UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 27, 2005
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 19, 2005 was 75,249,157.
FORM 10-Q
For the Three and Nine Months Ended March 27, 2005
INDEX
2
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
| March 27, 2005 |
June 27, 2004 | |||||
| (Unaudited) | ||||||
| ASSETS |
||||||
| Current assets: |
||||||
| Cash and cash equivalents |
$ | 60,923 | $ | 81,472 | ||
| Short-term investments held-to-maturity |
81,179 | 76,691 | ||||
| Accounts receivable, net |
50,274 | 47,766 | ||||
| Interest receivable |
1,699 | 1,752 | ||||
| Inventories, net |
29,346 | 19,428 | ||||
| Deferred income taxes |
2,270 | 2,560 | ||||
| Prepaid insurance |
3,356 | 2,304 | ||||
| Prepaid expenses and other current assets |
8,423 | 2,920 | ||||
| Total current assets |
237,470 | 234,893 | ||||
| Property and equipment, net |
343,521 | 273,342 | ||||
| Long-term investments held-to-maturity |
86,982 | 72,730 | ||||
| Marketable securities available for sale |
18,613 | 22,002 | ||||
| Patent rights, net |
21,344 | 19,831 | ||||
| Other assets |
7,367 | 5,202 | ||||
| Total assets |
$ | 715,297 | $ | 628,000 | ||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||
| Current liabilities: |
||||||
| Accounts payable, trade |
$ | 27,706 | $ | 25,102 | ||
| Accrued salaries and wages |
9,510 | 8,125 | ||||
| Deferred revenue |
— | 8,437 | ||||
| Income taxes payable |
4,297 | — | ||||
| Other accrued expenses |
2,308 | 3,318 | ||||
| Total current liabilities |
43,821 | 44,982 | ||||
| Long-term liabilities: |
||||||
| Deferred income taxes |
9,484 | 3,886 | ||||
| Total long-term liabilities |
9,484 | 3,886 | ||||
| Shareholders’ equity: |
||||||
| Preferred stock, par value $0.01; 3,000 shares authorized at March 27, 2005 and June 27, 2004; none issued and outstanding |
— | — | ||||
| Common stock, par value $0.00125; 200,000 shares authorized at March 27, 2005 and June 27, 2004; 75,186 and 73,245 shares issued and outstanding at March 27, 2005 and June 27, 2004, respectively |
94 | 91 | ||||
| Additional paid-in-capital |
519,853 | 506,275 | ||||
| Accumulated other comprehensive income, net of taxes |
4,773 | 5,627 | ||||
| Retained earnings |
137,272 | 67,139 | ||||
| Total shareholders’ equity |
661,992 | 579,132 | ||||
| Total liabilities and shareholders’ equity |
$ | 715,297 | $ | 628,000 | ||
The accompanying notes are an integral part of the consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
| Three Months Ended |
Nine Months Ended | ||||||||||||
| March 27, 2005 |
March 28, 2004 |
March 27, 2005 |
March 28, 2004 | ||||||||||
| Revenue: |
|||||||||||||
| Product revenue, net |
$ | 91,236 | $ | 71,493 | $ | 272,990 | $ | 197,620 | |||||
| Contract revenue, net |
5,474 | 5,730 | 17,191 | 18,877 | |||||||||
| Total revenue |
96,710 | 77,223 | 290,181 | 216,497 | |||||||||
| Cost of revenue: |
|||||||||||||
| Product revenue, net |
41,210 | 33,992 | 123,224 | 100,838 | |||||||||
| Contract revenue, net |
4,260 | 5,021 | 13,604 | 16,136 | |||||||||
| Total cost of revenue |
45,470 | 39,013 | 136,828 | 116,974 | |||||||||
| Gross profit |
51,240 | 38,210 | 153,353 | 99,523 | |||||||||
| Operating expenses: |
|||||||||||||
| Research and development |
11,505 | 10,481 | 33,144 | 26,988 | |||||||||
| Sales, general and administrative |
9,025 | 7,210 | 24,512 | 22,019 | |||||||||
| Loss on disposal of property and equipment |
277 | 80 | 603 | 226 | |||||||||
| Total operating expenses |
20,807 | 17,771 | 58,259 | 49,233 | |||||||||
| Income from operations |
30,433 | 20,439 | 95,094 | 50,290 | |||||||||
| Non-operating income: |
|||||||||||||
| Gain (loss) on investments in marketable securities |
2,808 | (1 | ) | 2,927 | — | ||||||||
| Loss on long-term investments |
— | — | 1,992 | — | |||||||||
| Other non-operating income |
— | 488 | 4 | 518 | |||||||||
| Interest income, net |
1,404 | 942 | 3,691 | 2,779 | |||||||||
| Income before income taxes |
34,645 | 21,868 | 99,724 | 53,587 | |||||||||
| Income tax expense |
13,962 | 6,779 | 29,592 | 16,612 | |||||||||
| Net income |
$ | 20,683 | $ | 15,089 | $ | 70,132 | $ | 36,975 | |||||
| Earnings per share: |
|||||||||||||
| Basic |
$ | 0.27 | $ | 0.20 | $ | 0.94 | $ | 0.50 | |||||
| Diluted |
$ | 0.27 | $ | 0.20 | $ | 0.91 | $ | 0.49 | |||||
| Shares used in per share calculation: |
|||||||||||||
| Basic |
75,694 | 74,050 | 74,860 | 74,143 | |||||||||
| Diluted |
77,428 | 76,399 | 77,256 | 75,979 | |||||||||
The accompanying notes are an integral part of the consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
| Nine Months Ended |
||||||||
| March 27, 2005 |
March 28, 2004 |
|||||||
| Operating activities: |
||||||||
| Net income |
$ | 70,132 | $ | 36,975 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation of property and equipment |
49,855 | 39,587 | ||||||
| Loss on disposal of property, equipment and patents |
603 | 275 | ||||||
| (Gain) loss on marketable securities |
(2,927 | ) | — | |||||
| Write-down of long-term investments |
1,992 | — | ||||||
| Amortization of patent rights |
1,207 | 602 | ||||||
| Amortization of premium on securities held to maturity |
1,763 | 2,420 | ||||||
| Amortization of deferred compensation |
— | 392 | ||||||
| Deferred income taxes |
(2,137 | ) | 13,889 | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts and interest receivable |
(11,220 | ) | 5,737 | |||||
| Inventories |
(9,918 | ) | 550 | |||||
| Prepaid expenses and other assets |
(5,159 | ) | (261 | ) | ||||
| Accounts payable, trade |
2,347 | (1,973 | ) | |||||
| Accrued expenses and other liabilities |
12,726 | 3,205 | ||||||
| Net cash provided by operating activities |
109,266 | 101,399 | ||||||
| Investing activities: |
||||||||
| Purchase and deposits for property and equipment |
(119,781 | ) | (48,707 | ) | ||||
| Purchase of securities held to maturity |
(100,022 | ) | (86,698 | ) | ||||
| Proceeds from maturities of securities held to maturity |
79,632 | 78,239 | ||||||
| Costs associated with the acquisition of ATMI GaN |
— | (105 | ) | |||||
| Proceeds from available for sale securities |
4,791 | — | ||||||
| Proceeds from sale of investment |
358 | — | ||||||
| Proceeds from sale of property and equipment |
532 | 8 | ||||||
| Increase in other long-term assets |
(6,290 | ) | 85 | |||||
| Capitalized patent costs |
(2,616 | ) | (5,058 | ) | ||||
| Net cash used in investing activities |
(143,396 | ) | (62,236 | ) | ||||
| Financing activities: |
||||||||
| Net proceeds from exercise of stock options |
48,842 | 8,476 | ||||||
| Repurchase of common stock |
(35,261 | ) | (11,522 | ) | ||||
| Net cash provided by (used in) financing activities |
13,581 | (3,046 | ) | |||||
| Net (decrease) increase in cash and cash equivalents |
(20,549 | ) | 36,117 | |||||
| Cash and cash equivalents: |
||||||||
| Beginning of period |
$ | 81,472 | $ | 64,795 | ||||
| End of period |
$ | 60,923 | $ | 100,912 | ||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid for income taxes |
$ | 19,964 | $ | 2,872 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
The co