SEC Filing | Cree, Inc.

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cree-20200329

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 March 29, 2020

☐ 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

Durham

North Carolina

27703

(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00125 par value	CREE	The 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 filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller 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 April 24, 2020, was 108,160,061.

Table of Contents

CREE, INC.

FORM 10-Q

For the Quarterly Period Ended March 29, 2020

Table of Contents


Part I. Financial Information
	Item 1. Financial Statements (Unaudited)	3






	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	44
	Item 4. Controls and Procedures	44
Part II. Other Information
	Item 1. Legal Proceedings	45
	Item 1A. Risk Factors	46
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	59
	Item 3. Defaults Upon Senior Securities	59
	Item 4. Mine Safety Disclosures	59
	Item 5. Other Information	59
	Item 6. Exhibits	60

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)


Consolidated Balance Sheets as of March 29, 2020 and June 30, 2019			4
Consolidated Statements of Operations for the three and nine months ended March 29, 2020 and March 31, 2019			5
Consolidated Statements of Comprehensive Loss for the three and nine months ended March 29, 2020 and March 31, 2019			6
Consolidated Statement s of Shareholders' Equity for the nine months ended March 29, 2020 and March 31, 2019			7
Consolidated Statements of Cash Flows for the nine months ended March 29, 2020 and March 31, 2019			9
Notes to Unaudited Consolidated Financial Statements			10

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CREE, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS


(in millions of U.S. Dollars, except share data)	March 29, 2020	June 30, 2019
Assets
Current assets:
Cash and cash equivalents	$323.0	$500.5
Short-term investments	529.9	550.9
Total cash, cash equivalents and short-term investments	852.9	1,051.4
Accounts receivable, net	161.0	128.9
Inventories	170.1	187.4
Income taxes receivable	6.1	0.2

Prepaid expenses	27.7	23.3
Other current assets	12.2	19.7
Current assets held for sale	0.2	1.9

Total current assets	1,230.2	1,412.8
Property and equipment, net	737.6	625.2
Goodwill	530.0	530.0
Intangible assets, net	183.6	197.9
Other long-term investments	31.5	39.5
Deferred tax assets	6.7	5.6

Other assets	18.3	5.9
Total assets	$2,737.9	$2,816.9

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$184.8	$200.9
Accrued contract liabilities	45.1	45.8
Income taxes payable	1.2	3.0
Finance lease liabilities	0.6	—
Other current liabilities	19.7	18.5

Total current liabilities	251.4	268.2
Long-term liabilities:

Convertible notes, net	486.3	469.1
Deferred tax liabilities	2.3	2.0
Finance lease liabilities - long-term	2.2	—
Other long-term liabilities	50.7	36.4
Total long-term liabilities	541.5	507.5
Commitments and contingencies
Shareholders’ equity:
Preferred stock, par value $0.01; 3,000 shares authorized at March 29, 2020 and June 30, 2019; none issued and outstanding	—	—
Common stock, par value $0.00125; 200,000 shares authorized at March 29, 2020 and June 30, 2019; 108,153 and 106,570 shares issued and outstanding at March 29, 2020 and June 30, 2019, respectively	0.1	0.1
Additional paid-in-capital	2,931.3	2,874.1
Accumulated other comprehensive income	7.8	9.5
Accumulated deficit	(999.7)	(847.5)
Total shareholders’ equity	1,939.5	2,036.2
Non-controlling interest	5.5	5.0
Total equity	1,945.0	2,041.2
Total liabilities and shareholders’ equity	$2,737.9	$2,816.9

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

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CREE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three months ended			Nine months ended
	March 29, 2020	March 31, 2019	March 29, 2020	March 31, 2019
(in millions of U.S. Dollars, except share data)
Revenue, net	$215.5	$274.0	$698.2	$828.7
Cost of revenue, net	154.1	173.5	500.7	526.4
Gross profit	61.4	100.5	197.5	302.3
Operating expenses:
Research and development	46.7	40.7	137.7	117.2
Sales, general and administrative	49.7	50.6	160.1	143.7
Amortization or impairment of acquisition-related intangibles	3.7	3.9	10.9	11.7
Loss on disposal or impairment of other assets	0.3	5.3	2.1	5.7


Other operating expense	10.8	11.1	31.8	14.3

Operating (loss) income	(49.8)	(11.1)	(145.1)	9.7
Non-operating expense, net	14.5	8.4	7.8	23.7
Loss before income taxes	(64.3)	(19.5)	(152.9)	(14.0)
Income tax (benefit) expense	(2.9)	2.8	(1.2)	9.3
Net loss from continuing operations	(61.4)	(22.3)	(151.7)	(23.3)
Net loss from discontinued operations	—	(205.4)	—	(218.0)
Net loss	(61.4)	(227.7)	(151.7)	(241.3)
Net income attributable to noncontrolling interest	0.2	0.1	0.5	0.1
Net loss attributable to controlling interest	($61.6)	($227.8)	($152.2)	($241.4)

Basic and diluted loss per share
Continuing operations attributable to controlling interest	($0.57)	($0.22)	($1.41)	($0.23)

Net loss attributable to controlling interest	($0.57)	($2.20)	($1.41)	($2.35)






Weighted average shares - basic and diluted (in thousands)	108,115	103,659	107,718	102,807

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

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CREE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


	Three months ended			Nine months ended
(in millions of U.S. Dollars)	March 29, 2020	March 31, 2019	March 29, 2020	March 31, 2019
Net loss	($61.4)	($227.7)	($151.7)	($241.3)
Other comprehensive loss:
Currency translation loss	—	(0.3)	—	(0.8)
Net unrealized (loss) gain on available-for-sale securities	(1.9)	2.0	(1.7)	2.8

Comprehensive loss	(63.3)	(226.0)	(153.4)	(239.3)
Net income attributable to non-controlling interest	0.2	0.1	0.5	0.1
Comprehensive loss attributable to controlling interest	($63.5)	($226.1)	($153.9)	($239.4)

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

Table of Contents

CREE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


	Common Stock			Additional Paid-in Capital	Accumulated Deficit	Accumulated Other Comprehensive Income	Total Equity - Controlled Interest	Non-controlling Interest	Total Equity
(in millions of U.S Dollars, except share data)	Number of Shares	Par Value
Balance at June 30, 2019	106,570	$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 shares	1,127	—	18.6	—	—	18.6	—	18.6



Balance at September 29, 2019	107,697	$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 shares	334	—	10.7	—	—	10.7	—	10.7



Balance at December 29, 2019	108,031	$0.1	$2,919.5	($938.1)	$9.7	$1,991.2	$5.3	$1,996.5
Net (loss) income	—	—	—	(61.6)	—	(61.6)	0.2	(61.4)

Unrealized loss on available-for-sale securities	—	—	—	—	(1.9)	(1.9)	—	(1.9)
Comprehensive (loss) income						(63.5)	0.2	(63.3)
Tax withholding on vested equity awards	—	—	(1.5)	—	—	(1.5)	—	(1.5)

Stock-based compensation	—	—	11.6	—	—	11.6	—	11.6
Exercise of stock options and issuance of shares	122	—	1.7	—	—	1.7	—	1.7



Balance at March 29, 2020	108,153	$0.1	$2,931.3	($999.7)	$7.8	$1,939.5	$5.5	$1,945.0

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 Interest	Non-controlling Interest	Total Equity
(in millions of U.S. Dollars, except share data)	Number of Shares	Par Value
Balance at June 24, 2018	101,488	$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 shares	1,032	—	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, 2018	102,520	$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 shares	553	—	14.6	—	—	14.6	—	14.6



Balance at December 30, 2018	103,073	$0.1	$2,703.6	($486.0)	$0.8	$2,218.5	$5.0	$2,223.5
Net (loss) income	—	—	—	(227.8)	—	(227.8)	0.1	(227.7)
Currency translation loss	—	—	—	—	(0.3)	(0.3)	—	(0.3)
Unrealized gain on available-for-sale securities	—	—	—	—	2.0	2.0	—	2.0
Comprehensive loss						(226.1)	0.1	(226.0)
Tax withholding on vested equity awards	—	—	(0.5)	—	—	(0.5)	—	(0.5)

Stock-based compensation	—	—	15.6	—	—	15.6	—	15.6
Exercise of stock options and issuance of shares	1,442	—	53.3	—	—	53.3	—	53.3



Balance at March 31, 2019	104,515	$0.1	$2,772.0	($713.8)	$2.5	$2,060.8	$5.1	$2,065.9

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

Table of Contents

CREE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine months ended
(in millions of U.S. Dollars)	March 29, 2020	March 31, 2019
Operating activities:
Net loss from continuing operations	($151.7)	($23.3)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	90.9	93.1
Amortization of debt issuance costs and discount	17.2	12.7
Stock-based compensation	41.3	34.5




Loss on disposal or impairment of long-lived assets	2.1	5.7
Amortization of premium/discount on investments	0.5	2.0
Realized (gain) loss on sale of investments	(1.3)	0.1
Loss on equity investment	9.2	12.4
Foreign exchange (gain) loss on equity investment	(1.2)	0.9
Deferred income taxes	(0.8)	(1.7)
Changes in operating assets and liabilities:
Accounts receivable, net	(31.9)	(63.6)
Inventories	18.4	(20.2)
Prepaid expenses and other assets	1.9	(4.6)
Accounts payable, trade	(19.2)	18.4
Accrued salaries and wages and other liabilities	(