What changed in this filing

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Item 1. Financial Statements

2020-04-30 compared with 2020-01-30 · 181 added, 136 removed, 733 unchanged (30% of the section changed)

Financial Statements (Unaudited)

Consolidated Balance Sheets as of December 29, 2019 and June 30, 2019

Consolidated Statements of Operations for the three and six months ended December 29, 2019 and December 30 , 2018

Consolidated Statements of Comprehensive Loss for the three and six months ended December 29, 2019 and December 30 , 2018

Consolidated Statement of Shareholders' Equity for the six months ended December 29, 2019 and December 30 , 2018

Consolidated Statements of Cash Flows for the s ix months ended December 29, 2019 and December 30 , 2018

Consolidated Balance Sheets as of March 29, 2020 and June 30, 2019

Consolidated Statements of Operations for the three and nine months ended March 29, 2020 and March 31, 2019

Consolidated Statements of Comprehensive Loss for the three and nine months ended March 29, 2020 and March 31, 2019

Consolidated Statement s of Shareholders' Equity for the nine months ended March 29, 2020 and March 31, 2019

Consolidated Statements of Cash Flows for the nine months ended March 29, 2020 and March 31, 2019

Notes to Unaudited Consolidated Financial Statements

1 unchanged sentence

(in millions of U.S.

Dollars, except share data) December 29, 2019 June 30, 2019

Dollars, except share data) March 29, 2020 June 30, 2019

Current assets:

19 unchanged sentences

Accounts payable and accrued expenses $ 184.8 $ 200.9

Income taxes payable 2.4 3.0

Accrued contract liabilities 45.1 45.8

Income taxes payable 1.2 3.0

Finance lease liabilities 0.6 —

Other current liabilities 19.7 18.5

3 unchanged sentences

Deferred tax liabilities 2.3 2.0

Finance lease liabilities - long-term 2.2 —

Other long-term liabilities 50.7 36.4

3 unchanged sentences

Preferred stock, par value $ 0.01 ;

3,000 shares authorized at December 29, 2019 and June 30, 2019;

3,000 shares authorized at March 29, 2020 and June 30, 2019;

none issued and outstanding

Common stock, par value $ 0.00125 ;

200,000 shares authorized at December 29, 2019 and June 30, 2019;

108,031 and 106,570 shares issued and outstanding at December 29, 2019 and June 30, 2019, respectively

200,000 shares authorized at March 29, 2020 and June 30, 2019;

108,153 and 106,570 shares issued and outstanding at March 29, 2020 and June 30, 2019, respectively

Additional paid-in-capital 2,931.3 2,874.1

7 unchanged sentences

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended Six months ended

December 29, 2019 December 30, 2018 December 29, 2019 December 30, 2018

Three months ended Nine months ended

March 29, 2020 March 31, 2019 March 29, 2020 March 31, 2019

(in millions of U.S.

10 unchanged sentences

Operating (loss) income ( 49.8 ) ( 11.1 ) ( 145.1 ) 9.7

Non-operating (income) expense, net ( 5.1 ) 5.6 ( 6.7 ) 15.3

(Loss) income before income taxes ( 51.3 ) 4.4 ( 88.6 ) 5.5

Income tax expense 1.2 4.6 1.7 6.5

Non-operating expense, net 14.5 8.4 7.8 23.7

Loss before income taxes ( 64.3 ) ( 19.5 ) ( 152.9 ) ( 14.0 )

Income tax (benefit) expense ( 2.9 ) 2.8 ( 1.2 ) 9.3

Net loss from continuing operations ( 61.4 ) ( 22.3 ) ( 151.7 ) ( 23.3 )

9 unchanged sentences

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 29, 2019 December 30, 2018 December 29, 2019 December 30, 2018

Dollars) March 29, 2020 March 31, 2019 March 29, 2020 March 31, 2019

Net loss ($ 61.4 ) ($ 227.7 ) ($ 151.7 ) ($ 241.3 )

24 unchanged sentences

Balance at December 29, 2019 108,031 $ 0.1 $ 2,919.5 ($ 938.1 ) $ 9.7 $ 1,991.2 $ 5.3 $ 1,996.5

Net (loss) income — — — ( 61.6 ) — ( 61.6 ) 0.2 ( 61.4 )

Unrealized loss on available-for-sale securities — — — — ( 1.9 ) ( 1.9 ) — ( 1.9 )

Comprehensive (loss) income ( 63.5 ) 0.2 ( 63.3 )

Tax withholding on vested equity awards — — ( 1.5 ) — — ( 1.5 ) — ( 1.5 )

Stock-based compensation — — 11.6 — — 11.6 — 11.6

Exercise of stock options and issuance of shares 122 — 1.7 — — 1.7 — 1.7

Balance at March 29, 2020 108,153 $ 0.1 $ 2,931.3 ($ 999.7 ) $ 7.8 $ 1,939.5 $ 5.5 $ 1,945.0

The accompanying notes are an integral part of the consolidated financial statements

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Common Stock Additional

Accumulated Deficit Accumulated

Comprehensive

Total Equity - Controlled Interest Non-controlling Interest Total Equity

Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Equity - Controlled Interest Non-controlling Interest Total Equity

(in millions of U.S.

Dollars, except share data) Number

Dollars, except share data) Number of Shares Par Value

Balance at June 24, 2018 101,488 $ 0.1 $ 2,549.1 ($ 482.7 ) $ 0.6 $ 2,067.1 $ 5.0 $ 2,072.1

18 unchanged sentences

Balance at December 30, 2018 103,073 $ 0.1 $ 2,703.6 ($ 486.0 ) $ 0.8 $ 2,218.5 $ 5.0 $ 2,223.5

Net (loss) income — — — ( 227.8 ) — ( 227.8 ) 0.1 ( 227.7 )

Currency translation loss — — — — ( 0.3 ) ( 0.3 ) — ( 0.3 )

Unrealized gain on available-for-sale securities — — — — 2.0 2.0 — 2.0

Comprehensive loss ( 226.1 ) 0.1 ( 226.0 )

Tax withholding on vested equity awards — — ( 0.5 ) — — ( 0.5 ) — ( 0.5 )

Stock-based compensation — — 15.6 — — 15.6 — 15.6

Exercise of stock options and issuance of shares 1,442 — 53.3 — — 53.3 — 53.3

Balance at March 31, 2019 104,515 $ 0.1 $ 2,772.0 ($ 713.8 ) $ 2.5 $ 2,060.8 $ 5.1 $ 2,065.9

The accompanying notes are an integral part of the consolidated financial statements

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended

Nine months ended

(in millions of U.S.

Dollars) December 29, 2019 December 30, 2018

Dollars) March 29, 2020 March 31, 2019

Operating activities:

6 unchanged sentences

Amortization of premium/discount on investments 0.5 2.0

(Gain)/loss on equity investment ( 9.9 ) 8.6

Realized (gain) loss on sale of investments ( 1.3 ) 0.1

Loss on equity investment 9.2 12.4

Foreign exchange (gain) loss on equity investment ( 1.2 ) 0.9

48 unchanged sentences

Restructuring

Subsequent Events

Note 1 – Basis of Presentation and New Accounting Standards

17 unchanged sentences

The consolidated financial statements presented herein have been prepared by the Company and have not been audited.

In the opinion of management, all normal and recurring adjustments necessary to fairly state the consolidated financial position, results of operations, comprehensive loss, shareholders' equity and cash flows at December 29, 2019, and for all periods presented, have been made.

In the opinion of management, all normal and recurring adjustments necessary to fairly state the consolidated financial position, results of operations, comprehensive loss, shareholders' equity and cash flows at March 29, 2020, and for all periods presented, have been made.

All material intercompany accounts and transactions have been eliminated.

5 unchanged sentences

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019 (fiscal 2019).

The results of operations for the three and six months ended December 29, 2019 are not necessarily indicative of the operating results that may be attained for the entire fiscal year ending June 28, 2020 (fiscal 2020).

The results of operations for the three and nine months ended March 29, 2020 are not necessarily indicative of the operating results that may be attained for the entire fiscal year ending June 28, 2020 (fiscal 2020).

Additionally, the impact of the COVID-19 pandemic to the results of operations is uncertain.

Historical periods presented include reclassifications to reflect discontinued operations (see Note 2, "Discontinued Operations").

2 unchanged sentences

Actual amounts could differ materially from those estimates.

The Company revised net cash provided by operating activities and net cash provided by financing activities for the six months ended December 30, 2018 to correct the presentation of tax withholding for stock option exercises.

Certain accounting matters that generally require consideration of forecasted financial information were assessed regarding impacts from the COVID-19 outbreak as of March 29, 2020 and through the date of this Quarterly Report using reasonably available information as of those dates.

The accounting matters assessed included, but were not limited to, allowance for doubtful accounts, the carrying value of goodwill and other long-lived tangible and intangible assets, the potential impact to earnings of unrealized losses on investments, valuation allowances for tax assets and the ability to estimate an annual effective tax rate.

While the assessments resulted in no material impacts to the consolidated financial statements as of and for the quarter

ended March 29, 2020, the Company believes the full impact of the outbreak remains uncertain and will continue to assess if ongoing developments related to the outbreak may cause future material impacts to our consolidated financial statements.

The Company revised net cash provided by operating activities and net cash provided by financing activities for the nine months ended March 31, 2019 to correct the presentation of tax withholding for stock option exercises.

The Company increased net cash provided by operating activities by $ 12.4 million and decreased net cash provided by financing activities by the same amount.

The Company will also revise the unaudited consolidated statements of cash flows for the year to date period ended March 31, 2019 in the unaudited interim consolidated financial statements to be filed in the Quarterly Report on Form 10-Q for the corresponding period in fiscal 2020 to correct the presentation of tax withholding for stock option exercises.

The revisions will result in an increase to net cash provided by operating activities of $ 12.4 million and a decrease to net cash provided by

financing activities by the same amount.

The Company concluded these errors were not material individually or in the aggregate to any of the periods impacted.

The Company concluded this error was not material individually or in the aggregate to any of the periods impacted.

Certain prior period amounts related to the Lighting Products business unit in the accompanying statements of cash flows have been reclassified to conform to the current year presentation.

15 unchanged sentences

See Note 4, "Leases," for additional disclosures, as required by the new standard.

The reported results as of and for the three and six months ended December 29, 2019 reflect the application of the new accounting guidance, while the reported results for prior periods have not been adjusted and continue to be reported in accordance with the Company's historical accounting under ASC 840, Leases.

The reported results as of and for the three and nine months ended March 29, 2020 reflect the application of the new accounting guidance, while the reported results for prior periods have not been adjusted and continue to be reported in accordance with the Company's historical accounting under ASC 840, Leases.

Accounting Pronouncements Pending Adoption

2 unchanged sentences

Measurement of Credit Losses on Financial Instruments.

This ASU introduces a new accounting model known as Credit Expected Credit Losses (“CECL”).

This ASU introduces a new accounting model known as Current Expected Credit Losses (“CECL”).

CECL requires earlier recognition of credit losses, while also providing additional transparency about credit risk.

10 unchanged sentences

Early adoption is permitted, provided that the Company reflects any adjustments as of the beginning of the annual period that includes the interim period for which such early adoption occurs.

Additionally, the Company must adopt all the

amendments in the same period if early adoption is elected.

Additionally, the Company must adopt all the amendments in the same period if early adoption is elected.

The Company will adopt this standard on or before June 28, 2021 and does not expect this standard to have a material impact on its consolidated financial statements.

11 unchanged sentences

The Company recognized a loss on the sale of $ 66.2 million.

The Company has classified the results of the Lighting Products business unit as discontinued operations, the results of which for the three and six months ended December 30, 2018 are as follows:

Three months ended Six months ended

The Company has classified the results of the Lighting Products business unit as discontinued operations, the results of which for the three and nine months ended March 31, 2019 are as follows:

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 30, 2018 December 30, 2018

Dollars) March 31, 2019 March 31, 2019

Revenue, net $ 109.4 $ 376.0

5 unchanged sentences

Amortization or impairment of acquisition-related intangibles 2.0 9.1

Goodwill impairment charges 197.6 197.6

Loss on disposal or impairment of long-lived assets 1.8 2.1

5 unchanged sentences

Net loss ($ 205.4 ) ($ 218.0 )

The Company did not have any discontinued operations activity for the three and six months ended December 29, 2019.

The Company recognized $ 2.6 million and $ 5.6 million in administrative fees for the three and six months ended December 29, 2019 relating to the TSA, of which $ 0.8 million are included in accounts receivable, net in the consolidated balance sheets as of December 29, 2019.

The Company did not have any discontinued operations activity for the three and nine months ended March 29, 2020.

The Company recognized $ 2.5 million and $ 8.1 million in administrative fees for the three and nine months ended March 29, 2020 relating to the TSA, of which $ 1.7 million are included in accounts receivable, net in the consolidated balance sheets as of

March 29, 2020.

These fees were recorded as a reduction of sales, general and administrative expense in the consolidated statements of operations.

The Company recognized $ 3.6 million and $ 6.5 million in revenue for the three and six months ended December 29, 2019 related to the LED Supply Agreement, of which $ 1.8 million was included in accounts receivable, net in the consolidated balance sheets as of December 29, 2019.

Additionally, the Company recorded a contract liability of $ 11.6 million relating to the

LED Supply Agreement as of December 29, 2019.

The Company recognized $ 3.2 million and $ 9.7 million in revenue for the three and nine months ended March 29, 2020 related to the LED Supply Agreement, of which $ 0.8 million was included in accounts receivable, net in the consolidated balance sheets as of March 29, 2020.

Additionally, the Company recorded a contract liability of $ 10.5 million relating to the LED Supply Agreement as of March 29, 2020.

The contract liability is recognized in contract liabilities and other long-term liabilities on the consolidated balance sheets.

7 unchanged sentences

Contract liabilities primarily include various rights of return and customer deposits, as well as deferred revenue, price protection guarantees and the Company's liability under the LED Supply Agreement.

Contract liabilities were $ 88.8 million as of December 29, 2019 and $ 80.4 million as of June 30, 2019.

The increase was primarily due to increased customer deposits.

Contract liabilities were $ 86.1 million as of March 29, 2020 and $ 80.4 million as of June 30, 2019.

The increase was primarily due to increased net customer deposits.

Contract liabilities are recorded within accrued contract liabilities and other long-term liabilities on the balance sheet.

1 unchanged sentence

Disaggregated revenue by geography is presented in Note 14, "Reportable Segments".

For the three and six months ended December 29, 2019, the Company recognized revenue of $ 1.2 million and $ 2.2 million that was included in contract liabilities as of June 30, 2019.

For the three and nine months ended March 29, 2020, the Company recognized revenue of $ 1.1 million and $ 3.3 million that was included in contract liabilities as of June 30, 2019.

The amount recognized primarily related to the recognition of contingent liabilities related to the LED Supply Agreement and deferred revenue.

Revenue recognized related to performance obligations that were satisfied or partially satisfied in previous periods was not material for the three and six months ended December 29, 2019.

Revenue recognized related to performance obligations that were satisfied or partially satisfied in previous periods was not material for the three and nine months ended March 29, 2020.

Note 4 – Leases

25 unchanged sentences

Balance Sheet

Lease assets and liabilities as of December 29, 2019, and the corresponding balance sheet classifications, are as follows (in millions of U.S.

Lease assets and liabilities as of March 29, 2020, and the corresponding balance sheet classifications, are as follows (in millions of U.S.

Operating Leases:

5 unchanged sentences

Finance lease assets (4)

Current portion of finance lease obligations (2)

Finance lease obligations, less current portion (3)

Total finance lease obligations 3.2

Current portion of finance lease liabilities 0.6

Finance lease liabilities, less current portion 2.2

Total finance lease liabilities 2.8

(1) Within other assets on the consolidated balance sheets.

1 unchanged sentence

(3) Within other long-term liabilities on the consolidated balance sheets.

(4) Within property and equipment, net on the consolidated balance sheets.

Statement of Operations

Operating lease expense was $ 1.6 million and $ 3.0 million for three and six months ended December 29, 2019.

Short-term lease expense, variable lease expense and lease income were immaterial for the three and six months ended December 29, 2019.

Finance lease amortization and interest expense were less than $ 0.1 million for the three and six months ended December 29, 2019.

Operating lease expense was $ 1.5 million and $ 4.5 million for three and nine months ended March 29, 2020.

Short-term lease expense, variable lease expense and lease income were immaterial for the three and nine months ended March 29, 2020.

Finance lease amortization was $ 0.2 million and interest expense was less than $ 0.1 million for the three and nine months ended March 29, 2020.

Cash flow information consisted of the following:

Six months ended

Nine months ended

(in millions of U.S.

Dollars) December 29, 2019

Dollars) March 29, 2020

Cash used in operating activities:

5 unchanged sentences

Operating lease additions due to adoption of ASC 842 12.2

Operating lease modifications, net 4.6

Operating lease additions and modifications, net 4.7

Finance lease additions 3.3

(1) Less than $0.1 million for the six months ended December 29, 2019.

(1) Less than $0.1 million for the nine months ended March 29, 2020.

Lease Liability Maturities

Maturities of operating and finance lease liabilities as of December 29, 2019 were as follows (in millions of U.S.

Maturities of operating and finance lease liabilities as of March 29, 2020 were as follows (in millions of U.S.

Fiscal Year Ending Operating Leases Finance Leases Total

24 unchanged sentences

(in millions of U.S.

Dollars) December 29, 2019 June 30, 2019

Dollars) March 29, 2020 June 30, 2019

Billed trade receivables $ 156.7 $ 125.8

5 unchanged sentences

(in millions of U.S.

Dollars) December 29, 2019 June 30, 2019

Dollars) March 29, 2020 June 30, 2019

Raw material $ 45.0 $ 42.4

5 unchanged sentences

(in millions of U.S.

Dollars) December 29, 2019 June 30, 2019

Dollars) March 29, 2020 June 30, 2019

Accounts payable, trade $ 90.8 $ 90.7

5 unchanged sentences

Other operating expense consisted of the following:

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 29, 2019 December 30, 2018 December 29, 2019 December 30, 2018

Dollars) March 29, 2020 March 31, 2019 March 29, 2020 March 31, 2019

Factory optimization restructuring $ 1.1 $ — $ 3.5 $ —

8 unchanged sentences

(in millions of U.S.

Dollars) December 29, 2019 June 30, 2019

Dollars) March 29, 2020 June 30, 2019

Currency translation gain $ 9.5 $ 9.5

Net unrealized gain on available-for-sale securities 0.2 —

Net unrealized loss on available-for-sale securities ( 1.7 ) —

Accumulated other comprehensive income, net of taxes $ 7.8 $ 9.5

Reclassifications Out of Accumulated Other Comprehensive Income

The Company reclassified a net gain of $ 0.1 million out of accumulated other comprehensive income for the three and six months ended December 29, 2019 and reclassified a net loss of $ 0.1 million out of accumulated other comprehensive income for the three and six months ended December 30, 2018.

Amounts were reclassified to non-operating (income) expense, net on the consolidated statements of operations.

Non-Operating (Income) Expense, net

The following table summarizes the components of non-operating (income) expense, net:

Three months ended Six months ended

The Company reclassified a net gain of $ 1.2 million and $ 1.3 million out of accumulated other comprehensive income for the three and nine months ended March 29, 2020 and reclassified a net loss of $ 0.0 million and $ 0.1 million out of accumulated other comprehensive income for the three and nine months ended March 31, 2019.

Amounts were reclassified to non-operating expense, net on the consolidated statements of operations.

Non-Operating Expense, net

The following table summarizes the components of non-operating expense, net:

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 29, 2019 December 30, 2018 December 29, 2019 December 30, 2018

Foreign currency (gain) loss, net ($ 1.2 ) $ — ($ 1.1 ) $ 0.6

Dollars) March 29, 2020 March 31, 2019 March 29, 2020 March 31, 2019

Foreign currency loss (gain), net $ 0.3 $ 0.5 ($ 0.8 ) $ 1.1

(Gain) loss on sale of investments, net ( 1.2 ) — ( 1.3 ) 0.1

(Gain) loss on equity investment, net ( 6.4 ) 1.9 ( 9.9 ) 8.6

Interest expense, net 2.8 3.6 4.7 6.0

Gain on arbitration proceeding ( 8.0 ) — ( 8.0 ) —

Loss on equity investment, net 19.1 3.8 9.2 12.4

Interest expense 7.5 7.4 22.6 18.8

Interest income ( 3.1 ) ( 3.6 ) ( 13.5 ) ( 9.0 )

Other, net ( 0.1 ) 0.3 ( 0.4 ) 0.3

Non-operating (income) expense, net ($ 5.1 ) $ 5.6 ($ 6.7 ) $ 15.3

The change in (gain) loss on equity investment, net is due to the increase in the Lextar Electronics Corporation (Lextar) stock price.

Non-operating expense, net $ 14.5 $ 8.4 $ 7.8 $ 23.7

The change in loss on equity investment, net is due to the increase in the Lextar Electronics Corporation (Lextar) stock price.

The gain on arbitration proceeding is due to an award from an arbitration proceeding related to defective inventory.

Statements of Cash Flows - non-cash activities

Six months ended

Non-cash operating activities December 29, 2019 December 30, 2018

Increase of right-of-use assets and lease liabilities (1)

Nine months ended

Non-cash operating activities March 29, 2020 March 31, 2019

Lease asset and liability additions (1)

Lease asset and liability modifications, net 4.4 —

1 unchanged sentence

See Note 4, "Leases", for further information.

Accrued property and equipment as of December 29, 2019 and December 30, 2018 was $ 6.2 million and $ 16.3 million, respectively.

Accrued property and equipment as of March 29, 2020 and March 31, 2019 was $ 6.8 million and $ 15.2 million, respectively.

Note 6 – Investments

4 unchanged sentences

Other long-term investments consist of the Company's ownership interest in Lextar.

Short-term investments as of December 29, 2019 and June 30, 2019 consisted of the following:

December 29, 2019

Short-term investments as of March 29, 2020 and June 30, 2019 consisted of the following:

March 29, 2020

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

5 unchanged sentences

certificates of deposit 5.2 — — 5.2

Variable rate demand note 2.5 — — 2.5

Commercial paper 9.7 — — 9.7

12 unchanged sentences

The following tables present the gross unrealized losses and estimated fair value of the Company’s short-term investments, aggregated by investment type and the length of time that individual securities have been in a continuous unrealized loss position:

December 29, 2019

March 29, 2020

Less than 12 Months Greater than 12 Months Total

3 unchanged sentences

agency securities 2.0 — — — 2.0 —

treasury securities 35.8 — — — 35.8 —

Total $ 235.6 ($ 2.4 ) $ — $ — $ 235.6 ($ 2.4 )

10 unchanged sentences

The Company utilizes specific identification in computing realized gains and losses on the sale of investments.

Realized gains of $ 0.1 million for the three and six month periods ended December 29, 2019 and realized losses of $ 0.1 million for the three and six month periods ended December 30, 2018 are included in non-operating (income) expense in the consolidated statements of operations.

Realized gains of $ 1.2 million and $ 1.3 million for the three and nine month periods ended March 29, 2020 and realized losses of $ 0.0 million and $ 0.1 million for the three and nine month periods ended March 31, 2019 are included in non-operating expense in the consolidated statements of operations.

Unrealized gains and losses are included as a separate component of equity, net of tax, unless the loss is determined to be other-than-temporary.

1 unchanged sentence

It considers such factors as the length of time and extent to which the fair value has been below the cost basis, the financial condition of the investee, and its ability and intent to hold the investment for a period of time that may be sufficient for an anticipated full recovery in market value.

Accordingly, the Company considered declines in its investments to be temporary in nature, and did not consider its investments to be impaired as of December 29, 2019 and June 30, 2019.

The contractual maturities of short-term investments as of December 29, 2019 were as follows:

The Company's unrealized losses as of March 29, 2020 are impacted significantly from negative market conditions surrounding the COVID-19 outbreak.

Given the speed and frequency of continuously evolving developments with respect to this outbreak, the Company's believes the full extent of the outbreak is uncertain as of March 29, 2020.

Due to the short-term nature of these losses and the Company's ability to satisfy current obligations using cash already on hand, which will allow the Company to hold on to the investment for a period of time that may be sufficient for an anticipated full recovery in market value, the Company does not consider the decline in its investments to be impaired as of March 29, 2020.

The Company will continue to assess if ongoing developments related to the outbreak may cause these unrealized losses to become other-than-temporary.

The contractual maturities of short-term investments as of March 29, 2020 were as follows:

Within One Year After One, Within Five Years After Five, Within Ten Years After Ten Years Total

5 unchanged sentences

certificates of deposit 5.2 — — — 5.2

Variable rate demand note — — — 2.5 2.5

Commercial paper 9.7 — — — 9.7

11 unchanged sentences

The financial assets for which the Company performs recurring fair value remeasurements are cash equivalents, short-term investments and long-term investments.

As of December 29, 2019 and June 30, 2019, financial assets utilizing Level 1 inputs included money market funds and U.S.

As of March 29, 2020 and June 30, 2019, financial assets utilizing Level 1 inputs included money market funds and U.S.

treasury securities.

4 unchanged sentences

These sources determine prices utilizing market income models which factor in, where applicable, transactions of similar assets in active markets, transactions of identical assets in infrequent markets, interest rates, bond or credit default swap spreads and volatility.

The Company did not have any financial assets requiring the use of Level 3 inputs as of December 29, 2019 and June 30, 2019.

The Company did not have any financial assets requiring the use of Level 3 inputs as of March 29, 2020 and June 30, 2019.

The following table sets forth financial instruments carried at fair value within the U.S.

GAAP hierarchy:

December 29, 2019 June 30, 2019

March 29, 2020 June 30, 2019

(in millions of U.S.

6 unchanged sentences

certificates of deposit — 43.2 — 43.2 — 105.8 — 105.8

certificates of deposit — 47.3 — 47.3 — 105.8 — 105.8

Commercial paper — — — — — 1.0 — 1.0

15 unchanged sentences

Note 8 – Goodwill and Intangible Assets

Goodwill by reporting unit as of December 29, 2019 was as follows:

Goodwill by reporting unit as of March 29, 2020 was as follows:

(in millions of U.S.

Dollars) December 29, 2019

Dollars) March 29, 2020

Wolfspeed $ 349.7

1 unchanged sentence

Total $ 530.0

There were no changes in goodwill during the six months ended December 29, 2019.

There were no changes in goodwill during the nine months ended March 29, 2020.

Intangible Assets, net

The following table presents the components of intangible assets, net:

December 29, 2019 June 30, 2019

March 29, 2020 June 30, 2019

(in millions of U.S.

7 unchanged sentences

Total intangible assets $ 348.3 ($ 164.7 ) $ 183.6 $ 356.8 ($ 158.9 ) $ 197.9

Total amortization of acquisition-related intangibles assets was $ 3.6 million and $ 7.2 million for the three and six months ended December 29, 2019 and $ 3.9 million and $ 7.8 million for the three and six months ended December 30, 2018, respectively.

Total amortization of patents and licensing rights was $ 2.3 million and $ 4.5 million for the three and six months ended December 29, 2019 and $ 2.5 million and $ 4.9 million for the three and six months ended December 30, 2018.

Total amortization of acquisition-related intangibles assets was $ 3.7 million and $ 10.9 million for the three and nine months ended March 29, 2020 and $ 3.9 million and $ 11.7 million for the three and nine months ended March 31, 2019, respectively.

Total amortization of patents and licensing rights was $ 2.3 million and $ 6.8 million for the three and nine months ended March 29, 2020 and $ 2.4 million and $ 7.3 million for the three and nine months ended March 31, 2019.

In the first quarter of fiscal 2020, $ 0.9 million of developed technology, net relating to a favorable lease was reclassified as a right-of-use asset in accordance with the Company's adoption of ASC 842, Leases.

12 unchanged sentences

Revolving Line of Credit

As of December 29, 2019, the Company had a $ 250.0 million secured revolving line of credit (the Credit Agreement) under which the Company can borrow, repay and reborrow loans from time to time prior to its scheduled maturity date of January 9, 2022.

On December 16, 2019, the Company entered into an amendment to the Credit Agreement to reduce the aggregate amount of the revolving line of credit available from $ 500.0 million to $ 250.0 million and to revise the Credit Agreement's financial covenants.

As of March 29, 2020, the Company had a $ 125.0 million secured revolving line of credit (the Credit Agreement) under which the Company can borrow, repay and reborrow loans from time to time prior to its scheduled maturity date of January 9, 2023.

On March 27, 2020, the Company entered into an amendment to the Credit Agreement to reduce the aggregate amount of the revolving line of credit available from $ 250.0 million to $ 125.0 million and to replace the Credit Agreement's financial covenants with a single covenant requiring the Company to maintain a ratio of certain cash equivalents and marketable securities to outstanding loans and letter of credit obligations greater than 1.25 :1.

The Company classifies balances outstanding under the Credit Agreement as long-term debt in the consolidated balance sheets.

As of December 29, 2019, the Company had no outstanding borrowings under the Credit Agreement, $ 250.0 million in available commitments under the Credit Agreement and $ 250.0 million available for borrowing.

For the three and six months ended December 29, 2019, the average interest rate was 0.00 %.

As of December 29, 2019, the unused line fee on available borrowings is 25 basis points.

The Company was in compliance with all covenants under the Credit Agreement at December 29, 2019.

As of March 29, 2020, the Company had no outstanding borrowings under the Credit Agreement, $ 125.0 million in available commitments under the Credit Agreement and $ 87.6 million available for borrowing.

For the three and nine months ended March 29, 2020, the average interest rate was 0.00 %.

As of March 29, 2020, the unused line fee on available borrowings is 25 basis points.

Convertible Notes

On August 24, 2018, the Company sold $ 500.0 million aggregate principal amount of 0.875 % convertible senior notes due September 1, 2023 to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, and an additional $ 75.0 million aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment options of the underwriters (the Notes).

On August 24, 2018, the Company sold $ 500.0 million aggregate principal amount of 0.875 % convertible senior notes due September 1, 2023 to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the Securities Act), and an additional $ 75.0 million aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment options of the underwriters (the 2023 Notes).

The total net proceeds from the debt offering was approximately $ 562.1 million.

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(in millions of U.S.

Dollars) December 29, 2019 June 30, 2019

Dollars) March 29, 2020 June 30, 2019

Principal $ 575.0 $ 575.0

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(in millions of U.S.

Dollars) December 29, 2019 June 30, 2019

Dollars) March 29, 2020 June 30, 2019

Discount related to value of conversion option $ 113.3 $ 113.3

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The interest expense recognized related to the 2023 Notes is as follows:

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 29, 2019 December 30, 2018 December 29, 2019 December 30, 2018

Dollars) March 29, 2020 March 31, 2019 March 29, 2020 March 31, 2019

Interest expense $ 1.3 $ 1.2 $ 3.8 $ 2.9

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Total interest expense $ 7.1 $ 6.7 $ 21.0 $ 15.6

The estimated fair value of the Notes is $ 619.6 million as of December 29, 2019, as determined by a Level 2 valuation.

The estimated fair value of the 2023 Notes is $ 540.8 million as of March 29, 2020, as determined by a Level 2 valuation.

Note 10 – Loss Per Share

The details of the computation of basic and diluted loss per share are as follows:

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars, except share data) December 29, 2019 December 30, 2018 December 29, 2019 December 30, 2018

Dollars, except share data) March 29, 2020 March 31, 2019 March 29, 2020 March 31, 2019

Net loss from continuing operations ($ 61.4 ) ($ 22.3 ) ($ 151.7 ) ($ 23.3 )

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Diluted net loss per share is the same as basic net loss per share for the periods presented due to potentially dilutive items being anti-dilutive given the Company's net loss.

For the three and six months ended December 29, 2019, 5.2 million and 5.5 million of weighted average shares were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive.

For the three and six months ended December 30, 2018, 6.4 million and 6.6 million of weighted average shares were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive.

For the three and nine months ended March 29, 2020, 5.2 million and 5.5 million of weighted average shares were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive.

For the three and nine months ended March 31, 2019, 9.1 million and 9.8 million of weighted average shares were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive.

Future earnings per share of the Company are also subject to dilution from conversion of its convertible notes under certain conditions as described in Note 9, “Long-term Debt.”

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Stock Option Awards

A summary of stock option awards outstanding as of December 29, 2019 and changes during the six months then ended is as follows:

A summary of stock option awards outstanding as of March 29, 2020 and changes during the nine months then ended is as follows:

(shares in thousands) Number of Shares Weighted Average Exercise Price

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Forfeited or expired ( 34 ) $ 50.40

Outstanding at December 29, 2019 1,854 $ 40.65

Outstanding at March 29, 2020 1,789 $ 40.96

Restricted Stock Awards and Units

A summary of nonvested restricted stock awards (RSAs) and restricted stock unit awards (RSUs) outstanding as of December 29, 2019 and changes during the six months then ended is as follows:

A summary of nonvested restricted stock awards (RSAs) and restricted stock unit awards (RSUs) outstanding as of March 29, 2020 and changes during the nine months then ended is as follows:

(awards and units in thousands) Number of RSAs/RSUs Weighted Average

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Forfeited ( 168 ) $ 33.66

Nonvested at December 29, 2019 2,937 $ 44.37

Nonvested at March 29, 2020 2,822 $ 44.79

Stock-Based Compensation Valuation and Expense

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This fair value is then amortized to compensation expense over the requisite service period or vesting term.

Compensation expense for awards that have performance-based conditions is recognized if the Company believes it is probable that the performance condition will be achieved.

The Company reassesses the probability of the achievement of the performance condition at each reporting period and adjusts the compensation expense for subsequent changes in the estimate or actual outcome.

For performance awards with market conditions, the Company estimates the grant date fair value using the Monte Carlo valuation model and expenses the awards over the vesting period regardless of whether the market condition is ultimately satisfied.

The Monte Carlo option pricing models require the input of highly subjective assumptions.

The estimates involve inherent uncertainties and the application of judgment.

As a result, if other assumptions had been used, recorded stock-based compensation expense could have been materially different from that depicted below.

Stock-based compensation expense is recognized net of estimated forfeitures such that expense is recognized only for those stock-based awards that are expected to vest.

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Total stock-based compensation expense was classified in the consolidated statements of operations as follows:

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 29, 2019 December 30, 2018 December 29, 2019 December 30, 2018

Dollars) March 29, 2020 March 31, 2019 March 29, 2020 March 31, 2019

Cost of revenue, net $ 2.8 $ 2.2 $ 7.5 $ 5.6

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Note 12 – Income Taxes

The change in our effective tax rate for the three months ended March 29, 2020 was primarily due to impacts from the Coronavirus Aid, Relief and Economic Security Act ("CARES Act").

In general, the variation between the Company's effective income tax rate and the U.S.

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and (iii) projected tax credits generated.

On March 27, 2020, the U.S.

government enacted the CARES Act, which contained changes to the U.S.

tax law that included, among other items, the temporary removal of the taxable income limitation on the utilization of net operating losses, the ability for a five-year carryback of certain net operating losses, and the adjustment to the carryforward period of certain net operating losses.

For the three and nine months ended March 29, 2020, the Company recognized a net $ 5.1 million discrete tax benefit due to the net operating loss provisions of the CARES Act.

The Company assesses all available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets by jurisdiction.

The Company has concluded that it is necessary to recognize a full valuation allowance against its U.S.

and Luxembourg deferred tax assets, as of the six months ended December 29, 2019.

and Luxembourg deferred tax assets, as of the nine months ended March 29, 2020.

As of June 30, 2019, the U.S.

valuation allowance was $ 177.6 million.

During the six months ended December 29, 2019, the Company did not record any material movement in its U.S.

valuation allowance.

During the nine months ended March 29, 2020, the Company decreased the U.S.

valuation allowance by $ 0.6 million primarily due to impacts from the CARES Act and the expiration of certain statutes of limitations on the Company's liability for unrecognized tax benefits.

As of June 30, 2019, the Luxembourg valuation allowance was $ 7.6 million.

During the six months ended December 29, 2019, the Company decreased this valuation allowance by $ 2.8 million due to year-to-date income in Luxembourg.

During the nine months ended March 29, 2020, the Company increased this valuation allowance by $ 2.0 million due to year-to-date losses in Luxembourg.

GAAP requires a two-step approach to recognizing and measuring uncertain tax positions.

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As of June 30, 2019, the Company's liability for unrecognized tax benefits was $ 8.2 million.

During the six months ended December 29, 2019, the Company did no t record any material movement in its unrecognized tax benefits.

As a result, the total liability for unrecognized tax benefits as of December 29, 2019 was $ 8.2 million.

During the nine months ended March 29, 2020, the Company decreased its unrecognized tax benefits by $ 0.7 million primarily due to the expiration of statute requirements.

As a result, the total liability for unrecognized tax benefits as of March 29, 2020 was $ 7.5 million.

If any portion of this $ 7.5 million is recognized, the Company will then include that portion in the computation of its effective tax rate.

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The outcomes in these matters are not reasonably estimable.

As a result of a Focused Compliance Inspection and a Compliance Evaluation Inspection at the Company's Durham, North Carolina facility, the United States Environmental Protection Agency (“EPA”) raised a potential non-compliance issue with certain requirements of the North Carolina Waste Management Law.

The Company is currently negotiating a settlement with the EPA to resolve the issue and pay a penalty, which is expected to be approximately $ 0.3 million.

Note 14 – Reportable Segments

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Financial Results by Reportable Segment

The tables below reflect the results of the Company's reportable segments as reviewed by the CODM for the three and six month periods ended December 29, 2019 and December 30, 2018.

The tables below reflect the results of the Company's reportable segments as reviewed by the CODM for the three and nine month periods ended March 29, 2020 and March 31, 2019.

The Company used the same accounting policies to derive the segment results reported below as those used in the Company’s consolidated financial statements.

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Revenue, gross profit and gross margin for each of the Company's segments were as follows:

Three months ended Six months ended

December 29, 2019 December 30, 2018 December 29, 2019 December 30, 2018

Three months ended Nine months ended

March 29, 2020 March 31, 2019 March 29, 2020 March 31, 2019

Wolfspeed revenue $ 113.9 $ 141.2 $ 362.3 $ 403.9

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Disaggregated revenue from external customers by geographic area is as follows:

Three months ended Six months ended

December 29, 2019 December 30, 2018 December 29, 2019 December 30, 2018

Three months ended Nine months ended

March 29, 2020 March 31, 2019 March 29, 2020 March 31, 2019

(in millions of U.S.

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Inventories for each of the Company's segments were as follows:

December 29, 2019 June 30, 2019

March 29, 2020 June 30, 2019

Wolfspeed $ 90.1 $ 81.6

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The restructuring activity was completed in the second quarter of fiscal 2019.

For the three and six months ended December 30, 2018, $ 0.0 million and $ 2.6 million was expensed relating to this corporate restructuring plan.

For the three and nine months ended March 31, 2019, $ 0.0 million and $ 2.6 million was expensed relating to this corporate restructuring plan.

Factory Optimization Restructuring

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The Company expects approximately $ 70.0 million in restructuring charges related to the factory optimization plan to be incurred through 2024.

For the three and six months ended December 29, 2019, the Company expensed and paid $ 1.2 million and $ 2.4 million of restructuring charges related to the factory optimization plan.

For the three and nine months ended March 29, 2020, the Company expensed and paid $ 1.1 million and $ 3.5 million of restructuring charges related to the factory optimization plan.

In September 2019, the Company announced its intent to build the new fabrication facility in Marcy, New York to complement the factory expansion underway at its U.S.

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In July 2019, the Company realigned its sales resources as part of the Company's transition to a more focused semiconductor company.

As a result, the Company recorded $ 0.0 million and $ 0.8 million in contract termination costs during the three and six months ended December 29, 2019, of which $ 0.4 million is accrued in other current liabilities as of December 29, 2019.

As a result, the Company recorded $ 0.0 million and $ 0.8 million in contract termination costs during the three and nine months ended March 29, 2020, of which $ 0.3 million is accrued in other current liabilities as of March 29, 2020.

Note 16 - Subsequent Events

On April 21, 2020, the Company issued and sold $ 500.0 million aggregate principal amount of 1.75 % convertible senior notes due May 1, 2026 to qualified institutional buyers pursuant to Rule 144A under the Securities Act and an additional $ 75.0 million aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment options of the initial purchasers (the 2026 Notes).

The total net proceeds from the debt offering was approximately $ 561.4 million.

The 2026 Notes are unsecured, senior obligations of the Company, and interest will be payable semi-annually in arrears.

The 2026 Notes are convertible, at a holder's election, in multiples of $1,000 principal amount, into cash, shares of the Company’s common stock, or a combination thereof, at the Company’s election, at the applicable conversion rate only under certain circumstances or certain periods specified within the Indenture governing the 2026 Notes.

The initial conversion rate for the 2026 Notes is 21.1346 shares of common stock per $1,000 principal amount of notes, subject to adjustment as provided in the Indenture.

The Company used approximately $ 144.3 million of the net proceeds from the offering to repurchase approximately $ 150.2 million aggregate principal amount of the 2023 Notes, including approximately $ 0.2 million of accrued interest on such notes, in privately negotiated transactions.

The Company intends to use the remainder of the net proceeds from the offering for general corporate purposes.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements