CREE INC - 10-Q Quarterly Report

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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 28, 2003

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 16, 2004 was 73,739,495.

CREE, INC.

FORM 10-Q

For the Quarter Ended December 28, 2003

INDEX


		Page No.
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets at December 28, 2003 (unaudited) and June 29, 2003	3

	Consolidated Statements of Income for the three and six months ended December 28, 2003 (unaudited) and December 29, 2002 (unaudited)	4

	Consolidated Statements of Cash Flow for the six months ended December 28, 2003 (unaudited) and December 29, 2002 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	39

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	39

Item 4.	Submission of Matters to a Vote of Security Holders	41

Item 6.	Exhibits and Reports on Form 8-K	41

SIGNATURES		43

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

CREE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data


	December 28, 2003			June 29, 2003
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	75,442		$	64,795
Short-term investments held to maturity		79,242			75,242
Accounts receivable, net		39,201			43,901
Interest receivable		1,871			1,650
Inventories, net		16,756			17,674
Deferred income taxes		1,863			1,863
Prepaid expenses and other current assets		2,531			4,230

Total current assets		216,906			209,355
Property and equipment, net		263,229			251,346
Long term investments held to maturity		62,953			58,794
Deferred income taxes		13,504			20,934
Patent and license rights, net		11,036			7,146
Other assets		15,894			16,119

Total assets	$	583,522		$	563,694

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade	$	17,913		$	14,916
Accrued salaries and wages		6,291			5,756
Deferred revenue		8,271			5,533
Other accrued expenses		2,306			2,087

Total current liabilities		34,781			28,292
Long term liabilities:
Other long term liabilities		—			31

Total long term liabilities		—			31
Shareholders’ equity:
Preferred stock, par value $0.01; 3,000 shares authorized at December 28, 2003 and June 29, 2003; none issued and outstanding		—			—
Common stock, par value $0.00125; 200,000 shares authorized; 73,736 and 74,127 shares issued and outstanding at December 28, 2003 and June 29, 2003, respectively		92			92
Additional paid-in-capital		517,596			526,318
Deferred compensation expense		(13	)		(218	)
Retained earnings		31,066			9,179

Total shareholders’ equity		548,741			535,371

Total liabilities and shareholders’ equity	$	583,522		$	563,694

The accompanying notes are an integral part of the consolidated financial statements.

CREE, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)


	Three Months Ended					Six Months Ended
	December 28, 2003		December 29, 2002			December 28, 2003		December 29, 2002
Revenue:
Product revenue, net	$	66,585	$	49,222		$	125,748	$	91,376
Contract revenue, net		6,099		7,505			13,147		14,163

Total revenue		72,684		56,727			138,895		105,539

Cost of revenue:
Product revenue		33,216		27,510			65,719		52,627
Contract revenue		5,623		5,677			11,115		10,666

Total cost of revenue		38,839		33,187			76,834		63,293


Gross profit		33,845		23,540			62,061		42,246

Operating expenses:
Research and development		8,336		7,667			16,662		14,231
Sales, general and administrative		7,868		6,474			15,781		14,300
Severance expense		—		—			—		400
Impairment of property & equipment		143		1,423			146		1,491
Gain on termination of supply agreement		—		5,000			—		5,000

Income from operations		17,498		12,976			29,472		16,824

Non-operating income (loss):
Loss on investments in marketable securities		—		2,067			—		2,067
Other non-operating income (loss)		407		(17	)		410		(16	)
Interest income		945		1,265			1,837		2,663


Income before income taxes		18,850		12,157			31,719		17,404

Income tax expense		5,843		3,161			9,833		4,525

Net income	$	13,007	$	8,996		$	21,886	$	12,879


Earnings per share:
Basic	$	0.18	$	0.12		$	0.30	$	0.18

Diluted	$	0.17	$	0.12		$	0.29	$	0.17


Shares used in per share calculation:
Basic		74,206		73,051			74,190		72,899

Diluted		76,005		75,259			75,881		74,849

The accompanying notes are an integral part of the consolidated financial statements.

CREE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

(In thousands)

(Unaudited)


	Six Months Ended
	December 28, 2003			December 29, 2002
Operating activities:
Net income	$	21,886		$	12,879
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment		25,551			19,462
Impairment of property, equipment and patents		146			1,512
Amortization of patent rights		387			155
Amortization of premium on securities held to maturity		1,574			—
Amortization of deferred compensation		382			250
Deferred income taxes		7,430			4,551
Loss on marketable securities		—			2,067
Changes in operating assets and liabilities:
Accounts and interest receivable		4,479			(8,761	)
Inventories		918			2,822
Prepaid expenses and other current assets		1,699			(13,552	)
Other long-term assets		40			14,115
Accounts payable, trade		2,997			2,975
Accrued expenses and other liabilities		3,461			2,779

Net cash provided by operating activities		70,950			41,254


Investing activities:
Purchase and deposits for property and equipment		(37,400	)		(40,229	)
Purchase of securities held to maturity		(56,775	)		(60,184	)
Proceeds from maturities of securities held to maturity		47,042			37,862
Proceeds from sale of investment		—			635
Proceeds from sale of property and equipment		4			—
Proceeds from sale of available for sale securities		—			3,921
Capitalized patent costs		(4,277	)		(2,496	)

Net cash used in investing activities		(51,406	)		(60,491	)


Financing activities:
Net proceeds from issuance of common stock		2,625			3,812
Repurchase of common stock		(11,522	)		—

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