What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-08-19 compared with 2019-08-21 · 524 added, 514 removed, 979 unchanged (51% of the section changed)

16 unchanged sentences

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 28, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customers on June 25, 2018.

Changes in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases on July 1, 2019, and as discussed in Note 4 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customers on June 25, 2018.

Basis for Opinions

14 unchanged sentences

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

7 unchanged sentences

Certain distributors may be provided limited rights that allow them to return a portion of inventory and receive credits for changes in selling price (price protection rights) or customer pricing arrangements under the Company’s “ship and debit” program.

Distributor sales account for approximately 53% of total net revenue of $1.1 billion for the year ended June 30, 2019 and the associated reserves for ship and debit and price protection rights programs to distributors make up a portion of the accrued contract liabilities account balance of $45.8 million.

Distributor sales account for approximately 44% of total net revenue of $903.9 million for the year ended June 28, 2020 and the associated reserves for ship and debit and price protection rights programs to distributors make up a portion of the accrued contract liabilities account balance of $38.3 million.

Under the Company’s ship and debit program, subsequent to the initial product purchase, a distributor may request a price allowance for a particular part number(s) for certain target customers, prior to the distributor reselling the particular part to that customer.

3 unchanged sentences

Upon shipment, management uses significant judgment in establishing reserves for the ship and debit and price protection rights programs, which includes developing assumptions related to changes in selling prices.

This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to management’s assumption related to changes in selling prices.

The principal considerations for our determination that performing procedures relating to reserves for distributor programs - ship and debit and price protection rights is a critical audit matter are the significant judgment by management in estimating the reserves for ship and debit and price protection rights programs, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to management’s assumption related to changes in selling prices.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

6 unchanged sentences

CONSOLIDATED BALANCE SHEETS

June 30, 2019

June 24, 2018

June 28, 2020 June 30, 2019

in millions of U.S.

Dollars, except share data

Dollars, except share data in thousands

Current assets:

3 unchanged sentences

Accounts receivable, net 114.0 128.9

Inventories 179.1 187.4

Income taxes receivable 6.6 0.2

2 unchanged sentences

Current assets held for sale 1.3 1.9

Current assets related to discontinued operations

Total current assets 1,592.8 1,412.8

Property and equipment, net 831.1 625.2

Goodwill 530.0 530.0

Intangible assets, net 179.6 197.9

1 unchanged sentence

Deferred tax assets 6.3 5.6

Long-term assets related to discontinued operations

Other assets 35.3 5.9

Total assets $ 3,231.0 $ 2,816.9

Liabilities and Shareholders' Equity

1 unchanged sentence

Accounts payable and accrued expenses $ 220.8 $ 200.9

Income taxes payable

Accrued contract liabilities 38.3 45.8

Income taxes payable 3.2 3.0

Finance lease liabilities 3.6 —

Other current liabilities 25.3 18.5

Current liabilities related to discontinued operations

Total current liabilities 291.2 268.2

Long-term liabilities:

Long-term debt

Convertible notes, net 783.8 469.1

Deferred tax liabilities 1.8 2.0

Finance lease liabilities - long-term 11.4 —

Other long-term liabilities 53.6 36.4

Long-term liabilities related to discontinued operations

Total long-term liabilities 850.6 507.5

Commitments and contingencies (Note 16)

Commitments and contingencies

Shareholders’ equity:

10 unchanged sentences

Non-controlling interest 6.1 5.0

Total equity 2,089.2 2,041.2

Total liabilities and shareholders’ equity $ 3,231.0 $ 2,816.9

2 unchanged sentences

Fiscal Years Ended

June 30, 2019

June 24, 2018

June 25, 2017

June 28, 2020 June 30, 2019 June 24, 2018

in millions of U.S.

Dollars, except share data

Revenue, net $ 903.9 $ 1,080.0 $ 924.9

Cost of revenue, net 655.6 689.0 622.9

Gross profit 248.3 391.0 302.0

Operating expenses:

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Loss on disposal or impairment of other assets 1.4 4.7 8.4

Other operating expense (income)

Other operating expense 46.2 28.0 16.8

Operating loss ( 209.4 ) ( 15.9 ) ( 28.0 )

Non-operating expense (income), net

Non-operating (income) expense, net ( 19.0 ) 29.3 ( 10.4 )

Loss before income taxes ( 190.4 ) ( 45.2 ) ( 17.6 )

2 unchanged sentences

Net loss from discontinued operations — ( 317.2 ) ( 263.5 )

Net loss ( 190.6 ) ( 375.1 ) ( 279.9 )

Net income attributable to noncontrolling interest 1.1 — 0.1

Net loss attributable to controlling interest ($ 191.7 ) ($ 375.1 ) ($ 280.0 )

Basic loss per share

Continuing operations attributable to controlling interest

Net loss attributable to controlling interest

Diluted loss per share

Basic and diluted loss per share

Continuing operations attributable to controlling interest ($ 1.78 ) ($ 0.56 ) ($ 0.17 )

Net loss attributable to controlling interest ($ 1.78 ) ($ 3.62 ) ($ 2.81 )

Weighted average shares (in thousands)

Weighted average shares - basic and diluted (in thousands) 107,935 103,576 99,530

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

1 unchanged sentence

Fiscal Years Ended

June 30, 2019

June 24, 2018

June 25, 2017

June 28, 2020 June 30, 2019 June 24, 2018

in millions of U.S.

Net loss ($ 190.6 ) ($ 375.1 ) ($ 279.9 )

Other comprehensive income (loss):

Currency translation gain (loss)

Currency translation gain — 4.4 0.6

Net unrealized gain (loss) on available-for-sale securities 6.5 4.5 ( 5.9 )

5 unchanged sentences

Fiscal Years Ended

June 30, 2019

June 24, 2018

June 25, 2017

in millions of U.S.

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash provided by operating activities:

Dollars June 28, 2020 June 30, 2019 June 24, 2018

Operating activities:

Net loss from continuing operations ($ 190.6 ) ($ 57.9 ) ($ 16.4 )

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation and amortization 123.9 122.4 111.6

Amortization of debt issuance costs and discount 26.3 18.3 —

Gain on partial extinguishment of debt ( 11.0 ) — —

Stock-based compensation 53.3 49.6 37.9

Loss on sale of business

Goodwill impairment charges

Impairment of acquisition-related intangibles

Impairment of inventory

Loss on disposal or impairment of long-lived assets 4.7 4.7 8.4

Amortization of premium/discount on investments 1.7 2.3 4.7

Loss/(gain) on equity investment

Foreign exchange loss/(gain) on equity investment

Realized (gain) loss on sale of investments ( 2.0 ) 0.1 0.1

(Gain) loss on equity investment ( 14.2 ) 16.2 ( 7.1 )

Foreign exchange (gain) loss on equity investment ( 2.2 ) 1.3 ( 0.6 )

Deferred income taxes ( 0.9 ) ( 0.6 ) ( 39.3 )

Changes in operating assets and liabilities, net of effect of acquisition:

Changes in operating assets and liabilities:

Accounts receivable, net 14.9 9.6 ( 16.4 )

Inventories 9.9 ( 35.8 ) 9.5

Prepaid expenses and other assets ( 1.0 ) ( 3.1 ) ( 10.3 )

2 unchanged sentences

Accrued contract liabilities ( 0.1 ) 21.6 —

Net cash provided by operating activities

Cash flows from investing activities:

Net cash (used in) provided by operating activities of continuing operations ( 29.0 ) 220.2 112.5

Net cash (used in) provided by operating activities of discontinued operations — ( 17.9 ) 61.0

Cash (used in) provided by operating activities ( 29.0 ) 202.3 173.5

Investing activities:

Purchases of property and equipment ( 237.1 ) ( 131.3 ) ( 172.3 )

6 unchanged sentences

Proceeds from sale of business, net — 219.0 —

Net cash used in investing activities

Cash flows from financing activities:

Net cash used in investing activities of continuing operations ( 486.9 ) ( 211.7 ) ( 406.0 )

Net cash used in investing activities of discontinued operations — ( 15.4 ) ( 17.9 )

Cash used in investing activities ( 486.9 ) ( 227.1 ) ( 423.9 )

Financing activities:

Proceeds from issuing Cree Venture LED stock to noncontrolling interest — — 4.9

1 unchanged sentence

Proceeds from long-term debt borrowings — 95.0 670.0

Payments on long-term debt borrowings

Payments on long-term debt borrowings, including finance lease obligations ( 145.1 ) ( 387.0 ) ( 523.0 )

Proceeds from issuance of common stock 76.4 158.0 92.6

Tax withholding on stock option exercises

Tax withholding on vested equity awards ( 16.9 ) ( 21.6 ) ( 6.2 )

Proceeds from convertible notes 575.0 575.0 —

Payments of debt issuance costs ( 13.6 ) ( 12.9 ) —

Repurchases of common stock

Net cash provided by (used in) financing activities

Incentive-related refundable escrow deposits ( 11.5 ) — —

Cash provided by financing activities 464.3 406.5 236.5

Effects of foreign exchange changes on cash and cash equivalents ( 0.1 ) ( 0.1 ) 0.2

2 unchanged sentences

Cash and cash equivalents, end of period $ 448.8 $ 500.5 $ 118.9

Supplemental cash flow information

Cash paid for interest

Cash paid for income taxes

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

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Additional Paid-in Capital

Accumulated deficit

Accumulated Other Comprehensive Income

Total Equity - Controlled Interest

Non controlling Interest

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

Share data in thousands, U.S.

1 unchanged sentence

Balance at June 25, 2017 97,674 $ 0.1 $ 2,419.5 ($ 202.7 ) $ 5.9 $ 2,222.8 $ — $ 2,222.8

Currency translation loss

Net loss (income) — — — ( 280.0 ) — ( 280.0 ) 0.1 ( 279.9 )

Currency translation gain — — — — 0.6 0.6 — 0.6

Unrealized loss on available-for-sale securities — — — — ( 5.9 ) ( 5.9 ) — ( 5.9 )

1 unchanged sentence

Income tax expense from stock option exercises — — ( 6.2 ) — — ( 6.2 ) — ( 6.2 )

Repurchased shares

Contributions from non-controlling interests — — — — — — 4.9 4.9

Stock-based compensation — — 43.2 — — 43.2 — 43.2

1 unchanged sentence

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

Net loss — — — ( 375.1 ) — ( 375.1 ) — ( 375.1 )

Currency translation gain — — — — 4.4 4.4 — 4.4

Unrealized loss on available-for-sale securities

Unrealized gain on available-for-sale securities — — — — 4.5 4.5 — 4.5

Comprehensive loss ( 366.2 ) — ( 366.2 )

Income tax expense from stock option exercises — — ( 21.6 ) — — ( 21.6 ) — ( 21.6 )

Adoption of ASC 606

— — — 10.3 — 10.3 — 10.3

Stock-based compensation — — 78.0 — — 78.0 — 78.0

Exercise of stock options and issuance of shares 5,082 — 158.0 — — 158.0 — 158.0

Contributions from noncontrolling interests

Issuance of convertible notes due September 1, 2023 — — 110.6 — — 110.6 — 110.6

Balance at June 30, 2019 106,570 $ 0.1 $ 2,874.1 ($ 847.5 ) $ 9.5 $ 2,036.2 $ 5.0 $ 2,041.2

Currency translation gain

Net loss — — — ( 191.7 ) — ( 191.7 ) 1.1 ( 190.6 )

Unrealized gain on available-for-sale securities — — — — 6.5 6.5 — 6.5

3 unchanged sentences

Exercise of stock options and issuance of shares 2,660 — 76.4 — — 76.4 — 76.4

Adoption of ASC 606

Convertible note issuance

Issuance of convertible notes due May 1, 2026 — — 145.4 — — 145.4 — 145.4

Partial extinguishment of convertible notes due September 1, 2023 — — ( 27.7 ) — — ( 27.7 ) — ( 27.7 )

Balance at June 28, 2020 109,230 $ 0.1 $ 3,106.2 ($ 1,039.2 ) $ 16.0 $ 2,083.1 $ 6.1 $ 2,089.2

4 unchanged sentences

Revenue Recognition

Joint Venture

Financial Statement Details

9 unchanged sentences

Retirement Savings Plan

Related Party Transactions

Restructuring

1 unchanged sentence

Note 1 – Business

(the Company) is an innovator of wide bandgap semiconductor products for power and radio-frequency (RF) applications and lighting-class light emitting diode (LED) products.

The Company's products are targeted for applications such as transportation, power supplies, inverters, wireless systems, indoor and outdoor lighting, electronic signs and signals and video displays.

(the Company) is an innovator of wide bandgap semiconductors, focused on silicon carbide and gallium nitride materials, devices for power and radio-frequency (RF) applications and specialty lighting-class light emitting diode (LED) products.

The Company's silicon carbide and gallium nitride (GaN) materials and devices are targeted for applications such as transportation, power supplies, inverters and wireless systems.

The Company's LEDs are targeted for use in indoor and outdoor lighting, electronic signs and signals and video displays.

The Company operates in two reportable segments:

Wolfspeed , which consists of silicon carbide (SiC) and gallium nitride (GaN) materials, power devices and RF devices based on silicon (Si) and wide bandgap semiconductor materials.

• Wolfspeed , which consists of silicon carbide and GaN materials, power devices and RF devices based on wide bandgap semiconductor materials and silicon.

The Company's materials products and power devices are used in electric vehicles, motor drives, power supplies, solar and transportation applications.

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The Company also uses contract manufacturers for certain products and aspects of product fabrication, assembly and packaging.

The Company operates research and development facilities in North Carolina, Arizona, Arkansas, California and China (including Hong Kong).

Additionally, the Company is in the process of building a silicon carbide fabrication facility in New York.

The Company operates research and development facilities in North Carolina, Arizona, Arkansas, New York, California and China (including Hong Kong).

is a North Carolina corporation established in 1987, and its headquarters are in Durham, North Carolina.

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The Company’s fiscal year is a 52 or 53-week period ending on the last Sunday in the month of June.

The Company’s 2019 fiscal year was a 53-week fiscal year.

The Company’s 2020 and 2018 fiscal years were 52-week fiscal years.

The Company's 2019 fiscal year was a 53-week fiscal year.

The Company’s 2021 fiscal year will be a 52-week fiscal year.

2 unchanged sentences

These reclassifications had no effect on previously reported net loss or shareholders’ equity.

The Company revised net cash provided by operating activities and net cash provided by (used in) financing activities for the years ended June 24, 2018 and June 25, 2017 to correct the presentation of tax withholding for stock option exercises.

The Company increased net cash provided by operating activities by $ 6.2 million and $ 4.6 million and decreased net cash provided by (used in) financing activities by the same amounts for the years ended June 24, 2018 and June 25, 2017, respectively.

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

Additionally, the Company corrected the classification of certain money market funds which were previously disclosed as non-U.S.

certificates of deposits within cash equivalents in Note 9, "Fair Value of Financial Instruments." As a result, non-U.S.

certificates of deposit decreased by $ 40.9 million and money market funds increased by the same amount as of June 24, 2018.

Total cash equivalents was not affected.

Use of Estimates

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Actual results could differ materially from those estimates.

Certain accounting matters that generally require consideration of forecasted financial information were assessed regarding impacts from the COVID-19 outbreak as of June 28, 2020 and through the date of this Annual 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 and valuation allowances for tax assets.

While the assessments resulted in no material impacts to the consolidated financial statements as of and for the year ended June 28, 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 its consolidated financial statements.

Segment Information

1 unchanged sentence

The Company’s CODM is its Chief Executive Officer.

The Company has determined that it currently has two operating and reportable segments.

The Company has determined that it has two operating and reportable segments.

Cash and Cash Equivalents

13 unchanged sentences

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

Realized gains and losses on the sale of investments are reported in non-operating expense (income).

Realized gains and losses on the sale of investments are reported in non-operating (income) expense, net.

Investments in marketable securities with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations.

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In general, the Company’s policy for useful lives is as follows:

Machinery and equipment

3 to 15 years

Buildings and building improvements

5 to 40 years

Furniture and fixtures

Aircraft and vehicles

5 to 20 years

Leasehold improvements

Shorter of estimated useful life or lease term

Furniture and fixtures 5 years

Buildings and building improvements 5 to 40 years

Machinery and equipment 3 to 15 years

Vehicles 5 years

Computer hardware/software 3 years

Leasehold improvements Shorter of estimated useful life or lease term

Expenditures for repairs and maintenance are charged to expense as incurred.

27 unchanged sentences

The Company derives a reportable segment ’ s fair value through a combination of the market approach (guideline transaction method and guideline public company method) and the income approach (a discounted cash flow analysis).

The income approach utilizes a discount rate from the capital asset pricing model.

The income approach utilizes a discount rate from a capital asset pricing model.

If all reportable segments are analyzed, their respective fair values are reconciled back to the Company ’ s consolidated market capitalization.

1 unchanged sentence

GAAP requires that intangible assets, other than goodwill and indefinite-lived intangibles, must be amortized over their useful lives.

The Company is currently amortizing its acquired intangible assets with finite lives over periods ranging from one to 20 years .

The Company is currently amortizing its acquired intangible assets with finite lives over periods ranging from four to 15 years.

Patent rights reflect costs incurred by the Company in applying for and maintaining patents owned by the Company and costs incurred in purchasing patents and related rights from third parties.

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Master supply or distributor agreements are in place with many of the Company's customers and contain terms and conditions including, but not limited to payment, delivery, incentives and warranty.

These agreements typically do not require minimum

purchase commitments.

These agreements typically do not require minimum purchase commitments.

If a master supply, distributor or other similar agreement is not in place with a customer, the Company considers a purchase order, which is governed by the Company’s standard terms and conditions, to be the contract governing the relationship with that customer.

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The Company offers product warranties and establishes liabilities for estimated warranty costs based upon historical experience and specific warranty provisions.

Warranty liability estimates are included in cost of revenue in the Company’s consolidated statements of operations, and further detail is presented in Note 16, "Commitments and Contingencies."

Certain of the Company’s distributors are provided limited rights that allow them to return a portion of inventory (product exchange rights or stock rotation rights) and receive credits for changes in selling prices (price protection rights) or customer pricing arrangements under the Company’s “ship and debit” program or other targeted sales incentives.

Some of the Company’s distributors are provided limited rights that allow them to return a portion of inventory (product exchange rights or stock rotation rights) and receive credits for changes in selling prices (price protection rights) or customer pricing arrangements under the Company’s “ship and debit” program or other targeted sales incentives.

These estimates are calculated based upon historical experience, product shipment analysis, current economic conditions, on-hand inventory at the distributor, and customer contractual arrangements.

10 unchanged sentences

The Company recognizes these incentives at the time they are offered to customers and records a credit to their account with an offsetting expense as either a reduction to revenue, increase to cost of revenue, or marketing expense depending on the type of sales incentive.

The Company also has inventory consignment agreements in which revenue is recognized at a point in time, when the customer or distributor pulls product from consignment inventory that the Company stores at designated locations.

Delivery and transfer of control occur at that point, when title and risk of loss transfers and the customer or distributor becomes obligated to pay for the products pulled from inventory.

Until the products are pulled for use or sale by the customer or distributor, the Company retains control over the products’ disposition, including the right to pull back or relocate the products.

From time to time, the Company may enter into licensing arrangements related to its intellectual property.

3 unchanged sentences

However, the Company will defer recognition for licensing fees where the Company has significant future performance requirements, the fee is not fixed (such as royalties earned as a percentage of future revenue), or the fees are otherwise contingent.

At lease inception, the Company determines an arrangement is a lease if the contract involves the use of a distinct identified asset, the lessor does not have substantive substitution rights and the Company obtains control of the asset throughout the period by obtaining substantially all of the economic benefit of the asset and the right to direct the use of the asset.

Right-of-use assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease.

Assets and liabilities are recognized based on the present value of lease payments over the lease term.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more.

The exercise of the renewal option is at the Company's sole discretion and the Company considers these options in determining the lease term used to establish its right-of-use assets and lease liabilities.

The Company will remeasure its lease liability and adjust the related right-of-use asset upon the occurrence of the following:

lease modifications not accounted for as a separate contract;

a triggering event that changes the certainty of the lessee exercising an option to renew or terminate the lease, or purchase the underlying asset;

a change to the amount probable of being owed by the Company under a residual value guarantee;

or the resolution of a contingency upon which the variable lease payments are based such that those payments become fixed.

Because most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments.

The Company would use the implicit rate when readily determinable.

Operating lease expense is generally recognized on a straight-line basis over the lease term.

Finance lease assets are amortized on a straight-line basis over the shorter of the useful life of the asset or the lease term.

Interest expense on the finance lease liability is recognized using the effective interest rate method and is presented within interest expense on the Company’s consolidated statements of operations.

The Company has agreements with lease and non-lease components, which are accounted for as a single lease component.

Leases with a lease term of 12 months or less are not recorded on the balance sheet.

The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

Variable lease payment amounts that cannot be determined at the commencement of the lease, such as increases in lease payments based on changes in index rates, are not included in the right-of-use assets or liabilities.

These variable lease payments are expensed as incurred.

Accounts Receivable

26 unchanged sentences

whereas taxes such as property taxes and franchise taxes are accrued over the fiscal year to which they apply if paid at the end of a period, or they are amortized ratably over the fiscal year if they are paid in advance.

The Company presents sales taxes collected from customers and remitted to governmental authorities on a net basis (i.e.

excluded from revenue and expenses).

Foreign Currency Translation

Foreign currency translation adjustments are recognized in other comprehensive (loss) income in the consolidated statements of comprehensive loss for changes between the foreign subsidiaries’ functional currency and the United States (U.S.) dollar.

Foreign currency translation adjustments are recognized in other comprehensive income (loss) in the consolidated statements of comprehensive loss for changes between the foreign subsidiaries’ functional currency and the United States (U.S.) dollar.

Foreign currency translation gains and losses are included in the Company’s equity account balance of accumulated other comprehensive income, net of taxes in the consolidated balance sheets until such time that the subsidiaries are either sold or substantially liquidated.

Due to the sale of the Lighting Products business unit, $ 5.2 million of currency translation loss was reclassified out of other comprehensive (loss) income and recognized in the consolidated statements of operations as part of the loss on transaction.

Due to the sale of the Lighting Products business unit in fiscal 2019, $ 5.2 million of currency translation loss was reclassified out of other comprehensive income (loss) and recognized in the consolidated statements of operations as part of the loss on transaction.

The Company and its subsidiaries transact business in currencies other than the U.S.

Dollar and as such, the Company will continue to experience varying amounts of foreign currency exchange gains and losse s.

Dollar and as such, the Company will continue to experience varying amounts of foreign currency exchange gains and losses.

Joint Venture

Effective July 17, 2017, the Company entered into a Shareholders Agreement with San’an Optoelectronics Co., Ltd.

(San’an) and Cree Venture LED Company Limited (Cree Venture LED) pursuant to which the Company and San’an funded their contributions to Cree Venture LED and agreed upon the management and operation of Cree Venture LED.

The Company contributed $ 5.1 million of cash for a 51 % ownership interest and San’an contributed $ 4.9 million of cash for a 49 % ownership interest.

Cree Venture LED has a five -member board of directors, three of which were designated by the Company and two of which were designated by San’an.

As a result of the Company's majority voting interest, the Company consolidates the operations of Cree Venture LED and reports its revenue and gross profit within the Company's LED Products segment.

The Company classifies the 49 % ownership interest held by San'an as noncontrolling interest on the consolidated balance sheet.

The noncontrolling interest increased by $ 1.1 million, $ 0.0 million and $ 0.1 million for its share of net income from Cree Venture LED for the fiscal years ending June 28, 2020, June 30, 2019 and June 24, 2018, respectively.

Supplemental Cash Flow Information

Cash paid for interest was $ 5.9 million, $ 4.0 million, and $ 6.1 million for the fiscal years ending June 28, 2020, June 30, 2019 and June 24, 2018, respectively.

Cash paid for taxes, net of refunds received, was $ 7.1 million and $ 5.4 million for the fiscal years ending June 28, 2020 and June 30, 2019, respectively.

Cash paid for taxes, net of refunds received, was less than $ 0.1 million for the fiscal year ended June 24, 2018.

Recently Adopted Accounting Pronouncements

Nonemployee Stock Compensation

In June 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-07:

Compensation - Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting.

The ASU applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards.

The Company early adopted this standard in the second quarter of fiscal 2019.

There was no material impact upon adoption of this standard.

Fair Value Measurement Disclosure

In August 2018, the FASB issued ASU 2018-13:

Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.

The ASU modifies the disclosure requirements required for fair value measurements.

The Company early adopted this standard in the first quarter of fiscal 2019.

Cloud Computing Arrangements

In August 2018, the FASB issued ASU 2018-15:

Intangibles - Goodwill and Other - Internal-Use Software (Topic 350-40):

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.

The ASU allows companies to capitalize implementation costs incurred in a hosting arrangement that is a service contract over the term of the hosting arrangement, including periods covered by renewal options that are reasonably certain to be exercised.

The Company early adopted this standard in the first quarter of fiscal 2019.

There was no significant impact on the financial statements.

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU No.

Revenue from Contracts with Customers (Topic 606) (ASC 606).

The FASB has subsequently issued multiple ASUs that amend and clarify the guidance in ASC 606.

The ASU establishes a principles-based approach for accounting for revenue arising from contracts with customers and supersedes existing revenue recognition guidance.

The ASU provides that an entity should apply a five-step approach for recognizing revenue, including (1) identify the contract with a customer;

(2) identify the performance obligations in the contract;

(3) determine the transaction price;

(4) allocate the transaction price to the performance obligations in the contract;

and (5) recognize revenue when, or as, the entity satisfies a performance obligation.

Also, the entity must provide various disclosures concerning the nature, amount and timing of revenue and cash flows arising from contracts with customers.

The Company ado pted this standard on June 25, 2018.

The cumulative effect of the adoption recorded to beginning accumulated deficit as of June 25, 2018 was $ 10.3 million .

The Company did not recognize a discrete tax impact related to the opening deferred tax balance as of June 25, 2018 due to a full U.S.

valuation allowance.

The Company recorded $ 1.6 million less revenue for the fiscal year ended June 30, 2019 as a result of the adoption and expects the ongoing effect to be immaterial to the consolidated financial statements.

See Note 4, "Revenue Recognition," for discussion of the impacted financial statement line items.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No.

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

Leases (Topic 842) (ASC 842), and ASU 2018-10:

Codification Improvements to ASC 842, Leases.

These ASU’s require that a lessee recognize in its statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term and will require enhanced disclosures about an entity’s leasing arrangements.

The Company will adopt this standard on July 1, 2019, under the modified retrospective transition approach with the cumulative effect of application recognized at the effective date, without reclassification of previous financial statements.

Upon adoption, the Company plans to elect the transition package of practical expedients that allows it to not reassess (1) whether any expired or existing contracts are leases, or contain leases, (2) the lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases.

Further, upon implementation of the new guidance, the Company intends to elect the practical expedient to not separate lease and non-lease components for all leases and account for the combined lease and non-lease components as a single lease component.

The Company also plans to make an accounting policy election to exclude leases with an initial term of 12 months or less from the consolidated balance sheets.

The Company expects the adoption of this standard will result in the inclusion of a significant component of the Company’s future minimum lease obligations, as disclosed in Note 16, “Commitments and Contingencies” on its consolidated balance sheets, as right-of-use assets and lease liabilities with no material impact to its consolidated statements of operations and consolidated statements of comprehensive loss.

Any new lease arrangements or material modifications entered into subsequent to the adoption date will be accounted for in accordance with the new standard.

The Company is continuing to assess the potential impacts of the ASC 842.

The Company anticipates disclosing additional information, as necessary, to comply with the new leasing standard.

These ASUs require that a lessee recognize in its statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term and requires enhanced disclosures about an entity’s leasing arrangements.

The Company adopted this standard on July 1, 2019, under the modified retrospective transition approach with the cumulative effect of application recognized at the effective date, without adjustment to prior comparative periods.

The Company elected to utilize the transition package of practical expedients that allows the Company to not reassess (1) whether any expired or existing contracts are leases, or contain leases, (2) the lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases.

Further, the Company elected the practical expedient to not separate lease and non-lease components for all leases and account for the combined lease and non-lease components as a single lease component.

The Company also made an accounting policy election to exclude leases with an initial term of 12 months or less from the consolidated balance sheets.

The adoption of the new standard resulted in the recognition of $ 12.2 million of lease liabilities with corresponding right-of-use assets of $ 12.3 million as of July 1, 2019.

As required, the right-of-use assets include the effect of reclassifying certain balances including deferred and prepaid rent, a portion of facilities-related restructuring accrual reserves, and a favorable lease intangible asset previously recognized in connection with an acquisition.

The Company did not have a cumulative-effect adjustment to retained earnings as a result of the adoption of the new standard.

The standard did not materially impact the Company's results

from operations and had no impact on cash flows.

See Note 5, "Leases," for additional disclosures, as required by the new standard.

The reported results as of and for the year ended June 28, 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.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The ASU also improves consistent application and simplifies other areas of Topic 740 by clarifying and amending existing guidance.

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.

The Company early adopted this standard in the fourth quarter of fiscal 2020 with no material impact on the Company’s consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

The FASB issued ASU 2018-02 to give entities the option to reclassify tax effects stranded in accumulated other comprehensive income as a result of the enactment of the TCJA to retained earnings.

The Company adopted this standard in the fourth quarter of fiscal 2020.

For the year ended June 28, 2020, the Company did not elect to reclassify tax effects stranded in accumulated other comprehensive income as a result of the enactment of the TCJA to retained earnings.

The Company's policy is to account for the release of disproportionate income tax effects stranded in accumulated other comprehensive income under the aggregate portfolio approach.

Recently Issued Accounting Pronouncements

Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

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.

The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses for receivables at the time the financial asset is originated or acquired.

The expected credit losses are adjusted each period for changes in expected lifetime credit losses.

This model replaces the multiple existing impairment models in current GAAP, which generally require that a loss be incurred before it is recognized.

The new standard will also apply to receivables arising from revenue transactions such as contract assets and accounts receivables.

There are other provisions within the standard affecting how impairments of other financial assets may be recorded and presented, as well as expanded disclosures.

The Company adopted this standard on June 29, 2020, the first day of fiscal 2021, and does not expect this standard to have a material impact on its consolidated financial statements.

Note 3 – Discontinued Operations

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In connection with the transaction, the Company and IDEAL entered into certain ancillary and related agreements, including (i) an Intellectual Property Assignment and License Agreement, which assigned to IDEAL certain intellectual property owned by the Company and licensed to IDEAL certain additional intellectual property owned by the Company;

(ii) a Transition Services Agreement (the TSA), which is designed to ensure a smooth transition of the Lighting Products business unit to IDEAL;

(ii) a Transition Services Agreement (the TSA), which is designed to ensure a smooth transition of the Lighting

Products business unit to IDEAL;

(iii) an LED Supply Agreement (the LED Supply Agreement), pursuant to which the Company will supply IDEAL with certain LED chip and component products for three years;

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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 fiscal years ended June 30, 2019 , June 24, 2018 , and June 25, 2017 are as follows:

The Company has classified the results of the Lighting Products business unit as discontinued operations, the results of which for the fiscal years ended June 30, 2019 and June 24, 2018 are as follows:

Fiscal Years Ended

June 30, 2019

June 24, 2018

June 25, 2017

June 30, 2019 June 24, 2018

(in millions of U.S.

Revenue, net $ 419.8 $ 568.8

Cost of revenue, net 324.3 463.2

Gross profit 95.5 105.6

Research and development 37.1 35.9

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Loss on disposal or impairment of long-lived assets 2.0 2.1

Operating (loss) income

Operating loss ( 250.9 ) ( 301.1 )

Non-operating income — ( 1.3 )

(Loss) income before income taxes and loss on sale

(Loss) income before income taxes

Loss before income taxes and loss on sale ( 250.9 ) ( 299.8 )

Loss on sale 66.2 —

Loss before income taxes ( 317.1 ) ( 299.8 )

Income tax expense (benefit) 0.1 ( 36.3 )

Assets and liabilities held for sale relating to the sale of the Lighting Products business unit as of June 24, 2018 are as follows:

(in millions of U.S.

June 24, 2018

Accounts receivable, net

Income tax receivable

Prepaid expenses

Other current assets

Total current assets

Property and equipment, net

Intangible assets, net

Deferred income taxes

Accounts payable, trade

Accrued salaries and wages

Income tax payable

Other current liabilities

Total current liabilities

Other long term liabilities

Total liabilities

The cash flow impacts of the Lighting Products business unit are as follows:

Fiscal Years Ended

(in millions of U.S.

June 30, 2019

June 24, 2018

June 25, 2017

Cash (used in) provided by operating activities of discontinued operations

Cash used in investing activities of discontinued operations

The Company recognized $ 1.6 million in administrative fees in fiscal 2019 relating to the TSA, all of which are accrued in accounts receivable, net in the consolidated balance sheets as of June 30, 2019.

Net loss ($ 317.2 ) ($ 263.5 )

The Company did not have any discontinued operations activity for the year ended June 28, 2020.

The Company recognized $ 10.5 million and $ 1.6 million in administrative fees for the fiscal years ended June 28, 2020 and June 30, 2019, respectively, relating to the TSA, of which $ 1.6 million and $ 1.6 million was accrued in accounts receivable, net in the consolidated balance sheets as of June 28, 2020 and June 30, 2019, respectively.

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

The Company recognized $ 2.1 million in revenue in fiscal 2019 related to the LED Supply Agreement.

No amounts were accrued in accounts receivable, net in the consolidated balance sheets as of June 30, 2019 relating to the LED Supply Agreement.

Additionally, the Company recorded a contract liability of $ 13.4 million relating to the LED Supply Agreement as of June 30, 2019.

The Company recognized $ 12.0 million and $ 2.1 million in revenue for the fiscal years ended June 28, 2020 and June 30, 2019, respectively, related to the LED Supply Agreement, of which $ 0.7 million was accrued in accounts receivable, net in the consolidated balance sheets as of June 28, 2020.

No amounts related to the LED Supply Agreement were accrued in accounts receivable, net in the consolidated balance sheets as of June 30, 2019.

Additionally, the Company recorded a contract liability of $ 9.9 million and $ 13.4 million relating to the LED Supply Agreement as of June 28, 2020 and June 30, 2019, respectively.

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

Note 4 – Revenue Recognition

In accordance with ASC 606, the Company follows a five-step approach defined by the new standard for recognizing revenue, consisting of the following:

In accordance with ASC 606, the Company follows a five-step approach for recognizing revenue, consisting of the following:

(1) identify the contract with a customer;

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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 $ 80.4 million as of June 30, 2019 and $ 47.1 million as of June 25, 2018, the date the Company adopted ASC 606.

The increase was primarily due to increased customer deposits and the related contract liability from the LED Supply Agreement.

Contract liabilities were $ 80.3 million and $ 80.4 million as of June 28, 2020 and June 30, 2019, respectively.

Contract liabilities stayed relatively flat due to increased customer deposits offset by lower reserve liabilities and continued fulfillment on the LED Supply Agreement.

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

Before the adoption of ASC 606, liabilities relating

to various rights of return were recorded as a deduction to accounts receivable.

The adjustments do not impact net cash provided by operating activities;

however, they do impact the changes in operating assets and liabilities for the related accounts within the disclosure of operating activities on the statement of cash flows.

Before the adoption of ASC 606, liabilities relating to various rights of return were recorded as a reduction to accounts receivable.

The adjustments recorded as a result of adopting ASC 606 did not impact net cash provided by operating activities;

however, they did impact the changes in

operating assets and liabilities for the related accounts within the disclosure of operating activities on the statement of cash flows.

As of June 25, 2018, the date the Company adopted ASC 606, contract liabilities were $ 47.1 million.

Practical Expedients and Exemptions

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Disaggregated revenue by geography is presented in Note 17, "Reportable Segments".

For the fiscal year ended June 30, 2019, the Company recognized revenue of $ 5.0 million that was included in contract liabilities as of June 25, 2018.

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

Revenue recognized related to performance obligations that were satisfied or partially satisfied in previous periods was not material for the fiscal year ended June 30, 2019.

Opening Balance Adjustments

The impacts of adopting the new revenue standard on the Company's unaudited consolidated balance sheet are as follows:

For the fiscal years ended June 28, 2020 and June 30, 2019, the Company recognized revenue of $ 3.9 million and $ 5.0 million that was included in contract liabilities as of July 1, 2019 and June 25, 2018, respectively.

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 fiscal years ended June 28, 2020 and June 30, 2019.

Note 5 – Leases

The Company primarily leases manufacturing, office and warehousing space.

Lease agreements frequently include renewal provisions and require the Company to pay real estate taxes, insurance and maintenance costs.

Variable costs include lease payments that were volume or usage-driven in accordance with the use of the underlying asset, as well as non-lease components incurred with respect to actual terms rather than contractually fixed amounts.

For details on the Company's lease policies, see the significant accounting policy disclosures in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies”.

The Company's finance lease obligations primarily relate to Wolfspeed manufacturing space in Malaysia and a 49 -year ground lease on a future silicon carbide fabrication facility in New York.

Balance Sheet

Lease assets and liabilities as of June 28, 2020, and the corresponding balance sheet classifications, are as follows (in millions of U.S.

Operating Leases:

Right-of-use asset (1)

Current lease liability (2)

Non-current lease liability (3)

Total operating lease liabilities 13.9

Finance Leases:

Finance lease assets (4)

Current portion of finance lease liabilities 3.6

Finance lease liabilities, less current portion 11.4

Total finance lease liabilities 15.0

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

(2) Within other current liabilities on the consolidated balance sheets.

(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 $ 6.4 million in fiscal 2020.

Short-term lease expense was $ 0.1 million and variable lease income was $ 0.1 million in fiscal 2020.

Lease income was immaterial in fiscal 2020.

Finance lease amortization was $ 0.7 million and interest expense was $ 0.2 million in fiscal 2020.

Cash flow information consisted of the following:

Fiscal year ended

(in millions of U.S.

Previous Balance at June 24, 2018

Opening Balance at June 25, 2018

Accounts receivable, net

Other current assets

Current assets related to discontinued operations (2)

Other current liabilities (3)

Accrued contract liabilities

Current liabilities related to discontinued operations (2)

Long-term liabilities related to discontinued operations (2)

Shareholders' Equity:

Accumulated deficit

(1) Adjustments are shown in debit/(credit) format for assets and (debit)/credit format for liabilities and shareholders' equity to match consolidated balance sheet presentation.

(2) Adjusted amounts related to current assets were previously adjusted in accounts receivable, net, amounts related to current liabilities were previously adjusted in accrued contract liabilities and short-term deferred revenue, and amounts related to long-term liabilities were previously adjusted in long-term deferred revenue.

Amounts have been classified as discontinued operations due to the sale of the Lighting Products business unit subsequent to the adoption of ASC 606.

(3) As a result of ASC 606 adoption, deferred revenue was reclassified from other current liabilities to accrued contract liabilities in the consolidated balance sheets.

Note 5 – Joint Venture

Effective July 17, 2017, the Company entered into a Shareholders Agreement with San’an Optoelectronics Co., Ltd.

(San’an) and Cree Venture LED Company Limited (Cree Venture LED) pursuant to which the Company and San’an funded their contributions

to Cree Venture LED and agreed upon the management and operation of Cree Venture LED.

The Company contributed $ 5.1 million of cash for a 51 % ownership interest and San’an contributed $ 4.9 million of cash for a 49 % ownership interest.

Cree Venture LED has a five -member board of directors, three of which were designated by the Company and two of which were designated by San’an.

As a result of the Company's majority voting interest, the Company consolidates the operations of Cree Venture LED and reports its revenue and gross profit within the Company's LED Products segment.

The Company classifies the 49 % ownership interest held by San'an as noncontrolling interest on the consolidated balance sheet.

The noncontrolling interest increased by $ 0.0 million and $ 0.1 million for its share of net income from Cree Venture LED, for the fiscal years ending June 30, 2019 and June 24, 2018 , respectively.

In connection with forming Cree Venture LED and entering into the Shareholders Agreement, Cree Venture LED and San’an also entered into a manufacturing agreement pursuant to which San'an supplies Cree Venture LED with mid-power LED products, and the Company and Cree Venture LED entered into a sales agency agreement pursuant to which the Company is the independent sales representative of Cree Venture LED in the exclusive markets, among certain other ancillary agreements related to the transaction.

Cree Venture LED produces and delivers to market high performing, mid-power lighting class LEDs in an exclusive arrangement serving the expanding markets of North and South America, Europe and Japan, and serves China and the rest of the world on a non-exclusive basis.

Cree Venture LED recorded its first sales to customers during the first quarter of fiscal 2018.

Dollars) June 28, 2020

Cash used in operating activities:

Cash paid for operating leases $ 6.4

Cash paid for interest portion of financing leases 0.1

Cash used in financing activities:

Cash paid for principal portion of finance leases 0.8

Non-cash operating activities:

Operating lease additions due to adoption of ASC 842 12.2

Operating lease additions and modifications, net 7.6

Finance lease additions 15.7

Lease Liability Maturities

Maturities of operating and finance lease liabilities as of June 28, 2020 were as follows (in millions of U.S.

Fiscal Year Ending Operating Leases Finance Leases Total

June 27, 2021 $ 5.8 $ 3.9 $ 9.7

June 26, 2022 4.4 1.7 6.1

June 25, 2023 2.4 0.7 3.1

June 30, 2024 0.9 0.7 1.6

June 29, 2025 0.8 0.7 1.5

Thereafter 0.4 15.2 15.6

Total lease payments 14.7 22.9 37.6

Imputed lease interest ( 0.8 ) ( 7.9 ) ( 8.7 )

Total lease liabilities $ 13.9 $ 15.0 $ 28.9

Supplemental Disclosures

Operating Leases Finance Leases

Weighted average remaining lease term (in months) (1)

Weighted average discount rate (2)

3.46 % 3.00 %

(1) Weighted average remaining lease term of finance leases without the 49 -year ground lease is 31 months.

(2) Weighted average discount rate of finance leases without the 49 -year ground lease is 3.51 %.

The aggregate future non-cancelable minimum rental payments on operating leases as of June 30, 2019, were as follows:

Fiscal Years Ending (in millions of U.S.

June 28, 2020 $ 4.1

June 27, 2021 2.3

June 26, 2022 1.2

June 25, 2023 0.7

June 30, 2024 —

Total future minimum rental payments $ 8.3

Note 6 – Acquisition

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(in millions of U.S.

Inventories $ 22.5

Property and equipment 11.7

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Intangible assets 149.0

Goodwill 249.0

Accrued expenses and liabilities ( 3.4 )

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(in millions of U.S.

Dollars, except year data)

Estimated Life (in years)

Dollars, except year data) Asset Amount Estimated Life (in years)

Lease agreement (1)

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Total identifiable intangible assets $ 149.0

(1) In the first quarter of fiscal 2020, the acquired lease agreement was reclassified from an intangible asset to a right-of-use asset in accordance with the Company's adoption of ASC 842, Leases.

Goodwill acquired largely consists of the manufacturing and other synergies of the combined companies, and the value of the assembled workforce.

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(in millions of U.S.

Dollars) Amount

Revenue $ 29.0

Net loss from continuing operations ( 11.7 )

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The following supplemental pro forma information presents the consolidated financial results as if the RF Power transaction had occurred at the beginning of fiscal 2018:

Fiscal Years Ended

Fiscal Year Ended

(in millions of U.S.

Dollars, except share data)

June 24, 2018

June 25, 2017

Dollars, except share data) June 24, 2018

Revenue $ 990.3

Net loss from continuing operations ( 20.8 )

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(in millions of U.S.

June 30, 2019

June 24, 2018

Dollars) June 28, 2020 June 30, 2019

Billed trade receivables $ 111.3 $ 125.8

Unbilled contract receivables 1.2 0.7

Allowance for sales returns, discounts and other incentives

Royalties 2.8 2.8

Allowance for bad debts ( 1.3 ) ( 0.4 )

Accounts receivable, net $ 114.0 $ 128.9

Changes in the Company’s allowance for sales returns, discounts and other incentives were as follows:

Fiscal Years Ended

(in millions of U.S.

June 30, 2019

June 24, 2018

June 25, 2017

Balance at beginning of period

Current period claims

Provision for sales returns, discounts and other incentives

Reclassification to contract liabilities

Balance at end of period

Changes in the Company’s allowance for bad debts were as follows:

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(in millions of U.S.

June 30, 2019

June 24, 2018

June 25, 2017

Dollars) June 28, 2020 June 30, 2019 June 24, 2018

Balance at beginning of period $ 0.4 $ 0.8 $ 1.6

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(in millions of U.S.

June 30, 2019

June 24, 2018

Dollars) June 28, 2020 June 30, 2019

Raw material $ 47.0 $ 42.4

Work-in-progress 95.4 101.1

Finished goods 36.7 43.9

Inventories $ 179.1 $ 187.4

Property and Equipment, net

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(in millions of U.S.

June 30, 2019

June 24, 2018

Furniture and fixtures

Land and buildings

Dollars) June 28, 2020 June 30, 2019

Machinery and equipment $ 1,139.2 $ 1,110.3

Land and buildings 435.4 416.5

Computer hardware/software 53.6 48.6

Furniture and fixtures 9.2 9.7

Leasehold improvements and other 10.2 4.2

Vehicles 0.9 0.9

Finance lease assets 15.4 —

Construction in progress 371.5 231.7

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During the years ended June 28, 2020, June 30, 2019 and June 24, 2018, the Company recognized approximately $ 3.3 million, $ 1.5 million and $ 6.3 million, respectively, as losses on disposals or impairments of property and equipment.

These charges are reflected in loss on disposal or impairment of other assets in the consolidated statements of operations.

Accrued property and equipment as of June 30, 2019 , June 24, 2018 and June 25, 2017 was $ 21.3 million , $ 15.0 million and $ 10.2 million , respectively.

For the year ended June 28, 2020, these charges are reflected in other operating expense as all amounts related to the Company's factory optimization plan.

For the years ended June 30, 2019 and June 24, 2018, these charges are reflected in loss on disposal or impairment of other assets in the consolidated statements of operations.

Accounts Payable and Accrued Expenses

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(in millions of U.S.

June 30, 2019

June 24, 2018

Dollars) June 28, 2020 June 30, 2019

Accounts payable, trade $ 106.9 $ 90.7

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Accrued expenses 60.5 34.0

Other 6.0 5.3

Accounts payable and accrued expenses $ 220.8 $ 200.9

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(in millions of U.S.

June 30, 2019

June 24, 2018

Dollars) June 28, 2020 June 30, 2019

Currency translation gain $ 9.5 $ 9.5

Net unrealized loss on available-for-sale securities

Net unrealized gain on available-for-sale securities (1)

Accumulated other comprehensive income, net of taxes $ 16.0 $ 9.5

Other Operating Expense (Income)

The following table summarizes the components of other operating expense (income):

(1) Amounts as of June 28, 2020 and June 30, 2019 include a $ 2.4 million loss related to tax on unrealized gain (loss) on available-for-sale securities.

Other Operating Expense

The following table summarizes the components of other operating expense:

Fiscal Years Ended

(in millions of U.S.

June 30, 2019

June 24, 2018

June 25, 2017

Dollars) June 28, 2020 June 30, 2019 June 24, 2018

Factory optimization restructuring $ 8.5 $ 4.1 $ —

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Total restructuring costs 9.1 8.3 3.8

Project and transaction costs

Executive severance

Project, transformation and transaction costs 25.5 16.9 8.5

Factory optimization start-up costs 9.5 1.5 —

Gain from termination of Wolfspeed transaction, net

Other operating expense (income)

In February 2017, the Company announced that an Asset Purchase Agreement (the APA) from July 2016 with Infineon Technologies AG (Infineon), in which Infineon agreed to purchase the assets comprising the Company's power and RF product lines and certain other assets and liabilities, would be terminated due to the inability to address the national safety concerns of, and obtain approval from, the Committee on Foreign Investment in the United States, one of the closing conditions under the APA.

The Company received a termination fee of $ 12.5 million in cash from Infineon in March 2017.

The Company recognized $ 9.7 million of expenses relating to the APA before the termination.

Non-restructuring related executive severance 2.1 1.3 4.5

Other operating expense $ 46.2 $ 28.0 $ 16.8

See Note 20, "Restructuring" for more details on the Company's restructuring costs.

Non-Operating Expense (Income), net

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

Non-Operating (Income) Expense, net

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

Fiscal Years Ended

(in millions of U.S.

June 30, 2019

June 24, 2018

June 25, 2017

Loss (gain) on sale of investments, net

Loss (gain) on equity investment

Interest expense (income), net

Foreign currency loss (gain), net

Non-operating expense (income), net

Reclassifications Out of Accumulated Other Comprehensive (Loss) Income

The Company reclassified a net loss of $ 0.1 million and $ 0.1 million , and a net gain of $ 0.1 million , on available for sale securities out of accumulated other comprehensive (loss) income for the fiscal years ended June 30, 2019 , June 24, 2018 , and June 25, 2017 , respectively.

There was no tax impact for the fiscal years ended June 30, 2019 , June 24, 2018 , June 25, 2017 , respectively, due to a full valuation allowance on U.S.

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

Additionally, the Company reclassified $ 5.2 million of currency translation loss out of accumulated other comprehensive (loss) income for the fiscal year ended June 30, 2019 as a result of the sale of the Lighting Products business unit.

Dollars) June 28, 2020 June 30, 2019 June 24, 2018

(Gain) loss on sale of investments, net ($ 2.0 ) $ 0.1 $ 0.1

(Gain) loss on equity investment ( 14.2 ) 16.2 ( 7.1 )

Gain on partial debt extinguishment ( 11.0 ) — —

Gain on arbitration proceedings ( 7.9 ) — —

Interest income ( 16.4 ) ( 14.0 ) ( 9.1 )

Interest expense 34.9 26.0 7.3

Foreign currency (gain) loss, net ( 1.9 ) 1.3 ( 1.8 )

Other, net ( 0.5 ) ( 0.3 ) 0.2

Non-operating (income) expense, net ($ 19.0 ) $ 29.3 ($ 10.4 )

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)

The Company reclassified a net gain of $ 2.0 million, and a net loss of $ 0.1 million and $ 0.1 million, on available for sale securities out of accumulated other comprehensive income (loss) for the fiscal years ended June 28, 2020, June 30, 2019, and June 24, 2018, respectively.

There was no tax impact on any reclassifications due to a full valuation allowance on U.S.

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

Additionally, the Company reclassified $ 5.2 million of currency translation loss out of accumulated other comprehensive income (loss) for the fiscal year ended June 30, 2019 as a result of the sale of the Lighting Products business unit.

Amounts were reclassified to net loss from discontinued operations on the consolidated statement of operations.

Statements of Cash Flows - non-cash activities

Twelve months ended

Non-cash operating activities June 28, 2020 June 30, 2019 June 24, 2018

Lease asset and liability additions (1)

$ 31.0 $ — $ —

Lease asset and liability modifications, net 4.4 — —

(1) $ 12.2 million relates to the increase of right-of-use assets and matching lease liabilities as a result of adopting ASC 842.

See Note 5, "Leases", for further information.

Accrued property and equipment as of June 28, 2020, June 30, 2019 and June 24, 2018 was $ 80.3 million, $ 21.3 million and $ 15.0 million, respectively.

Note 8 – Investments

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(in millions of U.S.

Dollars) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses (1)

Estimated Fair Value

Municipal bonds $ 130.0 $ 2.0 $ — $ 132.0

3 unchanged sentences

certificates of deposit 95.3 — — 95.3

certificates of deposit

Commercial paper 11.0 — — 11.0

1 unchanged sentence

Total short-term investments $ 794.0 $ 8.9 $ — $ 802.9

(1) The Company had an unrealized loss of less than $0.1 million as of June 28, 2020.

The following table presents 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:

June 28, 2020

Less than 12 Months

Greater than 12 Months

Less than 12 Months Greater than 12 Months Total

(in millions of U.S.

Dollars) Fair Value Unrealized Loss (1)

Fair Value Unrealized Loss Fair Value Unrealized Loss

Municipal bonds $ 14.3 $ — $ — $ — $ 14.3 $ —

2 unchanged sentences

treasury securities 13.8 — — — 13.8 —

Total $ 65.8 $ — $ — $ — $ 65.8 $ —

Number of securities with an unrealized loss 46 — 46

(1) S ecurities with an unrealized loss of less than 12 months as of June 28, 2020 have an unrealized loss value of less than $0.1 million, individually and in the aggregate.

Short-term investments as of June 30, 2019 consist of the following:

1 unchanged sentence

(in millions of U.S.

Dollars) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

Municipal bonds $ 78.2 0.4 ($ 0.1 ) $ 78.5

1 unchanged sentence

agency securities 25.6 — — 25.6

certificates of deposit

treasury securities 92.4 0.1 92.5

Certificates of deposit 71.5 1.1 — 72.6

Commercial paper 7.8 — — 7.8

Variable rate demand note 16.9 — — 16.9

Total short-term investments $ 548.4 2.6 ($ 0.1 ) $ 550.9

1 unchanged sentence

June 30, 2019

Less than 12 Months

Greater than 12 Months

Less than 12 Months Greater than 12 Months Total

(in millions of U.S.

Dollars) Fair Value Unrealized Loss (1)

Fair Value Unrealized Loss Fair Value Unrealized Loss

Municipal bonds $ 4.3 $ — $ 29.8 ($ 0.1 ) $ 34.1 ($ 0.1 )

1 unchanged sentence

agency securities 7.7 — — — 7.7 —

treasury securities 2.0 — 3.9 — 5.9 —

Total $ 55.8 $ — $ 48.4 ($ 0.1 ) $ 104.2 ($ 0.1 )

Number of securities with an unrealized loss 46 47 93

(1) S ecurities with an unrealized loss of less than 12 months as of June 30, 2019 have an unrealized loss value of less than $0.1 million, individually and in the aggregate.

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

Realized losses on the sale of investments for the fiscal year ended June 30, 2019 of $ 0.1 million were included in non-operating expense (income), net in the consolidated statements of operations and 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.

Realized gains on the sale of investments for the fiscal year ended June 28, 2020 of $ 2.0 million were included in non-operating (income) expense, net in the consolidated statements of operations and 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.

The Company evaluates its investments for possible impairment or a decline in fair value below cost basis that is deemed to be other-than-temporary on a periodic basis.

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 June 30, 2019 and June 24, 2018 .

The Company had insignificant unrealized losses as of June 28, 2020 and considers these declines to be temporary in nature.

The contractual maturities of short-term investments at June 28, 2020 were as follows:

(in millions of U.S.

Within One Year

After One, Within Five Years

After Five, Within Ten Years

After Ten Years

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

Municipal bonds $ 29.4 $ 102.6 $ — $ — $ 132.0

3 unchanged sentences

Certificates of deposit 95.3 — — — 95.3

certificates of deposit

Commercial paper 11.0 — — — 11.0

21 unchanged sentences

Financial instruments carried at fair value were as follows:

June 30, 2019

June 24, 2018

June 28, 2020 June 30, 2019

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Cash equivalents:

12 unchanged sentences

Certificates of deposit — 95.3 — 95.3 — 72.6 — 72.6

certificates of deposit

Commercial paper — 11.0 — 11.0 — 7.8 — 7.8

3 unchanged sentences

Common stock of non-U.S.

corporations — 55.9 — 55.9 — 39.5 — 39.5

Total assets $ 271.8 $ 890.9 $ — $ 1,162.7 $ 190.0 $ 638.5 $ — $ 828.5

Note 10 – Goodwill and Intangible Assets

The Company’s reporting units for goodwill impairment testing are:

As of the first day of the fourth quarter of fiscal 2019 , the Company performed a qualitative impairment test for the Wolfspeed segment and concluded that it is more likely than not that the fair value of Wolfspeed exceeds its carrying amount and a quantitative impairment test was not required.

The Company performed a quantitative impairment test for the LED Products segment and concluded that there was no impairment.

• LED Products

As of the first day of the fourth quarter of fiscal 2020, the Company performed a quantitative impairment test for both segments and concluded there was no impairment.

The Company derived each reporting unit's fair value through a combination of the market approach (guideline transaction method and guideline public company method) and the income approach (a discounted cash flow analysis).

The Company utilized a discount rate from the capital asset pricing model for the discounted cash flow analysis.

The Company utilized a discount rate from a capital asset pricing model for the discounted cash flow analysis.

Once the reporting unit fair values were calculated, the Company reconciled the reporting units' relative fair values to the Company's market capitalization as of the testing date.

1 unchanged sentence

(in millions of U.S.

June 30, 2019

June 24, 2018

Dollars) June 28, 2020 June 30, 2019

Wolfspeed $ 349.7 $ 349.7

LED Products 180.3 $ 180.3

Consolidated total $ 530.0 $ 530.0

1 unchanged sentence

Intangible assets, net included the following:

June 30, 2019

June 24, 2018

June 28, 2020 June 30, 2019

(in millions of U.S.

Accumulated Amortization

Dollars) Gross Accumulated Amortization Net Gross Accumulated Amortization Net

Intangible assets:

2 unchanged sentences

Non-compete agreements 12.2 ( 7.1 ) 5.1 12.2 ( 4.1 ) 8.1

Trade names 0.5 ( 0.5 ) — 0.5 ( 0.5 ) —

Acquisition related intangible assets 235.4 ( 107.3 ) 128.1 236.4 ( 92.9 ) 143.5

Patent and licensing rights 114.6 ( 63.1 ) 51.5 120.4 ( 66.0 ) 54.4

Total intangible assets 350.0 ( 170.4 ) 179.6 356.8 ( 158.9 ) 197.9

Total amortization of intangible assets was $ 25.4 million , $ 16.8 million and $ 13.6 million for the years ended June 30, 2019 , June 24, 2018 and June 25, 2017 , respectively.

Total amortization of acquisition-related intangibles assets was $ 14.5 million, $ 15.6 million and $ 7.2 million and total amortization of patents and licensing rights was $ 9.1 million, $ 9.8 million and $ 9.6 million for the years ended June 28, 2020, June 30, 2019 and June 24, 2018, respectively.

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.

The Company invested $ 7.2 million, $ 6.3 million and $ 5.6 million for the years ended June 28, 2020, June 30, 2019 and June 24, 2018, respectively, for patent and licensing rights.

1 unchanged sentence

Total future amortization expense of intangible assets is estimated to be as follows:

Fiscal Year Ending

(in millions of U.S.

Fiscal Year Ending

Acquisition Related Intangibles Patents Total

June 27, 2021 $ 14.5 $ 8.6 $ 23.1

3 unchanged sentences

June 29, 2025 10.4 4.7 15.1

Thereafter 68.3 18.1 86.4

Total future amortization expense $ 128.1 $ 51.5 $ 179.6

1 unchanged sentence

Revolving Line of Credit

As of June 30, 2019 , the Company had a $ 500.0 million secured revolving line of credit under which the Company can borrow, repay and reborrow funds from time to time prior to its scheduled maturity date of January 9, 2022.

The Company classifies balances outstanding under its line of credit as long-term debt in the consolidated balance sheets.

As of June 30, 2019 , the Company had $ 0.0 million outstanding under the Credit Agreement, $ 500.0 million in available commitments under the Credit Agreement and $ 324.2 million available for borrowing.

For the year ended June 30, 2019 , the average interest rate under the Credit Agreement was 2.26 % .

The average commitment fee percentage for the Credit Agreement was 0.19 % for the year ended June 30, 2019 .

For the year ended June 24, 2018 , the average interest rate under the Credit Agreement was 2.47 % .

The average commitment fee percentage for the Credit Agreement was 0.11 % for the year ended June 24, 2018 .

The Company was in compliance with all covenants in the Credit Agreement at June 30, 2019 .

As of June 28, 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 June 28, 2020, the Company had no outstanding borrowings under the Credit Agreement, $ 125.0 million in available commitments under the Credit Agreement and $ 125.0 million available for borrowing.

For the year ended June 28, 2020, the average interest rate was 0.00 %.

As of June 28, 2020, the unused line fee on available borrowings is 25 basis points.

2023 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 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 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 offerings was approximately $ 562.1 million.

13 unchanged sentences

Upon conversion, the Company will pay or deliver cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company's election.

In accounting for the issuance of the convertible senior notes, the Company separated the Notes into liability and equity components.

The carrying amount of the liability of the equity component representing the conversion option was $ 110.6 million and was determined by deducting the fair value of the liability component from the par value of the Notes.

2026 Convertible Notes

On April 21, 2020, the Company 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 underwriters (the 2026 Notes).

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

The conversion rate will initially be 21.1346 shares of common stock per one thousand dollars in principal amount of 2026 Notes (equivalent to an initial conversion price of approximately $ 47.32 per share of common stock).

The conversion rate will be subject to adjustment for some events, but will not be adjusted for any accrued and unpaid interest.

In addition, following certain corporate events that occur prior to the maturity date, or following the Company's issuance of a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its 2026 Notes in connection with such a corporate event, or who elects to convert any 2026 Notes called for redemption during the related redemption period in certain circumstances.

The Company may not redeem the 2026 Notes prior to May 1, 2023.

The Company may redeem for cash all or any portion of the 2026 Notes, at its option, on a redemption date occurring on or after May 1, 2023 and on or before the 40th scheduled trading day immediately before the maturity date, if the last reported sales price of its common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides a notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption.

The redemption price will be 100 % of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

If the Company undergoes certain fundamental changes related to the Company's common stock, holders may require the Company to repurchase for cash all or any portions of their 2026 Notes at a fundamental repurchase price equal to 100 % of the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Holders may convert their 2026 Notes at their option at any time prior to the close of business on the business day immediately preceding November 3, 2025 only under the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending June 30, 2020 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

(2) during the five business day period after any ten consecutive trading day period in which the trading price per $1.0 thousand principal amount of 2026 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of its common stock and the conversion rate on each such trading day;

(3) if the Company calls such 2026 Notes for redemption, at any time prior to the close of business on the second business day immediately preceding the redemption date;

or (4) upon the occurrence of specified corporate events.

On or after November 3, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2026 Notes at any time, regardless of the foregoing circumstances.

Upon conversion, the Company will pay or deliver cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company's election.

The Company used approximately $ 144.3 million of the net proceeds from the sale of the 2026 Notes 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.

Accounting for 2023 and 2026 Convertible Notes (collectively, "the Notes")

In accounting for the issuance of the 2023 and 2026 convertible senior notes, the Company separated the Notes into liability and equity components.

The carrying amount of the liability of the equity component representing the conversion option was $ 110.6 million and $ 145.4 million for the 2023 and 2026 Notes, respectively.

The amounts were determined by deducting the fair value of the liability component from the par value of each of the Notes.

Due to the partial extinguishment of the 2023 Notes, the equity component of the 2023 Notes was reduced by $ 27.7 million.

The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

The excess of the principal amount of the liability component over its carrying amount (the debt discount), along with related issuance fees are amortized to interest expense over the term of the Notes at an effective interest rate of 0.49 % .

The excess of the principal amount of the liability component over its carrying amount (the debt discount), along with related issuance fees, are amortized to interest expense over the term of the Notes at an effective annual interest rate of 5.87 % and 7.45 % for the 2023 and 2026 Notes, respectively.

The net carrying amount of the liability component of the Notes is as follows:

(in millions of U.S.

June 30, 2019

Dollars) June 28, 2020 June 30, 2019

Principal $ 999.8 $ 575.0

Unamortized discount and issuance costs ( 216.0 ) ( 105.9 )

2 unchanged sentences

(in millions of U.S.

June 30, 2019

Dollars) June 28, 2020 June 30, 2019

Discount related to value of conversion options $ 262.3 $ 113.3

Partial extinguishment of 2023 Notes ( 27.7 ) —

Debt issuance costs ( 6.3 ) ( 2.7 )

2 unchanged sentences

(in millions of U.S.

June 30, 2019

Dollars) June 28, 2020 June 30, 2019

Interest expense $ 6.8 $ 4.3

1 unchanged sentence

Total interest expense $ 33.0 $ 22.6

There was no liability or equity carrying amounts relating to the Notes as of June 24, 2018 and no interest expense relating to the Notes was recognized for the fiscal years ended June 24, 2018 and June 25, 2017 .

The estimated fair value of the convertible notes is $ 664.4 million , as determined by a Level 2 valuation as of June 30, 2019 .

No interest expense relating to the Notes was recognized for the fiscal year ended June 24, 2018.

The estimated fair value of the Notes is $ 1,280.3 million, as determined by a Level 2 valuation as of June 28, 2020.

Note 12 – Shareholders’ Equity

On June 14, 2017, the Board of Directors approved the Company's fiscal 2018 stock repurchase program, authorizing the Company to repurchase shares of its common stock having an aggregate purchase price not exceeding $ 200.0 million for all purchases from June 26, 2017 through the expiration of the program on June 24, 2018 .

There were no shares repurchased under the stock repurchase program in fiscal 2018, and the Board of Directors did not approve a stock repurchase program for fiscal 2019.

On August 24, 2016, the Board of Directors approved the Company's fiscal 2017 stock repurchase program, authorizing the Company to repurchase shares of its common stock having an aggregate purchase price not exceeding $ 300.0 million for all purchases from August 24, 2016 through the expiration of the program on June 25, 2017.

The repurchase program could be implemented through open market or privately negotiated transactions at the discretion of the Company’s management.

From the inception of the predecessor stock repurchase program in January 2001 through June 30, 2019 , the Company has repurchased 38.7 million shares of its common stock at an average price of $ 28.66 per share with an aggregate value of $ 1.1 billion .

On May 29, 2002, the Board adopted a shareholder rights plan, pursuant to which stock purchase rights were distributed to shareholders at a rate of one right with respect to each share of common stock held of record as of June 10, 2002.

Subsequently issued shares of common stock also carried stock purchase rights under the plan.

The rights plan was designed to enhance the Board’s ability to prevent an acquirer from depriving shareholders of the long-term value of their investment and to protect shareholders against attempts to acquire the Company by means of unfair or abusive takeover tactics.

On January 29, 2013, the shareholder rights plan was amended solely to change the expiration date from September 30, 2018 to April 24, 2017.

On April 24, 2017, the shareholder rights plan expired pursuant to its terms and is no longer in effect.

At June 28, 2020, the Company had reserved a total of approximately 39.0 million shares of its common stock for future issuance as follows (in thousands):

4 unchanged sentences

For future issuance to employees under the 2005 Employee Stock Purchase Plan 849

For future issuance upon conversion of the 2023 Notes 12,560

For future issuance upon conversion of the 2026 Notes 16,102

Total common shares reserved 38,952

3 unchanged sentences

(in millions of U.S.

Dollars, except share data)

June 30, 2019

June 24, 2018

June 25, 2017

Dollars, except share data) June 28, 2020 June 30, 2019 June 24, 2018

Net loss from continuing operations $ ( 190.6 ) $ ( 57.9 ) $ ( 16.4 )

10 unchanged sentences

Discontinued operations $ — $ ( 3.06 ) $ ( 2.65 )

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 fiscal years ended June 28, 2020, June 30, 2019 and June 24, 2018, 5.4 million, 9.0 million and 11.3 million of dilutive 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 11, “Long-term Debt.”

Note 14 – Stock-Based Compensation

19 unchanged sentences

The following table summarizes option activity as of June 28, 2020 and changes during the fiscal year then ended (shares in thousands)

Weighted Average

Exercise price

Weighted Average

Contractual Term

Intrinsic Value (in millions of U.S.

Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Total Intrinsic Value (in millions of U.S.

Outstanding at June 30, 2019 2,418 $ 39.81

Exercised ( 1,371 ) 40.49

Forfeited or expired ( 64 ) 55.37

3 unchanged sentences

The total intrinsic value in the table above represents the total pretax intrinsic value, which is the total difference between the closing price of the Company’s common stock on June 26, 2020 (the last trading day of fiscal 2020) of $ 57.74 and the exercise price for in-the-money options that would have been received by the holders if all instruments had been exercised on June 28, 2020.

As of June 30, 2019 , there was $ 0.5 million of unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted average period of 0.21 years.

As of June 28, 2020, there was less than $ 0.1 million of unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted average period of less than one month.

The following table summarizes information about stock options outstanding and exercisable at June 28, 2020 (shares in thousands):

Options Outstanding

Options Exercisable

Range of Exercise Price

Weighted Average

Remaining Contractual

Weighted Average Exercise Price

Options Outstanding Options Exercisable

Range of Exercise Price Number Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Weighted Average Exercise Price

$ 0.01 to $ 25.00

262 3.2 $ 24.34 261 $ 24.34

$ 25.01 to $ 35.00

203 2.3 26.59 202 26.59

$ 35.01 to $ 45.00

6 1.4 38.50 6 38.50

$ 45.01 to $ 55.00

468 0.9 48.12 468 48.12

$ 55.01 to $ 73.00

44 0.5 61.93 44 61.93

Total 983 981

Other information pertaining to the Company’s stock option awards is as follows:

Fiscal Years Ended

June 30, 2019

June 24, 2018

June 25, 2017

June 28, 2020 June 30, 2019 June 24, 2018

Weighted average grant date fair value per share of options $ — $ — $ 8.02

Total intrinsic value of options exercised (in millions of U.S.

Dollars) $ 22.8 $ 63.3 $ 24.3

Restricted Stock Awards and Units

A summary of nonvested restricted stock awards (RSAs) and restricted stock unit awards (RSUs) outstanding as of June 28, 2020 and changes during the year then ended is as follows (shares in thousands):

Weighted Average

Grant-Date Fair Value

Number of RSAs/RSUs Weighted Average Grant-Date Fair Value

Nonvested at June 30, 2019 3,081 $ 34.99

Granted 1,206 53.14

Vested ( 1,138 ) 30.77

Forfeited ( 217 ) 37.72

Nonvested at June 28, 2020 2,932 $ 43.89

14 unchanged sentences

(in millions of U.S.

June 30, 2019

June 24, 2018

June 25, 2017

Dollars) June 28, 2020 June 30, 2019 June 24, 2018

Cost of revenue, net $ 10.6 $ 8.8 $ 6.5

7 unchanged sentences

Fiscal Years Ended

June 30, 2019

June 24, 2018

June 25, 2017

June 28, 2020 June 30, 2019 June 24, 2018

Risk-free interest rate 0.12 - 2.67 %

2.39 - 2.67 %

0.89 - 2.26 %

Expected life, in years 0.5 - 1.0

Volatility 34.5 - 82.6 %

34.5 - 39.6 %

34.5 - 40.2 %

Dividend yield — — —

The weighted average assumptions used to value stock option grants were as follows:

Fiscal Years Ended

June 30, 2019

June 24, 2018

June 25, 2017

The weighted average assumptions used to value stock option grants in fiscal 2018 were as follows:

Risk-free interest rate 1.75 %

Expected life, in years 4.0

Volatility 38.6 %

Dividend yield —

No stock option grants occurred in fiscal 2020 or fiscal 2019.

The range of assumptions used for issued performance units were as follows:

Fiscal Years Ended

June 30, 2019

June 24, 2018

June 25, 2017

June 28, 2020 June 30, 2019 June 24, 2018

Risk-free interest rate 0.28 - 1.66 %

1.44 - 1.59 %

Expected life, in years 3.0

12 unchanged sentences

The Company estimates expected volatility for the options and ESPP awards giving consideration to the expected life of the respective award, the Company’s current expected growth rate, implied volatility in traded options for its common stock, and the historical volatility of its common stock.

For purposes of estimating volatility for use in the Monte Carlo model for the market-based awards, the Company utilizes historical volatilities of Cree and the members of the defined peer group.

For purposes of estimating volatility for use in the Monte Carlo model for the market-based awards, the Company utilizes historical volatilities of the Company and the members of the defined peer group.

Expected Dividend Yield

The Company estimates the expected dividend yield by giving consideration to its current dividend policies as well as those anticipated in the future considering the Company’s current plans and projections.

The Company has not historically issued dividends.

Correlation Coefficient

1 unchanged sentence

Note 15 – Income Taxes

In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin 118 (SAB 118) to provide guidance on accounting for the tax effects of the Tax Cuts and Jobs Act of 2017 (the Tax Legislation) enacted on December 22, 2017.

SAB 118 allowed for a measurement period, not to extend beyond one year from the Tax Legislation date of enactment, for companies to complete the accounting under ASC 740 - Income Taxes.

The SAB 118 measurement period concluded during the six months ended December 30, 2018, and consistent with the guidance provided in SAB 118, the Company has completed the accounting for the income tax effects of the Tax Legislation.

The following were the components of loss before income taxes:

1 unchanged sentence

(in millions of U.S.

June 30, 2019

June 24, 2018

June 25, 2017

Dollars) June 28, 2020 June 30, 2019 June 24, 2018

Domestic ($ 222.3 ) ($ 69.4 ) ($ 50.4 )

Foreign 31.9 24.2 32.8

Loss before income taxes ($ 190.4 ) ($ 45.2 ) ($ 17.6 )

2 unchanged sentences

(in millions of U.S.

June 30, 2019

June 24, 2018

June 25, 2017

Dollars) June 28, 2020 June 30, 2019 June 24, 2018

Federal ($ 6.5 ) $ 2.4 $ 36.0

Foreign 7.5 10.1 4.5

State 0.1 0.3 1.1

Total current 1.1 12.8 41.6

Federal 1.8 ( 1.9 ) ( 45.8 )

Foreign ( 2.7 ) 2.0 6.1

State — ( 0.2 ) ( 3.1 )

Total deferred ( 0.9 ) ( 0.1 ) ( 42.8 )

4 unchanged sentences

(in millions of U.S.

Dollars) June 28, 2020 % of Loss June 30, 2019 % of Loss June 24, 2018 % of Loss

Federal income tax provision at statutory rate ($ 40.0 ) 21 % ($ 9.5 ) 21 % ($ 5.0 ) 28 %

3 unchanged sentences

48C investment tax credit — — % — — % ( 1.6 ) 9 %

Increase (decrease) in tax reserve

(Decrease) increase in tax reserve ( 0.3 ) — % 0.5 ( 1 ) % 0.1 ( 1 ) %

Research and development credits ( 4.5 ) 2 % ( 3.9 ) 9 % ( 1.7 ) 10 %

Foreign tax credit ( 0.5 ) — % ( 0.5 ) 1 % ( 39.4 ) 224 %

Increase in valuation allowance

Increase (decrease) in valuation allowance 55.3 ( 29 ) % 8.2 ( 18 ) % ( 24.5 ) 139 %

Partial extinguishment of convertible notes ( 6.0 ) 3 % — — % — — %

Stock-based compensation 1.7 ( 1 ) % — — % 9.0 ( 51 ) %

1 unchanged sentence

Foreign earnings taxed in U.S.

0.5 — % 0.9 ( 2 ) % 52.1 ( 296 ) %

Foreign currency fluctuations 0.6 — % 0.7 ( 2 ) % ( 1.3 ) 7 %

5 unchanged sentences

Expiration of state credits 0.9 ( 1 ) % 1.2 ( 3 ) % 1.3 ( 7 ) %

Other 0.2 — % ( 0.4 ) 1 % 0.3 ( 2 ) %

Income tax expense (benefit) $ 0.2 — % $ 12.7 ( 28 ) % ($ 1.2 ) 7 %

1 unchanged sentence

(in millions of U.S.

June 30, 2019

June 24, 2018

Dollars) June 28, 2020 June 30, 2019

Deferred tax assets:

Compensation $ 4.4 $ 9.6

Inventories 19.8 14.6

Sales return reserve and allowance for bad debts 2.6 3.2

Warranty reserve

Federal and state net operating loss carryforwards 180.1 137.1

4 unchanged sentences

Deferred revenue 23.1 22.6

Lease liabilities 6.5 —

Other 5.1 4.6

Total gross deferred assets 319.6 251.8

4 unchanged sentences

Intangible assets ( 19.2 ) ( 16.9 )

Investments ( 1.6 ) ( 0.9 )

Prepaid taxes and other ( 0.7 ) —

Foreign earnings recapture ( 2.0 ) ( 2.0 )

Taxes on unremitted foreign earnings — ( 2.4 )

Lease assets ( 6.3 ) —

Convertible notes ( 42.1 ) ( 20.7 )

4 unchanged sentences

(in millions of U.S.

Dollars) Assets Liabilities

federal income taxes $ — ($ 1.8 )

Foreign income taxes 6.3 —

Total $ 6.3 ($ 1.8 )

Balance at June 30, 2019

(in millions of U.S.

Dollars) Assets Liabilities

federal income taxes $ — $ —

Foreign income taxes 5.6 ( 2.0 )

Total $ 5.6 ($ 2.0 )

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.

1 unchanged sentence

and Luxembourg deferred tax assets as of June 28, 2020.

While the Company has concluded

that a full U.S.

valuation allowance is appropriate as of June 30, 2019, as a result of improving Company performance and future U.S.

projected income, it is reasonably possible that the assessment of the realizability of the U.S.

deferred tax assets could change within the next twelve months resulting in a full or partial release of the U.S.

valuation allowance.

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

1 unchanged sentence

For the fiscal year ended June 28, 2020, the Company increased the U.S.

valuation allowance by $ 55.4 million due to the deferred tax impact of the sale of the Lighting Products business unit including the sale of Cree Canada Corp.

and Cree Europe S.r.l, offset by the deferred tax impact of the Notes issuance and the impact of the IRC Section 965(n) election related to the accounting of the Tax Legislation.

valuation allowance by $ 27.6 million due to the Company's current year domestic loss, which was partially offset by the issuance of the 2026 Notes.

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

For the fiscal year ended June 30, 2019, the Company increased this valuation allowance by $ 2.4 million due to year-to-date income in Luxembourg.

For the fiscal year ended June 28, 2020, the Company decreased this valuation allowance by $ 4.3 million due to year-to-date income in Luxembourg.

As of June 28, 2020, the Company had approximately $ 16.4 million of foreign net operating loss carryovers, of which $ 13.4 million are offset by a valuation allowance.

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Additionally, the Company had $ 67.8 million of federal and $ 2.5 million of state income tax credit carryforwards which are fully offset by a valuation allowance.

The state net operating loss carryovers will begin to expire in fiscal 2020.

The federal and state net operating loss carryovers will begin to expire in fiscal 2038 and fiscal 2021, respectively.

The federal and state income tax credit carryforwards will begin to expire in fiscal 2031 and fiscal 2021, respectively.

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

During the fiscal year ended June 30, 2019, the Company recognized a $ 0.4 million decrease to the liability for unrecognized tax benefits resulting from a $ 0.5 million increase related to intercompany transactions recently challenged by the German tax authority, offset by a $ 0.9 million decrease due to statue expiration.

During the fiscal year ended June 28, 2020, the Company recognized a $ 0.8 million decrease to the liability for unrecognized tax benefits due to statute expiration and settlement of tax positions.

As a result, the total liability for unrecognized tax benefits as of June 28, 2020 was $ 7.4 million.

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(in millions of U.S.

June 30, 2019

June 24, 2018

June 25, 2017

Dollars) June 28, 2020 June 30, 2019 June 24, 2018

Balance at beginning of period $ 8.2 $ 8.6 $ 13.3

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The Company has determined that $ 56.1 million of the $ 65.6 million of undistributed foreign earnings are expected to be repatriated in the foreseeable future.

The Company accrued a deferred tax liability of $ 2.4 million for foreign income taxes expected to be withheld upon repatriation of the $ 125.5 million foreign earnings.

The Company does not expect to incur any foreign income taxes upon repatriation of the $ 56.1 million foreign earnings.

As of June 28, 2020, the Company has not provided income taxes on the remaining undistributed foreign earnings of $ 9.5 million as the Company continues to maintain its intention to reinvest these earnings in foreign operations indefinitely.

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Note 16 – Commitments and Contingencies

Changes in the Company’s product warranty liabilities are as follows:

Fiscal Years Ended

(in millions of U.S.

June 30, 2019

June 24, 2018

June 25, 2017

Balance at beginning of period

Warranties accrued in current period

Balance at end of period

Product warranties are estimated and recognized at the time the Company recognizes revenue.

The warranty periods range from 90 days to 5.5 years .

The Company accrues warranty liabilities at the time of sale, based on historical and projected incident rates and expected future warranty costs.

The Company accrues estimated costs related to product recalls based on a formal campaign soliciting repair or return of that product when they are deemed probable and reasonably estimable.

The warranty reserves are evaluated quarterly based on various factors including historical warranty claims, assumptions about the frequency of warranty claims, and assumptions about the frequency of product failures derived from quality testing, field monitoring and the Company’s reliability estimates.

As of June 30, 2019 , $ 0.4 million of the Company’s product warranty liabilities were classified as long-term.

Lease Commitments

The Company primarily leases manufacturing, office, housing and warehousing space under the terms of non-cancelable operating leases.

These leases expire at various times through May 2024 .

The Company recognizes net rent expense on a straight-line basis over the life of the lease.

Rent expense associated with these operating leases totaled approximately $ 4.6 million , $ 3.9 million and $ 2.9 million for each of the fiscal years ended June 30, 2019 , June 24, 2018 and June 25, 2017 , respectively.

Certain agreements require that the Company pay property taxes and general property maintenance in addition to the minimum rental payments.

Future minimum rental payments for leases as of June 30, 2019 are estimated as follows (in millions of U.S.

Fiscal Years Ending

Minimum Rental

June 28, 2020

June 27, 2021

June 26, 2022

June 25, 2023

June 30, 2024

Total future minimum rental payments

The Company is currently a party to various legal proceedings.

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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 facilities, 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 negotiated a settlement with the EPA to resolve the issue and agreed to pay a penalty of approximately $ 0.3 million.

Grant Disbursement Agreement (GDA) with the State of New York

The Company currently has a GDA with the State of New York Urban Development Corporation (doing business as Empire State Development).

The GDA provides a potential total grant amount of $ 500.0 million to partially and fully reimburse the Company for certain property, plant and equipment costs related to the Company's construction of a new silicon carbide fabrication facility in Marcy, New York.

The GDA was signed in the fourth quarter of fiscal 2020 and requires the Company to satisfy a number of objectives for the Company to receive reimbursements through the span of the 13 -year agreement.

These objectives include maintaining a certain level of local employment, investing a certain amount in locally administered research and development activities and the payment of an annual commitment fee for the first six years .

Additionally, the Company has agreed, under a separate agreement (the SUNY Agreement), to sponsor the creation of two endowed faculty chairs and fund a scholarship program at SUNY Polytechnic Institute.

The annual cost of satisfying the objectives of the GDA and the SUNY Agreement, excluding the direct and indirect costs associated with employment, varies from $ 1.0 million to $ 5.2 million per year through fiscal 2031.

Note 17 - Reportable Segments

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The Company’s operating and reportable segments are:

The Wolfspeed segment includes SiC materials, power devices and RF devices and the LED Products segment includes LED chips and LED components.

• LED Products

The Wolfspeed segment includes silicon carbide materials, power devices and RF devices, and the LED Products segment includes LED chips and LED components.

Financial Results by Reportable Segment

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The Company allocates these indirect costs based on a reasonable measure of utilization that considers the specific facts and circumstances of the costs being allocated.

Unallocated costs in the table below consisted 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.

Unallocated costs in the table below consisted primarily of manufacturing employees’ stock-based compensation, expenses for quarterly or annual incentive plans, and matching contributions under the Company’s 401(k) plan.

These costs were not allocated to the reportable segments' gross profit because the Company’s CODM does not review them regularly when evaluating segment performance and allocating resources.

For fiscal 2020, unallocated costs include incremental costs relating to operating our manufacturing operations during the COVID-19 pandemic.

The majority of these incremental costs comprise additional labor costs paid to our manufacturing employees, increased cleaning costs, cleaning supplies and protective equipment, and the costs of implementing preventative safety measures, including increased wellness checks.

The cost of goods sold (COGS) acquisition related costs adjustment includes inventory fair value amortization of the fair value increase to inventory recognized at the date of acquisition, and other RF Power acquisition costs, impacting cost of revenue for fiscal 2018.

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

Gross Profit and Gross Margin

Revenue Gross Profit and Gross Margin

Year Ended Year Ended

(in millions of U.S.

June 30, 2019

June 24, 2018

June 25, 2017

June 30, 2019

June 24, 2018

June 25, 2017

Dollars) June 28, 2020 June 30, 2019 June 24, 2018 June 28, 2020 June 30, 2019 June 24, 2018

Wolfspeed $ 470.7 $ 538.2 $ 328.6 $ 184.6 $ 258.7 $ 158.5

Wolfspeed gross margin 39 % 48 % 48 %

LED Products 433.2 541.8 596.3 91.1 150.0 157.9

LED Products gross margin 21 % 28 % 26 %

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Unallocated costs (1)

( 27.4 ) ( 17.7 ) ( 9.0 )

COGS acquisition related costs — — ( 5.4 )

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Consolidated gross margin 27 % 36 % 33 %

(1) Unallocated costs for the fiscal year ended June 28, 2020 include $ 8.5 million in incremental manufacturing costs relating to COVID-19.

Assets by Reportable Segment

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Unallocated inventories in the table below were not allocated to the reportable segments because the Company’s CODM does not review them when evaluating performance and allocating resources to each segment.

Unallocated inventories consisted primarily of manufacturing employees’ stock-based compensation, profit sharing and quarterly or annual incentive compensation, matching contributions under the Company’s 401(k) plan, and acquisition related costs.

Unallocated inventories consisted primarily of manufacturing employees’ stock-based compensation, quarterly or annual incentive compensation, and matching contributions under the Company’s 401(k) plan.

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

(in millions of U.S.

June 30, 2019

June 24, 2018

Dollars) June 28, 2020 June 30, 2019

Wolfspeed $ 97.3 $ 81.6

LED Products 76.2 99.2

Total segment inventories 173.5 180.8

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For the Years Ended

June 30, 2019

June 24, 2018

June 25, 2017

June 28, 2020 June 30, 2019 June 24, 2018

(in millions of U.S.

Dollars) Revenue % of Revenue Revenue % of Revenue Revenue % of Revenue

United States $ 212.1 23 % $ 261.4 24 % $ 220.2 24 %

China 260.4 29 % 367.2 34 % 390.5 42 %

Europe 243.7 27 % 255.0 24 % 167.4 18 %

Other 187.7 21 % 196.4 18 % 146.8 16 %

Total $ 903.9 $ 1,080.0 $ 924.9

The Company’s tangible long-lived assets by country is as follows:

(in millions of U.S.

June 30, 2019

June 24, 2018

Dollars) June 28, 2020 June 30, 2019

United States $ 773.1 $ 558.6

China 53.3 61.8

Other 4.7 4.8

Total $ 831.1 $ 625.2

Note 18 – Concentrations of Risk

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is a customer of the LED Products and Wolfspeed segments.

No customers individually accounted for more than 10% of the consolidated accounts receivable balance as of June 30, 2019 .

As of June 24, 2018 , Arrow Electronics, Inc.

and Allied Group Limited accounted for 14 % and 14 % of the accounts receivable balance, respectively.

No other customers individually accounted for more than 10% of the consolidated accounts receivable balance as of June 24, 2018 .

No customers individually accounted for more than 10% of the consolidated accounts receivable balance as of June 28, 2020 and June 30, 2019.

Note 19 – Retirement Savings Plan

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The Pension Benefit Guaranty Corporation does not insure the 401(k) Plan.

Note 20 – Related Party Transactions

In July 2010, Mark Swoboda was appointed Chief Executive Officer of Intematix Corporation (Intematix) and subsequently resigned as Chief Executive Officer in 2017 when the company was sold.

Mark Swoboda is the brother of the Company’s former Chairman, Chief Executive Officer and President, Charles M.

For a number of years, the Company has purchased raw materials from Intematix pursuant to standard purchase orders in the ordinary course of business.

During fiscal 2018 and 2017, the Company purchased $ 3.3 million and $ 2.3 million of raw materials from Intematix, respectively.

Due to the resignation of Mark Swoboda during fiscal 2018, Intematrix is no longer considered a related party as of June 24, 2018 and as such, the Company does not have any liabilities associated with a related party on its consolidated balance sheets.

Note 20 - Restructuring

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In April 2018, the Company approved a corporate restructuring plan.

The purpose is to restructure and realign the Company's cost base with the long-range business strategy that was announced in February 2018.

The purpose was to restructure and realign the Company's cost base with the long-range business strategy that was announced in February 2018.

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

The following table summarizes the charges incurred (in millions of U.S.

Capacity and overhead cost reductions

Total estimated charges

Amounts incurred in fiscal 2018

Amounts incurred in fiscal 2019

Cumulative amounts incurred through fiscal year 2019

Loss on disposal or impairment of long-lived assets

Severance expense

Lease termination and facility consolidation costs

Total restructuring charges

An additional $ 3.6 million in previously reported estimated and incurred restructuring charges related to this plan were classified as discontinued operations due to the sale of the Lighting Products business unit.

For the years ended June 30, 2019 and June 24, 2018, $ 2.6 million and $ 3.8 million was expensed relating to this corporate restructuring plan, respectively.

Factory Optimization Restructuring

In May 2019, the Company started a significant, multi-year factory optimization plan anchored by a state-of-the-art, automated 200mm capable SiC and GaN fabrication facility and a large materials factory at its U.S.

In May 2019, the Company started a significant, multi-year factory optimization plan anchored by a state-of-the-art, automated 200mm capable silicon carbide and GaN fabrication facility and a large materials factory at its U.S.

campus headquarters in Durham, North Carolina.

As part of the plan, the Company will incur restructuring charges associated with the movement of equipment as well as disposals and impairments on certain long-lived assets.

The following table summarizes the charges incurred (in millions of U.S Dollars):

Factory optimization costs

Amounts incurred in fiscal 2019

Cumulative amounts incurred through fiscal year 2019

Loss on disposal or impairment of long-lived assets

Facility consolidation costs

Total restructuring charges

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

As part of the plan, the Company will incur restructuring charges associated with the movement of equipment as well as disposals on certain long-lived assets.

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

For the years ended June 28, 2020 and June 30, 2019, the Company expensed $ 9.0 million and $ 4.1 million of restructuring charges related to the factory optimization plan, of which $ 0.3 million was accrued for in accounts payable and accrued expenses as of June 28, 2020.

No amounts related to factory optimization restructuring were accrued as of June 30, 2019.

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.

campus headquarters in Durham, North Carolina.

The Company has commenced the building of the New York facility and is currently evaluating the impact of this decision on future restructuring charges.

Sales Restructuring

2 unchanged sentences

No additional restructuring expense relating to this plan is expected.

Sales Representatives Restructuring

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 $ 0.6 million in contract termination costs during year ended June 28, 2020, of which $ 0.1 million is accrued in other current liabilities as of June 28, 2020.

Note 21 – Quarterly Results of Operations - Unaudited

1 unchanged sentence

(in millions of U.S.

Dollars, except share data)

September 23,

Fiscal Year 2019

Dollars, except share data) September 29, 2019 December 29, 2019 March 29, 2020 June 28, 2020 Fiscal Year 2020

Revenue, net $ 242.8 $ 239.9 $ 215.5 $ 205.7 $ 903.9

Cost of revenue, net 168.6 178.0 154.1 154.9 655.6

Net loss from continuing operations

Net loss from discontinued operations

Net income (loss) attributable to noncontrolling interest

Net loss attributable to controlling interest

Basic loss per share:

Continuing operations attributable to controlling interest

Gross profit 74.2 61.9 61.4 50.8 248.3

Net loss ( 37.8 ) ( 52.5 ) ( 61.4 ) ( 38.9 ) ( 190.6 )

Net income attributable to noncontrolling interest — 0.3 0.2 0.6 1.1

Net loss attributable to controlling interest ( 37.8 ) ( 52.8 ) ( 61.6 ) ( 39.5 ) ( 191.7 )

Diluted loss per share:

Basic and diluted loss per share:

Continuing operations attributable to controlling interest ($ 0.35 ) ($ 0.49 ) ($ 0.57 ) ($ 0.36 ) ($ 1.78 )

1 unchanged sentence

(in millions of U.S.

Dollars, except share data)

September 24,

Fiscal Year 2018

Dollars, except share data) September 23, 2018 December 30, 2018 March 31, 2019 June 30, 2019 Fiscal Year 2019

Revenue, net $ 274.2 $ 280.5 $ 274.1 $ 251.2 $ 1,080.0

Cost of revenue, net 175.9 177.0 173.6 162.5 689.0

Net (loss) income from continuing operations

Gross profit 98.3 103.5 100.5 88.7 391.0

Net loss from continuing operations ( 0.8 ) ( 0.2 ) ( 22.3 ) ( 34.6 ) ( 57.9 )

Net loss from discontinued operations ( 10.3 ) ( 2.3 ) ( 205.4 ) ( 99.2 ) ( 317.2 )

Net (loss) income

Net income attributable to noncontrolling interest

Net (loss) income attributable to controlling interest

Basic (loss) earnings per share:

Continuing operations attributable to controlling interest

Net (loss) income attributable to controlling interest

Diluted (loss) earnings per share:

Net loss ( 11.1 ) ( 2.5 ) ( 227.7 ) ( 133.8 ) ( 375.1 )

Net income (loss) attributable to noncontrolling interest — — 0.1 ( 0.1 ) —

Net loss attributable to controlling interest ( 11.1 ) ( 2.5 ) ( 227.8 ) ( 133.7 ) ( 375.1 )

Basic and diluted loss per share:

Continuing operations attributable to controlling interest ($ 0.01 ) $ — ($ 0.22 ) ($ 0.33 ) ($ 0.56 )

Net (loss) income attributable to controlling interest

The Company will revise the Unaudited Consolidated Statements of Cash Flows for the year to date periods ended September 23, 2018, December 30, 2018 and March 31, 2019 to correct the presentation of tax withholding for stock option exercises within the Company's future fiscal 2020 unaudited interim consolidated financial statements on Form 10-Q.

The revisions will result in an increase to net cash provided by operating activities of $ 10.8 million , $ 11.9 million , and $ 12.4 million , and a decrease to net cash provided by (used in) financing activities by the same amounts for the year to date periods ended September 23, 2018, December

30, 2018 and March 31, 2019, respectively.

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

Net loss attributable to controlling interest ($ 0.11 ) ($ 0.02 ) ($ 2.20 ) ($ 1.26 ) ($ 3.62 )

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data