10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on February 14, 2003
UNITED STATES
SECURITIES and EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2002
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---- -----
Commission File Number: 0-22175
EMCORE Corporation
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2746503
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
145 Belmont Drive, Somerset, NJ 08873
(Address of principal executive offices) (Zip code)
(732) 271-9090
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The number of shares outstanding of the registrant's no par value common stock
at February 7, 2003 was 36,944,615.
ITEM 1. Financial Statements
EMCORE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended December 31, 2002 and 2001
(in thousands, except loss per share)
(unaudited)
The accompanying notes are an integral part of these consolidated financial
statements.
The accompanying notes are an integral part of these consolidated financial
statements.
EMCORE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31, 2002 and 2001
(in thousands)
(unaudited)
The accompanying notes are an integral part of these consolidated financial
statements.
The accompanying notes are an integral part of these consolidated financial
statements.
EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. Interim Financial Information
The accompanying unaudited consolidated financial statements of EMCORE
Corporation (EMCORE) reflect all adjustments considered necessary by management
to present fairly EMCORE's consolidated financial position as of December 31,
2002, the consolidated results of operations for the three-month periods ended
December 31, 2002 and 2001 and the consolidated cash flows for the three-month
periods ended December 31, 2002 and 2001. All adjustments reflected in the
accompanying financial statements are of a normal recurring nature unless
otherwise noted. Certain prior period amounts have been reclassified to conform
with the current period financial statement presentation. The results of
operations for the three-month period ended December 31, 2002 are not
necessarily indicative of the results for the fiscal year ending September 30,
2003 or any future interim period.
NOTE 2. Segment Data and Related Information
EMCORE has two reportable operating segments: the systems-related business and
the materials-related business. The systems-related business is our TurboDisc(R)
MOCVD product line, which designs, develops and manufactures systems and
manufacturing processes. Revenues for the systems-related business are derived
primarily from sales of TurboDisc systems, as well as spare parts, services and
related products. The materials-related business is comprised of our satellite
communications, fiber-optic and wireless product lines. Revenues for the
materials-related business are derived primarily from the sales of solar cell
products including cells, covered interconnect solar cells (CICs) and panels,
vertical cavity surface emitting lasers (VCSELs) and VCSEL-based transceiver and
transponder modules, RF materials including heterojunction bipolar transistors
(HBTs) and enhancement-mode pseudomorphic high electron mobility transistors
(pHEMTS), MR sensors and process development technology. The segments reported
are the segments of EMCORE for which separate financial information is available
and are evaluated regularly by executive management in deciding how to allocate
resources and in assessing performance.
Unaudited information about reported segments is as follows:
The gain from debt extinguishment was not allocated between the two
operating segments.
EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The reportable operating segments are each managed separately because they
manufacture and distribute distinct products and services. The table below
outlines EMCORE's four different product lines:
EMCORE has generated a significant portion of its sales to customers outside the
United States. EMCORE anticipates that international sales will continue to
account for a significant portion of revenues. Historically, EMCORE has received
substantially all payments for products and services in U.S. dollars, and
therefore, EMCORE does not anticipate that fluctuations in any currency will
have a material effect on its financial condition or results of operations.
The following chart contains a breakdown of EMCORE's consolidated revenues by
geographic region:
- --------------------------------------------------------------------------------
(in thousands)
Quarter 1 Quarter 1
Revenue by Geographic Region FY 2003 % of FY 2002 % of
Three months ended revenue revenue
December 31, 2002 & 2001
- --------------------------------------------------------------------------------
North America..................... $10,594 45.6% $12,988 67.8%
Asia.............................. 7,179 30.9% 2,731 14.3%
Europe............................ 5,473 23.5% 3,418 17.9%
---------- ---------- ----------- ----------
Total revenues.............. $23,246 100.0% $19,137 100.0%
- --------------------------------------------------------------------------------
NOTE 3. Acquisition
In December 2002, EMCORE acquired certain assets of privately-held Alvesta
Corporation of Sunnyvale, California. Alvesta Corporation is an industry leader
in the research and development of parallel optic transceivers for fiber optic
communication networks. Alvesta pioneered four channel parallel optic
transceivers for the Optical Internetworking Forum, 10G Fibre Channel, 10
Gigabit Ethernet and Infiniband applications. Alvesta's product revenues from
sales of its four-channel products were approximately $5 million in 2001. The
total cash purchase price, including acquisition costs, was approximately
$250,000. The transaction included the acquisition of intellectual property and
inventory. In addition, EMCORE hired six employees of Alvesta's key design team.
NOTE 4. Joint Venture
In January 1999, General Electric Lighting and EMCORE formed GELcore, a joint
venture to develop and market HB-LED lighting products. General Electric
Lighting and EMCORE have agreed that this joint venture will be the exclusive
vehicle for each party's participation in solid state lighting. Under the terms
of the joint venture agreement, EMCORE has a 49% non-controlling interest in the
GELcore venture and accounts for its investment under the equity method of
accounting. In November 2002, EMCORE contributed approximately $2.0 million to
the joint venture. For the three-month periods ended December 31, 2002 and 2001,
EMCORE recognized a loss of $0.6 million and $0.4 million, respectively, related
to the joint venture, which was recorded as a component of other income and
expense. At December 31, 2002, EMCORE's net investment in this joint venture
amounted to approximately $9.9 million.
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EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. Balance Sheet Data
8
EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
o Goodwill
All goodwill relates to EMCORE's materials-related business. In March
2002, EMCORE acquired certain assets, including equipment and
intellectual property, of the Applied Solar Division of Tecstar, Inc.
and its subsidiary, Tecstar Power Systems, Inc. (this acquired
business is referred to herein as "Tecstar") and allocated
approximately $20.4 million to goodwill. EMCORE adopted SFAS No. 142
on October 1, 2001 and will complete its annual transition test for
impairment during the quarter ending March 31, 2003.
o Intangible Assets, net
The components of net intangible assets consisted of the following:
NOTE 6. Debt Facilities
Convertible Subordinated Notes - In May 2002, the Board of Directors authorized
EMCORE from time to time to repurchase a portion of the notes in one or more
open market transactions, in accordance with certain guidelines. In December
2002, EMCORE purchased, in multiple transactions, $13.3 million principal amount
of the notes at prevailing market prices, for an aggregate of approximately $6.3
million. As a result of the transaction, EMCORE recorded a gain from operations
of approximately $6.6 million after netting unamortized debt issuance costs of
approximately $0.3 million. Annual interest expense in future periods also has
been decreased by approximately $650,000. EMCORE may continue to repurchase
notes through various means, including but not limited to one or more open
market or privately negotiated transactions in future periods. The timing and
amount of repurchase, if any, whether de minimis or material, will depend on
many factors, including but not limited to, the availability of capital, the
prevailing market price of the convertible notes and overall market conditions.
9
EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. Commitments and Contingencies
EMCORE leases certain facilities and equipment under non-cancelable operating
leases. Facility and equipment rent expense under such leases amounted to
approximately $0.3 million and $0.2 million for the three months ended December
31, 2002 and 2001, respectively. Future minimum rental payments under EMCORE's
non-cancelable operating leases with an initial or remaining term of one year or
more as of December 31, 2002 are as follows:
(in thousands)
Period ending: Operating
------------
December 31, 2003 $1,344
December 31, 2004 982
December 31, 2005 656
December 31, 2006 418
December 31, 2007 166
------------
Total minimum lease payments $3,566
============
In fiscal 2000, GELcore entered into a Revolving Loan Agreement (the "GELcore
Credit Facility") with General Electric Canada, Inc., an affiliate of GE, which
is the owner of a 51% controlling share of GELcore. The GELcore Credit Facility
provides for borrowings of up to Can$7.5 million (US $4.8 million at December
31, 2002) at a rate of interest based on prevailing Canadian interest rates.
Amounts outstanding under the GELcore Credit Facility are payable on demand, and
the GELcore Credit Facility expires in August 2003. EMCORE has guaranteed 49%
(i.e. its proportionate share) of GELcore's obligations under the GELcore Credit
Facility. As of December 31, 2002, US $2.1 million was outstanding under the
GELcore Credit Facility.
10
EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. Recent Financial Accounting Pronouncements
In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
Compensation --Transition and Disclosure, an amendment of FASB Statement No.
123. SFAS 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. EMCORE implemented SFAS No. 148 on January 1,
2003.
NOTE 9. Subsequent Event
In January 2003, EMCORE acquired the West Coast optoelectronics division of
Agere Systems, Inc (formerly Ortel Corporation) for $25 million in cash. The
transaction included assets, products, technology and intellectual property
related to Agere's cable TV optical components, telecom access and satellite
communications operations, which had revenues of approximately $56 million in
fiscal 2002. The purchase price allocation should be completed by March 31,
2003. In the quarter ended March 31, 2003, operations from this acquisition will
be consolidated into EMCORE's quarterly financial results.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. These forward-looking statements are based largely on our current
expectations and projections about future events and financial trends affecting
the financial condition of our business. Words such as "expects", "anticipates",
"intends", "plans", believes" and "estimates" and variations of these words and
similar expressions, identify these forward-looking statements. These
forward-looking statements include, without limitation:
o any statements or implications regarding EMCORE's ability to remain
competitive and a leader in its industry and the future growth of EMCORE,
the industry and the economy in general;
o statements regarding the expected level and timing of benefits to EMCORE
from its restructuring and realignment efforts, including
o expected cost reductions and their impact on EMCORE's financial
performance,
o expected improvement to EMCORE's product and technology development
programs, and
o the belief that the restructuring and realignment efforts will
position EMCORE well in the current business environment and prepare
it for future growth with increasingly competitive new product
offerings and long-term cost structure;
o statements regarding the anticipated cost of the restructuring and
realignment efforts;
o statements regarding the anticipated charges to be recorded by EMCORE to
reduce the carrying value of excess and obsolete inventory and doubtful
accounts;
o difficulties in integrating recent or future acquisitions into EMCORE's
operations;
o statements regarding EMCORE's ability to obtain or maintain ISO
qualifications; and
o any and all guidance provided by EMCORE regarding its expected financial
performance in current or future periods, including, without limitation,
with respect to anticipated revenues for any period in fiscal 2003 and
subsequent periods.
These forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially from those projected, including
without limitation, the following:
o EMCORE's restructuring and realignment efforts may not be successful in
achieving their expected benefits, may be insufficient to align EMCORE's
operations with customer demand and the changes affecting our industry, or
may be more costly than currently anticipated;
o due to the current economic slowdown, in general, and setbacks in our
customers' businesses, in particular, our ability to predict EMCORE's
financial performance for future periods is far more difficult than in the
past; and
o other risks and uncertainties described in EMCORE's filings with the
Securities and Exchange Commission (including under the heading "Risk
Factors" in our most recent Annual Report on Form 10-K), such as:
o cancellations, rescheduling or delays in product shipments;
o manufacturing capacity constraints;
o lengthy sales and qualification cycles; difficulties in the production
process;
o changes in semiconductor industry growth; and
o increased competition; delays in developing and commercializing new
products.
We assume no obligation to update the matters discussed in this Quarterly
Report.
12
EMCORE Corporation designs, develops and manufactures compound
semiconductor wafers and devices and is a leading developer and manufacturer of
the MOCVD systems and manufacturing processes used to fabricate compound
semiconductor wafers, devices and modules. Compound semiconductors are composed
of two or more elements and usually consist of a metal, such as gallium,
aluminum or indium, and another element such as arsenic, phosphorus or nitrogen.
Many compound semiconductors have unique physical properties that enable
electrons to move through them at least four times faster than through
silicon-based devices and are therefore well suited to serve the growing need
for efficient, high performance electronic systems.
EMCORE is currently the only fully integrated commercial supplier of
compound semiconductor equipment and products. We offer a comprehensive
portfolio of products and systems for the broadband, wireless communications and
solid state lighting markets. We have developed extensive fiber optic module
design, solar panel design, materials science expertise, process technology and
MOCVD production system manufacturing expertise to address our customers' needs.
Customers can take advantage of our vertically integrated solutions approach by
purchasing custom-designed wafers and devices from us, or by manufacturing their
own devices in-house using one of our MOCVD production systems configured to
their specific needs. Our products and systems enable our customers to cost
effectively introduce new and improved high performance products to the market
faster in high volumes.
Growth in our industry had been driven by the widespread deployment of
fiber optic networks, introduction of new wireless networks and services,
build-out of satellite communication systems, increasing use of more power
efficient lighting sources, increasing use of electronics in automobiles and
emergence of advanced consumer electronic applications. We believe our expertise
in materials science and process technology provides us with a competitive
advantage to manufacture compound semiconductor wafers, devices and modules in
high volumes.
Systems-Related
EMCORE is a leading provider of compound semiconductor technology processes
and MOCVD production systems. We believe that our proprietary TurboDisc
deposition technology makes possible one of the most cost-effective production
processes for the commercial volume manufacture of high-performance compound
semiconductor wafers and devices, which are integral to solid state lighting and
global communications applications. Although overall demand for MOVCD systems
appears to have declined significantly, we believe our overall market share has
recently increased as a result of aggressive market penetration of new and
higher-end products. Continuing EMCORE's standing as the world leader in GaN
production platforms, EMCORE introduced the E300 GaNzilla(TM), the most powerful
tool available for the production of high brightness blue and green LEDs. It
offers the highest throughput in the industry for the growth of GaN materials.
In addition, EMCORE recently introduced its Enterprise(R) 300LDM MOCVD
production tool designed to achieve high quality materials and high yields for
consumer electronic applications. This new tool produces devices for several
applications including DVD and CD-ROMs, which allows for high capacity data
storage. Engineered specifically for the high volume production of long
wavelength infrared and visible lasers, VCSELs and InP-based electronic
materials, EMCORE's 300LDM provides customers with run-to-run process control
and is designed to accomplish excellent uniformity of thickness, doping and
composition of epitaxial layers.
Materials-Related
EMCORE offers a broad array of compound semiconductor wafers and devices,
including photovoltaic products, optical devices and components and electronic
materials and devices.
Photovoltaics. EMCORE's compound semiconductor solar cells are used
primarily in satellite applications and have achieved industry-leading
efficiencies. Solar cells provide the electrical power for a satellite and
their efficiency dictates the amount of power and bears upon the weight,
launch costs and potential revenues of the satellite. In March 2002, EMCORE
acquired certain assets, including equipment and intellectual property, of
the Applied Solar Division of Tecstar, Inc. and its subsidiary, Tecstar
Power Systems, Inc. (this acquired business is referred to herein as
"Tecstar"). With the Tecstar
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acquisition, EMCORE has fully integrated the production of solar panels
using EMCORE's solar cells. The Tecstar acquisition has augmented EMCORE's
capability to penetrate the satellite communications sector and enables
EMCORE to provide satellite manufacturers with proven integrated satellite
power solutions that considerably improve satellite economics. Satellite
manufacturers and solar array integrators can now rely on EMCORE as a
single supply source that meets all of their satellite power needs. EMCORE
is currently completing the process of qualifying its advanced solar cells
with Tecstar's proven solar panel processes for LEO and GEO orbits. The
combination of Tecstar's demonstrated success with well-known space
programs and EMCORE's industry-leading solar cell technology should enable
EMCORE to dramatically improve satellite economics. With well-established
partnerships with major satellite manufacturers and a proven qualification
process, EMCORE believes it will play an important role in the evolution of
telecommunications and data communications around the world. However, the
photovoltaic industry continues to be affected by weakness in satellite
infrastructure spending, which has created delays in program deployment. As
required, EMCORE adopted SFAS No. 142 on October 1, 2001 and will complete
its annual transition test for impairment on this product line during the
quarter ending March 31, 2003.
Optical Devices and Components. The proliferation of the Internet and the
growth in volume of data being sent over local and wide area networks has
placed a strain on the networking infrastructure. The demand for increased
bandwidth has resulted in a need for both faster and more expansive
networks. EMCORE's family of VCSELs and VCSEL array transceiver and
transponder products, as well as our photodiode array components, serve the
high-speed data communications network and telecommunications markets,
including the Gigabit Ethernet, Fibre Channel, VSR OC-192, the emerging VSR
OC-768 and related markets. EMCORE's strategy is to manufacture the
otherwise high cost optical components and subassemblies in-house, using
our proprietary technologies, to reduce the overall cost of our transceiver
and transponder modules. EMCORE plans to capitalize on its oxide VCSEL
manufacturing platform and expertise, by providing the industry with 1
Gbps, 2.5 Gbps, 10 Gbps (OC-192), and 40 Gbps (OC-768) solutions through
single-channel serial, multi-channel parallel or wavelength-divisional
multiplexing approaches. Leading electronic systems manufacturers are
integrating VCSELs into a broad array of end-market applications including
Internet access, digital cross-connect telecommunications switches,
Infiniband optical bus, and fiber optic switching and routing, such as
Gigabit Ethernet and SAN. EMCORE's optical devices and components are
designed to help solve the data bottle necking problems for distances under
300 meters in central office and point-of-presence environments and provide
a cost effective alternative to more costly comparable serial
interconnects.
Electronic Materials and Devices. RF materials are compound semiconductor
materials used in wireless communications. Compound semiconductor RF
materials have a broader bandwidth and superior performance at higher
frequencies than silicon-based materials. EMCORE currently produces 4-inch
and 6-inch InGaP HBT materials including E-mode devices that are used for
power amplifiers for next generation wireless infrastructure such as GSM,
TDMA and CDMA multiband wireless handsets. InGaP HBT materials provide
higher linearity, higher power added efficiency as well as greater
reliability than first generation AlGaAs HBT technologies. EMCORE also
manufactures MR sensors that are compound semiconductor devices that
possess sensing capabilities. MR sensors improve vehicle performance
through more accurate control of engine and crank shaft timing, which
allows for improved spark plug efficiency and reduced emissions. In January
1997, EMCORE initiated shipments of compound semiconductor MR sensors using
technology licensed to EMCORE from General Motors. This license allows
EMCORE to manufacture and sell products using this technology.
HB-LED Joint Venture
In January 1999, General Electric Lighting and EMCORE formed GELcore
(GELcore), a joint venture to develop and market HB-LED lighting products.
HB-LEDs are solid state compound semiconductor devices that emit light and are
used in miniature packages for everyday applications such as indicator lights on
automobiles, traffic lights, computers and other electronic equipment. General
Electric Lighting and EMCORE have agreed that this joint venture will be the
exclusive vehicle for each party's participation in solid state lighting. Under
the terms of the joint venture agreement, EMCORE has a 49% non-controlling
interest in the GELcore venture and accounts for its investment under the equity
method of accounting.
14
Acquisitions
In December 2002, EMCORE acquired certain assets of privately-held Alvesta
Corporation of Sunnyvale, California. Alvesta Corporation is an industry leader
in research and development relating to parallel optic transceivers for fiber
optic communication networks. Alvesta pioneered four channel parallel optic
transceivers for the Optical Internetworking Forum, 10G Fibre Channel, 10
Gigabit Ethernet and Infiniband applications. Alvesta's product revenues from
sales of its four-channel products were approximately $5 million in the year
ended December 31, 2001. The total cash purchase price, including acquisition
costs, was approximately $250,000. The transaction included the acquisition of
intellectual property and inventory. In addition, EMCORE hired six employees of
Alvesta's key design team.
In January 2003, EMCORE acquired the West Coast optoelectronics division of
Agere Systems, Inc Inc (formerly Ortel Corporation) for $25 million in cash. The
transaction included assets, products, technology and intellectual property
related to Agere's cable TV optical components, telecom access and satellite
communications operations, which had revenues of approximately $56 million in
the year ended September 30, 2002.
Segment Data and Related Information
EMCORE has two reportable operating segments: the systems-related business
and the materials-related business. The systems-related business is our
TurboDisc(R) MOCVD product line, which designs, develops and manufactures
systems and manufacturing processes. Revenues for the systems-related business
are derived primarily from sales of TurboDisc systems, as well as spare parts,
services and related products. The materials-related business is comprised of
our satellite communications, fiber-optic and wireless product lines. Revenues
for the materials-related business are derived primarily from the sales of solar
cell products including cells, covered interconnect solar cells (CICs) and
panels, vertical cavity surface emitting lasers (VCSELs) and VCSEL-based
transceiver and transponder modules, RF materials including heterojunction
bipolar transistors (HBTs) and enhancement-mode pseudomorphic high electron
mobility transistors (pHEMTS), MR sensors and process development technology.
The segments reported are the segments of EMCORE for which separate financial
information is available and are evaluated regularly by executive management in
deciding how to allocate resources and in assessing performance.
15
Unaudited information about reported segments is as follows:
The gain from debt extinguishment was not allocated between the two
operating segments.
The reportable operating segments are each managed separately because they
manufacture and distribute distinct products and services. The table below
outlines EMCORE's four different product lines:
Management is committed to reducing EMCORE's cost structure by focusing on
lowering the breakeven points for each of its product lines. During fiscal 2002,
EMCORE proceeded with a restructuring program, consisting of the realignment of
all engineering, manufacturing and sales/marketing operations, as well as
workforce reductions. Included in the provision for restructuring and impairment
charges recorded in fiscal 2002 were severance and fringe benefit charges
related to employee termination costs for 330 employees. We expect this program
to lower our expenditures by approximately $4.9 million per quarter in fiscal
2003. EMCORE also essentially eliminated all outside contractor and temporary
employees and significantly reduced overall expenditures for materials, software
and capital assets. As part of the ongoing effort to cut costs, EMCORE
implemented a program to focus research and development efforts on projects that
can be expected to generate returns within one year. As a result, EMCORE has
been able to reduce overall research and development costs without, we believe,
jeopardizing future revenue opportunities. In addition, we expect lower R&D
costs to be incurred on our fiber-optic product line as new components continue
to be released for commercial use. These combined actions should result in a
cost reduction of approximately $6.0 million to $8.0 million per quarter in
fiscal 2003, which we believe should enable us to achieve our goal of having
positive cash flow from operations by the end of fiscal 2003, assuming revenues
in fiscal 2003 are consistent with revenues in fiscal 2002.
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Customers
Since its inception, EMCORE has worked closely with its customers to design
and develop process technology and material science expertise for use in
production systems for its customers' end-use applications. EMCORE has leveraged
its process and materials science knowledge base to manufacture a broad range of
compound semiconductor wafers and devices such as VCSELs, photodetectors, RF and
electronic materials, solar cells, HB-LEDs and MR sensors. EMCORE's customer
base includes many of the largest semiconductor, telecommunications, consumer
goods and computer manufacturing companies in the world. Some of our customers
include Agere Systems, Inc., Agilent Technologies Ltd., Anadigics Inc.,
Boeing-Spectrolab, Corning, Inc., General Motors Corp., Hewlett Packard Co.,
Honeywell International, Inc., Infineon Technologies AG, Loral Space &
Communications Ltd., LumiLeds Lighting (a joint venture between Philips Lighting
and Agilent Technologies), Motorola, Inc., Nortel Networks Corp., Siemens AG's
Osram GmbH subsidiary, TriQuint Semiconductor, Inc., Tyco, Inc., many of the
largest electronics manufacturers in Japan and a number of Taiwanese, Chinese
and Korean companies. EMCORE also sells to a number of other customers whose
names cannot be identified because of confidentiality obligations.
EMCORE has generated a significant portion of its sales to customers
outside the United States. EMCORE anticipates that international sales will
continue to account for a significant portion of revenues. Historically, EMCORE
has received substantially all payments for products and services in U.S.
dollars and therefore, EMCORE does not anticipate that fluctuations in any
currency will have a material effect on its financial condition or results of
operations.
The following chart contains a breakdown of EMCORE's consolidated revenues
by geographic region:
Application of Critical Accounting Policies
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates. The significant accounting policies, which we believe are
the most critical to the understanding of reported financial results, include
the following:
o Accounts Receivable - EMCORE maintains allowances for doubtful accounts
for estimated losses resulting from the inability of our customers to
make required payments. If the financial condition of our customers
were to deteriorate, additional allowances may be required.
o Inventories - Inventories are stated at the lower of cost or market with
cost being determined using the first-in, first-out (FIFO) method.
EMCORE provides estimated inventory allowances for obsolete and excess
inventory based on assumptions about future demand and market
conditions. If future demand or market conditions are different than
those projected by management, adjustments to inventory allowances may
be required.
o Impairment of Long-lived Assets - EMCORE reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the
17
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less cost to sell.
o Revenue Recognition
Revenues from systems-related sales are recognized upon shipment where
product has met customer's specifications and when the title,
ownership and risk of loss have passed to the customer. EMCORE's
billing terms on system sales generally include a holdback of 10-20
percent on the total purchase price subject to completion of the
installation and final acceptance process at the customer site. EMCORE
defers this portion of revenue related to installation and final
acceptance until such installation and final acceptance has been
completed.
Revenues from materials-related sales are recognized when the product
meets the customer's specifications and when title, ownership and risk
of loss have passed to the customer. For new applications of EMCORE's
products where performance cannot be assessed prior to meeting
specifications at the customer's site, no revenue is recognized until
such specifications are met.
As a result of the acquisition of Tecstar in 2002, EMCORE records
revenues from solar panel contracts using the percentage-of-completion
method where the elapsed time from award of a contract to completion
of performance exceeds 6 months. Revenue is recognized in proportion
to actual costs incurred compared to total anticipated costs expected
to be incurred for each contract. If estimates of costs to complete
long-term contracts indicate a loss, a provision is made for the total
loss anticipated. EMCORE has numerous contracts that are in various
stages of completion. Such contracts require estimates to determine
the appropriate cost and revenue recognition. EMCORE uses all
available information in determining dependable estimates of the
extent of progress towards completion, contract revenues and contract
costs. Estimates are revised as additional information becomes
available.
EMCORE's research contracts require the development or evaluation of
new materials applications and generally have a duration of 6 to 48
months. Contracts with a duration of six months or less are accounted
for on the completed contract method. Contracts of greater than 6
months contain interim milestones, reporting and invoicing
requirements and are billed according to the contract. For
"Cost-Plus-Fixed-Fee" research contracts with the Government, EMCORE
recognizes revenue to the extent of costs incurred plus the estimated
gross profit as stipulated in such contracts, based upon contract
performance. For other long-term contracts. EMCORE recognizes the
revenues and associated costs on these contracts as each major
milestone in the contract is met. A contract is considered complete
when all significant costs have been incurred, and the research
reporting requirements to the customer have been met. Contract costs
include all direct material and labor costs and those indirect costs
related to contract performance, such as indirect labor, supplies,
tools, repairs and depreciation costs, as well as coverage of certain
general and administrative costs. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.
EMCORE also provides service for its products. Revenue from time and
materials based service arrangements is recognized as the service is
performed. Revenue from service contracts is recognized ratably over
the term of such service contracts. Service revenue is insignificant
for all periods presented.
In rare occurrences, at the customer's written request, EMCORE enters
into bill and hold transactions whereby title transfers to the
customer, but the product does not ship until a specified later date.
EMCORE recognizes revenues associated with the sale of product from
bill and hold arrangements when the product is complete, ready to
ship, and all bill and hold criteria have been met.
The impact of and any associated risks relating to these policies on our
business operations is discussed above and throughout Management's Discussion
and Analysis of Financial Condition and Results of Operations where such
policies affect our reported and expected financial results.
18
Recent Accounting Pronouncements
In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
Compensation -- Transition and Disclosure, an amendment of FASB Statement No.
123. SFAS 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. EMCORE implemented SFAS No. 148 on January 1,
2003.
Results of Operations
The following table sets forth the consolidated Statements of Operations
Data of EMCORE expressed as a percentage of total revenues for the three-month
periods ended December 31, 2002 and 2001.
Comparison of the three-month periods ended December 31, 2002 and 2001
Revenues. EMCORE's revenues increased 22% or $4.1 million from $19.1
million for the three months ended December 31, 2001 to $23.2 million for the
three months ended December 31, 2002. Excluding the results of Tecstar, which
was acquired in March 2002, revenues for the three months ended December 31,
2002 would have increased approximately $0.8 million from the prior year. First
quarter international sales accounted for 54% of revenues in fiscal year 2003
and 32% of revenues in fiscal year 2002. Sales in Asia increased 163% or $4.4
million from the prior year. Due to continuing adverse general market conditions
and weakened demand for certain of our products, we expect that annual revenues
from existing product lines will remain flat, or at best, modestly increase in
fiscal 2003 compared to fiscal 2002. In January 2003, EMCORE acquired the West
Coast optoelectronics division of Agere Systems, Inc. Inc (formerly Ortel
Corporation). We expect results from this acquisition will increase consolidated
quarterly revenues by $5.0 million to $8.0 million in fiscal 2003.
19
For the three-month periods ended December 31, 2002 and 2001,
systems-related revenues increased 35% or $3.5 million from $10.3 million
reported in the prior year to $13.8 million. First quarter systems-related sales
represented 60% and 54% of EMCORE's total consolidated revenues in fiscal 2003
and 2002, respectively. The number of MOCVD production systems shipped during
the quarter increased 133% from 3 systems in fiscal 2002 to 7 systems in fiscal
2003. First quarter component and service revenue in fiscal 2003 of $2.1 million
increased as expected when compared to $1.6 million earned in the prior year.
Based on EMCORE's backlog of system orders, management expects systems related
revenues to increase in fiscal 2003 compared with fiscal 2002 in absolute
dollars and as a percentage of revenues.
For the three-month periods ended December 31, 2002 and 2001,
materials-related revenues increased 6% or $0.6 million from $8.8 million
reported in the prior year to $9.4 million. First quarter materials-related
sales represented 40% and 46% of EMCORE's total consolidated revenues in fiscal
2003 and 2002, respectively. On a product line basis, sales of photovoltaic
products increased $3.2 million or 177%, optical devices and components
increased $1.0 million or 72% and electronic materials and devices decreased
$3.6 million or 64% from the prior year. Excluding results of Tecstar,
materials-related revenues decreased 31% or $2.7 million from the prior year.
Photovoltaic products include the sale of solar cells, CICs and solar
panels. First quarter photovoltaic sales represented 22% and 10% of EMCORE's
total consolidated revenues in fiscal 2003 and 2002, respectively. The increase
in revenue is attributable to additional sales as a result of the acquisition of
Tecstar. Excluding results of Tecstar, photovoltaics revenues for fiscal 2003
would have decreased $0.1 million or 3% from the prior year. The photovoltaic
industry continues to be affected by weakness in satellite infrastructure
spending, which has created delays in program deployment. Accordingly, we expect
annual photovoltaic revenues will remain flat, or at best, modestly increase in
fiscal 2003 compared with fiscal 2002.
Sales of optical devices and components include revenues from VCSELs,
photodetectors and VCSEL-based array transceivers and transponders. First
quarter sales of optical devices and components represented 10% and 7% of
EMCORE's total consolidated revenues in fiscal 2003 and 2002, respectively.
Although, sales from this product line did not contribute significantly to first
quarter revenues in either fiscal year, EMCORE continues to work with customers
to optimize our designs in packaged solutions. We expect these products to
generate more revenue in fiscal 2003 than in fiscal 2002.
First quarter sales of electronic materials and devices, which include RF
materials and MR sensors, represented 9% and 30% of EMCORE's total consolidated
revenues in fiscal 2003 and 2002, respectively. RF materials are compound
semiconductor materials that enable circuits and devices to operate at radio
frequencies and are primarily used in cellular phones and base stations. In
fiscal 2002, Motorola was the largest customer for the materials-related segment
and revenues from Motorola represented approximately 13% of EMCORE's total
fiscal 2002 revenues. EMCORE broadened its relationship with Motorola by selling
them two EMCORE MOCVD systems, which may be used for both research and
development and as an internal source of production for electronic materials. In
light of the fact that Motorola has developed the capacity to supply a portion
of their needs internally and due to the delayed introduction of InGaP HBTs into
GSM handsets, RF materials related revenues have decreased each quarter since
March 2002. This market is highly competitive, raw materials are extremely
expensive and average selling prices have been declining over the past two
years. As a result of continued weakness in market conditions for wireless
infrastructure spending, we expect RF materials related revenue to decline in
fiscal 2003 from fiscal 2002 and become less significant or strategic to overall
EMCORE revenues. Quarterly revenues from our mature MR sensors product line
decreased $0.4 million from the prior year as a result of the phase out of
certain automotive models at General Motors. Our contract with General Motors
expires in fiscal 2004 and we may stop production of MR sensors in connection
therewith.
Gross Profit. EMCORE experienced a gross profit of $2.2 million for the
three months ended December 31, 2002 compared to a gross profit of $2.5 million
for the three months ended December 31, 2001, representing a 13% decrease
totaling $0.3 million. For the three-month periods ended December 31, 2002 and
2001, gross margins decreased from 13% to 10%. The decline in gross profit
occurred in both the systems-related and materials-related segments. We
anticipate that gross profit will continue to be affected in the near term as a
result of flat sales.
20
For both three-month periods ended December 31, 2002 and 2001, EMCORE's
gross profit on systems-related revenues was $4.9 million. For the three months
ended December 31, 2002 and 2001, gross margins for systems-related revenues
decreased to 35% from 47%. This gross margin decrease was a result of
differences in pricing and product mix of MOCVD systems sales. The average
selling price for MOCVD systems sold during the first quarter of fiscal 2002 was
approximately $2.0 million as compared to $1.4 million in the first quarter of
fiscal 2003. In addition, prior year revenues included a significant number of
system installation revenues, which typically have very high margins.
For the three-month periods ended December 31, 2002 and 2001, EMCORE
experienced a gross loss of $2.6 million on materials-related revenues compared
to a gross loss of $2.3 million, representing a 12% decrease totaling $0.3
million. For the three-month periods ended December 31, 2002 and 2001, gross
margins for materials-related revenues decreased to a negative 28% from a
negative 27%. The most significant factor contributing to these negative gross
margins is unabsorbed overhead costs associated with lower revenues due to
customer delayed product launches. The decrease in margins from prior year is a
direct results of increased fiber-optic operations. Regarding unabsorbed
expenses, EMCORE has a significant amount of fixed expenses relating to capital
equipment and manufacturing overhead in its new facilities where
materials-related products are manufactured. By December 2001, EMCORE's
manufacturing facilities for its materials-related businesses were all completed
and placed into service with the anticipation of expanding market prospects.
Lower than forecasted materials-related revenues caused these fixed expenses to
be allocated across reduced production volumes, adversely affecting gross profit
and margins.
Selling, General and Administrative. EMCORE's selling, general and
administrative expenses (SG&A) decreased 17%, or $1.2 million, from $7.0 million
for the three months ended December 31, 2001 to $5.8 million for the three
months ended December 31, 2002. The decrease was primarily related to fiscal
2002 restructuring programs, which involved headcount reduction and a cutback on
marketing expenditures. As a percentage of revenue, SG&A decreased from 37% for
the three months ended December 31, 2001 to 25% in fiscal 2003. Exclusive of
further non-recurring charges, management expects annual SG&A in fiscal year
2003 to continue to decrease in absolute dollars from fiscal 2002 as a result of
implemented cost control and restructuring programs.
Research and Development. EMCORE's research and development expenses (R&D)
decreased 70%, or $8.3 million, from $11.9 million for the three months ended
December 31, 2001 to $3.6 million for the three months ended December 31, 2002.
This decrease was due primarily to the deferral or elimination of certain
non-critical research and development projects as well as less R&D costs being
incurred on our fiber-optic product line as new components have been released
for commercial use. As a percentage of revenue, R&D decreased from 62% for the
three months ended December 31, 2001 to 16% in 2002. Exclusive of non-recurring
charges, management expects annual R&D in fiscal year 2003 to continue to
decrease in absolute dollars from fiscal 2002 as a result of implemented cost
control and restructuring programs.
Gain From Debt Extinguishment. In December 2002, EMCORE purchased, in
multiple transactions, $13.3 million principal amount of the notes at prevailing
market prices, for an aggregate of approximately $6.3 million. As a result of
the transaction, EMCORE recorded a gain from operations of approximately $6.6
million after netting unamortized debt issuance costs of approximately $0.3
million.
Interest Expense, net. For the three months ended December 31, 2002, net
interest changed $0.9 million from net interest expense of $0.9 million to net
interest expense of $1.8 million. The increase in net interest expense is a
result of lower interest rates and decreased investments in marketable
securities offset by interest expense being incurred on our $175 million 5%
convertible subordinated notes due in May 2006. In December 2002, EMCORE
purchased $13.3 million principal amount of the notes. As a result of the
transaction, EMCORE's annual interest expense in future periods will be
decreased by approximately $650,000.
Other Expense. In August 2001, EMCORE received common stock in Uniroyal
Technology Corporation (UTCI). During the quarter ended December 31, 2001,
management evaluated the relevant facts and circumstances, including the current
fair market value of UTCI common stock, and determined that an
other-than-temporary impairment of the investment existed. Accordingly, EMCORE
took a charge of $13.3 million to establish a new cost basis for the UTCI common
stock, which was recorded as other expense.
21
Equity in Net Loss of Unconsolidated Affiliate. Because EMCORE does not
have a controlling economic and voting interest in GELcore, EMCORE accounts for
this joint venture under the equity method of accounting. For the three-month
periods ended December 31, 2002 and 2001, EMCORE recognized a loss of $0.6
million and $0.4 million, respectively, related to the joint venture.
Liquidity and Capital Resources
Working Capital
At December 31, 2002, EMCORE had working capital of approximately $98.9
million, which included $73.9 million in cash, cash equivalents and marketable
securities. Working capital at September 30, 2002 was $111.8 million. EMCORE has
funded operations to date through product sales, sales of equity, subordinated
debt and borrowings under revolving credit facilities. Significant transactions
include:
o In May 2001, EMCORE issued $175.0 million of 5% convertible
subordinated notes due in May 2006, at par, less issuance costs
of $6.2 million;
o In March 2000, EMCORE raised approximately $127.5 million, net of
issuance costs, from an additional equity offering;
o In June 1999, EMCORE raised approximately $52.0 million, net of
issuance costs, from a secondary public offering.
Net Cash Used For Operations
In the first quarter of fiscal 2003, net cash used for operations totaled
$1.1 million, a decrease of $18.4 million from the first quarter of fiscal 2002,
when net cash used for operating activities was $19.5 million. In the first
quarter of fiscal 2003, net cash usage of $1.9 million related to the combined
operations of EMCORE's Photovoltaics and Optical Devices and Components product
lines. The most significant factors contributing to this operating cash usage
were: a) unabsorbed overhead costs associated with lower revenues due to
customer delayed product launches; b) the push-out and cancellation of orders
from certain customers forced EMCORE to maintain higher inventory levels than
expected; and c) extended payment terms delayed cash receipts from certain
sales. In the first quarter of fiscal 2003, net cash provided by operations of
$0.8 million related to the combined operations of EMCORE's TurboDisc MOCVD and
Electronic Materials and Devices product lines.
Included in EMCORE's first quarter fiscal 2003 net loss of $2.9 million
were non-cash items of $6.6 million related to the gain from partial debt
extinguishment and $4.8 million in depreciation and amortization expenses. In
the first quarter of fiscal 2002, EMCORE recorded a non-cash impairment charge
of $13.3 million related to its holding of UTCI common stock. First quarter
changes in balance sheet accounts in fiscal 2003 and 2002 totaled a positive
$2.6 million and negative $7.2 million, respectively. Improvements in receivable
collections and inventory turnover more than offset payments made on liabilities
during the first quarter of fiscal 2003. During fiscal 2002, EMCORE proceeded
with a restructuring program, consisting of the realignment of all engineering,
manufacturing and sales/marketing operations, as well as workforce reductions.
This restructuring should result in a cost reduction of approximately $6.0
million to $8.0 million per quarter in fiscal 2003, which we believe should
enable us to achieve our goal of having positive cash flow from operations by
the end of fiscal 2003, assuming revenues in fiscal 2003 are consistent with
revenues in fiscal 2002.
Net Cash Used For (Provided by) Investment Activities
For the three months ended December 31, 2002, net cash used for investment
activities totaled $8.0 million. For the three months ended December 31, 2001,
net cash provided by investment activities totaled $18.1 million.
o Capital expenditures - First quarter capital expenditures in fiscal
2003 were $0.4 million compared with $3.2 million in the first quarter
of fiscal 2002. As part of our ongoing effort to conserve cash,
EMCORE's capital expenditures in the first quarter of fiscal 2003
consisted almost solely of sustaining capital purchases. EMCORE
estimates annual sustaining capital expenditures in fiscal 2003 to be
approximately $4.0 million.
22
o Acquisitions - In December 2002, EMCORE acquired certain assets of
privately held Alvesta Corporation of Sunnyvale, California. The total
cash purchase price, including acquisition costs, was approximately
$250,000.
o Investments - First quarter investments in EMCORE's GELcore joint
venture in both fiscal 2003 and 2002 totaled approximately $2.0
million. EMCORE expects to invest an additional $2.7 million into the
GELcore joint venture by September 30, 2003.
o Repayment of loan - In November 2001, EMCORE received payment from
UTCI of $5.0 million for a related party loan made in August 2001.
o Marketable securities - First quarter fiscal 2002, EMCORE's net
investment in marketable securities increased by $5.4 million in order
to take advantage of higher interest bearing instruments. In the prior
year, EMCORE's net investment in marketable securities decreased by
$18.3 million in order to fund operations. EMCORE is expected to
continue to fund operations by liquidating marketable securities in
fiscal 2003.
Net Cash Provided By Financing Activities
Net cash used for financing activities in the first quarter of fiscal 2003
amounted to approximately $6.5 million of which $6.6 million related to the
partial repurchase of our convertible subordinated notes. Net cash provided by
financing activities in first quarter of fiscal 2002 amounted to approximately
$4.9 million of which $4.2 million related to proceeds received from the
exercise of common stock warrants which were due.
Financing Transactions
In May 2001, EMCORE issued $175.0 million aggregate principal amount of its
5% convertible subordinated notes due in May 2006. Net proceeds received by
EMCORE, after costs of issuance, were approximately $168.8 million. Interest is
payable in arrears semiannually on May 15 and November 15 of each year, which
began on November 15, 2001. The notes are convertible into EMCORE common stock
at a conversion price of $48.76 per share, subject to certain adjustments, at
the option of the holder. The notes may be redeemed at EMCORE's option, on or
after May 20, 2004 at specific redemption prices. There are no financial
covenants related to these notes. For the three-month periods ended December 31,
2002 and 2001, interest expense relating to the notes approximated $4.4 million
and $4.6 million, respectively.
23
In May 2002, the Board of Directors authorized EMCORE from time to time to
repurchase a portion of the notes in one or more open market transactions, in
accordance with certain guidelines. In December 2002, EMCORE purchased, in
multiple transactions, $13.3 million principal amount of the notes at prevailing
market prices, for an aggregate of approximately $6.3 million. As a result of
the transaction, EMCORE recorded a gain from operations of approximately $6.6
million after netting unamortized debt issuance costs of approximately $0.3
million. Annual interest expense in future periods also has been decreased by
approximately $650,000. EMCORE may continue to repurchase notes through various
means, including but not limited to one or more open market or privately
negotiated transactions in future periods. The timing and amount of repurchase,
if any, whether de minimis or material, will depend on many factors, including
but not limited to, the availability of capital, the prevailing market price of
the convertible notes and overall market conditions.
In fiscal 2000, GELcore entered into a Revolving Loan Agreement (the
"GELcore Credit Facility") with General Electric Canada, Inc., an affiliate of
GE, which is the owner of a 51% controlling share of GELcore. The GELcore Credit
Facility provides for borrowings of up to Can $7.5 million (US$4.8 million at
December 31, 2002) at a rate of interest based on prevailing Canadian interest
rates. Amounts outstanding under the GELcore Credit Facility are payable on
demand, and the GELcore Credit Facility expires in August 2003. EMCORE has
guaranteed 49% (i.e. its proportionate share) of GELcore's obligations under the
GELcore Credit Facility. As of December 31, 2002, US $2.1 million was
outstanding under the GELcore Credit Facility.
As of December 31, 2002, EMCORE had a remaining 2.0 million shares of
common stock available on a filed shelf registration statement previously
declared effective by the SEC.
Conclusion
EMCORE believes that its current liquidity should be sufficient to meet its
cash needs for working capital through the next twelve months. However, if cash
generated from operations and cash on hand are not sufficient to satisfy
EMCORE's liquidity requirements, EMCORE will seek to obtain additional equity or
debt financing. Additional funding may not be available when needed or on terms
acceptable to EMCORE. If EMCORE is required to raise additional financing and if
adequate funds are not available or not available on acceptable terms, the
ability to continue to fund expansion, develop and enhance products and
services, or otherwise respond to competitive pressures may be severely limited.
Such a limitation could have a material adverse effect on EMCORE's business,
financial condition, results of operations and cash flow.
24
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Although EMCORE occasionally enters into transactions denominated in
foreign currencies, the total amount of such transactions is not material.
Accordingly, fluctuations in foreign currency value should not have a material
adverse effect on our future financial condition or results of operations.
ITEM 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures - The term "disclosure
controls and procedures" is defined in Rules 13a-14(c) and 15d-14(c) of the
Exchange Act. These rules refer to the controls and other procedures of a
company that are designed to ensure that information required to be disclosed by
a company in the reports that it files under the Exchange Act is recorded,
processed, summarized and reported within required time periods. Our Chief
Executive Officer and our Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures as of a date within 90
days before the filing of this quarterly report (the "Evaluation Date"), and
they have concluded that, as of the Evaluation Date, such controls and
procedures were effective at ensuring that required information will be
disclosed on a timely basis in our reports filed under the Exchange Act.
(b) Changes in internal controls - We maintain a system of internal accounting
controls that are designed to provide reasonable assurance that our books and
records accurately reflect our transactions and that our established policies
and procedures are followed. Subsequent to the Evaluation Date, there were no
significant changes to our internal controls or in other factors that could
significantly affect our internal controls.
25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in lawsuits, claims, investigations and proceedings
which arise in the ordinary course of business. There are no matters
pending that we expect to be material in relation to our business,
consolidated financial condition, results of operations or cash flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
99.1 Certification of the Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
99.2 Certification of the Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 2002.
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
EMCORE CORPORATION
Date: February 14, 2003 By: /s/ Reuben F. Richards, Jr.
-------------------------------------
Reuben F. Richards, Jr.
President and Chief Executive Officer
Date: February 14, 2003 By: /s/ Thomas G. Werthan
-------------------------------------
Thomas G. Werthan
Vice President and Chief Financial
Officer
26
I, Reuben F. Richards, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of EMCORE Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: February 14, 2003
/s/ Reuben F. Richards, Jr.
Reuben F. Richards, Jr.
President and CEO
27
I, Thomas G. Werthan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of EMCORE Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: February 14, 2003
/s/ Thomas G. Werthan
--------------------------
Thomas G. Werthan
Chief Financial Officer
28