Filing identity and reporting period
Important mismatch: The supplied filing is Cree, Inc.’s Form 10-K for the fiscal year ended June 24, 2012—not a Wolfspeed, Inc. filing or a 2011 Q4 report. The company reported three segments: LED Products, Lighting Products, and Power and RF Products. Figures below are in U.S. dollars unless noted.
Financial performance
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Revenue | $1,164.7 million | $987.6 million | Up 18% |
| Gross profit / margin | $409.5 million / 35% | $435.8 million / 44% | Profit down 6%; margin down 9 percentage points |
| Operating income / margin | $39.3 million / 3% | $168.7 million / 17% | Down 77% |
| Net income | $44.4 million | $146.5 million | Down 70% |
| Diluted earnings per share | $0.39 | $1.33 | Down 71% |
| Cash from operations | $242.3 million | $251.4 million | Down $9.1 million |
| Capital expenditures | $95.0 million | $237.1 million | Down $142.1 million |
| Cash, equivalents and short-term investments | $744.5 million | $1,085.8 million | Down $341.3 million |
FY2012 segment revenue was $756.9 million for LED Products (down 6%), $334.7 million for Lighting Products (up 309%), and $73.0 million for Power and RF Products (down 25%). Segment gross margins were 38%, 31%, and 44%, respectively. The filing’s fourth-quarter FY2012 results were revenue of $306.8 million, net income of $10.0 million, and diluted EPS of $0.09.
Liquidity, debt and cash flow
Working capital was $1,015.1 million, down from $1,316.6 million. The company reported no debt or active credit lines. Operating cash flow was $242.3 million; investing activities used $448.1 million, including the Ruud Lighting acquisition; financing activities used $6.7 million. Management said available cash, investments, expected operating cash flow, and capital-market access were expected to meet liquidity needs for at least 12 months. Contractual obligations totaled $205.5 million, mainly $192.7 million of purchase obligations.
Material changes and unusual items
- Revenue growth was driven chiefly by the August 2011 acquisition of Ruud Lighting, which added outdoor lighting products and contributed $204.4 million in revenue after acquisition. Its reported post-acquisition operating loss was $2.0 million.
- The acquisition’s total purchase price was $666.0 million, including $372.2 million cash, 6.1 million Cree shares valued at $211.0 million, and $85.0 million of debt paid on behalf of sellers. The transaction materially reduced cash and increased goodwill and acquired intangible assets.
- Profitability weakened despite higher revenue: LED gross profit fell amid pricing pressure and lower factory utilization; Power and RF results were hurt by reduced solar-inverter demand and delayed military RF orders. Lighting benefited from Ruud sales, cost reductions, and new designs.
- Operating expenses rose, including R&D to $143.4 million and SG&A to $197.1 million. Acquisition-related intangible amortization was $26.3 million. The 7% effective tax rate included benefits from prior-year tax matters and credits.
- Inventory was $188.8 million, up from $176.5 million; annual inventory write-down charges were $14.7 million. Backlog was $149.1 million, down from $172.1 million, and included $37.4 million of U.S. government research contracts, of which $27.6 million was not appropriated.
Outlook, commentary and risks
No specific FY2013 revenue or earnings guidance is provided in the supplied text. Management expected continued intense competition and said it planned to focus on accelerating LED-lighting adoption, developing higher-value LED components, expanding Power and RF applications, and improving factory costs and processes. FY2013 capital investment was targeted at levels similar to FY2012.
Key risks include LED pricing pressure and uncertain adoption, customer and distributor concentration, supply constraints, manufacturing yield and capacity execution, reliance on government funding and appropriations, international and currency exposure, and acquisition integration and goodwill impairment. Two distributors represented 28% of FY2012 revenue combined. Cree reported multiple patent disputes; it described the ultimate outcomes of most matters as uncertain and not reasonably estimable. A settlement with SemiLEDs included an injunction effective October 1, 2012 and a one-time payment to Cree. The company reported no goodwill impairment for FY2012.
The financial statements received an unqualified audit opinion. Management and the auditor reported effective internal control over financial reporting, but the assessment excluded Ruud Lighting, representing 21% of consolidated revenue and 26% of total assets.
Most important facts for investors to verify
- Confirm the intended issuer and period: this document is for Cree, Inc., fiscal 2012—not Wolfspeed, Inc. or 2011 Q4.
- Assess whether the Ruud acquisition’s contribution, integration costs, and acquired goodwill and intangibles support future returns.
- Track LED pricing, factory utilization, segment margins, and whether weaker LED and Power and RF performance stabilizes.
- Check subsequent funding appropriations for government research contracts and developments in the disclosed litigation.
- Review FY2013 results against management’s qualitative priorities and planned capital spending; the filing gives no numerical revenue or EPS guidance.