Cree Reports Financial Results for the Third Quarter of Fiscal Year 2009


DURHAM, N.C., April 21, 2009 (GLOBE NEWSWIRE) -- Cree, Inc. (Nasdaq:CREE), a market leader in LED lighting, today announced revenue of $131.1 million for its third quarter of fiscal 2009, ended March 29, 2009. This represents a 5% increase compared to revenue of $125.0 million reported for the third fiscal quarter last year and an 11% decrease compared to the fiscal second quarter of 2009. GAAP net income for the third quarter was $4.0 million, or $0.05 per diluted share, compared to net income of $5.7 million, or $0.06 per diluted share, for the third quarter of fiscal 2008. On a non-GAAP basis, net income for the third quarter of fiscal 2009 was $11.8 million, or $0.13 per diluted share compared to net income for the third quarter of fiscal 2008, which was $12.0 million or $0.14 per diluted share. Cree generated $49.9 million of operating cash flow and $40.5 million of free cash flow during the third quarter.

"Q3 was a solid quarter for Cree, as we achieved revenue and profits within our previously announced targets," stated Chuck Swoboda, Cree Chairman and CEO. "Growth in LED lighting partially offset lower demand for auto, mobile and consumer applications in Q3, and we target total LED revenue to rebound in Q4 driven by increased demand for commercial lighting and video screens. As we look ahead to Fiscal 2010, we are targeting our LED lighting and LED component product lines to continue to grow, and we are planning to continue to invest in R&D and capacity to enable this growth."

Recent Business Highlights:



 *   Earned commercial and residential ENERGY STAR(r) qualifications
     for best-in-class LED downlight family. The product line,
     including the LR6, LR5 and LR4 downlights, has demonstrated LED
     lifetime and fixture efficacy that qualifies for the stringent
     commercial rating, as well as the residential rating.

 *   Welcomed the University of Miami and the University of Alaska at
     Anchorage to the LED University(tm) program. The University of
     Miami has installed new LED pole lights to improve walkway
     illumination on the main campus and is evaluating LED lighting for
     interior applications such as conference rooms, hallways and
     classrooms. The University of Alaska at Anchorage recently
     completed a parking lot pilot and is also evaluating LED lighting
     for recessed lighting in stairwells and mechanical rooms, walkway
     bollards and parking-lot lights for the new Health Science
     Building.

 *   Welcomed Chapel Hill, North Carolina, to the LED City(r) Program.
     Chapel Hill has installed LED streetlights along the high-profile
     100 block of Franklin Street, one of the town's most recognizable
     landmarks. According to Mayor Kevin Foy, "By replacing
     low-pressure sodium streetlights with LEDs, Chapel Hill can
     reduce energy consumption for street lighting, which we hope will
     positively impact our budget as well as our carbon emissions."

 *   Launched the Product Characterization Tool (PCT), an interactive
     LED design tool that simplifies the task of translating nominal
     LED performance to real-world conditions. Cree's PCT, which
     introduces functionality not commercially offered by any other
     LED supplier, allows users to easily characterize any XLamp(r)
     LED over a wide range of operating conditions, including drive
     current, flux bin, price and junction temperature. It also
     calculates metrics such as lumen output, lumens per watt, and
     lumens per dollar.

 *   Developed a demonstration dual switch 1200-volt, 100-amp power
     module featuring all-SiC semiconductors and capable of operating
     at junction temperatures up to 200 degrees C. This was
     accomplished by working with both the United States Air Force
     Research Lab Propulsion Directorate and high-power module pioneer
     Powerex, Inc. The all-SiC power switch module can be an enabling
     technology for next-generation military systems.

Q3 2009 Financial Metrics:



                                  Third Quarter
                              --------------------
                               2009         2008           Change
                              --------    --------    ----------------
       Net revenue            $131,144    $124,986    $  6,158      5%
 GAAP

  Gross Margin                   36.1%       34.8%                  --
  Net Income                  $  4,015    $  5,660    $ (1,645)   -29%
  Earnings per diluted share  $   0.05    $   0.06    $  (0.01)   -17%
 Non-GAAP

  Gross Margin                   36.9%       35.3%
  Net Income                  $ 11,836    $ 12,010    $   (174)    -1%
  Earnings per diluted share  $   0.13    $   0.14    $  (0.01)    -7%


 *   Accounts receivable decreased $5.6 million from Q2 of fiscal 2009
     to $102.9 million, resulting in days sales outstanding of 71, an
     increase of 5 days from Q2 of fiscal 2009.

 *   Inventory decreased $1.3 million from Q2 of fiscal 2009 to $77.5
     million and represents 83 days of inventory, an increase of 5
     days from Q2 of fiscal 2009.

 *   Cash and investments increased $39.4 million to $404.9 million,
     with cash flow from operations of $49.9 million and free cash
     flow (cash flow from operations less capital expenditures) of
     $40.5 million.

Business Outlook:

For its fourth quarter of fiscal 2009 ending June 28, 2009, Cree targets revenue in a range of $137 million to $143 million with GAAP earnings of $0.05 to $0.07 per diluted share and non-GAAP earnings of $0.13 to $0.15 per diluted share, based on an estimated 89 million diluted weighted average shares. Targeted non-GAAP earnings exclude expenses related to the amortization of acquired intangibles of $0.03 per diluted share, and stock-based compensation expense of $0.05 per diluted share.

Quarterly Conference Call:

Cree will host a conference call at 5:00 p.m. Eastern time today to review the highlights of the fiscal third quarter 2009 results and the fiscal fourth quarter 2009 business outlook, including significant factors and assumptions underlying the targets noted above. The conference call will be available to the public through a live audio web broadcast via the Internet. Log on to Cree's website at www.cree.com and go to "Investor Relations - Overview" for webcast details. The call will be archived and available on the website through May 5, 2009.

Supplemental financial information, including the non-GAAP reconciliation attached to this press release, is available in the "Investor Relations" section of Cree's website, under "Financial Metrics," "Quarter ending March 29, 2009," at www.cree.com.

About Cree, Inc.

Cree is leading the LED lighting revolution and setting the stage to obsolete the incandescent light bulb through the use of energy-efficient, environmentally friendly LED lighting. Cree is a market-leading innovator of lighting-class LEDs, LED lighting solutions, and semiconductor solutions for wireless and power applications.

Cree's product families include recessed LED down lights, lighting-class power LEDs, high-brightness LEDs, blue and green LED chips, power-switching devices and radio-frequency/wireless devices. Cree solutions are driving improvements in applications such as general illumination, backlighting, electronic signs and signals, variable-speed motors, and wireless communications.

For additional product and company information, please refer to www.cree.com.

The Cree, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=3529

Non-GAAP Financial Measures:

This press release highlights the company's financial results on both a GAAP and a non-GAAP basis. The GAAP results include certain costs, charges, gains and losses that are excluded from non-GAAP results. By publishing the non-GAAP measures, management intends to provide investors with additional information to further analyze the company's performance, core results and underlying trends. Cree's management evaluates results and makes operating decisions using both GAAP and non-GAAP measures included in this press release. Non-GAAP results are not prepared in accordance with GAAP, and non-GAAP information should be considered a supplement to, and not a substitute for, financial statements prepared in accordance with GAAP. Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures to their most directly comparable GAAP measures attached to this press release.

Forward-Looking Statements:

The schedules attached to this release are an integral part of the release. This press release contains forward-looking statements involving risks and uncertainties, both known and unknown, that may cause actual results to differ materially from those indicated. Actual results, including with respect to our targets and prospects, could differ materially due to a number of factors, including current uncertainty in global economic conditions that could negatively affect product demand, collectability of receivables and other related matters as consumers and businesses may defer purchases or payments, or default on payments, in response to tighter credit and negative financial news; our ability to complete development and commercialization of products under development, such as our pipeline of brighter LED chips, LED components and LED lighting retrofit solutions; our ability to lower costs; increasing price competition in key markets; the risk that, due to the complexity of our manufacturing processes and transition of production to larger wafers, we may experience production delays that preclude us from shipping sufficient quantities to meet customer orders or that result in higher production costs and lower margins; risks associated with the ramp-up of our production for our new products, as well as production at our Huizhou facility and subcontractors; risks resulting from the concentration of our business among few customers, including the risk that customers may reduce or cancel orders or fail to honor purchase commitments; the rapid development of new technology and competing products that may impair demand or render our products obsolete; the potential lack of customer acceptance for our products; risks associated with our recent acquisitions; risks associated with ongoing litigation; and other factors discussed in our filings with the Securities and Exchange Commission (SEC), including our report on Form 10-K for the fiscal year ended June 29, 2008, and subsequent reports filed with the SEC. Except as required under the U.S. federal securities laws and the rules and regulations of the SEC, Cree disclaims any obligation to update any forward-looking statements after the date of this release, whether as a result of new information, future events, developments, changes in assumptions or otherwise.

Cree, the Cree logo, XLamp and LED City are registered trademarks, and LED University is a trademark of Cree, Inc.



                              CREE, INC.
              CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                 (in thousands, except per share data)


                                    Three Months       Nine Months
                                       Ended              Ended
                                    (Unaudited)        (Unaudited)
                                  ----------------- -----------------
                                   March    March    March    March
                                    29,      30,      29,      30,
                                   2009     2008     2009     2008
                                  -------- -------- -------- --------

 Product revenue                  $126,877 $118,160 $399,165 $335,464
 Contract revenue                    4,267    6,826   14,398   21,907
 Up-front license fees                  --       --    5,582       --
                                  -------- -------- -------- --------
 Total revenue                     131,144  124,986  419,145  357,371

 Cost of product revenue            80,201   75,935  253,676  219,766
 Cost of contract revenue            3,592    5,502   11,753   17,520
 Up-front license fees                  --       --      506       --
                                  -------- -------- -------- --------
 Total cost of revenue              83,793   81,437  265,935  237,286

 Gross profit                       47,351   43,549  153,210  120,085
 Gross margin percentage             36.1%    34.8%    36.6%    33.6%

 Operating expenses:
 Research and development           17,071   15,405   52,787   43,083
 Sales, general and
  administrative                    21,043   21,076   65,804   57,449
 Amortization of acquisition-
  related intangibles                4,062    4,225   12,186   12,321
 Loss (gain) on disposal or
  impairment of long-lived
  assets                             2,255     (722)   3,305      487
                                  -------- -------- -------- --------
 Total operating expenses           44,431   39,984  134,082  113,340

 Operating income                    2,920    3,565   19,128    6,745
 Operating income percentage          2.2%     2.9%     4.6%     1.9%

 Non-operating income:
 Gain on sale of investments,
  net                                   13       --       78   14,117
 Interest and other non-operating
  income, net                        1,865    3,884    7,349   12,193
                                  -------- -------- -------- --------
 Income from continuing
  operations before income taxes     4,798    7,449   26,555   33,055

 Income tax expense                    768    1,787    5,740    7,885
                                  -------- -------- -------- --------
 Income from continuing
  operations                         4,030    5,662   20,815   25,170

 Loss from discontinued
  operations, net of related
  tax effect                          (15)      (2)    (185)    (176)
                                  -------- -------- -------- --------
 Net income                       $  4,015 $  5,660 $ 20,630 $ 24,994
                                  ======== ======== ======== ========

 Diluted earnings per share:
 Income from continuing
  operations                      $   0.05 $   0.06 $   0.23 $   0.29
 Loss from discontinued
  operations                      $ (0.00) $ (0.00) $ (0.00) $ (0.00)
                                  -------- -------- -------- --------
 Net income                       $   0.05 $   0.06 $   0.23 $   0.29
                                  ======== ======== ======== ========

 Weighted average shares of
  common stock outstanding,
  diluted                           88,839   88,905   88,672   87,506
                                  ======== ======== ======== ========


                               CREE, INC.
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                             (in thousands)


                                              March 29,     June 29,
                                                2009          2008
                                             -----------  -----------
                                             (Unaudited)
 Assets:
 Current assets:
 Cash, cash equivalents and short-term
  investments                                 $  366,718   $  312,428
 Accounts receivable, net                        102,937      110,376
 Inventory, net                                   77,468       80,161
 Income taxes receivable                           1,007        9,825
 Deferred income taxes                             5,006        4,578
 Prepaid expenses and other current assets        11,643       13,000
 Assets of discontinued operations                 1,580        2,600
                                             -----------  -----------
 Total current assets                            566,359      532,968

 Property and equipment, net                     327,736      348,013
 Long-term investments                            38,159       58,604
 Intangible assets, net                          116,150      125,037
 Goodwill                                        248,529      244,003
 Other assets                                      7,260        4,782
                                             -----------  -----------
 Total assets                                 $1,304,193   $1,313,407
                                             ===========  ===========

 Liabilities and Shareholders' Equity:
 Current liabilities:
 Accounts payable, trade                      $   35,201   $   37,402
 Accrued salaries and wages                       17,359       13,471
 Income taxes payable                              3,086        5,314
 Deferred income taxes                             1,482           --
 Other current liabilities                         6,132        7,938
 Contingent payment due related to COTCO
  acquisition                                         --       60,000
 Liabilities of discontinued operations              427          550
                                             -----------  -----------
 Total current liabilities                        63,687      124,675

 Long-term liabilities:
 Deferred income taxes                            44,418       38,048
 Other long-term liabilities                       4,326        4,199
 Long-term liabilities of discontinued
  operations                                         724          745
                                             -----------  -----------
 Total long-term liabilities                      49,468       42,992

 Shareholders' Equity:
 Common stock                                        111          110
 Additional paid-in-capital                      833,388      811,015
 Accumulated other comprehensive income,
  net of taxes                                    11,217        8,923
 Retained earnings                               346,322      325,692
                                             -----------  -----------
 Total shareholders' equity                    1,191,038    1,145,740
                                             -----------  -----------
 Total liabilities and shareholders' equity   $1,304,193   $1,313,407
                                             ===========  ===========


                              Cree, Inc.
              Non-GAAP Measures of Financial Performance

To supplement the company's consolidated financial statements presented in accordance with generally accepted accounting principles, or GAAP, Cree uses non-GAAP measures of certain components of financial performance. These non-GAAP measures include non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP gross margin, and free cash flow.

Reconciliation to the nearest GAAP measure of all non-GAAP measures included in this press release can be found in the tables included with this press release.

These non-GAAP measures are not in accordance with or an alternative to measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Cree's results of operations as determined in accordance with GAAP. These non-GAAP measures should only be used to evaluate Cree's results of operations in conjunction with the corresponding GAAP measures.

Cree believes that these non-GAAP measures, when shown in conjunction with the corresponding GAAP measures, enhance investors' and management's overall understanding of the company's current financial performance and the company's prospects for the future, including cash flows available to pursue opportunities to enhance shareholder value. In addition, because Cree has historically reported certain non-GAAP results to investors, the company believes the inclusion of non-GAAP measures provides consistency in the company's financial reporting.

For its internal budgeting process, and as discussed further below,Cree's management uses financial statements that do not include stock-based compensation expense, amortization or impairment of acquired intangible assets, impairment of goodwill, gain on the sale of Color Kinetics Inc.'s common stock, personal property tax adjustments related to prior years and the income taxes associated with the foregoing. Cree's management also uses non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the company's financial results.

As described above, Cree excludes the following items from one or more of its non-GAAP measures when applicable:

Stock-based compensation expense. This expense consists of expenses for stock options, restricted stock and employee stock purchases under Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment." Cree excludes stock-based compensation expenses from its non-GAAP measures primarily because they are non-cash expenses that Cree does not believe are reflective of ongoing operating results.

Amortization or impairment of acquired intangible assets and impairment of goodwill. Cree incurs amortization or impairments of acquired intangible assets and goodwill in connection with acquisitions. Cree excludes these items because they arise from Cree's prior acquisitions and have no direct correlation to the current operating results of Cree's business.

Gain on the sale of 500,000 shares of Color Kinetics Inc. common stock. Cree excludes this item because it arose from Cree's prior investments and has no direct correlation to the current operating results of Cree's business.

Personal property assessment of $1.0 million related to the audit of our 2002 through 2007 property tax returns. Cree excludes this item because it arose from prior investments and has no direct correlation to the current operating results of Cree's business.

Income tax effects of the foregoing non-GAAP items. This amount isused to present each of the amounts described above on an after-tax basis consistent with the presentation of non-GAAP net income.

Cree expects to incur stock-based compensation expense, amortization of acquired intangible assets and may also incur impairments of acquired intangible assets, impairments of goodwill, gains or losses on the sale of investments in certain companies and significant non-income tax adjustments in future periods, including income taxes associated with all of the foregoing.

In addition to the non-GAAP measures discussed above, Cree also uses free cash flow as a measure of operating performance. Free cash flow represents operating cash flows less net purchases of property and equipment. Cree considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases of property and equipment, which can then be used to, among other things, invest in Cree's business, make strategic acquisitions, strengthen the balance sheet and repurchase stock. A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in the company's cash balance for the period.



                              CREE, INC.
              Reconciliation of GAAP to Non-GAAP Measures
               (in thousands, except per share amounts)
                              (Unaudited)

                            Three Months Ended     Nine Months Ended
                           --------------------   --------------------
                           March 29,  March 30,   March 29,  March 30,
                             2009       2008        2009       2008
                           ---------  ---------   ---------  ---------

 GAAP Gross Profit         $ 47,351    $ 43,549    $153,210   $120,085
 GAAP Gross Margin            36.1%       34.8%       36.6%      33.6%
  Adjustment:
   Stock-based
    compensation expense      1,013         569       3,198      2,209
                           ---------  ---------   ---------  ---------
 Non-GAAP Gross Profit     $ 48,364    $ 44,118    $156,408   $122,294
 Non-GAAP Gross Margin        36.9%       35.3%       37.3%      34.2%


                               Three Months Ended   Nine Months Ended
                               -------------------  -------------------
                               March 29, March 30,  March 29, March 30,
                                 2009      2008       2009      2008
                               --------- ---------  --------- ---------

 GAAP net income                $  4,015  $  5,660  $ 20,630  $ 24,994
  Adjustments:
   Stock-based compensation
    expense                        5,250     4,130    15,792    11,314
   Amortization of acquisition-
    related intangible assets      4,062     4,225    12,186    12,321
   Personal property assessment
    related to finalizing the
    audits of the Company's
    2002 through 2007 property
    tax returns                       --        --        --     1,048
   Gain on sale of 500,000
    shares of Color Kinetics
    Incorporated common stock         --        --        --   (14,117)
                               --------- ---------  --------- ---------
   Total adjustments to GAAP
    income before provision
    for income taxes               9,312     8,355     27,978    10,566
                               --------- ---------  --------- ---------
   Income tax effect             (1,491)   (2,005)    (6,048)   (2,552)
                               --------- ---------  --------- ---------
 Non-GAAP net income              11,836    12,010     42,560    33,008
 Diluted net income per share:
 GAAP net income                $   0.05  $   0.06  $   0.23  $   0.29
                               --------- ---------  --------- ---------
 Non-GAAP                       $   0.13  $   0.14  $   0.48  $   0.38
                               --------- ---------  --------- ---------
 Shares used in diluted net
  income per share calculation:

 GAAP net income                  88,839    88,905     88,672    87,506
                               --------- ---------  --------- ---------
 Non-GAAP                         88,839    88,905     88,672    87,506
                               --------- ---------  --------- ---------


                               Three Months Ended   Nine Months Ended
                               -------------------  -------------------
                               March 29, March 30,  March 29, March 30,
                                 2009      2008       2009      2008
                               --------- ---------  --------- ---------
 Free Cash Flows

  Cash flow from operations    $ 49,873  $  5,478   $ 134,613 $ 66,124
  Less: PP&E CapEx spending       9,328    16,447      40,594   37,542
                               --------- ---------  --------- ---------
 Total Free Cash Flows         $ 40,545  $(10,969)   $ 94,019 $ 28,582
                               --------- ---------  --------- ---------


                   Additional Financial Information
                            (in thousands)
                              (Unaudited)



                                Three Months Ended   Nine Months Ended
                                ------------------- -------------------
                                March 29, March 30, March 29, March 30,
                                  2009      2008      2009      2008
                                --------- --------- --------- ---------
 Stock-Based Compensation
  Expense
   Cost of sales                 $  1,013  $    569 $  3,198  $  2,209

   Research and development         1,402     1,095    4,095     3,031
   Sales, general and
    administrative                  2,835     2,466    8,499     6,074
                                --------- --------- --------- ---------
 Total stock-based compensation
  in operating expense              4,237     3,561   12,594     9,105

                                --------- --------- --------- ---------
 Total Stock-Based Compensation
  Expense                        $  5,250  $  4,130 $ 15,792  $ 11,314
                                --------- --------- --------- ---------

                                ------------------- -------------------
                                March 29,  Dec. 28, Sept. 28,  June 29,
                                  2009      2008      2008      2008
                                --------- --------- --------- ---------
 Cash, Cash Equivalents and
  Investments
   Cash and cash equivalents     $244,667  $195,237  $177,444  $261,633
   Short-term investments         122,051   126,956   109,054    50,795
   Long-term investments           38,159    43,325    52,566    58,604
                                --------- --------- --------- ---------
 Total Cash, Cash Equivalents
  and Investments                $404,877  $365,518  $339,064  $371,032
                                --------- --------- --------- ---------


            

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