SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 29, 2000
CREE, INC.
(Exact name of registrant as specified in its charter)
North Carolina 34-21154 56-1572719
(State or other (Commission File No.) I.R.S. Employer
jurisdiction Identification Number
of incorporation)
4600 Silicon Drive
Durham, North Carolina 27703
(Address of principal executive offices)
(919) 313-5300
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Item 7 is hereby amended and restated as follows:
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
Report of Independent Accountants
To the Board of Directors
of Spectrian Corporation
In our opinion, the accompanying balance sheet and the related statement of
operations, stockholder's net investment and cash flow present fairly, in all
material respects, the financial position of UltraRF, a division of Spectrian
Corporation, at March 31, 2000, and the results of its operations and its cash
flows for the year ended March 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of UltraRF's management; our responsibility is
to express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
UltraRF is a division of Spectrian Corporation and as disclosed in the financial
statements has extensive transactions and relationships with Spectrian
Corporation.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
December 12, 2000
except for Note 11, which is as of
December 29, 2000
-2-
UltraRF (a division of Spectrian Corporation)
Balance Sheet
(In thousands)
March 31,
2000
---------
Assets
Current assets:
Accounts receivable, net $ 406
Inventories 8,331
Prepaid expenses and other current assets 192
---------
Total current assets 8,929
Property and equipment, net 6,176
Deferred tax assets 484
---------
Total assets $ 15,589
=========
Liabilities and Stockholder's Net Investment
Current liabilities:
Accounts payable $ 1,673
Accrued liabilities 1,000
Capital lease obligations, current 63
---------
Total current liabilities 2,736
Capital lease obligations, long-term 101
---------
Total long-term liabilities 2,837
---------
Commitments (Note 6)
Stockholder's net investment 12,752
---------
Total liabilities and stockholder's net investment $ 15,589
=========
The accompanying notes are an integral part of
these financial statements.
-3-
UltraRF (a division of Spectrian Corporation)
Statement of Operations
For the Year Ended March 31, 2000
(In thousands)
Year Ended
March 31,
2000
----------
Revenues:
Product sales $ 880
Product sales to Spectrian Corporation 27,485
----------
Total revenues 28,365
----------
Costs and expenses:
Cost of product sales 15,848
Research and development 4,491
Selling, general and administrative 3,454
----------
Total costs and operating expenses 23,793
----------
Operating income 4,572
Interest expense 18
----------
Income before income taxes 4,554
Provision for income taxes 1,673
----------
Net Income $ 2,881
==========
The accompanying notes are an integral part of
these financial statements.
-4-
UltraRF (a division of Spectrian Corporation)
Statement of Stockholder's Net Investment
For the Year Ended March 31, 2000
(In thousands)
Stockholder's
Net
Investment
-------------
Balance at March 31, 1999 $ 10,994
Net income 2,881
Net change in stockholder's investment (1,123)
-------------
Balance at March 31, 2000 $ 12,752
=============
The accompanying notes are an integral part of
these financial statements
-5-
UltraRF (a division of Spectrian Corporation)
Statement of Cash Flows
For the Year Ended March 31, 2000
(In thousands)
Year Ended
March 31,
2000
----------
Cash flows from operating activities:
Net income $ 2,881
Adjustments to reconcile net income to net cash
provided by operating activities:
Provisions for doubtful accounts and returns 141
Loss on disposal of property and equipment 7
Depreciation 3,074
Deferred income taxes 75
Changes in current assets and liabilities:
Accounts receivable (71)
Inventories (3,413)
Prepaid expenses (15)
Accounts payable 1,056
Accrued liabilities 58
----------
Net cash provided by operating activities 3,793
----------
Cash flows from investing activities:
Purchases of property and equipment (2,612)
----------
Net cash used in investing activities (2,612)
----------
Cash flows from financing activities:
Principal payments on capital lease obligations (58)
Net reduction in stockholder's net investment (1,123)
----------
Net cash used in financing activities (1,181)
----------
Net increase in cash and cash equivalents -
Cash and cash equivalents at beginning of year -
----------
Cash and cash equivalents at end of year $ -
==========
The accompanying notes are an integral part of
these financial statements.
-6-
UltraRF (a division of Spectrian Corporation)
Notes to Financial Statements
1. Overview and Basis of Presentation
In November 1999, Spectrian Corporation ("Spectrian") announced that its
semiconductor division, UltraRF would begin to operate as an autonomous business
unit. UltraRF is a developer, manufacturer and supplier of customizable and
cost-effective RF power devices. These devices are a necessary component in the
manufacture of wireless power amplifiers for mobile and fixed wireless
infrastructure. UltraRF sold its products almost exclusively to the amplifier
division of Spectrian.
The Business
UltraRF operates a wafer fabrication facility that utilizes bipolar and
laterally diffused metal oxide semiconductor ("LDMOS") technologies. This
facility is capable of processing metal oxide semiconductor ("MOS") devices with
gold metallization. Using this fabrication facility, UltraRF produces
high-power, high-performance LDMOS RF power semiconductors, which are one
critical enabling component in the design and manufacture of second and third
generation wireless infrastructure equipment. In addition to its own unique
designs, UltraRF also produces functional equivalents to some devices provided
by other manufacturers.
Basis of presentation
The carve-out financial statements include the assets, liabilities, operating
results and cash flows of UltraRF and have been prepared using Spectrian's
historical basis in the assets and liabilities and the historical results of
operations of UltraRF. Changes in stockholder's net investment represent
Spectrian's transfer of its net investment in UltraRF, after giving effect to
the net earnings of UltraRF.
UltraRF has derived substantially all of its revenues from sales to Spectrian.
Such revenues have been recorded at prices established by Spectrian management,
which did not fluctuate during the period presented. Had UltraRF been an
independent entity the prices for sale of its products to Spectrian may have
been different.
The financial statements include certain allocations of specific Spectrian
corporate expenses, including legal, accounting, real estate, insurance,
information technology, human resources and other Spectrian corporate and
infrastructure costs. The expense allocations have been determined on a basis
that Spectrian and UltraRF considered to be a reasonable reflection of the
utilization of services provided or the benefit received by UltraRF. However,
the financial information included herein may not reflect the financial
position, operating results, changes in stockholder net investment and cash
flows of UltraRF in the future or what they would have been had UltraRF been a
separate, stand-alone entity during the period presented.
2. Summary of Significant Accounting Policies
Use of estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
-7-
Revenue recognition
Revenue from product sales is recognized at the time the product is shipped.
Cash and cash equivalents
Historically, Spectrian has managed cash and cash equivalents on a centralized
basis. Cash receipts associated with UltraRF's business have been received
directly by Spectrian and Spectrian has funded UltraRF's disbursements.
Fair value of financial instruments
For certain of UltraRF's financial instruments, including accounts receivable
and accounts payable, the carrying amounts approximate fair market value due to
their short maturities.
Concentration of credit risk
Financial instruments that potentially subject UltraRF to a concentration of
credit risk consist of accounts receivable. Management believes that the risks
associated with these financial instruments are minimal. UltraRF's accounts
receivable is derived from revenue earned from customers located in the United
States. UltraRF performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. When
required, an allowance for potential credit losses is maintained and such losses
have historically been within management's expectations.
Sales to Spectrian accounted for 97% of total revenue in the year ended March
31, 2000.
Inventory
Inventories are stated at the lower of first-in, first-out cost or market.
UltraRF periodically reviews inventory for potential slow moving and obsolete
items and writes down specific items to net realizable value as appropriate.
Inventory carrying amounts and net realizable value could have varied if UltraRF
were a stand alone company due to a variety of reasons, including bargaining
power, lower economies of scale, reduced demand, poorer cash management,
difficulties in forecasting or predicting demand or to sell finished products.
Property and equipment
Property and equipment are stated at cost. Additions, improvements and major
renewals are capitalized. Maintenance, repairs and minor renewals are expensed
as incurred. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, generally three to five years. Assets
recorded under capital leases and leasehold improvements are amortized on a
straight-line basis over the shorter of the lease terms or the estimated useful
lives of the respective assets.
Long-lived assets
UltraRF evaluates the recoverability of its long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"). SFAS 121 requires recognition of impairment of long-lived assets
in the event the net book value of such assets exceeds the future undiscounted
cash flows attributable to such assets. UltraRF currently has no significant
impaired assets.
Income taxes UltraRF's operating results historically have been included in
Spectrian's U.S. and state income tax returns. The provision for income taxes in
UltraRF's financial statements has been determined on a separate return basis.
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax basis of assets and
liabilities and their reported amounts.
-8-
Stock-based compensation
UltraRF accounts for stock-based compensation in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB No. 25, compensation
expense is recognized based on the difference, if any, on the measurement date
between the fair value of a company's common stock and the amount an employee
must pay to acquire the common stock. The compensation expense is recognized
over the periods the employee performs the related services, generally the
vesting period of four years. UltraRF's employees have options to purchase
common stock of Spectrian. Spectrian's policy is to grant options with an
exercise price equal to the quoted market price of Spectrian's common stock on
the grant date. Accordingly, no compensation cost has been recognized in
UltraRF's Statement of Operations.
UltraRF accounts for equity instruments issued to non-employees in accordance
with the provisions of SFAS No. 123 and as defined by Emerging Issues Task Force
("EITF") No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring or in Conjunction with Selling, Goods or Services,"
which requires that such equity instruments are recorded at their fair value on
the measurement date, which is typically the date of grant. UltraRF has provided
additional pro forma disclosures as required under SFAS No. 123.
Comprehensive earnings
UltraRF has no material components of other comprehensive earnings and,
accordingly, comprehensive earnings are the same as net earnings for the period
presented.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities and requires recognition of all derivatives as assets or
liabilities and measurements of those instruments at fair value. In June 1999,
the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," which deferred the required date of adoption of SFAS
No. 133 for one year, to fiscal years beginning after June 15, 2000. In June
2000, the FASB issued Statement of Financial Accounting Standards No. 138, an
amendment to SFAS 133, which addresses a limited number of issues causing
implementation difficulties for numerous entities that apply SFAS 133. UltraRF
will adopt this statement in its first quarter of fiscal 2002, the adoption of
SFAS 133 will not have a material impact on UltraRF's operations or financial
position.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB 101") as
amended by SAB 101A and 101B. SAB 101 summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. Adoption of SAB 101 is required by the fourth quarter of
fiscal 2001. The adoption of SAB 101 will not have a material impact on
UltraRF's financial statements.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44 ("FIN 44") "Accounting for Certain Transactions involving Stock
Compensation" and interpretation of APB Opinion No. 25. FIN 44 clarifies the
application of Opinion 25 for (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a non-compensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
-9-
combination. FIN 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
The adoption of certain provisions prior to July 1, 2000 did not have a material
effect. UltraRF's management does not expect the adoption of the remaining
provisions to have a material effect on its financial position or results of
operations.
3. Balance Sheet Components
March 31,
2000
(in thousands)
--------------
Accounts receivable, net:
Accounts receivable on product sales to customers $ 547
Less: Allowance for doubtful accounts (141)
--------------
$ 406
==============
Inventories:
Raw materials $ 2,893
Work-in-progress 4,910
Finished goods 528
--------------
$ 8,331
==============
Property and equipment, net:
Machinery and equipment $ 15,575
Computer equipment 695
Leasehold improvements 1,155
--------------
17,425
Less accumulated depreciation (11,249)
--------------
$ 6,176
==============
Property and equipment cost includes $307,000 of equipment under capital leases
at March 31, 2000. Accumulated depreciation of assets under capital leases
totaled $139,000 at March 31, 2000
-10-
March 31,
2000
(in thousands)
--------------
Accrued liabilities:
Payroll and related expenses $ 921
Other 79
--------------
$ 1,000
==============
4. Transactions with Spectrian Corporation
UltraRF's revenue (in thousands) from sales of products to Spectrian was $27,485
in the year ended March 31, 2000.
The financial statements include allocations of $4.3 million of certain
Spectrian Corporation shared administrative functions, including procurement,
quality, legal, accounting, treasury and other Spectrian corporate and
infrastructure costs. The allocation was based on UltraRF's revenue as a
percentage of Spectrian's revenue and the allocated costs are included in the
table below. Management believes that such allocation methodology is reasonable.
The expenses allocated are not necessarily indicative of the expenses that would
have been incurred if UltraRF had been a separate, independent entity and had
otherwise managed these functions.
There were no significant differences between the costs attributed to the
Company on a stand alone basis as opposed to as a division of Spectrian, except
for additional costs relating to sales and marketing activities. Prior to
December 1999, UltraRF received sales and marketing support from Spectrian
Corporation and these costs were included as part of the allocations in shared
administrative functions. UltraRF introduced its own sales and marketing
activities in December 1999 to assist the division in supporting its external
customer base. The costs associated with these activities was approximately
$640,000 for the period from December 1999 to March 2000.
UltraRF would also possibly incur other costs in establishing its own
administrative departments and corporate management teams. Allocated costs
included in the statement of operations is as follows:
Year Ended
March 31,
2000
(in thousands)
--------------
Cost of revenues $ 1,782
Research and development 218
Selling, general and administrative 2,252
--------------
$ 4,252
==============
-11-
At year end, net interdivisional balances are cleared through the "stockholder's
net investment" account. UltraRF borrows exclusively from Spectrian Corporation.
In the year ended March 31, 2000, UltraRF reduced its interdivisional balance
with Spectrian Corporation by $1.1 million. No interest is received or charged
on debit or credit balances, which exist during the year. Had the division been
a stand alone entity, UltraRF may not have been able to obtain needed debt at
favorable rates or at rates available to Spectrian.
Had UltraRF not been a division of Spectrian and been able to predict demand and
sell products at guaranteed prices, or transfer cost, the division could have
seen significant competition from third parties resulting in reduced demand,
price pressures and an inability to sell finished products at the current
volumes.
5. Income Taxes
The provision for income taxes consists of the following:
Year Ended
March 31,
2000
(in thousands)
--------------
Current:
U.S. Federal $ 1,312
State and local 286
--------------
1,598
--------------
Deferred:
U.S. Federal 21
State and local 54
--------------
75
--------------
Total Provision $ 1,673
==============
All of UltraRF's income is taxable in the United States of America.
Income tax expense for the year ended March 31, 2000 differs from the amount
computed by applying the federal income tax rate of 34% to pretax income from
operations as a result of the following:
Year Ended
March 31,
2000
----------
Tax at Federal statutory rate 34.00%
State, net of Federal benefit 5.34%
Meals and entertainment 0.02%
Research credit carryforwards (2.61)%
----------
36.75%
==========
-12-
Significant components of the division's deferred tax assets and liabilities are
as follows:
March 31,
2000
(in thousands)
--------------
Deferred tax assets:
Accruals and reserves $ 523
--------------
523
--------------
Deferred tax liabilities:
Property and equipment depreciation differences (39)
--------------
Net deferred tax assets $ 484
==============
The UltraRF tax provision has been computed on a stand alone basis. UltraRF
files its tax return as part of a consolidated group and as such the division
has booked an interdivisional payable/receivable for their ratable share of the
combined tax liability (refund), which account is cleared annually as a
component of net change in stockholder's investment.
6. Commitments
Leases
On behalf of UltraRF, Spectrian leases office space and equipment under
noncancelable operating and capital leases with various expiration dates through
November 2011. Rent expense for the year ended March 31, 2000 was $694,000.
UltraRF recognizes rent expense on a straight-line basis over the lease period
and has accrued for rent expense incurred but not paid.
Future minimum lease payments under noncancelable operating and capital leases
entered into by Spectrian on behalf of UltraRF are as follows (in thousands):
Year Ended Capital Operating
March 31, Leases Leases
------- ---------
2001 $ 76 $ 715
2002 76 715
2003 32 715
2004 -- 715
2005 -- 715
Thereafter -- 4,746
------- ---------
Total minimum lease payments $ 84 $ 8,321
=========
Less: Amount representing interest (20)
-------
Present value of capital lease obligations 164
Less: Current portion (63)
-------
Long-term portion of capital lease obligations $ 101
=======
-13-
These leases and the related terms were negotiated by Spectrian. They may not be
representative of the terms and amounts UltraRF could obtain as a stand alone
company.
7. Employee Stock Purchase Plan
In June 1998, Spectrian Corporation's stockholders approved the 1998 Employee
Stock Purchase Plan (the "Plan") which permitted eligible employees to
contribute up to 15% of their base compensation to purchase Spectrian Common
Stock through payroll deductions. The Plan consisted of consecutive and
overlapping 12-month offering periods, each divided into two 6-month purchase
periods. The purchase price of the shares in the Plan is 85% of the lower of the
fair market value of the Common Stock at the beginning of the offering period or
the end of each purchase period. Spectrian reserved a total of 250,000 shares of
Common Stock for issuance under this plan. The Purchase Plan has a feature
whereby the number of shares reserved under the Plan are increased automatically
on an annual basis by the lesser of 300,000 shares or 2% of outstanding shares
of Common Stock. There were 199,538 shares of Common Stock available to all
Spectrian employees for issuance under the Plan as of March 31, 2000.
During the fiscal year ended March 31, 2000 shares totaling 51,913 were acquired
by employees of UltraRF under the Plan at an average per share price of $9.17.
Under SFAS No. 123, "Accounting for Stock-Based Compensation," pro forma
compensation cost is calculated for the fair market value of the employees'
purchase rights. The fair value of each stock purchase right granted under the
Purchase Plan is estimated using the Black-Scholes Option Pricing Model with the
following weighted average assumptions:
Fiscal Year
2000
-----------
Risk-free interest rate 5.0%
Expected term of options 5.3 years
Expected volatility 86.2%
Expected dividend yield 0.0%
The per share weighted average fair market value of those purchase rights
granted in fiscal 2000, was $6.08 per share.
8. Stock Option Plans
Spectrian has two stock option plans (the "Plans") from which it has issued
options to UltraRF employees: the 1992 Stock Plan (the "1992 Plan") and the 1998
Nonstatutory Stock Option Plan (the "1998 Plan"). Pursuant to the terms of the
plans, Spectrian's Board of Directors may grant stock options to selected
employees, directors, officers and consultants of Spectrian including employees
of UltraRF. Stock options are generally granted with an exercise price equal to
the fair market value of Spectrian's stock at the date of grant.
Under the 1992 Plan, the Company's Board of Directors has the authority to
determine to whom options will be granted, the number of shares under option,
the option term and the exercise price. The options generally have 10-year terms
and vest 25% after one year from the grant date with the remaining options
vesting pro rata over the following 36 months. The term of any options issued
under the Plan may not exceed ten years from the date of grant.
-14-
Under the 1998 Plan, the Company's Board of Directors has the authority to
determine to whom options will be granted, the number of shares under option,
the option term and the exercise price. The options generally have 10-year terms
and vest 25% after one year from the grant date with the remaining options
vesting pro rata over the following 36 months.
Outside of the Plans in fiscal 2000, one employee of UltraRF was granted 50,000
options at an exercise price of $11.38, which are subject to the same vesting
schedule as that of the 1992 Plan.
The following table summarizes option activity by UltraRF employees under
Spectrian's various plans:
2000
Shares Price
------- -------
Options outstanding at April 1 338,921 $19.78
Options granted 419,850 16.81
Options exercised (68,633) 9.89
Options canceled (54,947) 14.06
-------
Outstanding at March 31 635,191 19.38
-------
Options exercisable at March 31 161,025 $18.51
-------
Options Currently
Exercisable
Options Outstanding at March 31, 2000 At March 31, 2000
- ------------------------------------------------ -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life (Years) Price Outstanding Price
- -------- ----------- ------------ --------- ----------- ---------
$0-$6.59 20,307 7.65 $ 6.23 20,307 $ 6.23
6.59-9.89 44,320 6.50 9.29 34,316 9.23
9.89-14.83 379,342 8.95 10.66 57,147 13.95
14.83-22.24 77,322 9.04 17.60 20,079 16.50
22.24-33.36 48,500 9.80 21.98 - -
33.36-50.04 55,200 8.17 38.78 22,801 41.46
50.04-75.06 10,200 7.50 48.03 6,375 45.36
----------- -----------
635,191 161,025
----------- -----------
-15-
Fair value disclosures
Had compensation cost for UltraRF's stock-based compensation plan been
determined based on the fair value at the grant dates for the awards under a
method prescribed by SFAS No. 123, UltraRF's net income would have been as
indicated in the pro forma amounts indicated below (in thousands):
Year Ended
March 31,
2000
Net income: ----------
As reported $ 2,881
----------
Pro forma $ 655
----------
UltraRF calculated the fair value of each option grant on the date of grant
using the Black-Scholes pricing method with the following assumptions: dividend
yield at 0%; weighted average expected option term of 5.3 years, expected
volatility of 82.6% and risk free interest rate of 5.8%. The weighted average
fair value of options granted during 2000 was $13.67.
Stock-based compensation
Stock-based compensation expense related to stock options granted to
non-employees is recognized as earned. At each reporting date, UltraRF re-values
the stock-based compensation related to unvested non-employee options using the
Black-Scholes option pricing model. As a result, the stock-based compensation
expense will fluctuate as the fair market value of Spectrian's common stock
fluctuates. In connection with the grant of stock options to consultants,
UltraRF recorded stock-based compensation expense of $131,000 for the year ended
March 31, 2000. As of March 31, 2000, UltraRF expects to amortize stock-based
compensation expense of $98,000 in fiscal 2001, $55,000 in fiscal 2002, assuming
no change in the underlying value of the Company's common stock.
9. Employee Benefit Plans
The employees of UltraRF are part of the Spectrian Corporation 401(k) savings
plan (the "Benefit Plan") to provide retirement and incidental benefits for
eligible employees. The Benefit Plan provides for employer contributions as
determined by Spectrian Corporation's Board of Directors, which may not exceed
20% of the annual aggregate salaries of those employees eligible for
participation. Employer contributions relating to UltraRF, under this plan
amounted to $29,000 for the year ended March 31, 2000.
10. Segment Information
UltraRF's business operations comprise of one reportable segment as determined
primarily by management's views on UltraRF's operations. UltraRF's revenue is
derived 100% from customers based in the U.S. and all long-lived assets are
situated within the United States of America.
11. Subsequent Event
On December 29, 2000, Spectrian Corporation completed the sale of substantially
all of the assets and liabilities comprising Spectrian Corporation's
semiconductor division, UltraRF, pursuant to the Asset Purchase Agreement dated
-16-
as of November 20, 2000 (the "Asset Purchase Agreement") among Cree, Inc.
("Cree"), Zoltar Acquisition, Inc. ("Zoltar") and Spectrian Corporation for
2,656,917 shares of Cree common stock valued at $35.53 per share at the date of
sale. Of the total consideration received, 191,094 shares of Cree common stock
valued at $6,790,000 were placed in escrow to secure Spectrian Corporation's
representations, warranties and covenants under the Asset Purchase Agreement for
a period of up to 12 months.
As part of the definitive agreement, Spectrian and Cree entered into a two-year
supply agreement under which Spectrian is obligated to purchase from Cree an
aggregate of $58 million in semiconductors. In the event Spectrian fails to make
these purchases, it is obligated to pay Cree the amount of the shortfall. In
addition, Spectrian and Cree entered into a one-year joint development agreement
to develop advanced technologies related to laterally diffused metal oxide
semiconductors ("LDMOS"), linear high gain LDMOS driver modules, high efficiency
LDMOS power modules and SiC MESFET components, under which Spectrian will pay
Cree a development fee of $2.4 million in four quarterly installments of
$600,000 beginning in April 2001. Spectrian Corporation also subleased one of
the facilities in Sunnyvale, California, to Cree for a term of 11 years (with
three options to extend the lease an additional five years) with similar terms
as the lease agreement between Spectrian Corporation and its landlord.
Under the terms of the definitive agreement, UltraRF employees were transferred
to Cree Inc., at which time their stock options ceased to accrue benefits.
Under the terms of the stock options plans, any stock options exercisable at the
date of termination can be acquired up to a period of 90 days after termination.
-17-
Interim Financial Statements
UltraRF (a division of Spectrian Corporation)
Balance Sheets as of October 1, 2000 and March 31, 2000
(In thousands)
(Unaudited)
October 1, March 31,
2000 2000
---------- ---------
Assets
Current assets:
Accounts receivable, net $ 277 $ 406
Inventories 6,363 8,331
Prepaid expenses and other current assets 233 192
---------- ---------
Total current assets 6,873 8,929
---------- ---------
Property and equipment, net 6,967 6,176
Deferred tax assets 484 484
---------- ---------
Total assets $ 14,324 $ 15,589
========== =========
Liabilities and Stockholder's Net Investment
Current Liabilities:
Accounts payable $ 1,342 $ 1,673
Accrued liabilities 1,134 1,000
Capital lease obligations, current 60 63
---------- ---------
Total current liabilities 2,536 2,736
Capital lease obligations, long-term 73 101
---------- ---------
Total liabilities 2,609 2,837
---------- ---------
Stockholder's net investment 11,715 12,752
---------- ---------
Total liabilities and stockholder's $ 14,324 $ 15,589
net investment ========== =========
The accompanying notes are an integral part of
these financial statements.
-18-
UltraRF (a division of Spectrian Corporation)
Statements of Operations
For the Six Months Ended October 1, 2000 and September 26, 1999
(In thousands)
(Unaudited)
Six Months Ended
----------------------------
October 1, September 26,
2000 1999
------------ -------------
Revenues:
Product sales $ 652 $ 24
Product sales to Spectrian Corporation 14,627 10,935
------------ -------------
Total revenues 15,279 10,959
------------ -------------
Costs and expenses:
Cost of product sales 10,978 7,038
Research and development 2,306 2,134
Selling, general and administrative 3,141 1,627
------------ -------------
Total costs and operating expenses 16,425 10,799
------------ -------------
Operating income (loss) (1,146) 160
Interest expense 9 12
------------ -------------
Income (loss) before income taxes (1,155) 148
Provision for (benefit from) income taxes (424) 62
------------ -------------
Net income (loss) $ (731) $ 86
============ =============
The accompanying notes are an integral part of
these financial statements.
-19-
UltraRF (a division of Spectrian Corporation)
Statements of Cash Flows
For the Six Months Ended October 1, 2000 and September 26, 1999
(In thousands)
(Unaudited)
Six Months Ended
----------------------------
October 1, September 26,
2000 1999
------------ -------------
Cash flows from operating activities:
Net income (loss) $ (731) $ 86
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Loss on disposal of property and equipment 157 -
Depreciation 1,545 1,668
Changes in current assets and liabilities:
Accounts Receivable 129 196
Inventories 1,968 (1,288)
Prepaid expenses (41) 1
Accounts payable (331) 134
Accrued liabilities 134 -
------------ -------------
Net cash provided by operating activities 2,830 797
------------ -------------
Cash flows from investing activities:
Purchases of property and equipment (2,493) (286)
------------ -------------
Net cash used in investing activities (2,493) (286)
------------ -------------
Cash flows from financing activities:
Principal payments on capital lease obligations (31) (28)
Net reduction in stockholder's net investment (306) (483)
------------ -------------
Net cash used in financing activities (337) (511)
------------ -------------
Net increase in cash and cash equivalents - -
Cash and cash equivalents at beginning of period - -
------------ -------------
Cash and cash equivalents at end of period $ - $ -
============ =============
The accompanying notes are an integral part of
these financial statements.
-20-
Notes to Interim Financial Statements
1. Basis of Presentation
The accompanying unaudited financial statements of UltraRF, a division of
Spectrian Corporation (the "Division") have been prepared in conformity with
accounting principles generally accepted in the United States of America.
However, certain information or footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. In the opinion of management, the
statements include all adjustments (which are of a normal and recurring nature)
necessary for the fair presentation of the financial information set forth
therein. The interim financial statements should be read in conjunction with the
financial statements of UltraRF for the year ended March 31, 2000. The interim
results presented herein are not necessarily indicative of the results of
operations that may be expected for the full fiscal year or any other future
period.
UltraRF was allocated $2.5 million of overhead costs related to Spectrian
Corporation's shared administrative functions in the six months ended October 1,
2000. The allocation was based on UltraRF's revenue as a percentage of
Spectrian's revenue. Management believes that such allocation methodology is
reasonable.
2. Balance Sheet Components
October 1, March 31,
2000 2000
---------- ---------
(in thousands)
Accounts receivable, net:
Accounts receivable on product sales to customers $ 418 $ 547
Less: Allowance for doubtful accounts (141) (141)
---------- ---------
$ 277 $ 406
========== =========
Inventories:
Raw materials $ 2,358 $ 2,893
Work-in-progress 3,745 4,910
Finished goods 260 528
---------- ---------
$ 6,363 $ 8,331
========== =========
-21-
October 1, March 31,
2000 2000
---------- ---------
(in thousands)
Property and equipment, net:
Machinery and equipment $ 17,260 $15,575
Computer equipment 587 695
Leasehold improvements 1,155 1,155
---------- ---------
19,002 17,425
Less accumulated depreciation (12,035) (11,249)
---------- ---------
$ 6,967 $ 6,176
========== =========
Accrued liabilities:
Payroll and related expenses $ 1,119 $ 921
Other accrued liabilities 15 79
---------- ---------
$ 1,134 $ 1,000
========== =========
3. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities and requires recognition of all derivatives as assets or
liabilities and measurements of those instruments at fair value. In June 1999,
the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," which deferred the required date of adoption of SFAS
No. 133 for one year, to fiscal years beginning after June 15, 2000. In June
2000, the FASB issued Statement of Financial Accounting Standards No. 138, an
amendment to SFAS 133, which addresses a limited number of issues causing
implementation difficulties for numerous entities that apply SFAS 133. UltraRF
will adopt this statement in its first quarter of fiscal 2002, the adoption of
SFAS 133 will not have a material impact on UltraRF's operations or financial
position.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB 101") as
amended by SAB 101A and 101B. SAB 101 summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. Adoption of SAB 101 is required by the fourth quarter of
fiscal 2001. The adoption of SAB 101 will not have material impact on UltraRF's
financial statements.
4. Subsequent Event
Sale of UltraRF
On December 29, 2000, Spectrian Corporation completed the sale of substantially
all of the assets and liabilities comprising Spectrian Corporation's
semiconductor division, UltraRF, pursuant to the Asset Purchase Agreement dated
as of November 20, 2000 (the "Asset Purchase Agreement") among Cree, Inc.
("Cree"), Zoltar Acquisition, Inc. ("Zoltar") and Spectrian Corporation for
-22-
2,656,917 shares of Cree common stock valued at $35.53 per share at the date of
sale. Of the total consideration received, 191,094 shares of Cree common stock
valued at $6,790,000 were placed in escrow to secure Spectrian Corporation's
representations, warranties and covenants under the Asset Purchase Agreement for
a period of up to 12 months.
As part of the definitive agreement, Spectrian and Cree entered into a two-year
supply agreement under which Spectrian is obligated to purchase from Cree an
aggregate of $58 million of semiconductors. In the event Spectrian fails to make
these purchases it is obligated to pay Cree the amount of the shortfall. In
addition, Spectrian and Cree entered into a one-year joint development agreement
to develop advanced technologies related to laterally diffused metal oxide
semiconductors ("LDMOS"), linear high gain LDMOS driver modules, high efficiency
LDMOS power modules and SiC MESFET components, under which Spectrian will pay to
Cree a development fee of $2.4 million in four quarterly installments of
$600,000 beginning in April 2001. Spectrian Corporation also subleased one of
the facilities in Sunnyvale, California, to Cree for a term of 11 years (with
three options to extend the lease an additional five years) with similar terms
as the lease agreement between Spectrian Corporation and its landlord.
Under the terms of the definitive agreement, UltraRF employees were transferred
to Cree Inc., at which time their stock options ceased to accrue benefits.
Under the terms of the stock options plans, any stock options exercisable at the
date of termination can be acquired up to a period of 90 days after termination.
-23-
(b) Combined Condensed Financial Information (Unaudited)
On December 29, 2000, Cree, Inc. (the "Company") completed its previously
announced acquisition of the UltraRF division (the "Business") of Spectrian
Corporation (Nasdaq: SPCT) of Sunnyvale, California, through the purchase of the
assets of the Business by Zoltar Acquisition, Inc., Cree's wholly-owned
subsidiary. The subsidiary was renamed UltraRF, Inc. following the completion of
the acquisition.
The following unaudited pro forma combined condensed financial statements of
Cree, Inc. and subsidiaries (collectively, "Cree") give effect to the
acquisition of UltraRF (a division of Spectrian Corporation) using the purchase
method of accounting. Under the purchase method of accounting, the purchase
price is allocated to the assets acquired and liabilities assumed based on their
estimated fair values. The estimated fair values of the assets and liabilities
of UltraRF have been combined with the recorded values of the assets and
liabilities of Cree in the unaudited pro forma combined condensed financial
statements. The unaudited pro forma combined condensed balance sheet gives
effect to the purchase as if it had occurred on December 24, 2000. The unaudited
pro forma combined condensed statement of operations for the year ended June 25,
2000 and six months ended December 24, 2000 give effect to the acquisition as if
it had occurred June 28, 1999.
The unaudited pro forma combined condensed financial statements are presented
for illustrative purposes only. They do not purport to represent the financial
position or results of operations as of any future date or for any future
period. The unaudited pro forma combined condensed financial statements and
related notes should be read in conjunction with the historical financial
statements of Cree included in its Annual Report on Form 10-K for the year ended
June 25, 2000 and its Quarterly Reports on Form 10-Q for the quarters ended
September 24, 2000 and December 24, 2000 (unaudited), as well as the historical
financial statements of UltraRF and related notes included in this report.
The unaudited pro forma adjustments have been applied to the financial
information derived from the financial statements of Cree and UltraRF to account
for the acquisition as a purchase. Accordingly, the assets acquired and
liabilities assumed are reflected at their estimated fair values.
The unaudited pro forma financial information has been prepared based on the
assumptions described in the related notes and includes assumptions relating to
the allocation of the consideration paid for the assets and liabilities of
UltraRF based on the estimates of their fair values. In the opinion of
management of Cree, all adjustments necessary to present fairly such unaudited
pro forma financial information have been made, based on the terms and structure
of the acquisition.
-24-
Cree, Inc.
Combined Condensed Balance Sheet
As of December 24, 2000
(in thousands)
Historical Pro forma Pro forma
Cree UltraRF (1) Adjustments Balances
-------- ------- ---------- --------
ASSETS
Current Assets:
Cash and cash equivalent $ 59,496 $ - $ (1,900) (a) $ 57,596
Short-term investments held to maturity 190,392 - - 190,392
Marketable securities 7,832 - - 7,832
Accounts receivable, net 22,708 248 1,141 (b)
(248) (c) 23,849
Interest receivable 4,393 - - 4,393
Inventories 13,335 5,752 (1,546) (d)
(576) (d) 16,965
Deferred income tax 139 - - 139
Prepaid expenses and other current assets 1,541 232 - 1,773
-------- -------- ---------- --------
Total current assets 299,836 6,232 (3,129) 302,939
Property and equipment, net 185,393 6,656 (877) (e) 191,172
Deferred income taxes 10,624 372 (372) (f) 10,624
Patent and license rights, net 2,618 - - 2,618
Other assets 26,821 - 87,990 (g) 114,811
-------- -------- ---------- --------
Total assets $525,292 $13,260 $ 83,612 $622,164
======== ======== ========== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Accounts payable, trade $ 18,119 $ 868 (248) (c) $ 18,739
Accrued salaries and wages 1,775 75 (75) (c) 1,775
Deferred income tax 10,174 - - 10,174
Other accrued expenses 5,950 10 - 5,960
Capital lease obligations, current - 68 66 (h) 134
-------- -------- ---------- --------
Total current liabilities 36,018 1,021 (257) 36,782
Long term liability 437 - - 437
Capital lease obligation, long-term - 49 (49) (h) -
Total shareholders' equity 488,837 12,190 (12,190) (i)
113,508 (a)
(17,400) (j) 584,945
-------- -------- ---------- --------
Total liabilities and shareholders' equity $525,292 $13,260 $ 83,612 $622,164
======== ======== ========== ========
(1) UltraRF's balance sheet is as of December 29, 2000.
-25-
Cree, Inc.
Combined Condensed Statement of Operations
For the Twelve Months ended June 25, 2000
(in thousands)
Historical Pro forma Pro forma
Cree UltraRF (2) Adjustments Balances
-------- ------- ---------- --------
Total revenue $108,562 $28,365 $ - $136,927
Total cost of revenue 52,362 15,848 (176) (k) 68,034
-------- ------- ---------- --------
Gross Profit 56,200 12,517 176 68,893
Research and development 7,054 4,491 - 11,545
Sales, general and administrative 11,091 3,454 - 14,545
Other expense 1,305 - 848 (l) 2,153
-------- ------- ---------- --------
Income from operations 36,750 4,572 (672) 40,650
Other non-operating income (expense) 656 - (8,169) (l) (7,513)
Interest income, net 9,400 (18) - 9,382
-------- ------- ---------- --------
Income before income taxes 46,806 4,554 (8,841) 42,519
Income tax provision 16,286 1,673 (3,006) (m) 14,953
-------- ------- ---------- --------
Net income $ 30,520 $ 2,881 $ (5,835) $ 27,566
======== ======= ========== ========
Earnings per share:
Basic $ 0.46 $ 0.40
======== ========
Diluted $ 0.43 $ 0.38
======== ========
Shares used in per share calculation:
Basic 65,930 2,657 (n) 68,587
Diluted 70,434 2,657 (n) 73,091
(2) UltraRF's income statement is for the twelve months ended March 31, 2000.
-26-
Cree, Inc.
Combined Condensed Statement of Operations
For the Six Months ended December 24, 2000
(in thousands)
Historical Pro forma Pro forma
Cree UltraRF (3) Adjustments Balances
-------- ------- ---------- --------
Total revenue $79,136 $17,130 $ - $ 96,266
Total cost of revenue 36,496 12,010 (88) (k) 48,418
-------- ------- ---------- --------
Gross Profit 42,640 5,120 88 47,848
Research and development 4,396 2,408 - 6,804
Sales, general and administrative 6,967 2,895 - 9,862
Other (income) expenses 62 - 424 (l) 486
-------- ------- ---------- --------
Income from operations 31,215 (183) (336) 30,696
Other non-operating income (loss) (99) - (4,085) (l) (4,184)
Interest income, net 9,105 - - 9,105
-------- ------- ---------- --------
Income before income taxes 40,221 (183) (4,421) 35,617
Income tax provision 13,706 - (1,503) (m) 12,203
-------- -------- ---------- --------
Net income $26,515 $ (183) $(2,918) $ 23,414
======== ======== ========== ========
Earnings per share:
Basic $ 0.37 $ 0.32
======== ========
Fully diluted $ 0.35 $ 0.30
======== ========
Shares used in per share calculation:
Basic 71,154 2,657 (n) 73,811
Diluted 75,230 2,657 (n) 77,887
(3) UltraRF's income statement is for the six months ended December 29, 2000.
-27-
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The unaudited pro forma combined condensed balance sheet gives effect to the
purchase as if it had occurred on December 24, 2000. The unaudited pro forma
combined condensed statement of operations for the year ended June 25, 2000 and
six months ended December 24, 2000 give effect to the acquisition as if it had
occurred June 28, 1999.
The total consideration paid for UltraRF including expenses incurred in
connection with the acquisition was 2,657,000 shares of Cree, Inc. stock valued
at $115,408,000.
NOTE 2 - PRO FORMA ADJUSTMENTS
Estimates of fair values of the assets and liabilities of UltraRF have been
combined with the historial financial statements of Cree in the unaudited pro
forma combined financial statements. Pro forma adjustments for the combined
statements of income and the combined balance sheet include the following:
(a) Reflects transaction consideration consisting of the following:
Estimated transaction expenses $ 1,900,000
Stock 113,508,000
------------
Total Consideration $115,408,000
(b) Reflects accounts receivable due from Spectrian Corporation to Cree due to
a change in the net assets of UltraRF between October 1, 2000 and December
29, 2000.
(c) To adjust for UltraRF balances not acquired by Cree, in accordance with the
purchase agreement.
(d) Reflects inventory adjustments which consist of the following:
Adjustment of inventory to conform to Cree policy $ 1,546,000
Inventory not transferred to Cree from Spectrian 576,000
-----------
Total inventory adjustment $ 2,122,000
(e) To conform the fixed assets acquired from UltraRF to the accounting
policies of Cree.
(f) To remove deferred tax benefits for UltraRF transactions that will be
realized by Spectrian Corporation.
(g) To record identifiable intangible assets acquired, as well as purchase
price in excess of fair value (goodwill) as follows:
i. In-place workforce $ 800,000
ii. Current technologies 5,500,000
iii. Goodwill 81,690,000
-------------
Total Intangibles $ 87,990,000
-28-
(h) To reclassify the entire capital lease obligation as current to reflect
Cree management's intention to settle these obligations in full within one
year.
(i) To eliminate the equity of UltraRF.
(j) To account for the write-off of in-process research and development upon
consummation of the acquisition.
(k) To adjust recorded depreciation expense for the conforming of UltraRF's
assets to Cree policy.
(l) To record the amortization of the identifiable intangibles and goodwill
assuming straight-line amortization over 5 years for in-place workforce, 8
years for current technologies and 10 years for goodwill.
(m) To record the income tax impact of pro forma adjustments at 34%.
(n) To reflect the common shares issued in connection with the transaction
assuming such shares were outstanding for the entire period presented.
NOTE 3 - PRO FORMA INCOME PER SHARE
Basic and diluted pro forma earnings per share are computed using the weighted
average number of Cree common shares and common share equivalents outstanding
during the period, adjusted for the shares issued in the transaction.
NOTE 4 - CONFORMING AND RECLASSIFICATION ADJUSTMENTS
In connection with the acquisition, the fixed assets of UltraRF were adjusted to
conform with the fixed asset accounting policies of Cree. This adjustment, and
the adjustment for the depreciation impact, has been reflected in the pro forma
financial statements.
In connection with the acquisition, the inventory of UltraRF was adjusted to
conform with the inventory accounting policies of Cree. This adjustment has been
reflected in the pro forma financial statements.
-29-
(c) Exhibits.
Exhibit Number Description of Exhibit
- -------------- ----------------------
2.01* Asset Purchase Agreement dated November 20, 2000, among Cree,
Inc., Spectrian Corporation, and Zoltar Acquisition, Inc.
(n/k/a UltraRF, Inc.)
10.01* Sublease Agreement for 160 Gibraltar Court, Sunnyvale, CA
dated December 29, 2000, between Spectrian Corporation and
Zoltar Acquisition, Inc. (n/k/a UltraRF, Inc.)
23.1 Consent of PricewaterhouseCoopers LLP Independent Accountants
99.01* Press Release regarding UltraRF Asset Purchase, dated
January 2, 2001 of Cree, Inc.
*Previously filed
-30-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CREE, INC.
/s/ Cynthia B. Merrell
By: ---------------------------------------
Dated: March 19, 2001 Cynthia B. Merrell
Chief Financial Officer
-31-
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
2.01* Asset Purchase Agreement dated November 20, 2000, among Cree,
Inc., Spectrian Corporation, and Zoltar Acquisition, Inc.
(n/k/a UltraRF, Inc.)
10.01* Sublease Agreement for 160 Gibraltar Court, Sunnyvale, CA
dated December 29, 2000, between Spectrian Corporation and
Zoltar Acquisition, Inc. (n/k/a UltraRF, Inc.)
23.1 Consent of PricewaterhouseCoopers LLP Independent Accountants
99.01* Press Release regarding UltraRF Asset Purchase, dated
January 2, 2001 of Cree, Inc.
*Previously filed