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 March 28, 2004

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 April 16, 2004 was 74,210,059.

CREE, INC.

FORM 10-Q

For the Quarter Ended March 28, 2004

INDEX


		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets at March 28, 2004 (unaudited) and June 29, 2003	3

	Consolidated Statements of Income for the three and nine months ended March 28, 2004 (unaudited) and March 30, 2003 (unaudited)	4

	Consolidated Statements of Cash Flow for the nine months ended March 28, 2004 (unaudited) and March 30, 2003 (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 6.	Exhibits and Reports on Form 8-K	40

SIGNATURES		41

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

CREE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)


	March 28, 2004		June 29, 2003
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	100,912	$	64,795
Short-term investments held to maturity		78,513		75,242
Accounts receivable, net		38,066		43,901
Interest receivable		1,748		1,650
Inventories, net		17,124		17,674
Deferred income taxes		1,863		1,863
Prepaid expenses and other current assets		4,491		4,230

Total current assets		242,717		209,355

Property and equipment, net		260,368		251,346
Long term investments held to maturity		61,562		58,794
Deferred income taxes		7,045		20,934
Patent and license rights, net		11,602		7,146
Other assets		15,954		16,119

Total assets	$	599,248	$	563,694

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade	$	12,943	$	14,916
Accrued salaries and wages		6,720		5,756
Deferred revenue		7,070		5,533
Other accrued expenses		2,822		2,087

Total current liabilities		29,555		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 March 28, 2004 and June 29, 2003; none issued and outstanding		—		—
Common stock, par value $0.00125; 200,000 shares authorized; 74,206 and 74,127 shares issued and outstanding at March 28, 2004 and June 29, 2003, respectively		92		92
Additional paid-in-capital		523,446		526,318
Deferred compensation expense		—		(218	)
Retained earnings		46,155		9,179

Total shareholders’ equity		569,693		535,371

Total liabilities and shareholders’ equity	$	599,248	$	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						Nine Months Ended
	March 28, 2004			March 30, 2003			March 28, 2004		March 30, 2003
Revenue:
Product revenue, net	$	71,383		$	53,774		$	197,131	$	145,149
Contract revenue, net		5,730			6,449			18,877		20,612

Total revenue		77,113			60,223			216,008		165,761

Cost of revenue:
Product revenue		33,261			27,018			98,979		79,662
Contract revenue		5,021			5,158			16,136		15,824

Total cost of revenue		38,282			32,176			115,115		95,486

Gross profit		38,831			28,047			100,893		70,275

Operating expenses:
Research and development		10,534			8,138			27,196		22,369
Sales, general and administrative		7,888			6,712			23,670		20,993
Severance expense		—			—			—		400
Impairment of property & equipment		80			—			226		1,491
(Gain) on termination of supply agreement		—			—			—		(5,000	)

Income from operations		20,329			13,197			49,801		30,022

Non-operating income (loss):
(Loss) on investments in marketable securities		(1	)		—			—		(2,067	)
Other non-operating income (loss)		598			(29	)		1,007		(46	)
Interest income		942			1,199			2,779		3,863

Income before income taxes		21,868			14,367			53,587		31,772

Income tax expense		6,779			3,735			16,612		8,261

Net income	$	15,089		$	10,632		$	36,975	$	23,511

Earnings per share:
Basic	$	0.20		$	0.15		$	0.50	$	0.32

Diluted	$	0.20		$	0.14		$	0.49	$	0.31

Shares used in per share calculation:
Basic		74,050			73,266			74,143		73,022

Diluted		76,399			75,394			75,979		75,026

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

CREE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

(In thousands)

(Unaudited)


		Nine Months Ended
		March 28, 2004			March 30, 2003
Operating activities:
Net income		$	36,975		$	23,511
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment			39,587			30,091
Impairment of property, equipment and patents			275			1,512
Amortization of patent rights			602			233
Amortization of premium on securities held to maturity			2,420			—
Amortization of deferred compensation			392			364
Deferred income taxes			13,889			8,181
Loss on marketable securities			1			2,067
Changes in operating assets and liabilities:
Accounts and interest receivable			5,737			(4,674	)
Inventories			550			330
Prepaid expenses and other current assets			(261	)		475
Accounts payable, trade			(1,973	)		3,318
Accrued expenses and other liabilities			3,205			4,018

Net cash provided by operating activities			101,399			69,426

Investing activities:
Purchase and deposits for property and equipment			(48,707	)		(56,180	)
Purchase of securities held to maturity			(86,698	)		(89,284	)
Costs associated with the acquisition of ATMI GaN			(105	)		—
Proceeds from maturities of securities held to maturity			78,239			48,962
Proceeds from sale of property and equipment			8			—
Proceeds from sale of available for sale securities			—			3,921
Other long-term assets			85			394
Capitalized patent costs			(5,058	)		(2,799	)

Net cash used in investing activities			(62,236	)		(94,986	)

Financing activities:
Net proceeds from issuance of common stock			8,476			3,968
Repurchase of common stock			(11,522	)		—

Net cash (used in) provided by financing activities			(3,046	)		3,968
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