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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 29, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
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 
DurhamNorth Carolina27703
(Address of principal executive offices) (Zip Code)
(919) 407-5300
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.00125 par value CREEThe Nasdaq Stock Market LLC
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.
Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
The number of shares outstanding of the registrant’s common stock, par value $0.00125 per share, as of January 24, 2020, was 108,071,430.


Table of Contents
CREE, INC.
FORM 10-Q
For the Quarterly Period Ended December 29, 2019
Table of Contents

2

Table of Contents
PART I - FINANCIAL INFORMATION
Item 1.    Financial Statements (Unaudited)

3

Table of Contents
CREE, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in millions of U.S. Dollars, except share data) December 29, 2019June 30, 2019
Assets
Current assets:
Cash and cash equivalents$382.6  $500.5  
Short-term investments568.9  550.9  
Total cash, cash equivalents and short-term investments951.5  1,051.4  
Accounts receivable, net137.2  128.9  
Inventories165.3  187.4  
Income taxes receivable1.1  0.2  
Prepaid expenses24.5  23.3  
Other current assets12.8  19.7  
Current assets held for sale0.2  1.9  
Total current assets1,292.6  1,412.8  
Property and equipment, net692.4  625.2  
Goodwill530.0  530.0  
Intangible assets, net187.7  197.9  
Other long-term investments50.7  39.5  
Deferred tax assets6.0  5.6  
Other assets23.4  5.9  
Total assets$2,782.8  $2,816.9  
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses$176.7  $200.9  
Income taxes payable2.4  3.0  
Accrued contract liabilities 44.4  45.8  
Other current liabilities25.0  18.5  
Total current liabilities248.5  268.2  
Long-term liabilities:
Convertible notes, net480.5  469.1  
Deferred tax liabilities  2.0  
Other long-term liabilities57.3  36.4  
Total long-term liabilities537.8  507.5  
Commitments and contingencies
Shareholders’ equity:
Preferred stock, par value $0.01; 3,000 shares authorized at December 29, 2019 and June 30, 2019; none issued and outstanding
    
Common stock, par value $0.00125; 200,000 shares authorized at December 29, 2019 and June 30, 2019; 108,031 and 106,570 shares issued and outstanding at December 29, 2019 and June 30, 2019, respectively
0.1  0.1  
Additional paid-in-capital2,919.5  2,874.1  
Accumulated other comprehensive income9.7  9.5  
Accumulated deficit(938.1) (847.5) 
Total shareholders’ equity1,991.2  2,036.2  
Non-controlling interest5.3  5.0  
Total equity1,996.5  2,041.2  
Total liabilities and shareholders’ equity$2,782.8  $2,816.9  
The accompanying notes are an integral part of the consolidated financial statements
4

Table of Contents
CREE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 Three months endedSix months ended
 December 29, 2019December 30, 2018December 29, 2019December 30, 2018
(in millions of U.S. Dollars, except share data)
Revenue, net$239.9  $280.5  $482.7  $554.7  
Cost of revenue, net178.0  177.0  346.6  352.9  
Gross profit61.9  103.5  136.1  201.8  
Operating expenses:
Research and development47.3  40.2  91.0  76.5  
Sales, general and administrative52.8  49.2  110.4  93.1  
Amortization or impairment of acquisition-related intangibles3.6  3.9  7.2  7.8  
Loss on disposal or impairment of other assets0.8    1.8  0.4  
Other operating expense13.8  0.2  21.0  3.2  
Operating (loss) income(56.4) 10.0  (95.3) 20.8  
Non-operating (income) expense, net(5.1) 5.6  (6.7) 15.3  
(Loss) income before income taxes(51.3) 4.4  (88.6) 5.5  
Income tax expense1.2  4.6  1.7  6.5  
Net loss from continuing operations(52.5) (0.2) (90.3) (1.0) 
Net loss from discontinued operations  (2.3)   (12.6) 
Net loss(52.5) (2.5) (90.3) (13.6) 
Net income attributable to noncontrolling interest0.3    0.3    
Net loss attributable to controlling interest($52.8) ($2.5) ($90.6) ($13.6) 
Basic and diluted loss per share
Continuing operations attributable to controlling interest($0.49) $  ($0.84) ($0.01) 
Net loss attributable to controlling interest($0.49) ($0.02) ($0.84) ($0.13) 
Weighted average shares - basic and diluted (in thousands)107,925  102,871  107,519  102,396  
The accompanying notes are an integral part of the consolidated financial statements
5

Table of Contents
CREE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 Three months endedSix months ended
(in millions of U.S. Dollars)December 29, 2019December 30, 2018December 29, 2019December 30, 2018
Net loss($52.5) ($2.5) ($90.3) ($13.6) 
Other comprehensive loss:
Currency translation loss  (0.9)   (0.5) 
Net unrealized (loss) gain on available-for-sale securities(0.3) 1.1  0.2  0.8  
Comprehensive loss (52.8) (2.3) (90.1) (13.3) 
Net income attributable to non-controlling interest0.3    0.3    
Comprehensive loss attributable to controlling interest($53.1) ($2.3) ($90.4) ($13.3) 
The accompanying notes are an integral part of the consolidated financial statements
6

Table of Contents
CREE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive IncomeTotal Equity - Controlled InterestNon-controlling InterestTotal Equity
(in millions of U.S Dollars, except share data)Number of SharesPar Value
Balance at June 30, 2019106,570  $0.1  $2,874.1  ($847.5) $9.5  $2,036.2  $5.0  $2,041.2  
Net loss—  —  —  (37.8) —  (37.8) —  (37.8) 
Unrealized gain on available-for-sale securities—  —  —  —  0.5  0.5  —  0.5  
Comprehensive loss(37.3) —  (37.3) 
Tax withholding on vested equity awards—  —  (14.3) —  —  (14.3) —  (14.3) 
Stock-based compensation—  —  17.4  —  —  17.4  —  17.4  
Exercise of stock options and issuance of shares1,127  —  18.6  —  —  18.6  —  18.6  
Balance at September 29, 2019107,697  $0.1  $2,895.8  ($885.3) $10.0  $2,020.6  $5.0  $2,025.6  
Net (loss) income—  —  —  (52.8) —  (52.8) 0.3  (52.5) 
Unrealized loss on available-for-sale securities—  —  —  —  (0.3) (0.3) —  (0.3) 
Comprehensive (loss) income(53.1) 0.3  (52.8) 
Tax withholding on vested equity awards—  —  (0.4) —  —  (0.4) —  (0.4) 
Stock-based compensation—  —  13.4  —  —  13.4  —  13.4  
Exercise of stock options and issuance of shares334  —  10.7  —  —  10.7  —  10.7  
Balance at December 29, 2019108,031  $0.1  $2,919.5  ($938.1) $9.7  $1,991.2  $5.3  $1,996.5  
The accompanying notes are an integral part of the consolidated financial statements
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CREE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Common Stock
Additional
Paid-in
Capital
Accumulated Deficit
Accumulated
Other
Comprehensive
Income
Total Equity - Controlled InterestNon-controlling InterestTotal Equity
(in millions of U.S. Dollars, except share data)
Number
of Shares
Par Value
Balance at June 24, 2018101,488  $0.1  $2,549.1  ($482.7) $0.6  $2,067.1  $5.0  $2,072.1  
Net loss—  —  —  (11.1) —  (11.1) —  (11.1) 
Currency translation gain—  —  —  —  0.3  0.3  —  0.3  
Unrealized loss on available-for-sale securities—  —  —  —  (0.3) (0.3) —  (0.3) 
Comprehensive loss(11.1) —  (11.1) 
Tax withholding on vested equity awards—  —  (10.8) —  —  (10.8) —  (10.8) 
Stock-based compensation—  —  12.1  —  —  12.1  —  12.1  
Exercise of stock options and issuance of shares1,032  —  15.5  —  —  15.5  —  15.5  
Convertible note issuance—  —  110.6  —  —  110.6  —  110.6  
Adoption of ASC 606—  —  —  10.3  —  10.3  —  10.3  
Balance at September 23, 2018102,520  $0.1  $2,676.5  ($483.5) $0.6  $2,193.7  $5.0  $2,198.7  
Net loss—  —  —  (2.5) —  (2.5) —  (2.5) 
Currency translation loss—  —  —  —  (0.9) (0.9) —  (0.9) 
Unrealized gain on available-for-sale securities—  —  —  —  1.1  1.1  —  1.1  
Comprehensive loss(2.3) —  (2.3) 
Tax withholding on vested equity awards—  —  (1.1) —  —  (1.1) —  (1.1) 
Repurchased shares—  —  —  —  —  —  —  —  
Stock-based compensation—  —  13.6  —  —  13.6  —  13.6  
Exercise of stock options and issuance of shares553  —  14.6  —  —  14.6  —  14.6  
Balance at December 30, 2018103,073  $0.1  $2,703.6  ($486.0) $0.8  $2,218.5  $5.0  $2,223.5  
The accompanying notes are an integral part of the consolidated financial statements

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CREE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six months ended
(in millions of U.S. Dollars)December 29, 2019December 30, 2018
Operating activities:
Net loss from continuing operations($90.3) ($1.0) 
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization59.3  60.9  
Amortization of debt issuance costs and discount11.4  7.2  
Stock-based compensation29.9  21.0  
Loss on disposal or impairment of long-lived assets1.8  0.7  
Amortization of premium/discount on investments0.1  1.6  
(Gain)/loss on equity investment(9.9) 8.6  
Foreign exchange (gain) loss on equity investment(1.3) 0.5  
Deferred income taxes(2.4) (4.6) 
Changes in operating assets and liabilities:
Accounts receivable, net(8.2) (0.3) 
Inventories23.0  (18.7) 
Prepaid expenses and other assets7.8  2.3  
Accounts payable, trade(14.5) 0.5  
Accrued salaries and wages and other liabilities(26.9) 11.9  
Accrued contract liabilities8.4  19.2  
Net cash (used in) provided by operating activities of continuing operations(11.8) 109.8  
Net cash provided by operating activities of discontinued operations  17.9  
Cash (used in) provided by operating activities(11.8) 127.7  
Investing activities:
Purchases of property and equipment(101.0) (63.2) 
Purchases of patent and licensing rights(3.3) (3.8) 
Proceeds from sale of property and equipment1.7  0.2  
Purchases of short-term investments(295.3) (210.7) 
Proceeds from maturities of short-term investments212.6  83.8  
Proceeds from sale of short-term investments64.8  26.7  
Net cash used in investing activities of continuing operations(120.5) (167.0) 
Net cash used in investing activities of discontinued operations  (11.8) 
Cash used in investing activities(120.5) (178.8) 
Financing activities:
Proceeds from long-term debt borrowings  95.0  
Payments on long-term debt borrowings, including finance lease obligations(0.1) (387.0) 
Proceeds from convertible notes  575.0  
Payments of debt issuance costs  (12.9) 
Proceeds from issuance of common stock29.3  30.1  
Tax withholding on vested equity awards(14.7) (11.9) 
Net cash provided by financing activities of continuing operations14.5  288.3  
Net cash provided by financing activities of discontinued operations    
Cash provided by financing activities14.5  288.3  
Effects of foreign exchange changes on cash and cash equivalents(0.1) (0.1) 
Net change in cash and cash equivalents(117.9) 237.1  
Cash and cash equivalents, beginning of period500.5  118.9  
Cash and cash equivalents, end of period$382.6  $356.0  
The accompanying notes are an integral part of the consolidated financial statements
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CREE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



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Note 1 – Basis of Presentation and New Accounting Standards
Overview
Cree, Inc. (the Company) is an innovator of wide bandgap semiconductors, focused on silicon carbide and gallium nitride materials, products for power and radio-frequency (RF) applications and specialty lighting-class light emitting diode (LED) products. The Company's silicon carbide and gallium nitride (GaN) materials and products are targeted for applications such as transportation, power supplies, inverters, wireless systems, and the Company's LEDs are targeted for indoor and outdoor lighting, electronic signs and signals and video displays.
The Company operates in two reportable segments:
Wolfspeed, which consists of silicon carbide and GaN materials, power devices and RF devices based on wide bandgap semiconductor materials and silicon. The Company's materials products and power devices are used in electric vehicles, motor drives, power supplies, solar and transportation applications. The Company's materials products and RF devices are used in military communications, radar, satellite and telecommunication applications.
LED Products, which consists of LED chips and LED components. The Company's LED products enable its customers to develop and market LED-based products for lighting, video screens, automotive and specialty lighting applications.
Previously, the Company designed, manufactured and sold LED lighting fixtures and lamps for the commercial, industrial and consumer markets. The Company referred to these product lines as the Lighting Products business unit. As discussed in Note 2, “Discontinued Operations,” on May 13, 2019, the Company sold its Lighting Products business unit to IDEAL Industries, Inc. (IDEAL). Unless otherwise noted, discussion within these notes to the consolidated financial statements relates to the Company's continuing operations.
The majority of the Company's products are manufactured at its production facilities located in North Carolina, California, Arkansas and China. The Company also uses contract manufacturers for certain products and aspects of product fabrication, assembly and packaging. The Company operates research and development facilities in North Carolina, Arizona, Arkansas, California and China (including Hong Kong).
Cree, Inc. is a North Carolina corporation established in 1987, and its headquarters are in Durham, North Carolina.
Basis of Presentation
The consolidated financial statements presented herein have been prepared by the Company and have not been audited. In the opinion of management, all normal and recurring adjustments necessary to fairly state the consolidated financial position, results of operations, comprehensive loss, shareholders' equity and cash flows at December 29, 2019, and for all periods presented, have been made. All material intercompany accounts and transactions have been eliminated. The consolidated balance sheet at June 30, 2019 has been derived from the audited financial statements as of that date.
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019 (fiscal 2019). The results of operations for the three and six months ended December 29, 2019 are not necessarily indicative of the operating results that may be attained for the entire fiscal year ending June 28, 2020 (fiscal 2020). Historical periods presented include reclassifications to reflect discontinued operations (see Note 2, "Discontinued Operations").
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Actual amounts could differ materially from those estimates.
The Company revised net cash provided by operating activities and net cash provided by financing activities for the six months ended December 30, 2018 to correct the presentation of tax withholding for stock option exercises. The Company increased net cash provided by operating activities by $11.9 million and decreased net cash provided by financing activities by the same amount. The Company will also revise the unaudited consolidated statements of cash flows for the year to date period ended March 31, 2019 in the unaudited interim consolidated financial statements to be filed in the Quarterly Report on Form 10-Q for the corresponding period in fiscal 2020 to correct the presentation of tax withholding for stock option exercises. The revisions will result in an increase to net cash provided by operating activities of $12.4 million and a decrease to net cash provided by
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