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Wolfspeed Understates Inventory and Payables, Corrects Tax Calculation Error
Multiple new key metric calculation methods introduced.
February 18, 2021
Cree, now Wolfspeed (WOLF), is selling its LED business to focus exclusively on semiconductor products for power and radio-frequency (RF) applications. Cree’s future depends, in part, on the semiconductor industry’s adoption of silicon carbide. As a result, Cree is building a silicon carbide fabrication facility in New York.

Cree’s Days Payable Outstanding (DPO) were flat as of December 29, 2020 compared to six months prior, but only because the company is no longer counting certain payables. In its fourth quarter 2020 10-Q, Cree disclosed what it does not count in DPO:

“Due to the significant amount of capital expenditures associated with our future silicon carbide fabrication facility in New York, we exclude accounts payable related to capital expenditures in connection with the facility.”

Similarly, Days of Supply Inventory (DSI) fell in the six months ending December 29, 2020. In the latest 10-Q, Cree disclosed the type of inventory it no longer counts when calculating DSI:

“..(excluding inventory related to a future Wafer Supply and Fabrication Services Agreement to be entered into in connection with the LED Business Divestiture (the "Wafer Supply Agreement")...”

The Wafer Supply and Fabrication Agreement is part of the LED segment divestiture. Cree will supply the acquirer with silicon carbide materials and fabrication services for four years.

Separately, in the latest 10-Q, Cree revised income tax expense for the three and six months ended December 29, 2019 to correct its income tax provision calculation for the second quarter of fiscal 2020:

“The Company increased income tax expense for the three and six months ended December 29, 2019, resulting in a net increase to net loss of $1.5 million in each period.”

The Company also revised the unaudited statements of operations for the three months ended March 29, 2020 in the unaudited interim consolidated financial statements to be filed in the quarterly report in the 10-Q for the corresponding period in fiscal 2021 to decrease income tax expense by $1.5 million for the three months ended March 29, 2020. The result, according to Cree is:

“...a net decrease to net loss of $1.5 million for the three months ended March 29, 2020.”

Cree says no additional revisions will be necessary to the unaudited statement of operations for the nine months ended March 29, 2020. Though Cree considers the errors immaterial, we flag them as they coincide with new calculation methods for DPO and DSI as items of interest— or possibly patterns— to watch in future quarters.
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