EX-99.1
Published on December 16, 2014
Exhibit 99.1
UNAUDITED CONDENSED FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Consolidated Financial Information
EMCORE Corporation (EMCORE or the Company) has prepared unaudited pro forma condensed consolidated financial statements to assist readers in understanding the nature and effects of the sale of the Photovoltaics Business, which sale was completed on December 10, 2014, and the further effects of the planned sale of the Digital Products Business (collectively, the Asset Sales). The sale of the Digital Products Business is subject to customary closing conditions and is expected to close by early January 2015.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations for the fiscal years ended September 30, 2014, 2013, and 2012 have been prepared with the assumption that the Asset Sales were completed as of October 1, 2011. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2014 has been prepared with the assumption that the Asset Sales were completed as of the balance sheet date.
The unaudited pro forma condensed consolidated financial statements do not purport to be indicative of the results of operations or the financial position which would have actually resulted if the Asset Sales had been completed on the dates indicated, or which may result in the future.
The unaudited pro forma financial information has been prepared by the Company based upon assumptions deemed appropriate by the Companys management. An explanation of certain assumptions is set forth under the Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
The unaudited pro forma financial information should be read in conjunction with the Companys historical Consolidated Financial Statements and Notes thereto contained in the 2014 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (SEC).
EMCORE CORPORATION
Unaudited Pro Forma Condensed Consolidated Statements of Operations
For the Year Ended September 30, 2014
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Sale of |
|
without |
| ||||||
|
|
|
|
|
|
|
|
|
Pro Forma |
|
Digital |
|
Photovoltaics |
| ||||||
|
|
|
|
|
Sale of |
|
|
|
without |
|
Products |
|
and Digital |
| ||||||
|
|
|
EMCORE |
|
Photovoltaics |
|
Other |
|
Photovoltaics |
|
Business |
|
Products |
| ||||||
|
|
|
Corporation |
|
Business (a) |
|
Adjustments |
|
Business |
|
(b) |
|
Businesses |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Revenue |
|
$ |
174,778 |
|
$ |
(73,025 |
) |
$ |
|
|
$ |
101,753 |
|
$ |
(45,776 |
) |
$ |
55,977 |
|
|
Cost of revenue |
|
142,104 |
|
(52,483 |
) |
|
|
89,621 |
|
(44,927 |
) |
44,694 |
| ||||||
|
Gross profit |
|
32,674 |
|
(20,542 |
) |
|
|
12,132 |
|
(849 |
) |
11,283 |
| ||||||
|
Operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Selling, general, and administrative |
|
32,785 |
|
(10,953 |
) |
|
|
21,832 |
|
(7,830 |
) |
14,002 |
| ||||||
|
Research and development |
|
19,097 |
|
(1,675 |
) |
|
|
17,422 |
|
(7,989 |
) |
9,433 |
| ||||||
|
Gain on sale of assets |
|
(100 |
) |
|
|
|
|
(100 |
) |
|
|
(100 |
) | ||||||
|
Total operating expense |
|
51,782 |
|
(12,628 |
) |
|
|
39,154 |
|
(15,819 |
) |
23,335 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Operating loss |
|
(19,108 |
) |
(7,914 |
) |
|
|
(27,022 |
) |
14,970 |
|
(12,052 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Interest expense |
|
(522 |
) |
210 |
(c) |
|
|
(312 |
) |
|
(d) |
(312 |
) | ||||||
|
Foreign exchange gain |
|
10 |
|
|
|
|
|
10 |
|
|
|
10 |
| ||||||
|
Gain on sale of investment |
|
307 |
|
|
|
|
|
307 |
|
|
|
307 |
| ||||||
|
Change in fair value of financial instruments |
|
34 |
|
|
|
|
|
34 |
|
|
|
34 |
| ||||||
|
Other income |
|
51 |
|
|
|
|
|
51 |
|
|
|
51 |
| ||||||
|
Total other (expense) income |
|
(120 |
) |
210 |
|
|
|
90 |
|
|
|
90 |
| ||||||
|
Loss before income tax expense |
|
(19,228 |
) |
(7,704 |
) |
|
|
(26,932 |
) |
14,970 |
|
(11,962 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Income tax benefit |
|
24,080 |
|
|
|
(24,080 |
)(e) |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Net income (loss) |
|
$ |
4,852 |
|
$ |
(7,704 |
) |
$ |
(24,080 |
) |
$ |
(26,932 |
) |
$ |
14,970 |
|
$ |
(11,962 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Per share data: |
|
|
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|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Net income (loss) per basic share |
|
$ |
0.16 |
|
|
|
|
|
$ |
(0.87 |
) |
|
|
$ |
(0.39 |
) | |||
|
Net income (loss) per diluted share |
|
$ |
0.16 |
|
|
|
|
|
$ |
(0.86 |
) |
|
|
$ |
(0.38 |
) | |||
|
Weighted-average number of basic shares outstanding |
|
30,453 |
|
500 |
(f) |
|
|
30,953 |
|
|
|
30,953 |
| ||||||
|
Weighted-average number of diluted shares outstanding |
|
30,777 |
|
500 |
(f) |
|
|
31,277 |
|
|
|
31,277 |
| ||||||
See the accompanying notes which are an integral part of these unaudited pro forma condensed consolidated financial statements.
EMCORE CORPORATION
Unaudited Pro Forma Condensed Consolidated Statements of Operations
For the Year Ended September 30, 2013
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
| |||||
|
|
|
|
|
|
|
|
|
Sale of |
|
without |
| |||||
|
|
|
|
|
|
|
Pro Forma |
|
Digital |
|
Photovoltaics |
| |||||
|
|
|
|
|
Sale of |
|
without |
|
Products |
|
and Digital |
| |||||
|
|
|
EMCORE |
|
Photovoltaics |
|
Photovoltaics |
|
Business |
|
Products |
| |||||
|
|
|
Corporation |
|
Business (a) |
|
Business |
|
(b) |
|
Businesses |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Revenue |
|
$ |
168,147 |
|
$ |
(70,498 |
) |
$ |
97,649 |
|
$ |
(35,695 |
) |
$ |
61,954 |
|
|
Cost of revenue |
|
139,949 |
|
(52,628 |
) |
87,321 |
|
(36,178 |
) |
51,143 |
| |||||
|
Gross profit |
|
28,198 |
|
(17,870 |
) |
10,328 |
|
483 |
|
10,811 |
| |||||
|
Operating expense (income): |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Selling, general, and administrative |
|
27,419 |
|
(9,564 |
) |
17,855 |
|
(6,770 |
) |
11,085 |
| |||||
|
Research and development |
|
19,972 |
|
(528 |
) |
19,444 |
|
(8,943 |
) |
10,501 |
| |||||
|
Flood-related insurance proceeds |
|
(19,000 |
) |
|
|
(19,000 |
) |
11,210 |
|
(7,790 |
) | |||||
|
Gain on sale of assets |
|
(413 |
) |
|
|
(413 |
) |
|
|
(413 |
) | |||||
|
Total operating expense |
|
27,978 |
|
(10,092 |
) |
17,886 |
|
(4,503 |
) |
13,383 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Operating income (loss) |
|
220 |
|
(7,778 |
) |
(7,558 |
) |
4,986 |
|
(2,572 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Interest expense |
|
(800 |
) |
496 |
(c) |
(304 |
) |
|
(d) |
(304 |
) | |||||
|
Foreign exchange gain |
|
356 |
|
|
|
356 |
|
|
|
356 |
| |||||
|
Gain on sale of equity method investment |
|
4,800 |
|
|
|
4,800 |
|
|
|
4,800 |
| |||||
|
Change in fair value of financial instruments |
|
515 |
|
|
|
515 |
|
|
|
515 |
| |||||
|
Other expense |
|
17 |
|
|
|
17 |
|
|
|
17 |
| |||||
|
Total other income |
|
4,888 |
|
496 |
|
5,384 |
|
|
|
5,384 |
| |||||
|
Income (loss) before income tax expense |
|
5,108 |
|
(7,282 |
) |
(2,174 |
) |
4,986 |
|
2,812 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Income tax expense (e) |
|
(120 |
) |
|
|
(120 |
) |
|
|
(120 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net income (loss) |
|
$ |
4,988 |
|
$ |
(7,282 |
) |
$ |
(2,294 |
) |
$ |
4,986 |
|
$ |
2,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Per share data: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net income (loss) per basic share |
|
$ |
0.19 |
|
|
|
$ |
(0.08 |
) |
|
|
$ |
0.10 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net income (loss) per diluted share |
|
$ |
0.19 |
|
|
|
$ |
(0.08 |
) |
|
|
$ |
0.10 |
| ||
|
Weighted-average number of basic shares outstanding |
|
26,531 |
|
500 |
(f) |
27,031 |
|
|
|
27,031 |
| |||||
|
Weighted-average number of diluted shares outstanding |
|
26,812 |
|
500 |
(f) |
27,312 |
|
|
|
27,312 |
| |||||
See the accompanying notes which are an integral part of these unaudited pro forma condensed consolidated financial statements.
EMCORE CORPORATION
Unaudited Pro Forma Condensed Consolidated Statements of Operations
For the Year Ended September 30, 2012
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
| |||||
|
|
|
|
|
|
|
|
|
Sale of |
|
without |
| |||||
|
|
|
|
|
|
|
Pro Forma |
|
Digital |
|
Photovoltaics |
| |||||
|
|
|
|
|
Sale of |
|
without |
|
Products |
|
and Digital |
| |||||
|
|
|
EMCORE |
|
Photovoltaics |
|
Photovoltaics |
|
Business |
|
Products |
| |||||
|
|
|
Corporation |
|
Business (a) |
|
Business |
|
(b) |
|
Businesses |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Revenue |
|
$ |
163,781 |
|
$ |
(66,562 |
) |
$ |
97,219 |
|
$ |
(23,619 |
) |
$ |
73,600 |
|
|
Cost of revenue |
|
145,955 |
|
(50,563 |
) |
95,392 |
|
(25,546 |
) |
69,846 |
| |||||
|
Gross profit |
|
17,826 |
|
(15,999 |
) |
1,827 |
|
1,927 |
|
3,754 |
| |||||
|
Operating expense (income): |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Selling, general, and administrative |
|
34,861 |
|
(10,274 |
) |
24,587 |
|
(6,300 |
) |
18,287 |
| |||||
|
Research and development |
|
22,338 |
|
(2,924 |
) |
19,414 |
|
(5,876 |
) |
13,538 |
| |||||
|
Impairment |
|
1,425 |
|
|
|
1,425 |
|
|
|
1,425 |
| |||||
|
Litigation settlements, net |
|
1,050 |
|
|
|
1,050 |
|
|
|
1,050 |
| |||||
|
Flood-related loss |
|
5,519 |
|
|
|
5,519 |
|
(2,320 |
) |
3,199 |
| |||||
|
Flood-related insurance proceeds |
|
(9,000 |
) |
|
|
(9,000 |
) |
4,848 |
|
(4,152 |
) | |||||
|
Gain on sale of assets |
|
(2,742 |
) |
|
|
(2,742 |
) |
|
|
(2,742 |
) | |||||
|
Total operating expense |
|
53,451 |
|
(13,198 |
) |
40,253 |
|
(9,648 |
) |
30,605 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Operating loss |
|
(35,625 |
) |
(2,801 |
) |
(38,426 |
) |
11,575 |
|
(26,851 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Interest expense |
|
(677 |
) |
254 |
(c) |
(423 |
) |
|
(d) |
(423 |
) | |||||
|
Foreign exchange gain |
|
45 |
|
(214 |
) |
(169 |
) |
|
|
(169 |
) | |||||
|
Loss from equity method investment |
|
(1,201 |
) |
|
|
(1,201 |
) |
|
|
(1,201 |
) | |||||
|
Change in fair value of financial instruments |
|
(69 |
) |
|
|
(69 |
) |
|
|
(69 |
) | |||||
|
Total other expense |
|
(1,902 |
) |
40 |
|
(1,862 |
) |
|
|
(1,862 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Loss before income tax expense |
|
(37,527 |
) |
(2,761 |
) |
(40,288 |
) |
11,575 |
|
(28,713 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Income tax expense (e) |
|
(1,644 |
) |
|
|
(1,644 |
) |
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net loss |
|
$ |
(39,171 |
) |
$ |
(2,761 |
) |
$ |
(41,932 |
) |
$ |
11,575 |
|
$ |
(28,713 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Per share data: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net loss per basic share |
|
$ |
(1.66 |
) |
|
|
$ |
(1.74 |
) |
|
|
$ |
(1.19 |
) | ||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net loss per diluted share |
|
$ |
(1.66 |
) |
|
|
$ |
(1.74 |
) |
|
|
$ |
(1.19 |
) | ||
|
Weighted-average number of basic shares outstanding |
|
23,559 |
|
500 |
(f) |
24,059 |
|
|
|
24,059 |
| |||||
|
Weighted-average number of diluted shares outstanding |
|
23,559 |
|
500 |
(f) |
24,059 |
|
|
|
24,059 |
| |||||
See the accompanying notes which are an integral part of these unaudited pro forma condensed consolidated financial statements.
EMCORE CORPORATION
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of September 30, 2014
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Assets and |
|
|
|
|
| |||||||
|
|
|
|
|
Assets and |
|
|
|
|
|
Liabilities |
|
|
|
Pro Forma |
| |||||||
|
|
|
|
|
Liabilities of |
|
|
|
|
|
of the |
|
|
|
without the |
| |||||||
|
|
|
|
|
the |
|
|
|
Pro Forma |
|
Digital |
|
|
|
Photovoltaics |
| |||||||
|
|
|
|
|
Photovoltaics |
|
|
|
without the |
|
Products |
|
|
|
and Digital |
| |||||||
|
|
|
EMCORE |
|
Business (g) |
|
Other |
|
Photovoltaics |
|
Business (i) |
|
Other |
|
Products |
| |||||||
|
|
|
Corporation |
|
(h) |
|
Adjustments |
|
Business |
|
(j) |
|
Adjustments |
|
Businesses |
| |||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Cash and cash equivalents |
|
$ |
20,687 |
|
$ |
|
|
$ |
115,732 |
(k) |
$ |
136,419 |
|
$ |
|
|
$ |
|
(l) |
$ |
136,419 |
|
|
Restricted cash |
|
1,482 |
|
|
|
|
|
1,482 |
|
|
|
|
|
1,482 |
| |||||||
|
Accounts receivable, net of allowance of $133, $0, $0, $133, $17, $0 and $116, respectively |
|
44,864 |
|
(17,827 |
) |
|
|
27,037 |
|
(14,268 |
) |
|
|
12,769 |
| |||||||
|
Inventory |
|
26,072 |
|
(7,203 |
) |
|
|
18,869 |
|
(3,225 |
) |
|
|
15,644 |
| |||||||
|
Deferred income taxes, net (e) |
|
3,908 |
|
|
|
(3,908 |
) |
|
|
|
|
|
|
|
| |||||||
|
Prepaid expenses and other current assets |
|
6,878 |
|
(1,512 |
) |
|
|
5,366 |
|
(30 |
) |
|
|
5,336 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Total current assets |
|
103,891 |
|
(26,542 |
) |
111,824 |
|
189,173 |
|
(17,523 |
) |
|
|
171,650 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Property, plant, and equipment, net |
|
44,987 |
|
(26,486 |
) |
|
|
18,501 |
|
(7,889 |
) |
|
|
10,612 |
| |||||||
|
Goodwill |
|
20,384 |
|
(20,384 |
) |
|
|
|
|
|
|
|
|
|
| |||||||
|
Other intangible assets, net |
|
1,142 |
|
|
|
|
|
1,142 |
|
(1,060 |
) |
|
|
82 |
| |||||||
|
Deferred income taxes, net (e) |
|
20,172 |
|
|
|
(20,172 |
) |
|
|
|
|
|
|
|
| |||||||
|
Other non-current assets, net of allowance of $3,561, $0, $0, $3,561, $0, $0 and $3,561, respectively |
|
766 |
|
(254 |
) |
|
|
512 |
|
|
|
16,000 |
(l) |
16,512 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Total assets |
|
$ |
191,342 |
|
$ |
(73,666 |
) |
$ |
91,652 |
|
$ |
209,328 |
|
$ |
(26,472 |
) |
$ |
16,000 |
|
$ |
198,856 |
|
|
LIABILITIES and SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Borrowings from credit facility |
|
$ |
26,518 |
|
$ |
|
|
$ |
(26,518 |
)(k) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
Accounts payable |
|
22,292 |
|
(4,640 |
) |
|
|
17,652 |
|
(10,848 |
) |
|
|
6,804 |
| |||||||
|
Deferred gain associated with sale of assets |
|
3,400 |
|
|
|
|
|
3,400 |
|
|
|
|
|
3,400 |
| |||||||
|
Warrant liability |
|
122 |
|
|
|
|
|
122 |
|
|
|
|
|
122 |
| |||||||
|
Accrued expenses and other current liabilities |
|
20,645 |
|
(5,398 |
) |
|
|
15,247 |
|
(38 |
) |
|
|
15,209 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Total current liabilities |
|
72,977 |
|
(10,038 |
) |
(26,518 |
) |
36,421 |
|
(10,886 |
) |
|
|
25,535 |
| |||||||
|
Asset retirement obligations |
|
5,263 |
|
(720 |
) |
|
|
4,543 |
|
|
|
|
|
4,543 |
| |||||||
|
Other long-term liabilities |
|
755 |
|
|
|
|
|
755 |
|
|
|
|
|
755 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Total liabilities |
|
78,995 |
|
(10,758 |
) |
(26,518 |
) |
41,719 |
|
(10,886 |
) |
|
|
30,833 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Shareholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Common stock |
|
755,368 |
|
|
|
1,043 |
(m) |
756,411 |
|
|
|
|
|
756,411 |
| |||||||
|
Treasury stock |
|
(2,071 |
) |
|
|
|
|
(2,071 |
) |
|
|
|
|
(2,071 |
) | |||||||
|
Accumulated other comprehensive income |
|
1,837 |
|
|
|
|
|
1,837 |
|
|
|
|
|
1,837 |
| |||||||
|
Accumulated deficit |
|
(642,787 |
) |
(62,908 |
) |
117,127 |
(n) |
(588,568 |
) |
(15,586 |
) |
16,000 |
(o) |
(588,154 |
) | |||||||
|
Total shareholders equity |
|
112,347 |
|
(62,908 |
) |
118,170 |
(p) |
167,609 |
|
(15,586 |
) |
16,000 |
(q) |
168,023 |
| |||||||
|
Total liabilities and shareholders equity |
|
$ |
191,342 |
|
$ |
(73,666 |
) |
$ |
91,652 |
|
$ |
209,328 |
|
$ |
(26,472 |
) |
$ |
16,000 |
|
$ |
198,856 |
|
See the accompanying notes which are an integral part of these unaudited pro forma condensed consolidated financial statements.
EMCORE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SALE OF PHOTOVOLTAICS BUSINESS TO SOLAERO TECHNOLOGIES CORP. AND PLANNED SALE OF DIGITAL PRODUCTS BUSINESS TO NEOPHOTONICS CORPORATION.
On December 10, 2014, EMCORE Corporation, a New Jersey corporation (EMCORE or the Company), completed the sale of substantially all of the assets, and the transfer of substantially all of the liabilities, primarily related to or used in connection with the Companys photovoltaics business, including EMCOREs subsidiaries EMCORE Solar Power, Inc. and EMCORE IRB Company, LLC (collectively, the Photovoltaics Business) to SolAero Technologies Corp. (f/k/a Photon Acquisition Corporation) (SolAero), a Delaware corporation and an affiliate of private equity firm Veritas Capital, for $150.0 million in cash, subject to a working capital adjustment pursuant to that certain asset purchase agreement, dated as of September 17, 2014 (as amended, the Photovoltaics Agreement), by and between EMCORE and SolAero (such sale, the Photovoltaics Sale).
EMCORE entered into an asset purchase agreement (the Digital Products Agreement), dated as of October 22, 2014, with NeoPhotonics Corporation, a Delaware corporation (NeoPhotonics), pursuant to which the Company has agreed upon the terms and subject to the conditions set forth therein to sell certain assets, and transfer certain liabilities, of the Companys telecommunications business (collectively, the Digital Products Business, the sale of the Digital Products Business, the Digital Products Sale and, the Digital Products Sale together with the Photovoltaics Sale, the Asset Sales) to NeoPhotonics for an aggregate purchase price of $17.5 million, subject to certain adjustments, described below (the Purchase Price), consisting of $1.5 million in cash at closing and a promissory note in the principal amount of $16.0 million (the Promissory Note). The Promissory Note will bear interest of 5.0% per annum for the first year and 13.0% per annum for the second year, payable semi-annually in cash, and matures two years from the closing of the Digital Products Sale. In addition, the Promissory Note will be subject to prepayments under certain circumstances, and will be secured by certain of the assets to be sold to NeoPhotonics in the Digital Products Sale. The assets sold pursuant to the Digital Products Agreement include fixed assets, inventory, and intellectual property for the ITLA, micro-ITLA, T-TOSA and T-XFP product lines within the Companys telecommunications business. The Purchase Price is subject to certain adjustments for inventory, net accounts receivable and pre-closing revenue levels, which will increase or decrease the principal amount due under the Promissory Note as applicable. The Digital Products Sale is subject to customary closing conditions and is expected to close by early January 2015.
Following the closing of the Digital Products Sale, EMCORE will continue to operate its fiber optics division which provides optical components, subsystems and systems for high-speed telecommunications, Cable Television (CATV) and Fiber-To-The-Premise (FTTP) networks, as well as products for satellite communications, video transport and specialty photonics technologies for defense and homeland security applications.
2. UNAUDITED PRO FORMA ADJUSTMENTS (in thousands)
The following notes describe the basis for and/or assumptions regarding certain of the pro forma adjustments included in EMCOREs unaudited pro forma condensed consolidated financial statements:
(a) The amounts being eliminated represent the revenues, cost of revenues, and operating and other expenses that are attributable to the sale of the Photovoltaics Business. The adjustments do not include the revenues, cost of revenues, and operating and other expenses attributable to the terrestrial solar module applications, which product lines were sold in fiscal year 2012.
(b) The amounts being eliminated represent the revenues, cost of revenues, and operating and other expenses that are attributable to the sale of the Digital Products Business. EMCORE has maintained separate accounting records for the Digital Products Business as it represents one of the two operating divisions within the fiber optics reporting segment. The allocation of corporate expenses is based on a combination of factors including assets, revenues and personnel costs. The adjustments do not include the revenues, cost of revenues and operating and other expenses attributable to the Vertical Cavity Surface Emitting Laser product lines, which product lines were sold in fiscal year 2012.
(c) The amount represents the interest expense associated with the credit and security agreement, dated November 11, 2010, by and between EMCORE Corporation and Wells Fargo Bank, National Association (as amended, the Credit Facility), that would not have been incurred assuming a portion of the net proceeds from the Photovoltaics Sale was used to repay outstanding borrowings under the Credit Facility as of October 1, 2011. The remaining amount of interest expense primarily represents fixed commitment fees and facility costs associated with the Credit Facility.
(d) The annualized interest income for the Promissory Note based on the terms of the note is assumed to be the following but is not reflected in the unaudited pro forma condensed consolidated financial statements as the note receivable may be prepaid at any time without penalty:
|
Note receivable (Note (l)) |
|
$ |
16,000 |
|
|
|
|
|
| |
|
First year interest rate |
|
5% |
| |
|
Annualized interest income |
|
$ |
800 |
|
|
Second year interest rate |
|
13% |
| |
|
Annualized interest income |
|
$ |
2,080 |
|
(e) During the quarter ended September 30, 2014, the Company determined that it was more likely than not that certain deferred tax assets would be realized upon the closing of the Photovoltaics Sale. Accordingly, a net deferred tax valuation allowance release of $24.1 million was recorded as an income tax benefit during fiscal year 2014 (the Income Tax Benefit). We expect that substantially all of the $24.1 million in deferred tax assets will be used in fiscal year 2015 when income tax expense is recorded as a result of closing the Photovoltaics Sale on December 10, 2014. The deferred tax valuation allowance is based primarily on estimates related to the taxable gains and losses on the sales of the Photovoltaics Business and Digital Products Business as well as estimates related to future taxable income.
Since the pro forma condensed consolidated statement of operations have been prepared with the assumption that the Asset Sales were completed as of October 1, 2011, the effect of the Income Tax Benefit has been reversed in the Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended September 30, 2014 and the Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2014.
No pro forma adjustment for income tax expense has been presented in the Unaudited Pro Forma Condensed Consolidated Statement of Operations for the years ended September 30, 2013 and 2012 because any income tax expense or benefit resulting from the Asset Sales would be offset due to the existence of significant deferred tax assets, including net operating loss carryforwards for EMCORE.
(f) Weighted average shares outstanding has been adjusted to reflect the accelerated vesting of shares by named executive officers and employees of the Photovoltaics Business upon the completion of the Photovoltaics Sale.
(g) Recording of the disposition of the Photovoltaics Business. The amounts include the assets and liabilities that historically have been reported as part of the Companys photovoltaics reporting segment as well as assets and liabilities primarily related to the Companys photovoltaics business that historically have been reported as part of the Companys unallocated corporate division, in each case, that were transferred in the Photovoltaics Sale.
(h) Net book value of Photovoltaics Business:
|
Photovoltaics Business assets sold |
|
$ |
73,666 |
|
|
|
|
|
|
|
|
Photovoltaics Business liabilities assumed |
|
(10,758 |
) | |
|
|
|
|
| |
|
Net book value of the Photovoltaics Business |
|
$ |
62,908 |
|
(i) Recording of the disposition of the Digital Products Business. The amounts include the assets and liabilities that historically have been reported as part of the Companys fiber optics reporting segment that are being transferred in the Digital Products Sale.
(j) Net book value of Digital Products Business:
|
Digital Products Business assets to be sold |
|
$ |
26,472 |
|
|
|
|
|
|
|
|
Digital Products Business liabilities to be assumed |
|
(10,886 |
) | |
|
|
|
|
| |
|
Net book value of the Digital Products Business |
|
$ |
15,586 |
|
(k) Recording of sale proceeds, net of estimated closing costs, for the sale of the assets and liabilities of the Photovoltaics Business less the assumed repayment of outstanding borrowings under the Credit Facility:
|
Purchase price |
|
$ |
150,000 |
|
|
|
|
|
|
|
|
Transaction costs incurred (legal, investment banking, bonuses) |
|
(7,750 |
) | |
|
Sale proceeds, net |
|
$ |
142,250 |
|
|
|
|
|
| |
|
Less repayment of outstanding borrowings under the Credit Facility |
|
(26,518 |
) | |
|
|
|
|
| |
|
Net cash |
|
$ |
115,732 |
|
(l) Recording of sale proceeds at closing, net of estimated closing costs, for the sale of the assets and liabilities of the Digital Products Business:
|
Purchase price (cash component) |
|
$ |
1,500 |
|
|
|
|
|
| |
|
Transaction costs to be incurred at closing (legal and investment banking) |
|
(1,500 |
) | |
|
Net cash |
|
|
| |
|
|
|
|
| |
|
Purchase Price (note receivable) |
|
16,000 |
| |
|
|
|
|
| |
|
Sale proceeds at closing, net |
|
$ |
16,000 |
|
(m) Shareholders equity includes estimated adjustments for accelerated vesting upon the completion of the Photovoltaics Sale of selected stock grants held by named executive officers of the Company and employees of the Photovoltaics Business.
|
Increase to additional paid-in-capital |
|
$ |
1,043 |
|
|
|
|
|
|
|
|
Change in accumulated deficit associated with stock compensation expense due to accelerated vesting |
|
(1,043 |
) | |
|
Net change to shareholders equity |
|
$ |
|
|
(n) Adjustments to the accumulated deficit resulting from the Photovoltaics Sale are comprised of the following:
|
Sale proceeds net of transaction costs and assumed Credit Facility repayment (Note (k)) |
|
$ |
115,732 |
|
|
|
|
|
|
|
|
Assumed repayment of Credit Facility (Note (k)) |
|
26,518 |
| |
|
|
|
|
| |
|
Deferred income taxes, net |
|
(24,080 |
) | |
|
Change in accumulated deficit associated with stock compensation expense due to accelerated vesting (Note (m)) |
|
(1,043 |
) | |
|
Net adjustment to accumulated deficit |
|
$ |
117,127 |
|
(o) The accumulated deficit has been adjusted to reflect the $16.0 million in sale proceeds at closing, net (Note (l)) from the Digital Products Sale.
(p) The estimated gain on sale of the Photovoltaics Business to be recorded as adjustments to shareholders equity:
|
Sale proceeds at closing, net (Note (k)) |
|
$ |
142,250 |
|
|
|
|
|
| |
|
Net book value of the Photovoltaics Business (Note (h)) |
|
(62,908 |
) | |
|
Estimated gain on Photovoltaics Sale |
|
$ |
79,342 |
|
The actual gain on sale of the Photovoltaics Business may change due to final determination of the net working capital, as defined in the Photovoltaics Agreement, from the signing of the Photovoltaics Agreement to the closing of the transaction on December 10, 2014.
(q) The estimated gain on sale of the Digital Products Business to be recorded as adjustments to shareholders equity:
|
Sale proceeds at closing, net (Note (l)) |
|
$ |
16,000 |
|
|
|
|
|
| |
|
Net book value of the Digital Products Business (Note (j)) |
|
(15,586 |
) | |
|
Estimated gain on Digital Products Sale |
|
$ |
414 |
|
The actual gain on sale of the Digital Products Business may change due to changes in the net working capital, as defined in the Digital Products Agreement, from the signing of the Digital Products Agreement to the anticipated closing of the transaction in early January 2015.