|
$
|
6.57
|
8.22
|
|||||||||
Granted
|
238,213
|
2.95
|
|||||||||||
Exercised
|
(10,675
|
)
|
3.02
|
||||||||||
Forfeited
|
(383,946
|
)
|
7.37
|
||||||||||
Cancelled
|
(333,980
|
)
|
3.88
|
||||||||||
Outstanding
as of December 31, 2008
|
8,439,065
|
$
|
6.54
|
7.68
|
|||||||||
Exercisable
as of December 31, 2008
|
2,734,395
|
$
|
5.26
|
5.69
|
Number
of Stock Options Outstanding
|
Options
Exercisable
|
|||||||||||||||||||||||||
Exercise
Price of Stock Options
|
Number
Outstanding
|
Weighted
Average Remaining Contractual Life (years)
|
Weighted-
Average Exercise Price
|
Number
Exercisable
|
Weighted-
Average Exercise Price
|
|||||||||||||||||||||
>=$1.00
to <$5.00
|
2,131,694
|
5.93
|
$
|
3.23
|
1,517,057
|
$
|
2.87
|
|||||||||||||||||||
>=$5.00
to <$10.00
|
6,167,191
|
8.36
|
7.44
|
1,125,658
|
7.23
|
|||||||||||||||||||||
>$10.00
|
140,180
|
4.06
|
17.49
|
91,680
|
20.64
|
|||||||||||||||||||||
TOTAL
|
8,439,065
|
7.68
|
$
|
6.54
|
2,734,395
|
$
|
5.26
|
(in
thousands, except per share data)
|
Three
Months Ended December
31,
|
||||||
2008
|
2007
|
||||||
Stock-based
compensation expense by award type:
|
|||||||
Employee
stock options
|
$
|
1,995
|
$
|
1,074
|
|||
Employee
stock purchase plan
|
155
|
-
|
|||||
Former
employee stock options tolled
|
-
|
4,374
|
|||||
Total
stock-based compensation expense
|
$
|
2,150
|
$
|
5,448
|
|||
Net
effect on net loss per basic and diluted share
|
$
|
(0.02
|
)
|
$
|
(0.10
|
)
|
Three
Months Ended December 31,
|
|||||||||
Black-Scholes
Weighted-Average Assumptions
|
2008
|
2007
|
|||||||
Expected
dividend yield
|
0.0
|
%
|
0.0
|
%
|
|||||
Expected
stock price volatility
|
92.4
|
%
|
81.3
|
%
|
|||||
Risk-free
interest rate
|
3.5
|
%
|
3.5
|
%
|
|||||
Expected
term (in years)
|
6.1
|
5.5
|
|||||||
Estimated
pre-vesting forfeitures
|
25.1
|
%
|
23.3
|
%
|
Number
of Common Stock Shares
|
Purchase
Price per Share of
Common
Stock
|
|||||||
Amount
of shares reserved for the ESPP
|
2,000,000
|
|||||||
Number
of shares issued in calendar years 2000 through 2006
|
(1,000,000
|
)
|
$1.87
- $40.93
|
|||||
Number
of shares issued in June 2007 for the first half of calendar year
2007
|
(123,857
|
)
|
$6.32
|
|||||
Number
of shares issued in June 2008 for the first half of calendar year
2008
|
(120,791
|
)
|
$5.62
|
|||||
Number
of shares issued in December 2008 for the second half of calendar year
2008
|
(468,080
|
)
|
$0.88
|
|||||
Remaining
shares reserved for the ESPP as of December 31, 2008
|
287,272
|
Number
of Common Stock Shares Available
|
||||
For
exercise of outstanding common stock options
|
8,439,065
|
|||
For
future issuances to employees under the ESPP
|
287,272
|
|||
For
future common stock option awards
|
766,716
|
|||
For
future exercise of warrants
|
1,400,003
|
|||
For
future issuance in relation to the fiscal 2008 acquisition of certain
assets of Intel Corporation’s Optical Platform
Division
|
1,300,000
|
|||
Total
reserved
|
12,193,056
|
(in
thousands)
|
December
31, 2008
|
September
30, 2008
|
|||||
Accounts
receivable
|
$
|
59,223
|
$
|
57,703
|
|||
Accounts
receivable – unbilled
|
5,405
|
4,987
|
|||||
Accounts
receivable, gross
|
64,628
|
62,690
|
|||||
Allowance
for doubtful accounts
|
(3,299
|
)
|
(2,377
|
)
|
|||
Total
accounts receivable, net
|
$
|
61,329
|
$
|
60,313
|
(in
thousands)
|
December
31, 2008
|
September
30, 2008
|
|||||
Raw
materials
|
$
|
40,046
|
$
|
38,304
|
|||
Work-in-process
|
9,607
|
7,293
|
|||||
Finished
goods
|
32,291
|
32,010
|
|||||
Inventory,
gross
|
81,944
|
77,607
|
|||||
Less:
allowance for excess and obsolescence
|
(17,352
|
)
|
(12,990
|
)
|
|||
Total
inventory, net
|
$
|
64,592
|
$
|
64,617
|
·
|
During
the three months ended September 30, 2008, the Company recorded $9.7
million in inventory write-downs, of which $5.2 million related to the
Fiber Optics segment and $4.5 million related to the Photovoltaics
segment.
|
·
|
During
the three months ended December 31, 2008, the Company recorded $5.6
million in inventory write-downs, of which $4.8 million related to the
Fiber Optics segment and $0.8 million related to the Photovoltaics
segment.
|
(in
thousands)
|
December
31, 2008
|
September
30, 2008
|
|||||
Land
|
$
|
1,502
|
$
|
1,502
|
|||
Building
and improvements
|
44,915
|
44,607
|
|||||
Equipment
|
108,016
|
106,947
|
|||||
Furniture
and fixtures
|
4,756
|
5,403
|
|||||
Leasehold
improvements
|
663
|
478
|
|||||
Construction
in progress
|
3,942
|
4,395
|
|||||
Property,
plant and equipment, gross
|
163,794
|
163,332
|
|||||
Less:
accumulated depreciation and amortization
|
(83,172
|
)
|
(80,054
|
)
|
|||
Total
property, plant and equipment, net
|
$
|
80,622
|
$
|
83,278
|
(in
thousands)
|
Fiber
Optics
|
Photovoltaics
|
Total
|
|||||||||
Balance
at September 30, 2008
|
31,843
|
20,384
|
52,227
|
|||||||||
Goodwill
impairment
|
(31,843
|
)
|
-
|
(31,843
|
)
|
|||||||
Balance
at December 31, 2008
|
$
|
-
|
$
|
20,384
|
$
|
20,384
|
(in
thousands)
|
December 31,
2008
|
September 30,
2008
|
|||||||||||||||||
Gross
Assets
|
Accumulated
Amortization
|
Net
Assets
|
Gross
Assets
|
Accumulated
Amortization
|
Net
Assets
|
||||||||||||||
Fiber
Optics
|
$
|
34,087
|
$
|
(9,577
|
)
|
$
|
24,510
|
$
|
35,991
|
$
|
(8,502
|
)
|
$
|
27,489
|
|||||
Photovoltaics
|
1,137
|
(461
|
)
|
676
|
956
|
(412
|
)
|
544
|
|||||||||||
Total
|
$
|
35,224
|
$
|
(10,038
|
)
|
$
|
25,186
|
$
|
36,947
|
$
|
(8,914
|
)
|
$
|
28,033
|
(in
thousands)
|
||||
Nine-months
ended September 30, 2009
|
$
|
3,230
|
||
Fiscal
year ended September 30, 2010
|
4,204
|
|||
Fiscal
year ended September 30, 2011
|
3,817
|
|||
Fiscal
year ended September 30, 2012
|
3,532
|
|||
Fiscal
year ended September 30, 2013
|
3,106
|
|||
Thereafter
|
7,297
|
|||
Total
future amortization expense
|
$
|
25,186
|
(in
thousands)
|
December
31, 2008
|
September
30, 2008
|
||||||
Compensation-related
|
$
|
5,845
|
$
|
6,640
|
||||
Warranty
|
4,112
|
4,640
|
||||||
Professional
fees
|
1,609
|
2,099
|
||||||
Royalty
|
1,557
|
1,414
|
||||||
Self
insurance
|
1,168
|
1,044
|
||||||
Deferred
revenue and customer deposits
|
2,086
|
1,422
|
||||||
Taxes
|
3,541
|
3,555
|
||||||
Inventory
obligation
|
982
|
982
|
||||||
Accrued
program loss
|
404
|
843
|
||||||
Restructuring
accrual
|
234
|
331
|
||||||
Other
|
1,121
|
320
|
||||||
Total
accrued expenses and other current liabilities
|
$
|
22,659
|
$
|
23,290
|
(in
thousands)
|
Three
Months Ended December 31,
|
|||||||
2008
|
2007
|
|||||||
Employee
severance-related expense
|
$
|
617
|
$
|
362
|
||||
Other
restructuring-related expense
|
-
|
93
|
||||||
Total
restructuring charges
|
$
|
617
|
$
|
455
|
(in
thousands)
|
Severance-related
Accrual
|
Restructuring-related
Accrual
|
Total
|
||||||||||
Balance
as of September 30, 2008
|
$
|
152
|
$
|
330
|
$
|
482
|
|||||||
Additional
accruals
|
617
|
-
|
617
|
||||||||||
Cash
payments or otherwise settled
|
(536
|
)
|
(96
|
)
|
(632
|
)
|
|||||||
Balance
as of December 31, 2008
|
$
|
233
|
$
|
234
|
$
|
467
|
(in
thousands)
|
||||
Nine-months
ended September 30, 2009
|
$
|
2,122
|
||
Fiscal
year ended September 30, 2010
|
2,609
|
|||
Fiscal
year ended September 30, 2011
|
1,865
|
|||
Fiscal
year ended September 30, 2012
|
1,027
|
|||
Fiscal
year ended September 30, 2013
|
507
|
|||
Thereafter
|
2,775
|
|||
Total
minimum lease payments
|
$
|
10,905
|
·
|
SEC
Communications. On or about August 15, 2008, the Company
received a letter from the Denver office of the Enforcement Division of
the Securities and Exchange Commission wherein it sought EMCORE's
voluntary production of documents relating to, among other things, the
Company's business relationship with Green and Gold Energy, Inc., its
licensees, and the photovoltaic backlog the Company reported to the
public. Since that time, the Company has produced documents to
the staff of the SEC and met with the staff on December 12, 2008 to
address this matter.
|
·
|
NASDAQ
Communication. On or about November 13, 2008, the Company
received a letter from the NASDAQ Listings Qualifications group (“NASDAQ”)
concerning the Company's removal of $79 million in backlog attributable to
GGE which the Company announced on August 8, 2008 and the remaining
backlog exclusive of GGE. The Company advised NASDAQ that it would
cooperate with its inquiry, and has complied with the NASDAQ request for
information. On February 11, 2009, the Company received a
letter requesting additional information, with which the Company intends
to comply.
|
Segment
Revenue
(in
thousands)
|
Three
Months Ended December
31,
|
|||||||||||||||
2008
|
2007
|
|||||||||||||||
Revenue
|
% of Revenue
|
Revenue
|
% of Revenue
|
|||||||||||||
Fiber
Optics
|
$
|
39,166
|
72
|
%
|
$
|
33,960
|
72
|
%
|
||||||||
Photovoltaics
|
14,890
|
28
|
12,927
|
28
|
||||||||||||
Total
revenue
|
$
|
54,056
|
100
|
%
|
$
|
46,887
|
100
|
%
|
Geographic
Revenue
(in
thousands)
|
Three
Months Ended December
31,
|
|||||||||||||||
2008
|
2007
|
|||||||||||||||
Revenue
|
% of Revenue
|
Revenue
|
% of Revenue
|
|||||||||||||
United
States
|
$
|
31,715
|
58
|
%
|
$
|
26,823
|
57
|
%
|
||||||||
Asia
|
19,208
|
36
|
15,323
|
33
|
||||||||||||
Europe
|
2,797
|
5
|
4,587
|
10
|
||||||||||||
Other
|
336
|
1
|
154
|
-
|
||||||||||||
Total
revenue
|
$
|
54,056
|
100
|
%
|
$
|
46,887
|
100
|
%
|
Significant
Customers
As
a percentage of total consolidated revenue
|
Three
Months Ended December
31,
|
|||||||
2008
|
2007
|
|||||||
Fiber
Optics-related customers:
|
||||||||
Jabil
Circuit
|
16
|
%
|
11
|
%
|
||||
Motorola
|
-
|
13
|
%
|
|||||
Aurora
Networks
|
-
|
11
|
%
|
|||||
Photovoltaics
– related customer:
|
||||||||
Space
Systems / Loral
|
14
|
%
|
-
|
Operating
Loss by Segment
(in
thousands)
|
Three
Months Ended December
31,
|
|||||||
2008
|
2007
|
|||||||
Fiber
Optics
|
$
|
(48,423
|
)
|
$
|
(3,525
|
)
|
||
Photovoltaics
|
(4,035
|
)
|
(3,552
|
)
|
||||
Corporate
|
(3
|
)
|
(2,103
|
)
|
||||
Operating
loss
|
$
|
(52,461
|
)
|
$
|
(9,180
|
)
|
Segment
Depreciation and Amortization
(in
thousands)
|
Three
Months Ended December
31,
|
|||||||
2008
|
2007
|
|||||||
Fiber
Optics
|
$
|
2,852
|
$
|
1,621
|
||||
Photovoltaics
|
1,441
|
786
|
||||||
Corporate
|
-
|
58
|
||||||
Total
depreciation and amortization
|
$
|
4,293
|
$
|
2,465
|
Long-lived
Assets
(in
thousands)
|
December
31, 2008
|
September
30, 2008
|
|||||
Fiber
Optics
|
$
|
71,996
|
$
|
107,684
|
|||
Photovoltaics
|
53,432
|
55,232
|
|||||
Corporate
|
764
|
622
|
|||||
Total
long-lived assets
|
$
|
126,192
|
$
|
163,538
|
·
|
Level
1 inputs are unadjusted quoted prices in active markets for identical
assets or liabilities.
|
·
|
Level
2 inputs are quoted prices for similar assets and liabilities in active
markets or inputs that are observable for the asset or liability, either
directly or indirectly through market corroboration, for substantially the
full term of the financial
instrument.
|
·
|
Level
3 inputs are unobservable inputs based on our own assumptions used to
measure assets and liabilities at fair value. A financial asset or
liability’s classification within the hierarchy is determined based on the
lowest level input that is significant to the fair value
measurement.
|
(in
thousands)
|
December
31, 2008
|
|||||||||||||||
Quoted
Prices in Active Markets for Identical Assets
[Level
1]
|
Significant
Other Observable Remaining Inputs
[Level
2]
|
Significant
Unobservable Inputs
[Level
3]
|
Total
|
|||||||||||||
Assets
|
||||||||||||||||
Money
market fund deposits
|
$
|
15,318
|
$
|
-
|
$
|
-
|
$
|
15,318
|
||||||||
Restricted
fund deposits
|
2,396
|
-
|
-
|
2,396
|
||||||||||||
Marketable
equity securities
|
612
|
-
|
-
|
612
|
||||||||||||
Asset-backed
auction rate securities
|
-
|
1,400
|
-
|
1,400
|
||||||||||||
Total
assets measured at fair value
|
$
|
18,326
|
$
|
1,400
|
$
|
-
|
$
|
19,726
|
(in
thousands)
|
December
31, 2008
|
|||||||||||||||
Quoted
Prices in Active Markets for Identical Assets
[Level
1]
|
Significant
Other Observable Remaining Inputs
[Level
2]
|
Significant
Unobservable Inputs
[Level
3]
|
Total
|
|||||||||||||
Assets
|
||||||||||||||||
Cash
and cash equivalents
|
$
|
15,318
|
$
|
-
|
$
|
-
|
$
|
15,318
|
||||||||
Restricted
cash
|
1,827
|
-
|
-
|
1,827
|
||||||||||||
Available-for-sale
securities
|
612
|
-
|
-
|
612
|
||||||||||||
Available-for-sale
securities, non current
|
-
|
1,400
|
-
|
1,400
|
||||||||||||
Long-term
restricted cash
|
569
|
-
|
-
|
569
|
||||||||||||
Total
assets measured at fair value
|
$
|
18,326
|
$
|
1,400
|
$
|
-
|
$
|
19,726
|
·
|
The
ability of EMCORE Corporation (the “Company”, “we”, “our”, or “EMCORE”) to
obtain financing or sell assets and achieve levels of revenue and cost
reductions that are adequate to support our capital and operating
requirements in order to continue as a going
concern.
|
·
|
Our
ability to remain competitive and a leader in our industry and the future
growth of the Company, and our industry, and the recovery of financial
markets, the markets for our products, and economic conditions in
general;
|
·
|
Our
ability to achieve structural and material cost reductions without
impacting product development or manufacturing
execution;
|
·
|
Our
ability to complete any strategic separation of our Fiber Optics and
Photovoltaics businesses.
|
·
|
Expected
improvements in our product and technology development
programs;
|
·
|
Our
ability to successfully develop, introduce, market and qualify new
products, including our terrestrial solar
products;
|
·
|
Our
ability to identify and acquire suitable acquisition targets and
difficulties in integrating recent or future acquisitions into our
operations; and,
|
·
|
Other
risks and uncertainties described in our filings with the Securities and
Exchange Commission (“SEC”), including our Annual Report on Form 10-K for
the fiscal year ended September 30, 2008, such as: cancellations,
rescheduling, or delays in product shipments; manufacturing capacity
constraints; lengthy sales and qualification cycles; difficulties in the
production process; changes in semiconductor industry growth; increased
competition; delays in developing and commercializing new products; and
other factors.
|
·
|
In
July 2008, we announced our solar cell technology which provides a
platform for our next generation photovoltaic products for space and
terrestrial solar power applications. Solar cells built using
Inverted Metamorphic (“IMM”) technology recently achieved world record
conversion efficiency of 33% when used in space, and it is anticipated
that efficiency levels in the 42%-45% range will be achieved when adapted
for use under the 500-1500X concentrated illumination, typical in
terrestrial CPV power systems. Once commercialized, the CPV systems that
are powered with our IMM-based solar cells will realize an approximately
10% to 20% reduction in the cost of power generated. We expect to begin
commercializing this technology for both space and terrestrial
applications in late 2009. Due to its unique design, the IMM cell is
approximately one fifteenth the thickness of the conventional
multi-junction solar cell and will enable a new class of extremely
lightweight, high-efficiency, and flexible solar arrays for space
applications. Furthermore, this technology can be readily integrated into
our complete line of CPV receiver products and provide increased energy
conversion efficiency in CPV power
systems.
|
·
|
In
June 2008, we announced that our optical fiber EMCORE Connects Cables
(ECC) are being used by IBM on the Department of Energy’s supercomputer
nicknamed Roadrunner, the first supercomputer to break the 1,000 trillion
calculations per second mark known as a Petaflop. EMCORE
Connects Cables are high-performance InfiniBand® interconnects that
operate at high-speed 20G data rates with an extremely low bit error rate
of 10-15.
|
·
|
On
April 20, 2008, the Company acquired the enterprise and storage-related
assets of Intel Corporation’s OPD business, as well as Intel’s Connects
Cables business. The assets acquired include inventory, fixed
assets, intellectual property, and technology relating to optical
transceivers for enterprise and storage customers, as well as optical
cable interconnects for high-performance computing
clusters.
|
·
|
On
February 22, 2008, the Company acquired the telecom-related assets of
Intel Corporation’s Optical Platform Division (“OPD”) that included
inventory, fixed assets, intellectual property, and technology comprised
of tunable lasers, tunable transponders, 300-pin transponders, and
integrated tunable laser
assemblies.
|
·
|
Telecom
Optical Products – We believe we are a leading supplier of 10
gigabit per second (Gb/s) fully C-band and L-band tunable dense wavelength
division multiplexed (DWDM) transponders for telecommunications transport
systems. We are one of the few suppliers who offer vertically-integrated
products, including external-cavity laser modules, integrated tunable
laser assemblies (ITLAs) and 300-pin transponders. Our internally
developed laser technology is highly suited for applications of 10, 40,
and 100 Gb/s due to the superior narrow linewidth and low noise
characteristics. All DWDM products are fully Telcordia® qualified and
comply with industry multi-source agreements (MSAs). New technologies are
under development which will leverage our laser expertise to deliver
miniaturized cost effective solutions to enable our customers to continue
to meet the cost and density requirements of the next generation
products. We supply to most major telecom equipment companies
worldwide.
|
·
|
Enterprise
Datacom Products –
We believe we provide leading-edge optical components and
transceiver modules for data applications that enable switch-to-switch,
router-to-router and server-to-server backbone connections at aggregate
speeds of 10 Gb/s and above. We offer the broadest range of products with
XENPAK form factor which comply with 10 Gb/s Ethernet (10-GE) IEEE802.3ae
standard. Our 10-GE products include short-reach (SR), long-reach (LR),
extended-reach (ER), coarse WDM LX4 optical transceivers to connect
between the photonic physical layer and the electrical section layer and
CX4 transceivers. In addition to the 10-GE products, we offer
traditional MSA Gigabit Ethernet (GE) 1310-nm small form factor (SFF) and
small form factor pluggable (SFP) optical transceivers. These
transceivers also provide integrated duplex data links for bi-directional
communication over single mode optical fiber providing high-speed Gigabit
Ethernet data links operating at
1.25Gbps.
|
·
|
Laser/photodetector
Component Products - We believe we are a leading provider of
optical components including lasers, photodetectors and various forms of
packaged subassemblies. Products include chip, TO, and TOSA forms of
high-speed 850nm vertical cavity VCSELs, distributed feedback Bragg (DFB)
lasers, positive-intrinsic-negative (pin) and avalanche photodiode (APD)
components for 2G, 8G and 10G Fibre Channel, Ethernet and 10 GE, FTTP, and
Telecom applications. While we provide the component products
to the entire industry, we also enjoy the benefits of
vertically-integrated infrastructure through a low-cost and early
availability of new product
introduction.
|
·
|
Parallel
Optical Transceiver and Cable Products – We have been the
technology and product leader of optical transmitter and receiver products
utilizing arrays of optical emitting or detection devices, e.g.,
vertical-cavity surface-emitting lasers (VCSELs) and photodetectors (PDs).
These optical transmitter, receiver, and transceiver products are used for
back-plane interconnects, switching/routing between telecom racks and
high-performance computing clusters. Our products include 12-lane SNAP-12
MSA transmitter and receivers with single, double, and quadruple data
rates and 4-lane optical media converters with single and double data
rates. Based on the core competency of 4-lane parallel optical
transceivers, we offer optical fiber ribbon cables with embedded
parallel-optical transceivers within the connectors, EMCORE Connects
Cables (ECC). These products, with aggregated bandwidth between 10-40
Gb/s, are ideally suited for high-performance computing clusters. Our
products provide our customers with increased network capacity; increased
data transmission distance and speeds; increased bandwidth; lower power
consumption; improved cable management over copper interconnects; and
lower cost optical interconnections for massively parallel
multi-processors.
|
·
|
Fiber
Channel Transceiver Products – We offer tri-rate SFF and SFP
optical transceivers for storage area networks. The MSA transceiver module
is designed for high-speed Fibre Channel data links supporting up to 4.25
Gb/s (4X Fibre Channel rate). The products provide integrated duplex data
links for bi-directional communication over Multimode optical
fiber.
|
|
·
|
Cable
Television (CATV) Products - We are a market leader in providing
radio frequency (RF) over fiber products for the CATV
industry. Our products are used in hybrid fiber coaxial (HFC)
networks that enable cable service operators to offer multiple advanced
services to meet the expanding demand for high-speed Internet, on-demand
and interactive video and other advanced services, such as high-definition
television (HDTV) and voice over IP (VoIP). Our CATV products
include forward and return-path analog and digital lasers, photodetectors
and subassembly components, broadcast analog and digital fiber-optic
transmitters and quadrature amplitude modulation (QAM) transmitters and
receivers. Our products provide our customers with increased
capacity to offer more cable services; increased data transmission
distance, speed and bandwidth; lower noise video receive; and lower power
consumption.
|
·
|
Fiber-To-The-Premises
(FTTP) Products - Telecommunications companies are increasingly
extending their optical infrastructure to their customers’ location in
order to deliver higher bandwidth services. We have developed customer
qualified FTTP components and subsystem products to support plans by
telephone companies to offer voice, video and data services through the
deployment of new fiber optics-based access networks. Our FTTP
products include passive optical network (PON) transceivers, analog fiber
optic transmitters for video overlay and high-power erbium-doped fiber
amplifiers (EDFA), analog and digital lasers, photodetectors and
subassembly components, analog video receivers and multi-dwelling unit
(MDU) video receivers. Our products provide our customers with
higher performance for analog and digital characteristics; integrated
infrastructure to support competitive costs; and additional support for
multiple standards.
|
·
|
Satellite
Communications (Satcom) Products - We believe we are a leading
provider of optical components and systems for use in equipment that
provides high-performance optical data links for the terrestrial portion
of satellite communications networks. Our products include transmitters,
receivers, subsystems and systems that transport wideband radio frequency
and microwave signals between satellite hub equipment and antenna
dishes. Our products provide our customers with increased
bandwidth and lower power
consumption.
|
·
|
Video
Transport - Our video transport product line offers solutions for
broadcasting, transportation, IP television (IPTV), mobile video and
security & surveillance applications over private and public networks.
Our video, audio, data and RF transmission systems serve both analog and
digital requirements, providing cost-effective, flexible solutions geared
for network reconstruction and
expansion.
|
·
|
Defense
and Homeland Security - Leveraging our expertise in RF module
design and high-speed parallel optics, we provide a suite of ruggedized
products that meet the reliability and durability requirements of the U.S.
government and defense markets. Our specialty defense products
include fiber optic gyro components used in precision guided munitions,
ruggedized parallel optic transmitters and receivers, high-frequency RF
fiber optic link components for towed decoy systems, optical delay lines
for radar systems, EDFAs, terahertz spectroscopy systems and other
products. Our products provide our customers with high
frequency and dynamic range; compact form-factor; and extreme temperature,
shock and vibration
tolerance.
|
·
|
Satellite
Solar Power Generation - We believe we are a leader in providing
solar power generation solutions to the global communications satellite
industry and U.S. government space programs. A satellite’s
operational success and corresponding revenue depend on its available
power and its capacity to transmit data. We provide advanced compound
semiconductor-based solar cells and solar panel products, which are more
resistant to radiation levels in space and generate substantially more
power from sunlight than silicon-based solutions. Space power
systems using our multi-junction solar cells weigh less per unit of power
than traditional silicon-based solar cells. Our products provide our
customers with higher conversion efficiency for reduced solar array size
and launch costs, higher radiation tolerance, and longer lifetime in harsh
space environments.
|
·
|
Terrestrial
Solar Power Generation - Solar power generation systems utilize
photovoltaic cells to convert sunlight to electricity and have been used
in space programs and, to a lesser extent, in terrestrial applications for
several decades. The market for terrestrial solar power
generation solutions has grown significantly as solar power generation
technologies improve in efficiency, as global prices for non-renewable
energy sources (i.e., fossil fuels)
continue to rise over the long term, and as concern has increased
regarding the effect of carbon emissions on global warming. Terrestrial
solar power generation has emerged as one of the most rapidly expanding
renewable energy sources due to certain advantages solar power has when
compared to other energy sources, including reduced environmental impact,
elimination of fuel price risk, installation flexibility, scalability,
distributed power generation (i.e., electric power is
generated at the point of use rather than transmitted from a central
station to the user), and reliability. The rapid increase in demand for
solar power has created a growing need for highly efficient, reliable and
cost-effective concentrating solar power
systems.
|
·
|
During
the three months ended September 30, 2008, the Company recorded $9.7
million in inventory write-downs, of which $5.2 million related to the
Fiber Optics segment and $4.5 million related to the Photovoltaics
segment.
|
·
|
During
the three months ended December 31, 2008, the Company recorded $5.6
million in inventory write-downs, of which $4.8 million related to the
Fiber Optics segment and $0.8 million related to the Photovoltaics
segment.
|
·
|
As
of December 31, 2007, we tested for impairment of our goodwill and based
on that analysis, we determined that the carrying amount of the reporting
units did not exceed their fair value, and therefore, no impairment was
recognized.
|
·
|
Due
to the significant reduction in the Company’s market capitalization during
the three months ended March 31, 2008 and June 30, 2008, we tested for
impairment of our goodwill and based on that analysis, we determined that
the carrying amount of the reporting units did not exceed their fair
value, and therefore, no impairment was
recognized.
|
·
|
As
disclosed in the Company’s Annual Report on Form 10-K as of September 30,
2008, the Company evaluated its goodwill for impairment and recorded a
$22.0 million non-cash goodwill impairment charge based on the testing
method described above.
|
·
|
During
the three months ended December 31, 2008, management noted further
significant deterioration of the Company’s market capitalization, coupled
with significant adverse changes in the business climate primarily related
to product pricing and profit margins, and an increase in the discount
rate as of December 31, 2008. The Company performed its annual
goodwill impairment test at December 31, 2008, which resulted in full
impairment of goodwill associated with the Company’s Fiber Optics segment,
which amounted to a non-cash impairment charge of $31.8 million based on
the testing method described above. As of December 31, 2008,
the Company’s balance sheet no longer reflects any goodwill associated
with its Fiber Optics segment. The Company continues to report
goodwill related to its Photovoltaics reporting unit. The
Company’s annual impairment test at December 31, 2008, indicated that
there was no impairment of goodwill for the Photovoltaics
segment.
|
·
|
If
there is further erosion of the Company’s market capitalization or the
Company is unable to achieve its projected cash flows, management may be
required to perform additional impairment tests of the remaining
goodwill. The outcome of these additional tests may result in
the Company recording additional goodwill impairment
charges.
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As
of December 31, 2007, we tested for impairment of our long-lived assets
and other intangible assets and based on that analysis, we determined that
no impairment existed.
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As
of December 31, 2008, we tested for impairment of our long-lived assets
and other intangible assets and based on that analysis, we determined that
impairment existed. The Company recorded a non-cash impairment
charge totaling $1.9 million related to certain intangible assets acquired
from the February 2008 acquisition of telecom-related assets of Intel
Corporation’s Optical Platform
Division.
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During
the three months ended September 30, 2008, the Company recorded $2.4
million in product warranty reserves in its Photovoltaics segment, which
was primarily related to new CPV-related product
launches.
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Distributors - The
Company uses a number of distributors around the world. In accordance with
Staff Accounting Bulletin No. 104, Revenue Recognition,
the Company recognizes revenue upon shipment of product to these
distributors. Title and risk of loss pass to the distributors upon
shipment, and our distributors are contractually obligated to pay the
Company on standard commercial terms, just like our other direct
customers. The Company does not sell to its distributors on
consignment and, except in the event of product discontinuance, does not
give distributors a right of
return.
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Solar Panel and Solar Power
Systems Contracts - The Company records revenues from certain solar
panel and solar power systems contracts using the
percentage-of-completion method in accordance with AICPA Statement of
Position 81-1 ("SOP 81-1"), Accounting for Performance of
Construction-Type and Certain Production-Type Contracts. 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. As of December 31, 2008,
the Company had accrued $0.4 million related to estimated contract losses
on certain CPV system-related orders. The Company has numerous contracts
that are in various stages of completion. Such contracts require estimates
to determine the appropriate cost and revenue recognition. The Company
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. Due to the fact that the Company accounts for
these contracts under the percentage-of-completion method, unbilled
accounts receivable represent revenue recognized but not yet billed
pursuant to contract terms or accounts billed after the period
end.
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Government R&D
Contracts - R&D contract revenue represents reimbursement by
various U.S. government entities, or their contractors, to aid in the
development of new technology. The applicable contracts generally provide
that the Company may elect to retain ownership of inventions made in
performing the work, subject to a non-exclusive license retained by the
U.S. government to practice the inventions for governmental purposes. The
R&D contract funding may be based on a cost-plus, cost reimbursement,
or a firm fixed price arrangement. The amount of funding under each
R&D contract is determined based on cost estimates that include both
direct and indirect costs. Cost-plus funding is determined based on actual
costs plus a set margin. As we incur costs under cost reimbursement type
contracts, we record revenue. Contract costs include material, labor,
special tooling and test equipment, subcontracting costs, as well as an
allocation of indirect costs. An R&D contract is considered complete
when all significant costs have been incurred, milestones have been
reached, and any reporting obligations to the customer have been
met. Government contract revenue is primarily recognized as
service revenue.
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