What changed in this filing

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Item 1A. Risk Factors

2020-10-29 compared with 2020-04-30 · 94 added, 68 removed, 391 unchanged (29% of the section changed)

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Our financial condition and results of operations for fiscal 2021 and future periods may be adversely affected by the recent COVID-19 outbreak or other outbreak of infectious disease or similar public health threat.

The novel strain of coronavirus (COVID-19) continues to spread globally and has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns.

COVID-19 continues to spread globally and has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns.

These measures have impacted and may continue to impact our workforce and operations, the operations of our customers, and those of our respective vendors and suppliers.

We have significant manufacturing operations in the U.S.

and China, and each of these countries has been affected by the outbreak and taken measures to try to contain it.

We have experienced some limited disruptions in supply from some of our suppliers, although the disruptions to date have not yet been material.

There is considerable uncertainty regarding such measures and potential future measures, and restrictions on our access to our manufacturing facilities or on our support operations or workforce, or similar limitations for our vendors and suppliers, and restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures, could limit our capacity to meet customer demand and have a material adverse effect on our financial condition and results of operations.

We have significant manufacturing operations in the United States and China, and each of these countries has been affected by the outbreak and taken measures to try to contain it.

We have experienced some limited disruptions in supply from some of our suppliers, although the disruptions to date have not been significant.

Additionally, we have experienced a shift in customer demand.

There is considerable uncertainty regarding such measures and potential future measures.

Restrictions on access to our manufacturing facilities or on our support operations or workforce, or similar limitations for our vendors and suppliers, and restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures, could limit our capacity to meet customer demand, lead to increased costs and have a material adverse effect on our financial condition and results of operations.

The outbreak has significantly increased economic and demand uncertainty.

These uncertainties also make it more difficult for us to assess the quality of our product order backlog and to estimate future financial results.

It is likely that the current outbreak or continued spread of COVID-19 will cause an economic slowdown, and it is likely that it will lead to a global recession, which could have a material adverse effect on demand for our products and on our financial condition and results of operations.

The current outbreak of COVID-19 has caused an economic slowdown, and it is increasingly likely that its continued spread will lead to a global recession, which could have a material adverse effect on demand for our products and on our financial condition and results of operations.

The spread of COVID-19 has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events, and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, and suppliers.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed.

In addition, in light of concerns about the spread of COVID-19, our workforce has been operating at reduced levels at our manufacturing facilities, which could have an adverse impact on our ability to timely meet future customer orders.

The duration of the business disruption and related financial impact cannot be reasonably estimated at this time but may materially affect our ability to obtain raw materials, manage customer credit risk, manufacture products or deliver inventory in a timely manner, and impair our ability to meet customer demand for products, result in lost sales, additional costs, or penalties, or damage our reputation.

In addition, in light of concerns about the spread of COVID-19, our workforce has at times been operating at reduced levels at our manufacturing facilities, which may continue to have an adverse impact on our ability to timely meet future customer orders.

The duration of the business disruption and related financial impact cannot be reasonably estimated at this time.

However, it may materially affect our ability to obtain raw materials, manage customer credit risk, manufacture products or deliver inventory in a timely manner, and it also may impair our ability to meet customer demand for products, result in lost sales, additional costs, or penalties, or damage our reputation.

The extent to which COVID-19 or any other health epidemic will further impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.

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In order to manage our growth and business strategy effectively relative to the uncertain pace of adoption, we must continue to:

• maintain, expand, construct and purchase adequate manufacturing facilities and equipment, as well as secure sufficient third-party manufacturing resources, to meet customer demand, including specifically the expansion of our silicon carbide capacity with the construction of a state-of-the-art, automated 200mm capable silicon carbide and GaN fabrication facility and a large materials factory;

• maintain, expand, construct and purchase adequate manufacturing facilities and equipment, as well as secure sufficient third-party manufacturing resources, to meet customer demand, including specifically the expansion of our silicon carbide capacity with the construction of a state-of-the-art, automated 150mm and 200mm capable silicon carbide fabrication facility and a large materials factory;

• manage an increasingly complex supply chain that has the ability to supply an increasing number of raw materials, subsystems and finished products with the required specifications and quality, and deliver on time to our manufacturing facilities, our third-party manufacturing facilities, or our logistics operations;

• expand the capability of our information systems to support a more complex business;

• expand the capability of our information systems to support a more complex business, such as our current initiative to upgrade our company-wide ERP system;

• be successful in the qualification and acceptance of our new product and systems designs, including those entering into automotive applications which require even more stringent levels of qualification and standards;

• expand research and development, sales and marketing, technical support, distribution capabilities, manufacturing planning and administrative functions;

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There are also inherent execution risks in starting up a new factory or expanding production capacity, whether one of our own factories or that of our contract manufacturers or ODMs, or moving production to different contract manufacturers or ODMs, that could increase costs and reduce our operating results.

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

campus headquarters in Durham, North Carolina.

In September 2019, we announced the intent to build the new fabrication facility in Marcy, New York to complement the factory expansion underway at our United States campus

headquarters in Durham, North Carolina.

The establishment and operation of a new manufacturing facility or expansion of an existing facility involves significant risks and challenges, including, but not limited to, the following:

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From time to time, including the present, we evaluate strategic opportunities available to us for product, technology or business transactions, such as business acquisitions, investments, joint ventures, divestitures, or spin-offs.

For example, in the third quarter of fiscal 2018, we acquired the Infineon RF Power business and in the fourth quarter of fiscal 2019, we completed the sale of our Lighting Products business unit to IDEAL.

For example, in the fourth quarter of fiscal 2019, we completed the sale of our Lighting Products business unit to IDEAL Industries, Inc.

(IDEAL) and in the second quarter of fiscal 2021 we entered into an Asset Purchase Agreement (the Purchase Agreement) with SMART with respect to the LED Business Divestiture.

If we choose to enter into such transactions, we face certain risks including:

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Any failure to successfully evaluate strategic opportunities and address risks or other problems that arise related to any such business transaction could adversely affect our business, results of operations or financial condition.

We are subject to a number of risks associated with the sale of our LED Products segment, and these risks could adversely impact our operations, financial condition and business.

On October 18, 2020, we executed the Purchase Agreement with SMART with respect to the LED Business Divestiture.

We are subject to a number of risks associated with this transaction, including risks associated with:

• the failure to satisfy, on a timely basis or at all, the closing conditions set forth in the Purchase Agreement, including the receipt of governmental and regulatory consents and approvals;

• the separation of the LED Business, and related information technology, from the businesses we are retaining and the operation of our retained business without the LED Business;

• issues, delays or complications in completing required transition activities to allow the LED Business to operate under the SMART portfolio of businesses after the closing, including incurring unanticipated costs to complete such activities;

• unfavorable reaction to the sale by customers, competitors, suppliers and employees;

• the disruption to and uncertainty in our business and our relationships with our customers, including attempts by our customers to terminate or renegotiate their relationships with us or decisions by our customers to defer or delay purchases from us;

• difficulties in hiring, retaining and motivating key personnel during this process or as a result of uncertainties generated by this process or any developments or actions relating to it;

• the diversion of our management’s attention away from the operation of the business we are retaining;

• the need to incur significant transaction costs in connection with the transaction, regardless of whether it is completed;

• the restrictions on and obligations with respect to our business set forth in the Purchase Agreement and, following closing, the transition services agreement and a wafer supply and fabrication agreement, in each case between us and SMART;

• the need to provide transition services in connection with the transaction, which may result in the diversion of resources and focus;

• our failure to realize the full purchase price anticipated under the Purchase Agreement, including the ability of the LED Business to generate revenue and gross profit in the first four full fiscal quarters following the closing sufficient to result in payment of the targeted earnout payment or any earnout payment;

• the ability of SMART to pay the unsecured promissory note to be issued to us at the closing of the transaction and any additional unsecured promissory notes issued upon achievement of the general revenue and gross profit targets.

As a result of these risks, we may be unable to realize the anticipated benefits of the transaction, including the total amount of cash we expect to realize.

Our failure to realize the anticipated benefits of the transaction would adversely impact our operations, financial condition and business and could limit our ability to pursue additional strategic transactions.

Variations in our production could impact our ability to reduce costs and could cause our margins to decline and our operating results to suffer.

All of our products are manufactured using technologies that are highly complex.

The number of usable items, or yield, from our production processes may fluctuate as a result of many factors, including but not limited to the following:

• variability in our process repeatability and control;

• contamination of the manufacturing environment;

• equipment failure, power outages, fires, flooding, information or other system failures or variations in the manufacturing process;

• lack of consistency and adequate quality and quantity of piece parts, other raw materials and other bill of materials items;

• inventory shrinkage or human errors;

• defects in production processes (including system assembly) either within our facilities or at our suppliers;

• any transitions or changes in our production process, planned or unplanned.

In the past, we have experienced difficulties in achieving acceptable yields on certain products, which has adversely affected our operating results.

We may experience similar problems in the future, and we cannot predict when they may occur or their severity.

In some instances, we may offer products for future delivery at prices based on planned yield improvements or increased cost efficiencies from other production advances.

Failure to achieve these planned improvements or advances could have a significant impact on our margins and operating results.

In addition, our ability to convert volume manufacturing to larger diameter substrates can be an important factor in providing a more cost-effective manufacturing process.

We continue converting the majority of our Wolfspeed power production from

100mm to 150mm substrates.

If we are unable to make this transition in a timely or cost-effective manner, our results could be negatively impacted.

Global economic conditions could materially adversely impact demand for our products and services.

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Uncertainty about global economic conditions could result in customers postponing purchases of our products and services in response to tighter credit, unemployment, negative financial news and/or declines in income or asset values and other macroeconomic factors, which could have a material negative effect on demand for our products and services and, accordingly, on our business, results of operations or financial condition.

For example, any economic and political uncertainty caused by the United States tariffs imposed on goods from China, among other potential countries, and any corresponding tariffs or currency devaluations from China or such other countries in response, has, and may in the future, negatively impact demand and/or increase the cost for our products.

For example, any economic and political uncertainty caused by the United States tariffs imposed on goods from China, among other potential countries, and any corresponding tariffs or currency devaluations from China or such other countries in response, has negatively impacted, and may in the future, negatively impact, demand and/or increase the cost for our products.

Additionally, our international sales are subject to variability as our selling prices become less competitive in countries with currencies that are declining in value against the U.S.

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A decline in backlog levels could result in more variability and less predictability in our quarter-to-quarter net revenue and operating results.

Variations in our production could impact our ability to reduce costs and could cause our margins to decline and our operating results to suffer.

All of our products are manufactured using technologies that are highly complex.

The number of usable items, or yield, from our production processes may fluctuate as a result of many factors, including but not limited to the following:

• variability in our process repeatability and control;

• contamination of the manufacturing environment;

• equipment failure, power outages, fires, flooding, information or other system failures or variations in the manufacturing process;

• lack of consistency and adequate quality and quantity of piece parts, other raw materials and other bill of materials items;

• inventory shrinkage or human errors;

• defects in production processes (including system assembly) either within our facilities or at our suppliers;

• any transitions or changes in our production process, planned or unplanned.

In the past, we have experienced difficulties in achieving acceptable yields on certain products, which has adversely affected our operating results.

We may experience similar problems in the future, and we cannot predict when they may occur or their severity.

In some instances, we may offer products for future delivery at prices based on planned yield improvements or increased cost efficiencies from other production advances.

Failure to achieve these planned improvements or advances could have a significant impact on our margins and operating results.

In addition, our ability to convert volume manufacturing to larger diameter substrates can be an important factor in providing a more cost-effective manufacturing process.

We continue converting the majority of our Wolfspeed power production from 100mm to 150mm substrates.

If we are unable to make this transition in a timely or cost-effective manner, our results could be negatively impacted.

We are subject to risks related to international sales and purchases.

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We also purchase a portion of the materials included in our products from overseas sources.

Our international sales and purchases are subject to numerous U.S.

and foreign laws and regulations, including, without limitation, tariffs, trade sanctions, trade barriers, trade embargoes, regulations relating to import-export control, technology transfer restrictions, the International Traffic in Arms Regulation promulgated under the Arms Export Control Act, the Foreign Corrupt Practices Act and the anti-boycott provisions of the U.S.

Our international sales and purchases are subject to numerous United States and foreign laws and regulations, including, without limitation, tariffs, trade sanctions, trade barriers, trade embargoes, regulations relating to import-export control, technology transfer restrictions, the International Traffic in Arms Regulation promulgated under the Arms Export Control Act, the Foreign Corrupt Practices Act and the anti-boycott provisions of the U.S.

Export Administration Act.

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Department of Commerce added Huawei Technologies Co., Ltd.

and 68 of its affiliates (collectively, “Huawei”) to the “Entity List” maintained by the U.S.

Department of Commerce, which imposes limitations on the supply of certain U.S.

items and product support to Huawei.

and numerous more of its affiliates since then (collectively, “Huawei”) to the “Entity List” maintained by the U.S.

Department of Commerce, which imposes limitations on the supply of certain United States items and product support to Huawei.

To comply with the Entity List restrictions, we suspended shipments of all products to Huawei and cannot predict when we will be able to resume such shipments, which has reduced our revenue and profit in at least the near term and increased our inventories of product intended for Huawei.

Government maintains the restrictions on Huawei or imposes restrictions on sales to other foreign customers, as it did in October 2019 with the addition of 28 new companies to the Entity List, it will reduce company revenue and profit related to those customers at least in the short term and could have a potential longer-term impact.

Government maintains the restrictions on Huawei or

imposes restrictions on sales to other foreign customers, as it did in October 2019 with the addition of 28 new companies to the Entity List and has continued to do so through several Entity Listings and other sanctions since then, it will reduce company revenue and profit related to those customers at least in the short term and could have a potential longer-term impact.

In the second quarter of fiscal 2020, we recorded an $8.3 million reserve on inventory manufactured for Huawei.

Additionally, like many global manufacturers, we continue to address the short-term and potential long-term impact of the United States tariffs imposed on Chinese goods and corresponding Chinese tariffs in response.

Additionally, like many global manufacturers, we continue to evaluate and address the short-term and potential long-term impact of the recent change to the United States foreign direct product rule, military end-use restrictions, changes in export licensing policies, and tariffs imposed on Chinese goods and any corresponding Chinese regulations or tariffs in response.

If we fail to comply with these laws and regulations, we could be liable for administrative, civil or criminal liabilities, and, in the extreme case, we could be suspended or debarred from government contracts or have our export privileges suspended, which could have a material adverse effect on our business.

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• tariffs, customs, trade sanctions, trade embargoes and other barriers to importing/exporting materials and products in a cost-effective and timely manner, or changes in applicable tariffs or custom rules;

• the burden of complying with and changes in U.S.

or international taxation policies;

• the burden of complying with and changes in United States or international taxation policies;

• timing and availability of export licenses;

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Government incentives may include tax rebates, reduced tax rates, favorable lending policies and other measures, some or all of which may be available to us due to our foreign operations.

Any of these incentives could be reduced or eliminated by governmental authorities at any time or as a result of our inability to

maintain minimum operations necessary to earn the incentives.

Any of these incentives could be reduced or eliminated by governmental authorities at any time or as a result of our inability to maintain minimum operations necessary to earn the incentives.

Any reduction or elimination of incentives currently provided for our operations could adversely affect our business and results of operations.

These same governments also may provide increased incentives to or require production processes that favor local companies, which could further negatively impact our business and results of operations.

Changes in regulatory, geopolitical, social, economic, or monetary policies and other factors, if any, may have a material adverse effect on our business in the future, or may require us to exit a particular market or significantly modify our current business practices.

Changes in regulatory, geopolitical, social, economic, or monetary policies and other factors, including those which may result from the outcome of the 2020 U.S.

Presidential election, if any, may have a material adverse effect on our business in the future, or may require us to exit a particular market or significantly modify our current business practices.

Abrupt political change, terrorist activity and armed conflict pose a risk of general economic disruption in affected countries, which could also result in an adverse effect on our business and results of operations.

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We actively seek to prevent, detect and investigate any unauthorized access, which sometimes occurs.

To date, we do not believe that such unauthorized access has caused us any material damage.

We might be unaware of any such access or unable to determine its magnitude and effects.

In addition, these threats are constantly evolving, thereby increasing the difficulty of successfully defending against them or implementing adequate preventative measures.

The theft and/or unauthorized use or publication of our trade secrets and other confidential business information as a result of such an incident could adversely affect our competitive position and the value of our investment in research and development could be reduced.

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Our disclosure controls and procedures address cybersecurity and include elements intended to ensure that there is an analysis of potential disclosure obligations arising from security breaches.

In addition, we are subject to data privacy, protection and security laws and regulations, including the European General Data Protection Act (GDPR) that governs personal information of European persons, which became effective on May 25, 2018.

We also maintain compliance programs to address the potential applicability of restrictions against trading while in possession of material, nonpublic information generally and in connection with a cyber-security breach.

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Competitors continue to offer new products with aggressive pricing, additional features and improved performance.

Competitive pricing pressures remain a challenge and continue to accelerate the rate of decline in our sales prices, particularly in our LED Products segment.

Competitive pricing pressures remain a challenge and continue to accelerate the rate of decline in our sales prices.

Aggressive pricing actions by our competitors in our businesses could reduce margins if we are not able to reduce costs at an equal or greater rate than the sales price decline.

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If our customers alter their purchasing behavior, if our customers’ purchasing behavior does not match our expectations or if we encounter any problems collecting amounts due from them, our financial condition and results of operations could be negatively impacted.

We rely on a number of key sole source and limited source suppliers and are subject to high price volatility on certain commodity inputs, variations in parts quality, and raw material consistency and availability.

We face risks relating to our suppliers, including that we rely on a number of key sole source and limited source suppliers, are subject to high price volatility on certain commodity inputs, variations in parts quality, and raw material consistency and availability, and rely on independent shipping companies for delivery of our products.

We depend on a number of sole source and limited source suppliers for certain raw materials, components, services and equipment used in manufacturing our products, including key materials and equipment used in critical stages of our manufacturing processes.

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In our fabrication process, we consume a number of precious metals and other commodities, which are subject to high price volatility.

Our operating margins could be significantly affected if we are not able to pass along price increases to our customers.

In addition, production could be disrupted by the unavailability of the resources used in production such as water,

silicon, electricity and gases.

Our operating margins could be significantly affected if we are not able to pass along price increases to our

In addition, production could be disrupted by the unavailability of the resources used in production such as water, silicon, electricity and gases.

Future environmental regulations could restrict supply or increase the cost of certain of those materials.

Our revenue is highly dependent on our customers’ ability to produce, market and sell more integrated products.

Our revenue in our Wolfspeed and LED Products segments depends on getting our products designed into a larger number of our customers’ products and in turn, our customers’ ability to produce, market and sell their products.

Our revenue depends on getting our products designed into a larger number of our customers’ products and in turn, our customers’ ability to produce, market and sell their products.

For example, we have current and prospective customers that create, or plan to create, power, and RF products or systems using our substrates, die, components or modules.

Even if our customers are able to develop and produce products or systems that incorporate our substrates, die, components or modules, there can be no assurance that our customers will be successful in marketing and selling these products or systems in the marketplace.

We may be required to recognize a significant charge to earnings if our goodwill or other intangible assets become impaired.

Goodwill is reviewed for impairment annually and when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

We assess the recoverability of the unamortized balance of our finite-lived intangible assets when indicators of potential impairment are present.

Factors that may indicate that the carrying value of our goodwill or other intangible assets may not be recoverable include a decline in our stock price and market capitalization and slower growth rates in our industry.

The recognition of a significant charge to earnings in our consolidated financial statements resulting from any impairment of our goodwill or other intangible assets could adversely impact our results of operations.

We review goodwill for impairment whenever events or circumstances indicate potential impairment.

In the first quarter of fiscal 2021, we determined we would more likely than not sell all or a portion of the assets comprising the LED Products segment below carrying value.

As a result of this triggering event, we recorded an impairment to goodwill of $105.7 million as of September 27, 2020.

As of September 27, 2020, we had not met the held-for-sale criteria.

In order to compete, we must attract, motivate and retain key employees, and our failure to do so could harm our results of operations.

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Success in promoting and enhancing brand value depends in large part on our ability to provide high-quality products.

Brand value could diminish significantly due to a number of factors, including adverse publicity about our products (whether valid or not), a failure to maintain the quality of our products (whether perceived or real), the failure of our products or Cree to deliver consistently positive consumer experiences, the products becoming unavailable to consumers or consumer perception that we have acted in an irresponsible manner.

Brand value could diminish significantly due to a number of factors, including adverse publicity about our products (whether valid or not), a failure to maintain the quality of our products (whether perceived or real), the failure of our products to deliver consistently positive consumer experiences, the products becoming unavailable to consumers or consumer perception that we have acted in an irresponsible manner.

Damage to our brand, reputation or loss of customer confidence in our brand or products could result in decreased demand for our products and have a negative impact on our business, results of operations or financial condition.

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• issues, delays, complications and/or additional costs associated with the transition of the operations, systems, technology infrastructure and data, third-party contracts, and personnel of the Lighting Products business unit and provision of transition services, each, as applicable, within the term of the transition services agreement;

• any required payments of indemnification obligations under the Purchase Agreement for retained liabilities and breaches of representations, warranties or covenants;

• any required payments of indemnification obligations under the Purchase Agreement with IDEAL for retained liabilities and breaches of representations, warranties or covenants;

• our failure to realize the full purchase price anticipated under the Purchase Agreement, including the ability of the Lighting Products business unit to generate adjusted EBITDA in the third year post-closing sufficient to result in payment of the targeted earnout or any earnout payment.

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The adoption of or changes in government and/or industry policies, standards or regulations relating to the efficiency, performance or other aspects of our products may impact the demand for our products.

Demand for our products may also be impacted by changes in government and/or industry policies, standards or regulations that discourage the use of certain traditional lighting technologies.

For example, efforts to change, eliminate or reduce industry or regulatory standards could negatively impact our Wolfspeed power and LED businesses.

Demand for our products may also be impacted by changes in government and/or industry policies, standards or regulations that encourage energy efficiency or vehicle range.

For example, efforts to change, eliminate or reduce industry or regulatory standards could negatively impact our business.

These constraints may be eliminated or delayed by legislative action, which could have a negative impact on demand for our products.

Our ability and the ability of our competitors to meet these new requirements could impact competitive dynamics in the market.

We may be required to recognize a significant charge to earnings if our goodwill or other intangible assets become impaired.

Goodwill is reviewed for impairment annually and when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

We assess the recoverability of the unamortized balance of our finite-lived intangible assets when indicators of potential impairment are present.

We are exposed to fluctuations in the market value of our investment portfolio and in interest rates, and therefore, impairment of our investments or lower investment income could harm our earnings.

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Should the value of any such investments we hold decline, the related write-down in value could have a material adverse effect on our financial condition and results of operations.

For example, the value of our Lextar investment declined from the date of our investment in December 2014 through the end of the third quarter of fiscal 2020 with variability between quarters, and may continue to decline in the future.

For example, the value of our Lextar investment declined from the date of our investment in December 2014 through the end of the first quarter of fiscal 2021 with variability between quarters, and may continue to decline in the future.

Our business may be adversely affected by uncertainties in the global financial markets and our or our customers’ or suppliers’ ability to access the capital markets.

Global financial markets continue to reflect uncertainty.

Global financial markets continue to reflect uncertainty, which has been heightened by the COVID-19 pandemic.

Given these uncertainties, there could be future disruptions in the global economy, financial markets and consumer confidence.

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regulations issued as a result of the significant changes to the U.S.

tax law included within the Tax Cuts and Jobs Act of 2017 ("TCJA") and the Coronavirus Aid, Relief and Economic Security Act of 2020 ("CARES Act");

tax law included within the Tax Cuts and Jobs Act of 2017 ("TCJA") and the Coronavirus Aid, Relief and Economic Security Act of 2020;

• the outcome of the upcoming U.S.

Presidential election on November 3, 2020;

• the resolution of issues arising from tax audits with various authorities;

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Our results could vary as a result of the methods, estimates and judgments that we use in applying our accounting policies, including changes in the accounting standards to be applied.

The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on our results (see “Critical Accounting Policies and Estimates” in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2019).

The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on our results (see “Critical Accounting Policies and Estimates” in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations").

Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that lead us to change our methods, estimates and judgments.

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Historically, our common stock has experienced substantial price volatility, particularly as a result of significant fluctuations in our revenue, earnings and margins over the past few years, and variations between our actual financial results and the published expectations of analysts.

For example, the closing price per share of our common stock on the Nasdaq Global Select Market ranged from a low of $29.15 to a high of $68.50 during the twelve months ended March 29, 2020.

For example, the closing price per share of our common stock on the Nasdaq Global Select Market ranged from a low of $29.15 to a high of $73.69 during the twelve months ended September 27, 2020.

If our future operating results or margins are below the expectations of stock market analysts or our investors, our stock price will likely decline.

Speculation and opinions in the press or investment community about our strategic position, financial condition, results of operations or significant transactions can also cause changes in our stock price.

In particular, speculation on our go-forward strategy, competition in some of the markets we address such as electric vehicles and LED lighting, the ramp up of our Wolfspeed business, and the effect of tariffs or COVID-19 on our business, may have a dramatic effect on our stock price.

In particular, speculation on our go-forward strategy, competition in some of the markets we address such as electric vehicles, the ramp up of our Wolfspeed business, and the effect of tariffs or COVID-19 on our business, may have a dramatic effect on our stock price.

We have outstanding debt which could materially restrict our business and adversely affect our financial condition, liquidity and results of operations.

As of March 29, 2020, our indebtedness consisted of $575.0 million aggregate principal amount of our 2023 Notes and potential borrowings from our revolving line of credit.

Additionally, we issued and sold an additional $575.0 million aggregate principal amount of convertible senior notes on April 21, 2020 (the 2026 Notes and collectively with the 2023 Notes, the Notes) and, using the net proceeds of the 2026 Notes offering, repurchased $150.2 million of aggregate principal amount of the 2023 Notes.

As of September 27, 2020, our indebtedness consisted of $424.8 million aggregate principal amount of our 2023 Notes and $575.0 million aggregate principal amount of our 2026 Notes (collectively with the 2023 Notes, the Notes) and potential borrowings from our revolving line of credit.

Our ability to pay interest and repay the principal for any outstanding indebtedness under our line of credit and the Notes is dependent upon our ability to manage our business operations and generate sufficient cash flows to service such debt.

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incur additional indebtedness, dispose of assets, create liens on assets, make acquisitions or engage in mergers or consolidations, and engage in certain transactions with our subsidiaries and affiliates.

The Indentures governing the Notes require us to repurchase the Notes upon certain fundamental changes relating to our common stock, and also prohibits our consolidation, merger, or sale of all or substantially all of our assets except with or to a successor entity assuming our obligations under the Indentures.

The Indentures governing the Notes require us to repurchase the Notes upon certain fundamental changes relating to our common stock, and also prohibit our consolidation, merger, or sale of all or substantially all of our assets except with or to a successor entity assuming our obligations under the Indentures.

The restrictions imposed by our line of credit and by the Indentures governing our Notes could limit our ability to plan for or react to changing business conditions, or could otherwise restrict our business activities and plans.

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

What changed 10-Q

Item 1A. Risk Factors