Cree Reports Financial Results for the Second Quarter of Fiscal Year 2008


DURHAM, N.C., Jan. 22, 2008 (PRIME NEWSWIRE) -- Cree, Inc. (Nasdaq:CREE), a market-leading innovator of semiconductors that enhance the value of solid-state lighting, power and communications products, today announced revenue of $119 million for its fiscal second quarter ended December 30, 2007. This represents a 5% increase compared to the fiscal first quarter of 2008 and a 34% increase compared to revenue of $88.8 million reported one year ago. GAAP net income for the second quarter was $6.6 million, or $0.08 per diluted share, compared to net income of $16.5 million or $0.21 per diluted share for the second quarter of fiscal 2007. Please note, the second quarter of fiscal year 2008 consisted of 14 weeks, compared to 13 weeks for the second quarter of fiscal year 2007.

The remainder of 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.

GAAP earnings of $0.08 per diluted share includes certain expenses totaling $5.6 million, net of tax, or $0.06 per diluted share due to certain items. These items consist of amortization of acquired intangibles of $0.04 per diluted share, stock-based compensation expense of $0.3 per diluted share, and a one-time property tax gain of $0.01 per diluted share. On a non-GAAP basis, adjusted to exclude these items, net income for the second quarter of fiscal 2008 was $12.2 million, or $0.14 per diluted share. On a non-GAAP basis, adjusted to exclude similar items as in fiscal 2008, as well as a gain on the sale of investments, net income for the second quarter of fiscal 2007 was $7.2 million, or $0.09 per diluted share.

"Q2 was a strong quarter for Cree, as we continued to execute our strategy and delivered revenue and earnings at the high end of our previously announced target range," stated Chuck Swoboda, Cree chairman and CEO. "The revenue growth was driven by higher LED sales, with XLamp(r) orders and shipments growing double digits sequentially as we were successful in bringing on-line additional XLamp capacity in China. Looking ahead, the global momentum for sustainable, energy-efficient lighting products continued to build with the passage of the new U.S. Energy bill, which will require the use of more-efficient lighting technology and should further accelerate the adoption of LEDs."

Recent Business Highlights:

* Revealed plans to convert all lighting at Cree's Durham headquarters and manufacturing facility to LED lighting. Energy usage for lighting has decreased by 48% in phase one of the conversion, and the results are available at www.ledworkplace.org. The combination of energy savings, reduced maintenance and disposal costs, and the environmental savings demonstrate that LED lighting is now a real alternative to traditional lighting solutions.

* Launched the Cree Solutions Providers network to offer customers a full range of LED lighting-system solutions and design assistance to help accelerate time to market and reduce product development costs.

* Announced that Ann Arbor, MI, will join Raleigh, NC, and Toronto in the growing LED City(tm) initiative. Ann Arbor plans to become the first U.S. city to convert 100 percent of its downtown streetlights to LED technology, and full implementation is projected to cut the city's public lighting energy use in half and reduce greenhouse gas emissions by 2,425 tons of CO2 annually.

* Commercially released zero micropipe ZMP(tm) 100-mm, n-type silicon carbide (SiC) substrates. With this achievement, Cree reinforces its position as the world's leading manufacturer of SiC-based semiconductor materials.

Q2 2008 Financial Metrics:

* Gross margin increased to 35% of revenue from 31% in Q1.

* Cash flow from operations was $35.1 million.

* Cash and investments increased $29.4 million to $361.9 million from Q1.

Business Outlook:

For its third quarter of fiscal 2008 ending March 30, 2008, which is comprised of 13 weeks, Cree targets revenue in a range of $120 million to $125 million with GAAP earnings of $0.07 to $0.09 per diluted share and non-GAAP earnings of $0.14 to $0.16 per diluted share, based on an estimated 87.3 million diluted weighted average shares. Targeted non-GAAP earnings exclude expenses related to the amortization of acquired intangibles of $3.1 million, net of tax, and stock-based compensation expense of $3.0 million, net of tax.

Cree will host a conference call at 5:00 p.m. Eastern time today to review the highlights of the fiscal second quarter 2008 results and the fiscal third quarter 2008 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 February 5, 2008.

Supplemental financial information, including the non-GAAP reconciliation discussed below, is available in the "Investor Relations" section of Cree's website, under "Financial Metrics," "Quarter ending December 30, 2007," at http://www.cree.com/investor/metrics.htm.

About Cree, Inc.

Cree is a market-leading innovator and manufacturer of semiconductors and devices that enhance the value of solid-state lighting, power and communications products by significantly increasing their energy performance and efficiency. Key to Cree's market advantage is its world-class materials expertise in silicon carbide (SiC) and gallium nitride (GaN) for chips and packaged devices that can handle more power in a smaller space while producing less heat than other available technologies, materials and products.

Cree drives its increased performance technology into multiple applications, including exciting alternatives in brighter and more-tunable light for general illumination, backlighting for more-vivid displays, optimized power management for high-current, switch-mode power supplies and variable-speed motors, and more-effective wireless infrastructure for data and voice communications. Cree customers range from innovative lighting-fixture makers to defense-related federal agencies.

Cree's product families include blue and green LED chips, lighting LEDs, LEDs for backlighting, power-switching devices and radio-frequency/wireless devices. For additional product specifications please refer to www.cree.com.

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 our ability to complete development and commercialization of products under development, such as our pipeline of brighter LED chips and packaged products; our ability to lower costs; potential changes in demand; 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 COTCO 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 acquisition; risks associated with ongoing litigation; and other factors discussed in our filings with the Securities and Exchange Commission, including our report on Form 10-K for the fiscal year ended June 24, 2007, 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 and XLamp are registered trademarks, and LED City and ZMP are trademarks, of Cree, Inc.

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



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

                             Three Months Ended     Six Months Ended
                            --------------------  --------------------
                             12/30/07  12/24/06    12/30/07   12/24/06
                            ---------  ---------  ---------  --------- 

  Product revenue           $ 111,341   $ 81,522  $ 217,304  $ 178,940
  Contract revenue              7,658      7,268     15,081     13,760
                            ---------  ---------  ---------  ---------
  Total revenue               118,999     88,790    232,385    192,700

  Cost of product revenue      71,251     52,626    143,831    108,499
  Cost of contract revenue      5,952      5,795     12,018     10,932
                            ---------  ---------  ---------  ---------
  Total cost of revenue        77,203     58,421    155,849    119,431

  Gross margin                 41,796     30,369     76,536     73,269

 Operating expenses:
  Research and development     14,901     14,287     27,678     28,653
  Sales, general and
   administrative              18,211     12,576     36,373     24,522
  Amortization of
   acquisition-related
   intangibles                  4,048        341      8,096        341
  Loss on disposal or
   impairment of long-lived
   assets                         474         85      1,209        182
                            ---------  ---------  ---------  ---------
  Total operating expenses     37,634     27,289     73,356     53,698

  Operating income              4,162      3,080      3,180     19,571

 Non-operating income:
  Gain on sale of
   investments, net                --     11,409     14,117     11,408
  Other non-operating income       66          2         77          2
  Interest income, net          4,516      3,980      8,232      7,846
                            ---------  ---------  ---------  ---------
  Income from continuing
   operations before income
   taxes                        8,744     18,471     25,606     38,827

  Income tax expense            2,104      2,208      6,098      9,197
                            ---------  ---------  ---------  ---------
 Net income from continuing
   operations                   6,640     16,263     19,508     29,630

 (Loss) income from
  discontinued operations,
  net of related tax effect       (20)       216       (174)       139
                            ---------  ---------  ---------  ---------
 Net income                   $ 6,620   $ 16,479   $ 19,334   $ 29,769
                            =========  =========  =========  =========

 Diluted earnings per share:
  Income from continuing
   operations                  $ 0.08     $ 0.21     $ 0.22     $ 0.38
  (Loss) income from
   discontinued operations    $ (0.00)    $ 0.00    $ (0.00)    $ 0.00
                            ---------  ---------  ---------  ---------
  Net income                   $ 0.08     $ 0.21     $ 0.22     $ 0.38
                            =========  =========  =========  =========

 Weighted average shares of 
  common stock outstanding, 
  basic                        85,190     76,948     84,936     77,005

 Weighted average shares of 
  common stock outstanding, 
  diluted                      86,848     78,093     86,713     78,043


                              CREE, INC.
                      CONSOLIDATED BALANCE SHEETS
                            (in thousands)
                                              12/30/07
                                             (Unaudited)    6/25/07
                                             -----------  -----------
  Assets:
  Current assets:
  Cash, cash equivalents and short-term
   investments                               $   295,121  $   242,655
  Accounts receivable, net                        90,520       79,668
  Inventory, net                                  75,063       71,068
  Income taxes receivable and prepaid income 
   taxes                                           3,246        7,947
  Deferred income taxes                           19,939       23,573
  Prepaid expenses and other current assets       10,389        8,920
  Assets of discontinued operations                  150          301
                                             -----------  -----------
  Total current assets                           494,428      434,132

  Property and equipment, net                    354,252      372,345
  Long-term investments held to maturity          66,828       68,363
  Intangible assets, net                          89,573       96,138
  Goodwill                                       144,334      141,777
  Other assets                                     3,526        3,475
                                             -----------  -----------
  Total assets                               $ 1,152,941  $ 1,116,230
                                             ===========  ===========  

 Liabilities and Shareholders' Equity:
 Current liabilities:
  Accounts payable, trade                       $ 36,612     $ 32,940
  Accrued salaries and wages                      10,197       10,241
  Income taxes payable                             6,856        4,504
  Other current liabilities                        6,212        6,259
  Liabilities of discontinued operations             572          505
                                             -----------  -----------
  Total current liabilities                       60,449       54,449

 Long-term liabilities:                          
  Deferred income taxes                           36,499       38,758
  Contingent tax reserves                          5,792        5,792
  Other long-term liabilities                        173          129
  Long-term liabilities of discontinued         
   operations                                        924        1,103
                                             -----------  -----------
  Total long-term liabilities                     43,388       45,782

 Shareholders' Equity:                        
  Common stock                                       107          106
  Additional paid-in-capital                     736,242      713,778
  Comprehensive income                             1,168        9,826
  Retained earnings                              311,587      292,289
                                             -----------  -----------
  Total shareholders' equity                   1,049,104    1,015,999
                                             -----------  -----------
  Total liabilities and shareholders' equity $ 1,152,941  $ 1,116,230
                                             ===========  ===========

The following is a reconciliation showing how Cree, Inc.'s year todate
income statements for fiscal 2008 and 2007 would appear if theywere
adjusted for the items noted below.

                               CREE, INC
      Reconciling Items to Q2 2008 & 2007 Financial Statements -
                           GAAP to Non-GAAP
               (in thousands, except per share amounts)
                              (Unaudited)

                                           Three Months Ended
                                           December 30, 2007
                                -------------------------------------
                                  GAAP       Adjustments    Non-GAAP
                                 -----------------------   ----------

Product revenue                 $ 111,341     $      --     $ 111,341
Contract revenue                    7,658            --         7,658
                                 -----------------------   ----------
Total revenue                     118,999            --       118,999

Cost of product revenue            71,251          (726)(a)    70,525
Cost of contract revenue            5,952            --         5,952
                                 -----------------------   ----------
Total cost of sales                77,203          (726)       76,477

Gross margin                       41,796           726        42,522
Gross margin percentage                35%                         36%

Operating expenses:
Research and development           14,901        (1,039)(a)    13,862
Sales, general and
 administrative                    18,211        (1,492)(a)(b) 16,719
Amortization of acquisition-
 related intangibles                4,048        (4,048)(c)        --
Loss on disposal of assets            474            --           474
                                 -----------------------   ----------
Total operating expenses           37,634        (6,579)       31,055

Operating (loss) income             4,162         7,305        11,467

Non-operating income:
Gain (loss) on investments in
 securities                            --            --            --
Other non-operating income             66            --            66
Net interest income                 4,516            --         4,516
                                 -----------------------   ----------
Income from continuing
 operations before
 income taxes                       8,744         7,305        16,049

Income tax expense                  2,104         1,753(d)      3,857
                                 -----------------------   ----------
Net income from continuing
 operations                         6,640         5,552        12,192

Income (loss) from
 discontinued operations, net
 of related tax                       (20)           --           (20)
                                 -----------------------   ----------
Net income                      $   6,620     $   5,552     $  12,172
                                =======================     =========

Earnings per diluted share:
From continuing operations      $    0.08     $    0.06     $    0.14
From discontinued operations    $   (0.00)    $      --     $   (0.00)
                                 -----------------------   ----------
From net income                 $    0.08     $    0.06     $    0.14
                                =======================     =========

Weighted average shares
 of common stock outstanding,
 basic                             85,190           --         85,190

Weighted average shares of
 common stock outstanding,
 diluted                           86,848           --         86,848


                                           Three Months Ended
                                           December 24, 2006
                                -------------------------------------
                                  GAAP       Adjustments    Non-GAAP
                                 -----------------------   ----------

Product revenue                 $  81,522     $      --     $  81,522
Contract revenue                    7,268            --         7,268
                                 -----------------------   ----------
Total revenue                      88,790            --        88,790

Cost of product revenue            52,626        (1,000)(a)    51,626
Cost of contract revenue            5,795           --          5,795
                                 -----------------------   ----------
Total cost of sales                58,421       (1,000)        57,421

Gross margin                       30,369        1,000         31,369
Gross margin percentage                34%                         35%

Operating expenses:
Research and development           14,287         (652)(a)     13,635
Sales, general and
 administrative                    12,576       (1,066)(a)     11,510
Amortization of acquisition-
 related intangibles                  341         (341)(c)         --
Loss on disposal of assets             85           --             85
                                 -----------------------   ----------
Total operating expenses           27,289       (2,059)        25,230

Operating (loss) income             3,080        3,059          6,139

Non-operating income:
Gain (loss) on investments in
 securities                        11,409      (11,351)(e)         58
Other non-operating income              2           --              2
Net interest income                 3,980           --          3,980
                                 -----------------------   ----------
Income from continuing
 operations before
 income taxes                      18,471       (8,292)        10,179

Income tax expense                  2,208          715(f)       2,923
                                 -----------------------   ----------
Net income from continuing
 operations                        16,263       (9,007)         7,256

Income (loss) from
 discontinued operations, net
 of related tax                       216         (287)(g)        (71)
                                 -----------------------   ----------
Net income                      $  16,479     $  (9,294)    $   7,185
                                =======================     =========

Earnings per diluted share:
From continuing operations      $    0.21     $   (0.12)    $    0.09
From discontinued operations    $    0.00     $   (0.00)    $   (0.00)
                                -----------------------   ----------
From net income                 $    0.21     $   (0.12)    $    0.09
                                =======================     =========

Weighted average shares
 of common stock outstanding,
 basic                             76,948           --        76,948

Weighted average shares of
 common stock outstanding,
 diluted                           78,093           --        78,093


 (a) Non-cash stock-based compensation expense of $726 in costs of
     product revenue, $1,039 in research and development and $2,174 in
     sales, general and administrative for the three months ended
     December 30, 2007 and $1,000 in costs of product revenue, $652 in
     research and development and $1,066 in sales, general and
     administrative for the three months ended December 24, 2006.

 (b) Reversal of $682 in personal property assessment related to
     settling the audits of our 2002 through 2007 property tax returns
     with the County of Durham.

 (c) Amortization expense of $4,048 for the three months ended
     December 30, 2007 and $341 for the three months ended December
     24, 2006 recognized on intangible assets resulting from
     prior-year acquisitions.

 (d) Tax effects of non-cash stock-based compensation expense, the
     reversal of a portion of the amount accrued related to our
     personal property tax assessments and amortization related to
     acquisition-related intangible assets.

 (e) Gain on the sale of 931,000 shares of Color Kinetics Incorporated
     common stock.

 (f) Tax effect related to non-cash stock-based compensation expense,
     the change in valuation allowance on our investment in Color
     Kinetics Incorporated common stock and the retroactive
     reinstatement of R&D tax credit, and amortization of
     acquisition-related intangible assets.

 (g) Gain realized as a result of entering into a sublease agreement
     at Cree Microwave.

The following is a reconciliation showing how Cree, Inc.'s year to
date income statements for fiscal 2008 and 2007 would appear if they
were adjusted for the items noted below.

                              CREE, INC.
    Reconciling Items to Six Months Financial Statements - GAAP to
                               Non-GAAP
               (in thousands, except per share amounts)
                              (Unaudited)

                                           Six Months Ended
                                           December 30, 2007
                               -------------------------------------
                                 GAAP       Adjustments   As Adjusted
                                -----------------------   ----------

 Product revenue               $ 217,304     $      --     $ 217,304
 Contract revenue                 15,081            --        15,081
                                -----------------------   ----------
 Total revenue                   232,385            --       232,385

 Cost of product revenue         143,831        (1,640)(a)   142,191
 Cost of contract revenue         12,018            --        12,018
                                -----------------------   ----------
 Total cost of sales             155,849        (1,640)      154,209

 Gross margin                     76,536         1,640        78,176
 Gross margin percentage              33%                         34%

 Operating expenses:
 Research and development         27,678        (1,936)(a)    25,742
 Sales, general and
  administrative                  36,373        (4,656)(a)(b) 31,717
 Amortization of acquisition-
  related intangibles              8,096        (8,096)(c)        --
 Loss on disposal of assets        1,209            --         1,209
                                -----------------------   ----------
 Total operating expenses         73,356       (14,688)       58,668

 Operating income                  3,180        16,328        19,508

 Non-operating income:
 Gain (loss) on investments in
  securities                      14,117       (14,117)(d)        --
 Other non-operating income           77            --            77
 Net interest income               8,232            --         8,232
                                -----------------------   ----------
 Income from continuing
  operations before income
  taxes                           25,606         2,211        27,817

 Income tax expense                6,098           547(e)      6,645
                                -----------------------   ----------
 Net income from continuing
  operations                      19,508         1,664        21,172

 Loss from discontinued
  operations, net of
  related tax                       (174)           --          (174)
                                -----------------------   ----------
 Net income                    $  19,334     $   1,664     $  20,998
                               =======================     =========

 Earnings per diluted share:
 From continuing operations    $    0.22     $    0.02     $    0.24
 From discontinued operations  $   (0.00)    $      --     $   (0.00)
                               -----------------------   ----------
 From net income               $    0.22     $    0.02     $    0.24
                               =======================     =========

 Weighted average shares of
  common stock outstanding,
  basic                           84,936            --        84,936

 Weighted average shares of
  common stock outstanding,
  diluted                         86,713            --        86,713


                                            Six Months Ended
                                           December 24, 2006
                                ------------------------------------
                                  GAAP      Adjustments   As Adjusted
                                -----------------------   ----------

 Product revenue                $ 178,940     $      --    $ 178,940
 Contract revenue                  13,760            --       13,760
                                -----------------------   ----------
 Total revenue                    192,700            --      192,700

 Cost of product revenue          108,499        (2,207)(a)  106,292
 Cost of contract revenue          10,932            --       10,932
                                -----------------------   ----------
 Total cost of sales              119,431        (2,207)     117,224

 Gross margin                      73,269         2,207       75,476
 Gross margin percentage               38%                        39%

 Operating expenses:
 Research and development          28,653        (1,775)(a)   26,878
 Sales, general and
  administrative                   24,522        (2,443)(a)   22,079
 Amortization of acquisition-
  related intangibles                 341          (341)(c)       --
 Loss on disposal of assets           182            --          182
                                -----------------------   ----------
 Total operating expenses          53,698        (4,559)      49,139

 Operating income                  19,571         6,766       26,337

 Non-operating income:
 Gain (loss) on investments in
  securities                       11,408       (11,351)(d)       57
 Other non-operating income             2            --            2
 Net interest income                7,846            --        7,846
                                -----------------------   ----------
 Income from continuing
  operations before income
  taxes                            38,827        (4,585)      34,242

 Income tax expense                 9,197         1,594(e)    10,791
                                -----------------------   ----------
 Net income from continuing
  operations                       29,630        (6,179)      23,451

 Loss from discontinued
  operations, net of
  related tax                         139          (271)(f)     (132)
                                -----------------------   ----------
 Net income                     $  29,769     $  (6,450)   $  23,319
                                =======================    =========

 Earnings per diluted share:
 From continuing operations     $    0.38     $   (0.08)   $    0.30
 From discontinued operations   $    0.00     $   (0.00)   $   (0.00)
                                -----------------------   ----------
 From net income                $    0.38     $   (0.08)   $    0.30
                                =======================    =========

 Weighted average shares of
  common stock outstanding,
  basic                            77,005            --       77,005

 Weighted average shares of
  common stock outstanding,
  diluted                          78,043            --       78,043

 (a) Non-cash stock-based compensation expense of $1,640 in costs of
     product revenue, $1,936 in research and development and $3,608 in
     sales, general and administrative for the six months ended
     December 30, 2007 and $2,207 in costs of product revenue, $1,775
     in research and development and $2,443 in sale, general and
     administrative for the six months ended December 24, 2006.

 (b) Personal property assessment of $1,048 related to finalizing the
     audits of our 2002 through 2007 property tax returns.

 (c) Amortization expense of $8,096 for the six months ended December
     30, 2007 and $341 for the six months ended December 24, 2006
     recognized on intangible assets resulting from prior-year
     acquisitions.

 (d) Gain on the sale of 500,000 shares of Color Kinetics Incorporated
     common stock during the six months ended December 30, 2007 and on
     the sale of 931,000 shares of Color Kinetics Incorporated common
     stock during the six months ended December 24, 2006.

 (e) Tax effects for non-cash stock-based compensation expense,
     personal property tax assessment, the amortization of
     acquisition-related intangible assets and on the sale of Color
     Kinetics Incorporated common stock.

 (f) Gain realized as a result of entering into a sublease agreement
     at Cree Microwave.


            

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