EXPLANATORY NOTE
Impact of Thailand Floods on our Operations
Background
On October 24, 2011, our primary contract manufacturer announced that, as a result of the flooding in Thailand, it had suspended operations at its facility that is used to manufacture certain of our fiber optics products. Rising water penetrated the facility and submerged most of our manufacturing and test equipment as well as our inventory at the facility.
Strategic Plan
Over the last two months, we have developed and implemented alternative manufacturing plans in our own facilities in China and in the U.S. to meet the needs of our customers. Concurrently, we have been focusing on rebuilding our high-volume manufacturing infrastructure at other Thailand locations supported by our contract manufacturer and at our own manufacturing facility in China. We have been working closely with our insurance carriers, banks, customers, and business partners to address short-term liquidity requirements and we and our manufacturing partners have placed purchase orders for long lead-time capital equipment. We expect to complete the rebuild and product qualification for our major product lines in our third quarter of fiscal 2012.
As a result of the flood, certain inventory and fixed assets were damaged or destroyed. Our contract manufacturer is required under its production agreement with us to reimburse us for losses to fixed assets and inventory incurred while at the manufacturer's facilities. We are working with our contract manufacturer (and the contract manufacturer's insurance carrier) to receive insurance proceeds to cover the direct damages to our assets that were impacted by the flood. We are not a named beneficiary of our contract manufacturer's insurance policy. The timing and amounts of the recovery from the contract manufacturer, including insurance proceeds, are uncertain at this time.
Additionally, we claimed damages under our own insurance policy relating to business interruption due to the flooding. To date, we have collected $2.0 million from our policy and we expect to receive an additional $3.0 million by January 2012.
With respect to measures taken to improve liquidity:
We also entered into an agreement with our contract manufacturer whereby our contract manufacturer will purchase equipment to rebuild our affected manufacturing lines for which we will repay our contract manufacturer from insurance proceeds received from that contract manufacturer. Additionally, we restructured our outstanding payables owed to our contract manufacturer, which delayed payments to future dates to coincide with expected timing of insurance proceeds.
Financial Impact
Although we have not yet definitively quantified the possible impacts of the flooding in Thailand on our business, we expect that flooding at our primary contract manufacturer in Thailand will have a significant adverse impact on our operations and our ability to meet customer demand for our fiber optics products in the near-term. Our Thailand contract manufacturer historically supported greater than 50 percent of our total fiber optics-related revenue. Our current evaluation is that our fiber optics revenue could be $12 to $15 million less in our first quarter of fiscal 2012 as a result of this natural disaster. There is no assurance that the disruption in our fiscal 2012 fiber optics quarterly revenue will be limited to this range, nor can it be assured that the adverse impact will be limited to the next three fiscal quarters. It is possible that our customers may seek alternative suppliers of comparable products if we are unable to meet their needs. While we believe our insurance coverage, both property and business interruption, will mitigate a portion of the adverse impact, there can be no assurance as to the extent or timing of insurance recoveries. Our Photovoltaics segment has not been affected by the floods in Thailand.
As of December 31, 2011, we will perform an impairment test of our long-lived assets related to our Fiber Optics segment. The outcome of these tests may result in recording of impairment charges. We expect to write-off the carrying value of damaged equipment and inventory which is estimated to be in the range of $10 to $20 million. Insurance proceeds including recoveries from our contract manufacturer will be recorded as a gain upon receipt.
Additional information
See - for a discussion of certain risk factors associated with this natural disaster.
See - for disclosures related to the impact to our operations associated with this natural disaster.
See - for disclosures related to the impact to our consolidated financial statements associated with this natural disaster.
ITEM 1. Business
Company Overview
EMCORE Corporation and its subsidiaries (the “Company”, “we”, “our”, or “EMCORE”) offers a broad portfolio of compound semiconductor-based products for the broadband, fiber optics, satellite, and solar power markets. We were established in 1984 as a New Jersey corporation and we have two reporting segments: Fiber Optics and Photovoltaics. Our Fiber Optics segment offers optical components, subsystems, and systems that enable the transmission of video, voice, and data over high-capacity fiber optics cables for high-speed data and telecommunications, cable television (CATV), and fiber-to-the-premises (FTTP) networks. Our Photovoltaics segment provides solar products for both satellite and terrestrial applications. For satellite applications, we offer high-efficiency compound semiconductor-based gallium arsenide (GaAs) multi-junction solar cells, covered interconnected cells (CICs), and fully integrated solar panels. For terrestrial applications, we offer concentrating photovoltaic (CPV) power systems for commercial and utility scale solar applications as well as our high-efficiency GaAs solar cells and integrated CPV components for use in other solar power concentrator systems.
Our headquarters and principal executive offices are located at 10420 Research Road, SE, Albuquerque, New Mexico, 87123, and our main telephone number is (505) 332-5000. For specific information about us, our products or the markets we serve, please visit our website at http://www.emcore.com. The information contained in or linked to our website is not a part of, nor incorporated by reference into, this Annual Report on Form 10-K or a part of any other report or filing with the Securities and Exchange Commission (SEC).