Filing identity and reporting period
Important mismatch: The supplied filing is Cree, Inc.’s Form 10-K for the fiscal year ended June 26, 2011—not a Wolfspeed, Inc. filing for “2010 Q4.” The summary below reflects the filing text provided.
Cree developed and manufactured LED products and silicon-carbide (SiC) and gallium-nitride (GaN) power and radio-frequency products. It reported one operating segment. Financial amounts below are in U.S. dollars; millions are rounded.
Financial results and liquidity
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Revenue | $987.6 million | $867.3 million | +14% |
| Gross profit / margin | $435.8 million / 44% | $411.1 million / 47% | Profit +6%; margin down 3 percentage points |
| Operating income / margin | $168.7 million / 17% | $197.8 million / 23% | Down 15%; margin down 6 points |
| Net income | $146.5 million | $152.3 million | Down 4% |
| Diluted EPS | $1.33 | $1.45 | Down 8% |
| Cash from operations | $251.4 million | $250.6 million | Approximately unchanged |
| Capital expenditures | $237.1 million | $168.6 million | Increased to expand capacity |
Cash, cash equivalents and short-term investments totaled $1,085.8 million at year-end, versus $1,066.4 million a year earlier. Working capital was $1,316.6 million. The company stated it had no debt or credit lines; reported long-term obligations were $44.8 million, primarily other long-term liabilities, not debt. Inventory increased 57% to $176.5 million, and the cash conversion cycle lengthened from 73 to 104 days, largely due to inventory growth.
LED products generated $890.0 million, or 90% of revenue (+13%); power and RF products generated $97.6 million, or 10% (+26%). Operating cash flow less capital expenditures was approximately $14.3 million, calculated from the reported figures.
Material changes versus the prior year
- Revenue growth was led by LED components and lighting systems; lower LED-chip demand and more aggressive pricing partly offset those gains. Although individual LED product prices declined, the blended LED selling price rose 58% because sales mix shifted toward higher-priced components and lighting products.
- Gross margin fell from 47% to 44%, with management citing pricing pressure and lower factory utilization. Research and development expense rose 41% to $115.0 million, mainly to support 150mm wafer capabilities and product development; sales, general and administrative expense rose 21% to $139.3 million, including expanded sales and marketing and higher patent litigation costs.
- Backlog declined to approximately $172.1 million from $304.0 million. The FY2011 backlog included $55.4 million of government research contracts, of which approximately $37.3 million had not been appropriated.
Outlook, commentary and risks
- Management expected highly competitive markets in FY2012. Priorities included expanding LED lighting adoption, lowering costs through 150mm wafers, utilization and yield improvements, and developing SiC power products for broader applications.
- Management targeted approximately $160 million in FY2012 capital expenditures and said cash, investments and expected operating cash flows should meet needs for at least the next 12 months.
- The company identified uncertain LED adoption and demand, pricing pressure, capacity and yield execution, inventory obsolescence, concentrated customers and distributors, and dependence on limited-source suppliers as material risks. Arrow Electronics represented 20% of FY2011 revenue and World Peace Industrial 10%; international customers accounted for approximately 76% of revenue, including 36% from China.
- Other disclosed exposures included patent litigation, foreign exchange, commodity costs, government funding and appropriations, and environmental regulation. Management believed pending litigation would not materially harm results overall, but acknowledged outcomes were uncertain and some losses could not be reasonably estimated.
- Subsequent event: On August 17, 2011, Cree acquired Ruud Lighting for 6,074,833 Cree shares and $372.2 million cash, subject to adjustments, and paid off approximately $85 million of Ruud debt. This occurred after the fiscal year-end and is not reflected in FY2011 results.
- The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer and period: the source is Cree, Inc.’s FY2011 10-K, despite the request metadata identifying Wolfspeed and 2010 Q4.
- Review subsequent filings for the Ruud acquisition’s final consideration, financing and integration effects.
- Assess whether elevated inventory and the longer cash conversion cycle converted into sales without additional markdowns or excess-capacity charges.
- Track gross-margin recovery, 150mm wafer cost and yield progress, and the impact of pricing and factory utilization.
- Check government contract appropriations, backlog conversion, major-customer concentration and developments in disclosed litigation.