Cree, Inc. (Nasdaq: CREE) today announced financial results for
its third quarter of fiscal 2017, ended March 26, 2017, which
results include the Company’s Wolfspeed segment being reported as
part of the Company’s continuing operations. While the sale of
Wolfspeed to Infineon Technologies AG (“Infineon”) was targeted to
close during the quarter, the agreement was formally terminated on
March 6, 2017 because the Committee on Foreign Investment in the
United States (CFIUS) determined that the transaction could not be
approved due to national security concerns. As a result, the
Company’s third fiscal quarter financial results included two items
that would not have occurred if the Wolfspeed sale had closed.
First, the Company was required to record an income tax expense
charge of $86 million in the quarter to establish a valuation
allowance on its US deferred tax assets and other deferred charges.
In addition, the Company recorded an additional $12 million in
expenses, net of tax, primarily associated with the resumption and
catch-up of depreciation and amortization on Wolfspeed’s long lived
assets, which was partially offset by the Infineon termination fee.
Wolfspeed depreciation and amortization of its long lived assets
had been suspended while the assets had been held for sale pending
the closing of the Wolfspeed transaction.
Revenue for the third quarter of fiscal 2017 was $342 million,
which represents a 7% decrease compared to revenue of $367 million
for the third quarter of fiscal 2016 and a 15% decrease compared to
the second quarter of fiscal 2017. GAAP net loss for the third
quarter of fiscal 2017 was $99 million, or $1.02 per diluted share.
This compares to GAAP net income of $152 thousand, or $0.00 per
diluted share, for the third quarter of fiscal 2016. On a non-GAAP
basis, net income for the third quarter of fiscal 2017 was $749
thousand, or $0.01 per diluted share, compared to non-GAAP net
income for the third quarter of fiscal 2016 of $17 million, or
$0.17 per diluted share. Excluding the two items mentioned above,
which were not factored into the financial targets provided on
January 24, 2017 based on the Company’s belief at that time that
the Wolfspeed sale would be consummated, non-GAAP net income would
have been $11 million, or $0.11 per diluted share, which is within
the target range provided on January 24.
“Q3 non-GAAP results were within our target range,” stated Chuck
Swoboda, Cree Chairman and CEO. “Our Wolfspeed and LED Products
businesses performed at or above their targets for the quarter,
while Lighting Products came in a little below plan due to softer
market conditions and the lingering effects of the third party
product driver issue that we mentioned in Q2. We believe the
factors that impacted our lighting business are temporary and we
target improvement in all three businesses in Q4.”
Reconciliation of Results to Previously Announced
Targets
The following table illustrates how the results for the third
quarter of fiscal 2017, when adjusted for the items relating to the
termination of the Wolfspeed transaction discussed above, compare
to the targets announced when the Company believed the Wolfspeed
transaction would be consummated during the quarter (in thousands,
except per share amounts).
Three Months Ended
March 26, 2017,
As Reported
Wolfspeed
Transaction
Termination
Adjustments
March 26, 2017,
As Adjusted
March 26, 2017
Guidance Targets
GAAP: Revenue $ 341,505 $ — $ 341,505 $340 million to $370
million Net loss ($99,013 ) $ 98,392 ($621 ) ($1 million) to $3
million Diluted loss per share ($1.02 ) $ 1.01 ($0.01 ) ($0.01) to
$0.03 Shares used in diluted per share calculation 97,346
97,346 97,346
Non-GAAP: Revenue $ 341,505 $ — $
341,505 $340 million to $370 million Net income $ 749 $ 10,344 $
11,093 $10 million to $18 million Diluted earnings per share $ 0.01
$ 0.10 $ 0.11 $0.10 to $0.18 Shares used in diluted per
share calculation 97,346 97,346 97,346
For additional information and reconciliations with respect to
these amounts, please see the reconciliation of non-GAAP financial
measures to their most directly comparable GAAP measures attached
to this press release.
The $98.4 million GAAP Wolfspeed transaction termination
adjustments above represent (a) the establishment of the tax
valuation allowance of $85.5 million, plus (b) the resumption and
catch-up of depreciation and amortization of Wolfspeed long-lived
assets of $17.7 million, minus (c) the Wolfspeed transaction
termination fee of $12.5 million and plus (d) transaction costs
related to the Wolfspeed transaction termination of $4.3 million,
plus (3) the income tax effect of items (b), (c) and (d) of $3.4
million.
The $10.3 million non-GAAP Wolfspeed transaction termination
adjustments above represent the resumption and catch-up of
depreciation and amortization of Wolfspeed long-lived assets of
$15.2 million, net of the income tax effect of $4.9 million. The
GAAP depreciation and amortization adjustment is $2.5 million
greater because it includes the amortization of Wolfspeed acquired
intangibles where the non-GAAP adjustment does not.
Announcement of Joint Venture:
Today Cree also announced that it is forming a joint venture, to
be called Cree Venture LED Company Ltd., with San’an
Optoelectronics Company Inc. (Xiamen, China) to produce and deliver
to market high performing, mid-power lighting class LEDs in an
exclusive arrangement to serve the expanding markets of North and
South America, Europe and Japan.
Business Outlook:
For its fourth quarter of fiscal 2017 ending June 25, 2017, Cree
targets revenue in a range of $340 million to $360 million. GAAP
net loss is targeted at a $16 million loss to $22 million loss, or
a $0.16 to $0.23 loss per diluted share. Non-GAAP net income is
targeted in a range of $2 million to $7 million, or $0.02 to $0.07
per diluted share. Targeted non-GAAP income excludes $23 million,
net of tax, of expenses related to stock-based compensation expense
and the amortization or impairment of acquisition-related
intangibles. Our fourth quarter GAAP and non-GAAP targets include
$3 million+/- of expenses related to non-recurring costs from our
Lighting Products business right-sizing initiatives and joint
venture start-up costs. The GAAP and non-GAAP targets do not
include any estimated change in the fair value of Cree’s Lextar
investment.
Quarterly Conference Call:
Cree will host a conference call at 5:00 p.m. Eastern time today
to review the highlights of the fiscal 2017 third quarter results
and the fiscal 2017 fourth quarter 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. For webcast details,
visit Cree’s website at investor.cree.com/events.cfm.
Supplemental financial information, including the non-GAAP
reconciliation attached to this press release, is available on
Cree’s website at investor.cree.com/results.cfm.
About Cree, Inc.
Cree is a leading innovator of lighting-class LEDs, lighting
products and wide bandgap semiconductor products for power and
radio frequency (RF) applications. Cree’s product families include
LED lighting systems and bulbs, blue and green LED chips,
high-brightness LEDs, lighting-class power LEDs, SiC materials,
power devices and RF devices. Cree’s products are driving
improvements in applications such as commercial and consumer
general illumination, video screens, electronic signs and signals,
motor drives, power supplies, EV charging, solar, traction,
transportation, radar, communications, telecom, data link and
broadband amplifiers.
For additional product and Company information, please refer to
www.cree.com.
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 and expenses which 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 in
the forward-looking statements. Actual results, including with
respect to our targets and prospects, could differ materially due
to a number of factors, including the risk that we may not obtain
sufficient orders to achieve our targeted revenues; price
competition in key markets; the risk that we or our channel
partners are not able to develop and expand customer bases and
accurately anticipate demand from end customers, which can result
in increased inventory and reduced orders as we experience wide
fluctuations in supply and demand; the risk that our commercial
Lighting results will continue to suffer if new issues arise
regarding issues related to product quality of supplied components
for this business; the risk that we may experience production
difficulties that preclude us from shipping sufficient quantities
to meet customer orders or that result in higher production costs
and lower margins; our ability to lower costs; the risk that our
results will suffer if we are unable to balance fluctuations in
customer demand and capacity; product mix; risks associated with
the ramp-up of production of our new products, and our entry into
new business channels different from those in which we have
historically operated; the risk that customers do not maintain
their favorable perception of our brand and products, resulting in
lower demand for our products; the risk that our products fail to
perform or fail to meet customer requirements or expectations,
resulting in significant additional costs, including costs
associated with warranty returns or the potential recall of our
products; the risk that retail customers may alter promotional
pricing, increase promotion of a competitor’s products over our
products or reduce their inventory levels, all of which could
negatively affect product demand; the risk that our investments may
experience periods of significant stock price volatility causing us
to recognize fair value losses on our investment; the risk that we
have an increasingly complex supply chain and its ability to scale
to enable maintaining a sufficient supply of raw materials,
subsystems and finished products with the required specifications
and quality; ongoing uncertainty in global economic conditions,
infrastructure development or customer demand 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; the risk we may be required to
record a significant charge to earnings if our goodwill or
amortizable assets become impaired; our ability to complete
development and commercialization of products under development,
such as our pipeline of improved LED chips, LED components and LED
lighting products; 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;
risks related to our multi-year warranty periods for LED lighting
products; risks associated with acquisitions, divestitures, joint
ventures or investments generally; 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 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 26, 2016, and subsequent reports
filed with the SEC. These forward-looking statements represent
Cree’s judgment as of the date of this release. Except as required
under the U.S. federal securities laws and the rules and
regulations of the SEC, Cree disclaims any intent or 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® is a registered trademark and Wolfspeed™ is a trademark of
Cree, Inc.
CREE, INC.UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF (LOSS) INCOME(in thousands,
except per share amounts and percentages)
Three Months Ended
Nine Months Ended March 26, 2017
March 27, 2016 March 26, 2017
March 27, 2016 Revenue, net $ 341,505 $
366,919 $ 1,114,064 $ 1,228,214 Cost of revenue, net 255,429
257,886 777,490 854,163
Gross profit 86,076 109,033 336,574 374,051 Gross margin
percentage 25.2 % 29.7 % 30.2 % 30.5 % Operating expenses:
Research and development 41,451 41,871 119,292 127,363 Sales,
general and administrative 68,165 64,489 213,136 214,443
Amortization or impairment of acquisition-related intangibles 8,362
7,318 20,707 21,442 Loss (gain) on disposal or impairment of
long-lived assets 500 (104 ) 1,541 16,483 Wolfspeed transaction
termination fee (12,500 ) — (12,500 )
— Total operating expenses 105,978 113,574 342,176
379,731 Operating loss (19,902 ) (4,541 ) (5,602 ) (5,680 )
Operating loss percentage (5.8 )% (1.2 )% (0.5 )% (0.5 )%
Non-operating income (expense), net 9,865 717
4,946 (14,075 ) Loss before income
taxes (10,037 ) (3,824 ) (656 ) (19,755 ) Income tax expense
(benefit) 88,976 (3,976 ) 91,574
(8,860 ) Net (loss) income ($99,013 ) $ 152
($92,230 ) ($10,895 ) Diluted (loss) earnings
per share ($1.02 ) $ — ($0.93 ) ($0.11 ) Shares used in
diluted per share calculation 97,346 101,221 98,791 102,157
CREE, INC.UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS(in thousands, except par
value)
March 26, 2017
June 26, 2016 ASSETS Current assets:
Cash, cash equivalents, and short-term investments $ 591,877 $
605,305 Accounts receivable, net 149,508 165,611 Income tax
receivable 7,453 6,304 Inventories 291,133 303,542 Prepaid expenses
23,200 26,810 Other current assets 32,138 44,788 Current assets
held for sale 4,062 4,347 Total current
assets 1,099,371 1,156,707 Property and equipment, net 574,275
599,723 Goodwill 618,828 618,828 Intangible assets, net 281,535
302,810 Other long-term investments 42,759 40,179 Deferred income
taxes 12,140 38,564 Other assets 8,266 9,249
Total assets $ 2,637,174 $ 2,766,060
LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities:
Accounts payable, trade $ 124,968 $ 132,286 Accrued salaries and
wages 41,818 44,642 Other current liabilities 40,615
46,071 Total current liabilities 207,401 222,999
Long-term liabilities: Long-term debt 153,000 160,000
Deferred income taxes 46,699 943 Other long-term liabilities
19,827 14,294 Total long-term liabilities
219,526 175,237 Shareholders’ equity: Common stock 120 125
Additional paid-in-capital 2,403,741 2,359,584 Accumulated other
comprehensive income, net of taxes 3,240 8,728 Accumulated deficit
(196,854 ) (613 ) Total shareholders’ equity
2,210,247 2,367,824 Total liabilities and
shareholders’ equity $ 2,637,174 $ 2,766,060
CREE, INC.UNAUDITED FINANCIAL RESULTS
BY OPERATING SEGMENT(in thousands, except
percentages)
The following table reflects the results of the Company’s
reportable segments as reviewed by the Company’s Chief Executive
Officer, its Chief Operating Decision Maker or CODM, for the three
and nine months ended March 26, 2017 and the three and nine months
ended March 27, 2016. The CODM does not review inter-segment
transactions when evaluating segment performance and allocating
resources to each segment. As such, total segment revenue is equal
to the Company’s consolidated revenue.
Three Months Ended
March 26, 2017 March 27,
2016 Change Lighting Products revenue $ 154,045 $
187,714 ($33,669 ) (18 )% Percent of revenue 45 % 51 % LED Products
revenue 131,327 135,552 (4,225 ) (3 )% Percent of revenue 39 % 37 %
Wolfspeed revenue 56,133 43,653 12,480 29 % Percent of revenue
16 % 12 % Total revenue $ 341,505 $ 366,919
($25,414 ) (7 )%
Nine Months Ended
March 26, 2017 March 27, 2016
Change Lighting Products revenue $ 546,805 $ 690,715
($143,910 ) (21 )% Percent of revenue 49 % 56 % LED Products
revenue 406,858 407,873 (1,015 ) — % Percent of revenue 37 % 33 %
Wolfspeed revenue 160,401 129,626 30,775 24 % Percent of revenue
14 % 11 % Total revenue $ 1,114,064 $
1,228,214 ($114,150 ) (9 )%
Three Months
Ended March 26, 2017 March 27, 2016
Change Lighting Products gross profit $ 35,355 $ 48,808
($13,453 ) (28 )% Lighting Products gross margin 23.0 % 26.0 % LED
Products gross profit 32,385 42,829 (10,444 ) (24 )% LED Products
gross margin 24.7 % 31.6 % Wolfspeed gross profit 26,396 22,750
3,646 16 % Wolfspeed gross margin 47.0 % 52.1 % Unallocated costs
(3,459 ) (5,354 ) 1,895 (35 )% Depreciation and amortization
adjustment (4,601 ) — (4,601 ) N/A
Consolidated gross profit $ 86,076 $ 109,033 ($22,957
) (21 )% Consolidated gross margin 25.2 % 29.7 %
Nine Months Ended March 26, 2017 March
27, 2016 Change Lighting Products gross profit $
159,415 $ 190,531 ($31,116 ) (16 )% Lighting Products gross margin
29.2 % 27.6 % LED Products gross profit 115,499 127,645 (12,146 )
(10 )% LED Products gross margin 28.4 % 31.3 % Wolfspeed gross
profit 74,737 70,990 3,747 5 % Wolfspeed gross margin 46.6 % 54.8 %
Unallocated costs (13,077 ) (15,115 ) 2,038
(13 )% Consolidated gross profit $ 336,574 $ 374,051
($37,477 ) (10 )% Consolidated gross margin 30.2 % 30.5 %
Reportable Segments Description
The Company’s Lighting Products segment primarily consists of
LED lighting systems and bulbs. The Company’s LED Products segment
includes LED chips and LED components. The Company’s Wolfspeed
segment includes power devices, RF devices, and SiC materials.
Financial Results by Reportable Segment
The Company’s CODM reviews gross profit as the lowest and only
level of segment profit. As such, all items below gross profit in
the consolidated statements of income (loss) must be included to
reconcile the consolidated gross profit presented in the preceding
table to the Company’s consolidated income before taxes.
The Company allocates direct costs and indirect costs to each
segment’s cost of revenue. The allocation methodology is based on a
reasonable measure of utilization considering the specific facts
and circumstances of the cost being allocated.
Certain costs are not allocated when evaluating segment
performance. These unallocated costs consist primarily of
manufacturing employees’ stock-based compensation, expenses for
profit sharing and quarterly or annual incentive plans and matching
contributions under the Company’s 401(k) Plan. In addition, as a
result of the termination of the Wolfspeed sale transaction the
Company recognized the depreciation and amortization “catch-up”
that would have been recognized had the Wolfspeed assets been
continuously held and used. This catch-up depreciation and
amortization adjustment was also not allocated when evaluating
segment performance for the three months ended March 26, 2017.
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 gross margin, non-GAAP operating income, non-GAAP
non-operating income, net, non-GAAP net income, non-GAAP earnings
per diluted share and free cash flow.
Reconciliation to the nearest GAAP measure of all historical
non-GAAP measures included in this press release can be found in
the tables included with this press release. In this press release,
Cree also presents its target for non-GAAP expenses, which are
expenses less expenses in the various categories described below.
Both our GAAP targets and non-GAAP targets do not include any
estimated changes in the fair value of our Lextar investment.
Non-GAAP measures presented in this press release 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 the items listed below and the income tax effects
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.
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, performance stock
awards and employee stock purchases through its ESPP. Cree excludes
stock-based compensation expenses from its non-GAAP measures
because they are non-cash expenses that Cree does not believe are
reflective of ongoing operating results.
Amortization or impairment of acquisition-related intangibles.
Cree incurs amortization or impairment of acquisition-related
intangibles in connection with acquisitions. Cree excludes these
items because they arise from Cree’s prior acquisitions and have no
direct correlation to the ongoing operating results of Cree’s
business.
LED business restructuring charges or gains. In June 2015,
Cree’s board of directors approved a plan to restructure the LED
business. The restructuring, which was completed during fiscal
2016, reduced excess capacity and overhead in order to improve the
cost structure moving forward. The components of the restructuring
included the planned sale or abandonment of certain manufacturing
equipment, facility consolidation and the elimination of certain
positions. Because these charges relate to assets which have been
retired prior to the end of their estimated useful lives and
severance costs for eliminated positions, Cree does not consider
these charges to be reflective of ongoing operating results.
Similarly, Cree does not consider realized gains or losses on the
sale of assets relating to the restructuring to be reflective of
ongoing operating results.
Changes in the fair value of our Lextar investment. The
Company’s common stock ownership investment in Lextar Electronics
Corporation is accounted for utilizing the fair value option. As
such, changes in fair value are recognized in income, including
fluctuations due to the exchange rate between the New Taiwan Dollar
and the United States Dollar. Cree excludes the impact of these
gains or losses from its non-GAAP measures because they are
non-cash impacts that Cree does not believe are reflective of
ongoing operating results. Additionally, Cree excludes the impact
of dividends received on its Lextar investment as Cree does not
believe it is reflective of ongoing operating results.
Transaction costs and termination fee associated with the
terminated sale of the Wolfspeed business. The Company has incurred
transaction costs in conjunction with the previously proposed sale
of its Wolfspeed business to Infineon. In addition, as a result of
the termination of the agreement to sell the Wolfspeed business,
Infineon paid a termination fee to the Company. Because these costs
were incurred relative to a portion of the business which was
previously reported as discontinued operations in fiscal 2017, Cree
does not consider these charges to be reflective of ongoing
operating results.
Income tax effects of the foregoing non-GAAP items. This
amount is used to present each of the amounts described above on an
after-tax basis consistent with the presentation of non-GAAP net
income. Non-GAAP net income is presented using a non-GAAP tax rate.
The Company’s non-GAAP tax rate represents a recalculation of the
GAAP tax rate reflecting the exclusion of the non-GAAP items.
Cree expects to incur many of these same expenses, including
income taxes associated with these expenses, in future periods. In
addition to the non-GAAP measures discussed above, Cree also uses
free cash flow as a measure of operating performance and liquidity.
Free cash flow represents operating cash flows less net purchases
of property and equipment and patent and licensing rights. Cree
considers free cash flow to be an operating performance and 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, a portion of 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 operating performance and liquidity is that it does
not represent the residual cash flow available to the company for
discretionary expenditures, as it is excludes certain mandatory
expenditures such as debt service.
CREE, INC.Unaudited
Reconciliation of GAAP to Non-GAAP Measures(in thousands,
except per share amounts and percentages)
Non-GAAP Gross Margin
Three Months Ended
Nine Months Ended March 26, 2017
March 27, 2016 March 26, 2017
March 27, 2016 GAAP gross profit $ 86,076 $
109,033 $ 336,574 $ 374,051 GAAP gross margin percentage 25.2 %
29.7 % 30.2 % 30.5 % Adjustment: Stock-based compensation expense
2,229 3,078 8,012
9,221 Non-GAAP gross profit $ 88,305 $ 112,111
$ 344,586 $ 383,272 Non-GAAP gross margin percentage
25.9 % 30.6 % 30.9 % 31.2 %
Non-GAAP Operating Income
Three Months Ended Nine Months Ended March
26, 2017 March 27, 2016 March 26,
2017 March 27, 2016 GAAP operating loss
($19,902 ) ($4,541 ) ($5,602 ) ($5,680 ) GAAP operating loss
percentage (5.8 )% (1.2 )% (0.5 )% (0.5 )% Adjustments: Stock-based
compensation expense: Cost of revenue, net 2,229 3,078 8,012 9,221
Research and development 2,542 3,694 8,468 10,554 Sales, general
and administrative 6,790 8,084
21,937 24,539 Total stock-based compensation
expense 11,561 14,856 38,417 44,314 Amortization or impairment of
acquisition-related intangibles 8,362 7,318 20,707 21,442 LED
business restructuring charges (5 ) (1,139 ) 15 17,576 Transaction
costs related to the terminated sale of the Wolfspeed business
6,854 287 11,826 2,515 Wolfspeed transaction termination fee
(12,500 ) — (12,500 ) — Total
adjustments to GAAP operating loss 14,272
21,322 58,465 85,847 Non-GAAP
operating (loss) income ($5,630 ) $ 16,781 $ 52,863
$ 80,167 Non-GAAP operating (loss) income percentage
(1.6 )% 4.6 % 4.7 % 6.5 %
Non-GAAP Non-Operating Income,
net
Three Months Ended Nine Months Ended March
26, 2017 March 27, 2016 March 26,
2017 March 27, 2016 GAAP non-operating income
(loss), net $ 9,865 $ 717 $ 4,946 ($14,075 ) Adjustment: Net
changes associated with equity method investments (8,445 )
210 (2,596 ) 15,892 Non-GAAP
non-operating income, net $ 1,420 $ 927 $ 2,350
$ 1,817
Non-GAAP Net Income
Three Months Ended Nine Months Ended March
26, 2017 March 27, 2016 March 26,
2017 March 27, 2016 GAAP net (loss) income
($99,013 ) $ 152 ($92,230 ) ($10,895 ) Adjustments: Stock-based
compensation expense 11,561 14,856 38,417 44,314 Amortization or
impairment of acquisition-related intangibles 8,362 7,318 20,707
21,442 LED business restructuring charges (5 ) (1,139 ) 15 17,576
Transaction costs related to the terminated sale of the Wolfspeed
business 6,854 287 11,826 2,515 Wolfspeed transaction termination
fee (12,500 ) — (12,500 ) — Net changes associated with equity
method investments (8,445 ) 210 (2,596
) 15,892 Total adjustments to GAAP net (loss) income
before provision for income taxes 5,827 21,532 55,869 101,739
Income tax effect 93,935 (4,489 )
82,188 (22,226 ) Non-GAAP net income $ 749 $
17,195 $ 45,827 $ 68,618 Earnings per
share Non-GAAP diluted (loss) earnings per share $ 0.01 $ 0.17 $
0.46 $ 0.67 Shares used in non-GAAP diluted earnings per
share calculation Non-GAAP shares used 97,346 101,221 98,791
102,157
Free Cash Flow
Three Months Ended Nine Months Ended March
26, 2017 March 27, 2016 March 26,
2017 March 27, 2016 Cash flows from operations
$ 43,440 $ 14,967 $ 163,154 $ 138,763 Less: PP&E spending
(21,684 ) (17,888 ) (56,895 ) (99,692 ) Less: Patents spending
(3,040 ) (3,406 ) (8,876 ) (11,034 )
Total free cash flow $ 18,716 ($6,327 ) $ 97,383
$ 28,037
Reconciliation of Results to Previously
Announced Targets Detail
GAAP Net Income as Adjusted for Wolfspeed Transaction
Termination
Three Months Ended March 26,
2017 GAAP net loss, as above ($99,013 ) Adjustments: Valuation
allowance against U.S. deferred tax assets and other deferred
charges 85,540 Resumption and catch-up of depreciation and
amortization of Wolfspeed long-lived assets 17,651 Wolfspeed
transaction termination fee (12,500 ) Transaction costs related to
the terminated sale of the Wolfspeed business 4,341 Income tax
effect 3,360 Total adjustments 98,392 GAAP net income
as adjusted for Wolfspeed transaction termination ($621 )
Non-GAAP Net Income as Adjusted for Wolfspeed Transaction
Termination
Three Months Ended March 26,
2017 Non-GAAP net income, as above $ 749 Adjustments:
Resumption and catch-up of depreciation and amortization of
Wolfspeed long-lived assets 15,226 Income tax effect (4,882
) Total adjustments 10,344 Non-GAAP net income as
adjusted for Wolfspeed transaction termination $ 11,093
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Cree, Inc.Raiford GarrabrantDirector, Investor RelationsPhone:
919-407-7895Fax: 919-407-5615investorrelations@cree.com
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