8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): January 20, 2015

CREE, INC.

(Exact name of registrant as specified in its charter)

North Carolina	0-21154	56-1572719
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification Number)

4600 Silicon Drive
Durham, North Carolina	27703
(Address of principal executive offices)	(Zip Code)

(919) 407-5300

Registrant’s telephone number, including area code

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ]    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ]    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ]    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ]    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition

On January 20, 2015, Cree, Inc. (the “Company”) issued a press release announcing results for the fiscal quarter ended December 28, 2014.  The press release is attached as Exhibit 99.1 and incorporated into this report by reference.

The information in this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section.  Furthermore, the information in this report shall not be deemed incorporated by reference into the filings of the Company under the Securities Act of 1933, as amended.

Item 9.01 Financial Statements and Exhibits

(d)Exhibits

Exhibit No.	Description of Exhibit
99.1	Press release dated January 20, 2015

SIGNATURE

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.
By:	/s/ Michael E. McDevitt
	Michael E. McDevitt
	Executive Vice President and Chief Financial Officer

Date: January 20, 2015

EXHIBIT INDEX

Exhibit No.	Description of Exhibit
99.1	Press release dated January 20, 2015

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Contact:

Raiford Garrabrant

Cree, Inc.

Director, Investor Relations

Phone: 919-407-7895

Fax: 919-407-5615

investorrelations@cree.com

Cree Reports Financial Results for the Second Quarter of Fiscal Year 2015

Quarterly Revenue of $413 million

Quarterly Net Income of $12 million

DURHAM, N.C., January 20, 2015 - Cree, Inc. (Nasdaq: CREE), a market leader in LED lighting, today announced revenue of $413.2 million for its second quarter of fiscal 2015, ended December 28, 2014, which is similar to revenue of $415.1 million reported for the second quarter of fiscal 2014. GAAP net income for the second quarter was $12.2 million, or $0.10 per diluted share, a decrease of 66% year-over-year compared to GAAP net income of $35.7 million, or $0.29 per diluted share, for the second quarter of fiscal 2014. On a non-GAAP basis, net income for the second quarter of fiscal 2015 was $37.9 million, or $0.33 per diluted share, a decrease of 33% year-over-year compared to non-GAAP net income for the second quarter of fiscal 2014 of $56.8 million, or $0.46 per diluted share. The second quarter of fiscal 2015 GAAP and non-GAAP earnings benefited from the retroactive reinstatement of the U.S. R&D tax credit at the end of December. Excluding the R&D tax credit benefit, our GAAP and non-GAAP earnings per diluted share for the second quarter of fiscal 2015 would have been $0.08 and $0.25, respectively.

“We made solid progress in Q2 with operating margin higher than targeted due to an improvement in gross margins in our lighting business,” stated Chuck Swoboda, Cree Chairman and CEO. “The market for LED lighting is still in the early stages, our new product pipeline is strong, sales momentum is building and our brand is growing in the market. As evidenced by our significant share repurchases in Q2, we believe we are on the right track to continue to grow the company and increase profits over the next several years.”

1

Q22015 Financial Metrics

(in thousands, except per share amounts and percentages)

	Second Quarter
	2015			2014			Change
	(unaudited)			(unaudited)
Revenue, net	$	413,157		$	415,086		$	(1,929	)	—	%
GAAP
Gross margin	33.1		%	37.5		%
Operating margin	2.5		%	8.5		%
Net income	$	12,151		$	35,681		$	(23,530	)	(66	)%
Earnings per diluted share	$	0.10		$	0.29		$	(0.19	)	(66	)%
Non-GAAP
Gross margin	33.9		%	38.2		%
Operating margin	8.2		%	14.0		%
Net income	$	37,949		$	56,774		$	(18,825	)	(33	)%
Earnings per diluted share	$	0.33		$	0.46		$	(0.13	)	(28	)%

• Gross margin increased130 basis points from Q1 of fiscal 2015 to 33.1% on a GAAP basis, and increased150 basis points to 33.9% on a non-GAAP basis.

• Cash and investments decreased by $274.9 million from Q1 of fiscal 2015 to $829.9 million.

• Accounts receivable, net decreased by $18.0 million from Q1 of fiscal 2015 to $219.0 million, with days sales outstanding of 48.

• Inventory increased by $21.8 million from Q1 of fiscal 2015 to $332.5 million and represents 108 days of inventory.

Recent Business Highlights:

• Redefined high-power LEDs for lighting with the new SC5 Technology^TM Platform, which doubles light output to radically lower system cost. We released the Cree^® XLamp^® XHP50 and XHP70 LEDs, which are the first Extreme High Power LEDs based on this platform;

• Introduced the New Cree^® LED Bulb, delivering superior light performance while looking just like an incandescent light bulb at an even more affordable price;

• Acted to protect Cree’s intellectual property by filing lawsuits at the U.S. International Trade Commission and the U.S. District Court for the Western District of Wisconsin against Feit Electric Company, Inc. and its Asian supplier, Unity Opto Technology Co., Ltd.;

• The board of directors authorized an increase in the amount of the Company’s stock repurchase program. Pursuant to the program, the Company is now authorized to repurchase shares of its common stock having an aggregate purchase price not exceeding $550 million for all purchases in fiscal 2015.The Company spent $266 million to repurchase 8.1 million shares of its common stock during the second quarter of fiscal 2015;

• The Company closed on its previously announced investment in Lextar and acquired approximately a 13% common stock ownership interest for $80.5 million during December 2014.

2

Business Outlook:

For its third quarter of fiscal 2015 ending March 29, 2015, Cree targets revenue in a range of $395 million to $415 million with GAAP gross margin targeted to be 32.6%+/- and non-GAAP gross margin targeted to be 33.5%+/-. Our GAAP gross margin targets include stock-based compensation expense of approximately $3.4 million, while our non-GAAP targets do not. Operating expenses are targeted to be similar to fiscal Q2. The tax rate is targeted at 17.0%+/- for the third quarter of fiscal 2015. GAAP net income is targeted at $3 million to $8 million, or $0.03 to $0.07 per diluted share. Non-GAAP net income is targeted in a range of $23 million to $28 million, or $0.21 to $0.25 per diluted share. The GAAP and non-GAAP net income per diluted share targets are based on an estimated 112.4 million diluted weighted average shares. Targeted non-GAAP earnings exclude expenses related to the amortization of acquired intangibles, changes in the fair value of our Lextar investment, stock-based compensation expense and asset retirement charges of $0.18 per diluted share.

Quarterly Conference Call:

Cree will host a conference call at 5:00 p.m. EST today to review the highlights of the fiscal 2015second quarter results and the fiscal 2015third quarter 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. For webcast details, visit Cree's website at investor.cree.com/events.cfm.

Supplemental financial information, including the non-GAAP reconciliation attached to this press release, is available on Cree's website at investor.cree.com/results.cfm.

About Cree, Inc.

Cree is leading the LED lighting revolution and making energy-wasting traditional lighting technologies obsolete through the use of energy-efficient, mercury-free LED lighting. Cree is a market-leading innovator of lighting-class LEDs, lighting products and semiconductor products for power and radio frequency (RF) applications.

Cree's product families include LED lighting systems and bulbs, blue and green LED chips, high-brightness LEDs, lighting-class power LEDs, power-switching devices and RF devices. Cree's products are driving improvements in applications such as general illumination, electronic signs and signals, power supplies and inverters.

For additional product and company information, please refer to www.cree.com.

Non-GAAP Financial Measures:

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 and expenses which 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.

3

Forward Looking Statements:

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 in the forward-looking statements. Actual results, including with respect to our targets and prospects, could differ materially due to a number of factors, including the risk that we may not obtain sufficient orders to achieve our targeted revenues; price competition in key markets; the risk that we or our channel partners are not able to develop and expand customer bases and accurately anticipate demand from end customers, which can result in increased inventory and reduced orders as we experience wide fluctuations in supply and demand; the risk that our results will suffer if we are unable to balance fluctuations in customer demand and capacity; product mix; risks associated with the ramp-up of production of our new products, and our entry into new

business channels different from those in which we have historically operated; the risk that we may experience production difficulties that preclude us from shipping sufficient quantities to meet customer orders or that result in higher production costs and lower margins; our ability to lower costs; the risk that customers do not maintain their favorable perception of our brand and products, resulting in lower demand for our products; the risk that retail customers may alter promotional pricing, increase promotion of a competitor's products over our products or reduce their inventory levels, all of which could negatively affect product demand; the risk that we have an increasingly complex supply chain and its ability to scale to enable maintaining a sufficient supply of raw materials; ongoing uncertainty in global economic conditions, infrastructure development or customer demand that could negatively affect product demand, collectability of receivables and other related matters as consumers and businesses may defer purchases or payments, or default on payments; the risk we may be required to record a significant charge to

earnings if our goodwill or amortizable assets become impaired; our ability to complete development and commercialization of products under development, such as our pipeline of improved LED chips, LED components and LED lighting products; 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; risks related to our multi-year warranty periods for LED lighting products; risks associated with acquisitions, divestitures or investments; 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 ongoing litigation; and other factors discussed in our filings with the Securities and Exchange Commission (SEC), including

our report on Form 10-K for the fiscal year ended June 29, 2014, and subsequent reports filed with the SEC. These forward-looking statements represent Cree's judgment as of the date of this release. Except as required under the U.S. federal securities laws and the rules and regulations of the SEC, Cree disclaims any intent or 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 of Cree, Inc. and SC5 Technology^TM is a trademark of Cree, Inc.

4

CREE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts and percentages)

(unaudited)

	Three Months Ended						Six Months Ended
	December 28, 2014			December 29, 2013			December 28, 2014			December 29, 2013
Revenue, net	$	413,157		$	415,086		$	840,829		$	806,092
Cost of revenue, net	276,378			259,308			568,230			499,557
Gross profit	136,779			155,778			272,599			306,535
Gross margin percentage	33.1		%	37.5		%	32.4		%	38.0		%
Operating expenses:
Research and development	46,989			44,436			93,714			86,179
Sales, general and administrative	72,375			67,943			142,067			132,221
Amortization or impairment of acquisition-related intangibles	6,495			7,256			12,994			14,543
Loss on disposal or impairment of long-lived assets	735			760			2,182			1,417
Total operating expenses	126,594			120,395			250,957			234,360
Operating income	10,185			35,383			21,642			72,175
Operating income percentage	2.5		%	8.5		%	2.6		%	9.0		%
Non-operating income, net	1,728			3,403			4,632			6,221
Income before income taxes	11,913			38,786			26,274			78,396
Income tax (benefit) expense	(238		)	3,105			2,993			12,218
Net income	$	12,151		$	35,681		$	23,281		$	66,178
Diluted earnings per share	$	0.10		$	0.29		$	0.20		$	0.54
Shares used in diluted per share calculation:	115,845			123,204			118,599			122,821

5

CREE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	December 28, 2014		June 29, 2014
	(unaudited)
ASSETS
Current assets:
Cash, cash equivalents, and short-term investments	$	829,925	$	1,162,466
Accounts receivable, net	218,960		225,160
Inventories	332,548		284,780
Deferred income taxes	30,150		29,414
Prepaid expenses and other current assets	76,312		72,071
Total current assets	1,487,895		1,773,891
Property and equipment, net	652,852		605,713
Goodwill	616,345		616,345
Intangible assets, net	327,725		336,423
Other long-term investments	79,089		—
Other assets	11,527		11,997
Total assets	$	3,175,433	$	3,344,369
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade	$	158,600	$	202,294
Accrued salaries and wages	48,028		50,527
Income taxes payable	528		14,848
Other current liabilities	37,788		38,986
Total current liabilities	244,944		306,655
Long-term liabilities:
Long-term debt	150,000		—
Deferred income taxes	14,277		12,173
Other long-term liabilities	26,668		35,395
Total long-term liabilities	190,945		47,568
Shareholders’ equity:
Common stock	138		149
Additional paid-in-capital	2,239,689		2,190,011
Accumulated other comprehensive income, net of taxes	8,192		11,405
Retained earnings	491,525		788,581
Total shareholders’ equity	2,739,544		2,990,146
Total liabilities and shareholders’ equity	$	3,175,433	$	3,344,369

6

CREE, INC.

FINANCIAL RESULTS BY OPERATING SEGMENT

(in thousands, except percentages)

(unaudited)

The following table reflects the results of the Company's reportable segments as reviewed by the Company's Chief Executive Officer, its Chief Operating Decision Maker or CODM, for the three months ended December 28, 2014 and the three months ended December 29, 2013. The CODM does not review inter-segment transactions when evaluating segment performance and allocating resources to each segment. As such, total segment revenue is equal to the Company's consolidated revenue.

	Three Months Ended
	December 28, 2014			December 29, 2013			Change
LED Products revenue	$	151,877		$	215,022		$	(63,145	)	(29	)%
Percent of revenue	37		%	52		%
Lighting Products revenue	230,168			173,656			56,512			33	%
Percent of revenue	56		%	42		%
Power and RF Products revenue	31,112			26,408			4,704			18	%
Percent of revenue	7		%	6		%
Total revenue	$	413,157		$	415,086		$	(1,929	)	—	%

	Six Months Ended
	December 28, 2014			December 29, 2013			Change
LED Products revenue	$	325,467		$	433,045		$	(107,578	)	(25	)%
Percent of revenue	39		%	54		%
Lighting Products revenue	453,254			321,574			131,680			41	%
Percent of revenue	54		%	40		%
Power and RF Products revenue	62,108			51,473			10,635			21	%
Percent of revenue	7		%	6		%
Total revenue	$	840,829		$	806,092		$	34,737		4	%

	Three Months Ended
	December 28, 2014			December 29, 2013			Change
LED Products gross profit	$	59,424		$	97,644		$	(38,220	)	(39	)%
LED Products gross margin	39.1		%	45.4		%
Lighting Products gross profit	64,701			48,426			16,275			34	%
Lighting Products gross margin	28.1		%	27.9		%
Power and RF Products gross profit	17,260			15,321			1,939			13	%
Power and RF Products gross margin	55.5		%	58.0		%
Unallocated costs	(4,606		)	(5,613		)	1,007			(18	)%
Consolidated gross profit	$	136,779		$	155,778		$	(18,999	)	(12	)%
Consolidated gross margin	33.1		%	37.5		%

7

	Six Months Ended
	December 28, 2014			December 29, 2013			Change
LED Products gross profit	$	127,048		$	199,297		$	(72,249	)	(36	)%
LED Products gross margin	39.0		%	46.0		%
Lighting Products gross profit	120,293			88,244			32,049			36	%
Lighting Products gross margin	26.5		%	27.4		%
Power and RF Products gross profit	35,117			28,777			6,340			22	%
Power and RF Products gross margin	56.5		%	55.9		%
Unallocated costs	(9,859		)	(9,783		)	(76		)	1	%
Consolidated gross profit	$	272,599		$	306,535		$	(33,936	)	(11	)%
Consolidated gross margin	32.4		%	38.0		%

Reportable Segments Description

The Company's LED Products segment includes LED components, LED chips, and silicon carbide materials. The Company's Lighting Products segment primarily consists of LED lighting systems and bulbs. The Company's Power and RF Products segment includes power devices and RF devices.

Financial Results by Reportable Segment

The Company's CODM reviews gross profit as the lowest and only level of segment profit. As such, all items below gross profit in the consolidated statements of income must be included to reconcile the consolidated gross profit presented in the preceding table to the Company's consolidated income before taxes.

The Company allocates direct costs and indirect costs to each segment's cost of revenue. The allocation methodology is based on a reasonable measure of utilization considering the specific facts and circumstances of the cost being allocated.

Certain costs are not allocated when evaluating segment performance. These unallocated costs consist primarily of manufacturing employees' stock-based compensation, expenses for profit sharing and quarterly or annual incentive plans and matching contributions under the Company's 401(k) Plan.

Cree, Inc.

Non-GAAP Measures of Financial Performance

To supplement the company's consolidated financial statements presented in accordance with generally accepted accounting principles, or GAAP, Cree uses non-GAAP measures of certain components of financial performance. These non-GAAP measures include non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP gross margin, non-GAAP operating income and free cash flow.

Reconciliation to the nearest GAAP measure of all historical non-GAAP measures included in this press release can be found in the tables included with this press release. In this press release, Cree also presents its target for non-GAAP expenses, which is expenses less stock-based compensation expense, charges for amortization or impairment of acquisition-related intangibles and asset retirement charges.

Non-GAAP measures presented in this press release are not in accordance with or an alternative to measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Cree's results of operations as determined in accordance with GAAP. These non-GAAP measures should only be used to evaluate Cree's results of operations in conjunction with the corresponding GAAP measures.

8

Cree believes that these non-GAAP measures, when shown in conjunction with the corresponding GAAP measures, enhance investors' and management's overall understanding of the company's current financial performance and the company's prospects for the future, including cash flows available to pursue opportunities to enhance shareholder value. In addition, because Cree has historically reported certain non-GAAP results to investors, the company believes the inclusion of non-GAAP measures provides consistency in the company's financial reporting.

For its internal budgeting process, and as discussed further below, Cree's management uses financial statements that do not include stock-based compensation expense, amortization or impairment of acquisition-related intangibles, asset retirement charges, or changes in the fair value of equity method investments, and the income taxes associated with the foregoing. Cree's management also uses non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the company's financial results.

As described above, Cree excludes the following items from one or more of its non-GAAP measures when applicable:

Stock-based compensation expense. This expense consists of expenses for stock options, restricted stock and employee stock purchases through its ESPP. Cree excludes stock-based compensation expenses from its non-GAAP measures because they are non-cash expenses that Cree does not believe are reflective of ongoing operating results.

Amortization or impairment of acquisition-related intangibles. Cree incurs amortization or impairment of acquisition-related intangibles in connection with acquisitions. Cree excludes these items because they arise from Cree's prior acquisitions and have no direct correlation to the ongoing operating results of Cree's business.

Asset retirement charges. In conjunction with Cree's plans to expand its manufacturing facilities, Cree has recognized charges for the impact of the decision to abandon or retire certain property and equipment prior to the end of their estimated useful lives. Because these charges relate to assets which have been or will be retired prior to the end of their estimated useful lives, Cree does not consider these charges to be reflective of ongoing operating results.

Changes in the fair value of equity method investments. The Company completed its common stock ownership investment in Lextar Electronics Corporation in the second quarter of fiscal 2015. The investment is accounted for under the equity method utilizing the fair value option. As such, changes in fair value are recognized in income, including fluctuations due to the exchange rate between the New Taiwan Dollar and the United States Dollar. Cree excludes the impact of these gains or losses from its non-GAAP measures because they are non-cash impacts that Cree does not believe are reflective of ongoing operating results.

Income tax effects of the foregoing non-GAAP items. This amount is used to present each of the amounts described above on an after-tax basis consistent with the presentation of non-GAAP net income.

Cree expects to incur stock-based compensation expense, amortization or impairment of acquisition-related intangibles, asset retirement charges and changes in the fair value of equity method investments in future periods, including income taxes associated with all of the foregoing. In addition to the non-GAAP measures discussed above, Cree also uses free cash flow as a measure of operating performance. Free cash flow represents operating cash flows less net purchases of property and equipment and patent and licensing rights. Cree considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases of property and equipment, which can then be used to, among other things, invest in Cree's business, make strategic acquisitions, strengthen the balance sheet and repurchase stock. A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in the company's cash balance for the period.

9

CREE, INC.

Reconciliation of GAAP to Non-GAAP Measures

(in thousands, except per share amounts and percentages)

(unaudited)

Non-GAAP Gross Margin

	Three Months Ended						Six Months Ended
	December 28, 2014			December 29, 2013			December 28, 2014			December 29, 2013
GAAP gross profit	$	136,779		$	155,778		$	272,599		$	306,535
GAAP gross margin percentage	33.1		%	37.5		%	32.4		%	38.0		%
Adjustment:
Stock-based compensation expense	3,448			2,849			$	6,353		$	5,228
Non-GAAP gross profit	$	140,227		$	158,627		$	278,952		$	311,763
Non-GAAP gross margin percentage	33.9		%	38.2		%	33.2		%	38.7		%

Non-GAAP Operating Income

	Three Months Ended						Six Months Ended
	December 28, 2014			December 29, 2013			December 28, 2014			December 29, 2013
GAAP operating income	$	10,185		$	35,383		$	21,642		$	72,175
GAAP operating income percentage	2.5		%	8.5		%	2.6		%	9.0		%
Adjustments:
Stock-based compensation expense:
Cost of revenue, net	3,448			2,849			6,353			5,228
Research and development	4,112			3,829			8,583			7,541
Sales, general and administrative	8,876			8,994			18,260			17,481
Total stock-based compensation expense	16,436			15,672			33,196			30,250
Amortization or impairment of acquisition-related intangibles	6,495			7,256			12,994			14,543
Asset retirement charges	884			—			1,395			—
Total adjustments to GAAP operating income	23,815			22,928			47,585			44,793
Non-GAAP operating income	$	34,000		$	58,311		$	69,227		$	116,968
Non-GAAP operating income percentage	8.2		%	14.0		%	8.2		%	14.5		%

Non-GAAP Non-Operating Income, net

	Three Months Ended				Six Months Ended
	December 28, 2014		December 29, 2013		December 28, 2014		December 29, 2013
GAAP non-operating income, net	$	1,728	$	3,403	$	4,632	$	6,221
Adjustment:
Changes in the fair value of equity method investments	1,477		—		1,477		—
Non-GAAP non-operating income, net	$	3,205	$	3,403	$	6,109	$	6,221

10

Non-GAAP Net Income

	Three Months Ended					Six Months Ended
	December 28, 2014		December 29, 2013			December 28, 2014			December 29, 2013
GAAP net income	$	12,151	$	35,681		$	23,281		$	66,178
Adjustments
Stock-based compensation expense	16,436		15,672			33,196			30,250
Amortization or impairment of acquisition-related intangibles	6,495		7,256			12,994			14,543
Changes in the fair value of equity method investments	1,477		—			1,477			—
Asset retirement charges	884		—			1,395			—
Total adjustments to GAAP net income before provision for income taxes	25,292		22,928			49,062			44,793
Income tax effect *	506		(1,835		)	(5,593		)	(6,988		)
Non-GAAP net income	$	37,949	$	56,774		$	66,750		$	103,983
Earnings per share
Non-GAAP diluted net income per share	$	0.33	$	0.46		$	0.56		$	0.85
Shares used in diluted net income per share calculation
Non-GAAP shares used	115,845		123,204			118,599			122,821

*Estimated income tax effect is based upon the Company's overall consolidated effective tax rate for the given period.

Earnings diluted per share, excluding impact of R&D tax benefit

	Three Months Ended
	December 28, 2014
GAAP diluted earnings per share	$	0.10
Adjustment:
R&D tax credit benefit	$	(0.02	)
Earnings per diluted share, excluding impact of R&D tax credit benefit	$	0.08

Non-GAAP earnings per diluted share, excluding impact of R&D tax credit benefit

	Three Months Ended
	December 28, 2014
Non-GAAP diluted net income per share (from above)	$	0.33
Adjustment:
R&D tax credit benefit	$	(0.08	)
Non-GAAP earnings per diluted share, excluding impact of R&D tax credit benefit	$	0.25

11

Free Cash Flow

	Three Months Ended						Six Months Ended
	December 28, 2014			December 29, 2013			December 28, 2014			December 29, 2013
Cash flows from operations	$	14,768		$	98,751		$	28,052		$	167,987
Less: PP&E spending	(49,929		)	(49,770		)	(113,375		)	(83,450		)
Less: Patents spending	(4,798		)	(5,277		)	(9,604		)	(10,046		)
Total free cash flow	$	(39,959	)	$	43,704		$	(94,927	)	$	74,491

12