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Table of Contents
 
UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 29, 2002
 
Commission file number: 0-21154
 
 
CREE, INC.
(Exact name of registrant as specified in its charter)
 
North Carolina
  
56-1572719         
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
 
4600 Silicon Drive
Durham, North Carolina  
  
27703
(Address of principal executive offices)       
  
(Zip Code)
 
(919) 313-5300
(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. x Yes  ¨ No
 
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). x Yes ¨ No 
 
The number of shares outstanding of the registrant’s common stock, par value $0.00125 per share, as of January 17, 2003 was 73,242,214.
 

Table of Contents
 
CREE, INC.
FORM 10-Q
 
For the Quarter Ended December 29, 2002
 
INDEX
 
         
Page No.
PART I. FINANCIAL INFORMATION
     
Item 1.
   
Financial Statements
     
       
  3
       
  4
       
  5
       
  6
Item 2.
      
19
Item 3.
      
33
Item 4.
      
33
PART II. OTHER INFORMATION
     
Item 1.
      
34
Item 4.
      
35
Item 6.
      
35
  
36
  
37

2

Table of Contents
 
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements
 
CREE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
 
    
December 29, 2002
     
June 30, 2002
  
    
(Unaudited)
         
ASSETS
       
Current assets:
                  
Cash and cash equivalents
   
$
58,319
 
   
$
73,744
 
Short-term investments held to maturity
   
 
50,882
 
   
 
32,396
 
Marketable securities available for sale
   
 
—  
 
   
 
6,008
 
Accounts receivable, net
   
 
41,573
 
   
 
34,592
 
Interest receivable
   
 
4,423
 
   
 
2,083
 
Inventories, net
   
 
15,144
 
   
 
17,966
 
Deferred income taxes
   
 
2,205
 
   
 
1,122
 
Prepaid expenses and other current assets
   
 
5,647
 
   
 
5,994
 
    
  
Total current assets
   
 
178,193
 
   
 
173,905
 
Property and equipment, net
   
 
232,694
 
   
 
211,685
 
Long-term investments held to maturity
   
 
68,002
 
   
 
64,225
 
Deferred income taxes
   
 
21,750
 
   
 
27,365
 
Patent and license rights, net
   
 
6,592
 
   
 
4,251
 
Other assets
   
 
19,660
 
   
 
22,764
 
    
  
Total assets
   
$
526,891
 
   
$
504,195
 
    
  
LIABILITIES AND SHAREHOLDERS’ EQUITY
                  
Current liabilities:
                  
Accounts payable, trade
   
$
16,050
 
   
$
13,075
 
Accrued salaries and wages
   
 
5,453
 
   
 
4,010
 
Deferred revenue and other accrued expenses
   
 
6,316
 
   
 
4,969
 
    
  
Total current liabilities
   
 
27,819
 
   
 
22,054
 
Long term liabilities:
                  
Other long term liabilities
   
 
27
 
   
 
37
 
    
  
Total long term liabilities
   
 
27
 
   
 
37
 
Shareholders’ equity:
                  
Preferred stock, par value $0.01; 3,000 shares authorized at December 29, 2002 and June 30, 2002; none issued and outstanding
   
 
—  
 
   
 
—  
 
Common stock, par value $0.00125; 200,000 shares authorized; 73,242 and 72,729 shares issued and outstanding at December 29, 2002 and June 30, 2002, respectively
   
 
91
 
   
 
90
 
Additional paid-in-capital
   
 
512,243
 
   
 
508,432
 
Deferred compensation expense
   
 
(446
)
   
 
(696
)
Accumulated deficit
   
 
(12,843
)
   
 
(25,722
)
    
  
Total shareholders’ equity
   
 
499,045
 
   
 
482,104
 
    
  
Total liabilities and shareholders’ equity
   
$
526,891
 
   
$
504,195
 
    
  
 
The accompanying notes are an integral part of the consolidated financial statements.

3

Table of Contents
 
CREE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
    
    
 
    
Three Months Ended
     
Six Months Ended
  
    
December 29, 2002
   
December 23, 2001
     
December 29, 2002
   
December 23, 2001
  
Revenue:
                                
Product revenue, net
   
$
49,222
   
$
36,873
 
   
$
91,376
   
$
75,451
 
Contract revenue, net
   
 
7,505
   
 
4,219
 
   
 
14,163
   
 
8,807
 
    
  
  
  
Total revenue
   
 
56,727
   
 
41,092
 
   
 
105,539
   
 
84,258
 
Cost of revenue:
                                
Product revenue
   
 
27,510
   
 
18,508
 
   
 
52,627
   
 
38,420
 
Contract revenue
   
 
5,677
   
 
3,209
 
   
 
10,666
   
 
6,559
 
    
  
  
  
Total cost of revenue
   
 
33,187
   
 
21,717
 
   
 
63,293
   
 
44,979
 
    
  
  
  
Gross profit
   
 
23,540
   
 
19,375
 
   
 
42,246
   
 
39,279
 
Operating expenses:
                                
Research and development
   
 
7,667
   
 
6,748
 
   
 
14,231
   
 
10,853
 
Sales, general and administrative
   
 
6,474
   
 
5,582
 
   
 
14,299
   
 
11,314
 
Other expense
   
 
1,423
   
 
18,820
 
   
 
1,491
   
 
19,670
 
Goodwill and intangible asset amortization
   
 
—  
   
 
2,256
 
   
 
—  
   
 
4,511
 
    
  
  
  
Income (loss) from operations
   
 
7,976
   
 
(14,031
)
   
 
12,225
   
 
(7,069
)
Other non operating income (loss)
   
 
2,916
   
 
(11,794
)
   
 
2,516
   
 
(11,794
)
Interest income
   
 
1,265
   
 
1,353
 
   
 
2,663
   
 
3,490
 
    
  
  
  
Income (loss) before income taxes
   
 
12,157
   
 
(24,472
)
   
 
17,404
   
 
(15,373
)
Income tax expense (benefit)
   
 
3,161
   
 
(7,096
)
   
 
4,525
   
 
(4,458
)
    
  
  
  
Net income (loss)
   
$
8,996
   
$
(17,376
)
   
$
12,879
   
$
(10,915
)
    
  
  
  
Earnings (loss) per share:
                                
Basic
   
$
0.12
   
$
(0.24
)
   
$
0.18
   
$
(0.15
)
    
  
  
  
Diluted
   
$
0.12
   
$
(0.24
)
   
$
0.17
   
$
(0.15
)
    
  
  
  
Shares used in per share calculation:
                                
Basic
   
 
73,051
   
 
72,457
 
   
 
72,899
   
 
72,705
 
    
  
  
  
Diluted
   
 
75,259
   
 
72,457
 
   
 
74,849
   
 
72,705
 
    
  
  
  
 
The accompanying notes are an integral part of the consolidated financial statements.

4

Table of Contents
 
CREE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
 
    
Six Months Ended
  
    
December 29, 2002
     
December 23, 2001
  
Operating activities:
                  
Net income (loss)
   
$
12,879
 
   
$
(10,915
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                  
Depreciation of property and equipment
   
 
19,462
 
   
 
15,337
 
Loss on disposal of property, equipment and other impairment charge
   
 
1,512
 
   
 
18,935
 
Amortization of patent rights
   
 
155
 
   
 
124
 
Amortization of intangible assets
   
 
—  
 
   
 
4,511
 
Amortization of deferred compensation
   
 
250
 
   
 
256
 
Deferred income taxes
   
 
4,551
 
   
 
(8,453
)
Loss (gain) on marketable secutities
   
 
2,067
 
   
 
(558
)
Tax benefits associated with stock option exercises
   
 
—  
 
   
 
1,690
 
Other than temporary decline in value of long term investments
   
 
—  
 
   
 
12,352
 
Changes in operating assets and liabilities:
                  
Accounts and interest receivable
   
 
(8,761
)
   
 
959