What changed in this filing

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Item 1. Financial Statements

2021-04-29 compared with 2021-01-28 · 233 added, 159 removed, 712 unchanged (36% of the section changed)

Financial Statements (Unaudited)

Consolidated Balance Sheets as of December 27, 2020 and June 28, 2020

Consolidated Statements of Operations for the three and six months ended December 27, 2020 and December 29, 2019

Consolidated Statements of Comprehensive Loss for the three and six months ended December 27, 2020 and December 29, 2019

Consolidated Statements of Shareholders' Equity for the six months ended December 27, 2020 and December 29, 2019

Consolidated Statements of Cash Flows for the six months ended December 27, 2020 and December 29, 2019

Consolidated Balance Sheets as of March 28, 2021 and June 28, 2020

Consolidated Statements of Operations for the three and nine months ended March 28, 2021 and March 29, 2020

Consolidated Statements of Comprehensive Loss for the three and nine months ended March 28, 2021 and March 29, 2020

Consolidated Statements of Shareholders' Equity for the nine months ended March 28, 2021 and March 29, 2020

Consolidated Statements of Cash Flows for the nine months ended March 28, 2021 and March 29, 2020

Notes to Unaudited Consolidated Financial Statements

1 unchanged sentence

in millions of U.S.

Dollars, except share data in thousands December 27, 2020 June 28, 2020

Dollars, except share data in thousands March 28, 2021 June 28, 2020

Current assets:

13 unchanged sentences

Intangible assets, net 144.6 156.9

Long-term receivables 137.8 —

Other long-term investments 67.2 55.9

22 unchanged sentences

Preferred stock, par value $ 0.01 ;

3,000 shares authorized at December 27, 2020 and June 28, 2020;

3,000 shares authorized at March 28, 2021 and June 28, 2020;

none issued and outstanding

Common stock, par value $ 0.00125 ;

200,000 shares authorized at December 27, 2020 and June 28, 2020;

110,977 and 109,230 shares issued and outstanding at December 27, 2020 and June 28, 2020, respectively

200,000 shares authorized at March 28, 2021 and June 28, 2020;

115,425 and 109,230 shares issued and outstanding at March 28, 2021 and June 28, 2020, respectively

Additional paid-in-capital 3,658.9 3,106.2

7 unchanged sentences

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended Six months ended

December 27, 2020 December 29, 2019 December 27, 2020 December 29, 2019

Three months ended Nine months ended

March 28, 2021 March 29, 2020 March 28, 2021 March 29, 2020

in millions of U.S.

10 unchanged sentences

Operating loss ( 61.4 ) ( 48.0 ) ( 181.2 ) ( 153.6 )

Non-operating (income) expense, net ( 3.1 ) ( 5.0 ) 10.8 ( 6.6 )

Non-operating expense, net 8.1 14.7 18.9 8.1

Loss before income taxes ( 69.5 ) ( 62.7 ) ( 200.1 ) ( 161.7 )

11 unchanged sentences

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 27, 2020 December 29, 2019 December 27, 2020 December 29, 2019

Dollars) March 28, 2021 March 29, 2020 March 28, 2021 March 29, 2020

Net loss ($ 108.1 ) ($ 59.9 ) ($ 374.9 ) ($ 151.7 )

Other comprehensive loss:

Net unrealized (loss) gain on available-for-sale securities ( 0.5 ) ( 0.3 ) ( 0.5 ) 0.2

Reclassification of currency translation gain to loss on sale of discontinued operations ( 9.5 ) — ( 9.5 ) —

Net unrealized loss on available-for-sale securities ( 2.5 ) ( 1.9 ) ( 3.0 ) ( 1.7 )

Comprehensive loss ( 120.1 ) ( 61.8 ) ( 387.4 ) ( 153.4 )

20 unchanged sentences

Balance at December 27, 2020 110,977 $ 0.1 $ 3,155.9 ($ 1,306.6 ) $ 15.5 $ 1,864.9 $ 6.7 $ 1,871.6

Net (loss) income — — — ( 108.9 ) — ( 108.9 ) 0.8 ( 108.1 )

Reclassification of currency translation gain to loss on sale of discontinued operations — — — — ( 9.5 ) ( 9.5 ) — ( 9.5 )

Unrealized loss on available-for-sale securities — — — — ( 2.5 ) ( 2.5 ) — ( 2.5 )

Comprehensive (loss) income ( 120.9 ) 0.8 ( 120.1 )

Tax withholding on vested equity awards — — ( 7.4 ) — — ( 7.4 ) — ( 7.4 )

Stock-based compensation — — 19.5 — — 19.5 — 19.5

Exercise of stock options and issuance of shares 225 — 1.8 — — 1.8 — 1.8

Issuance of shares under the at-the-market offering program, net of issuance costs 4,223 — 489.1 — — 489.1 — 489.1

Reclassification of noncontrolling interest to loss on sale of discontinued operations — — — — — — ( 7.5 ) ( 7.5 )

Balance at March 28, 2021 115,425 $ 0.1 $ 3,658.9 ($ 1,415.5 ) $ 3.5 $ 2,247.0 $ — $ 2,247.0

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

18 unchanged sentences

Balance at December 29, 2019 108,031 $ 0.1 $ 2,919.5 ($ 939.6 ) $ 9.7 $ 1,989.7 $ 5.3 $ 1,995.0

Net (loss) income — — — ( 60.1 ) — ( 60.1 ) 0.2 ( 59.9 )

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

Comprehensive (loss) income ( 62.0 ) 0.2 ( 61.8 )

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

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

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

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

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

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended

Nine months ended

(in millions of U.S.

Dollars) December 27, 2020 December 29, 2019

Dollars) March 28, 2021 March 29, 2020

Operating activities:

9 unchanged sentences

Realized gain on sale of investments ( 0.3 ) ( 1.0 )

Gain on equity investment ( 7.0 ) ( 9.9 )

(Gain) loss on equity investment ( 7.9 ) 9.2

Foreign exchange gain on equity investment ( 3.4 ) ( 1.2 )

8 unchanged sentences

Net cash used in operating activities of continuing operations ( 58.9 ) ( 64.9 )

Net cash provided by operating activities of discontinued operations 6.2 27.8

Net cash (used in) provided by operating activities of discontinued operations ( 16.6 ) 25.4

Cash used in operating activities ( 75.5 ) ( 39.5 )

6 unchanged sentences

Proceeds from sale of short-term investments 28.1 96.4

Proceeds from sale of business, net 36.6 —

Net cash used in investing activities of continuing operations ( 339.2 ) ( 150.2 )

Net cash provided by investing activities of discontinued operations 2.7 0.4

Net cash used in investing activities of discontinued operations ( 0.3 ) ( 2.0 )

Cash used in investing activities ( 339.5 ) ( 152.2 )

Financing activities:

Proceeds from long-term debt borrowings 30.0 —

Payments on long-term debt borrowings, including finance lease obligations ( 30.3 ) ( 0.4 )

20 unchanged sentences

Restructuring

Shareholders' Equity

Subsequent Events

Note 1 – Basis of Presentation and New Accounting Standards

1 unchanged sentence

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

In addition, the Company is an innovator of specialty lighting-class light emitting diode (LED) products.

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

As discussed more fully below in Note 2, “Discontinued Operations,” on October 18, 2020, the Company entered into a definitive agreement to sell certain assets and subsidiaries comprising its former LED Products segment (the LED Business) to SMART Global Holdings, Inc.

(SGH) and its wholly owned newly-created acquisition subsidiary (collectively with SGH, SMART) for up to $ 300 million, including fixed upfront and deferred payments and contingent consideration (the LED Business Divestiture).

As a result, the Company has classified the results and cash flows of the LED Products segment as discontinued operations in its consolidated statements of operations and consolidated statements of cash flows for all periods presented.

Additionally, the related assets and liabilities associated with the discontinued operations are classified as held for sale in the consolidated balance sheets.

Previously, the Company designed, manufactured and sold specialty lighting-class light emitting diode (LED) products targeted for use in indoor and outdoor lighting, electronic signs and signals and video displays.

As discussed more fully below in Note 2, “Discontinued Operations,” on March 1, 2021, the Company completed its previously announced sale of certain assets and subsidiaries comprising its former LED Products segment to SMART Global Holdings, Inc.

(SGH) and its wholly owned newly-created acquisition subsidiary CreeLED, Inc.

(CreeLED and collectively with SGH, SMART) for up to $ 300 million, including fixed upfront and deferred payments and contingent consideration (the LED Business Divestiture).

As a result, the Company has classified the results and cash flows of the former LED Products segment as discontinued operations in its consolidated statements of operations and consolidated statements of cash flows for all periods presented.

Additionally, the related assets and liabilities associated with the discontinued operations are classified as held for sale as of June 28, 2020 in the consolidated balance sheets.

Unless otherwise noted, discussion within these notes to the consolidated financial statements relates to the Company's continuing operations.

2 unchanged sentences

The Company’s materials products and RF devices are used in military communications, radar, satellite and telecommunication applications.

The majority of the Company's products are manufactured at its production facilities located in North Carolina, California, Arkansas and China.

The majority of the Company's products are manufactured at its production facilities located in North Carolina, California and Arkansas.

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

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).

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

The Company operates research and development facilities in North Carolina, California, Arkansas, Arizona and New York.

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

1 unchanged sentence

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

In the opinion of management, all normal and recurring adjustments necessary to fairly state the consolidated financial position, results of operations, comprehensive loss, shareholders' equity and cash flows at December 27, 2020, and for all periods presented, have been made.

In the opinion of management, all normal and recurring adjustments necessary to fairly state the consolidated financial position, results of operations, comprehensive loss, shareholders' equity and cash flows at March 28, 2021, and for all periods presented, have been made.

All material intercompany accounts and transactions have been eliminated.

4 unchanged sentences

GAAP for annual financial statements.

The results of operations for the three and six months ended December 27, 2020 are not necessarily indicative of the operating results that may be attained for the entire fiscal year ending June 27, 2021 (fiscal 2021).

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 28, 2020 (fiscal 2020) (the 2020 Form 10-K) and the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 11, 2021, which recast the relevant financial information in the 2020 Form 10-K to present the financial results of the LED Business as discontinued operations and held for sale in the Company’s consolidated financial statements for all periods presented in the 2020 Form 10-K.

The results of operations for the three and nine months ended March 28, 2021 are not necessarily indicative of the operating results that may be attained for the entire fiscal year ending June 27, 2021 (fiscal 2021).

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

2 unchanged sentences

Actual amounts could differ materially from those estimates.

The Company revised income tax expense for the three and six months ended December 29, 2019 to correct the income tax provision calculation for the second quarter of fiscal 2020.

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

The Company will also

revise the unaudited statements of operations for the three months ended March 29, 2020 in the unaudited interim consolidated financial statements to be filed in the Quarterly Report on Form 10-Q for the corresponding period in fiscal 2021 to decrease income tax expense by $ 1.5 million for the three months ended March 29, 2020, which will result in a net decrease to net loss of $ 1.5 million for the three months ended March 29, 2020.

No revision will be required to the unaudited statement of operations for the nine months ended March 29, 2020 in the unaudited interim consolidated financial statements to be filed in the Quarterly Report on Form 10-Q for the corresponding period in fiscal 2021.

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

Certain accounting matters that generally require consideration of forecasted financial information were assessed regarding impacts from the COVID-19 outbreak as of December 27, 2020 and through the date of this Quarterly Report using reasonably available information as of those dates.

The Company revised income tax expense for the three months ended March 29, 2020 to correct the income tax provision calculation for the third quarter of fiscal 2020.

The Company decreased income tax expense for the three months ended March 29, 2020, resulting in a net decrease to net loss of $ 1.5 million for the three months ended March 29, 2020.

No revision was

made to income tax expense for the nine months ended March 29, 2020.

The Company concluded this error was not material individually or in the aggregate.

Certain accounting matters that generally require consideration of forecasted financial information were assessed regarding impacts from the COVID-19 pandemic as of March 28, 2021 and through the date of this Quarterly Report using reasonably available information as of those dates.

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

While the assessments resulted in no material impacts to the consolidated financial statements as of and for the quarter ended December 27, 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.

While the assessments resulted in no material impacts to the consolidated financial statements as of and for the quarter ended March 28, 2021, the Company believes the full impact of the pandemic remains uncertain and will continue to assess if ongoing developments related to the pandemic may cause future material impacts to its consolidated financial statements.

Segment Reporting

As a result of the pending LED Business Divestiture, the Company has determined that it operates a single reporting segment within continuing operations, Wolfspeed.

On March 1, 2021, the Company completed the LED Business Divestiture, and, as a result, now operates a single reporting segment within continuing operations, Wolfspeed.

Accordingly, the Chief Operating Decision Maker (CODM) allocates resources and assesses performance on a consolidated basis.

23 unchanged sentences

Note 2 – Discontinued Operations

On October 18, 2020, the Company entered into an Asset Purchase Agreement (the Purchase Agreement) with SMART with respect to the LED Business Divestiture.

The transaction is targeted to close in the first calendar quarter of 2021, subject to customary closing conditions and governmental approvals.

Pursuant to the Purchase Agreement, the Company will sell to SMART, and SMART will (i) purchase from the Company, (a) certain equipment, inventory, intellectual property rights, contracts, and real estate comprising the Company’s LED Products segment, (b) all of the issued and outstanding equity interests of Cree Huizhou Solid State Lighting Company Limited, a limited liability company organized under the laws of the People’s Republic of China and an indirect wholly owned subsidiary of the Company, and (c) the Company’s ownership interest in Cree Venture LED Company Limited, the Company’s joint venture with San’an Optoelectronics Co., Ltd.

On March 1, 2021, the Company completed the LED Business Divestiture pursuant to the terms of the previously reported Asset Purchase Agreement (the Purchase Agreement), dated October 18, 2020, as amended.

Pursuant to the Purchase Agreement, (i) the Company completed the sale to SMART of (a) certain equipment, inventory, intellectual property rights, contracts, and real estate comprising the Company’s LED Products segment, (b) all of the issued and outstanding equity interests of Cree Huizhou Solid State Lighting Company Limited (Cree Huizhou), a limited liability company organized under the laws of the People’s Republic of China and an indirect wholly owned subsidiary of the Company, and (c) the Company’s ownership interest in Cree Venture LED Company Limited, the Company’s joint venture with San’an Optoelectronics Co., Ltd.

(collectively, the LED Business);

and (ii) assume certain liabilities related to the LED Business.

The Company will retain certain assets used in and pre-closing liabilities associated with the LED Products segment.

The purchase price for the LED Business consists of (i) a payment of $ 50 million in cash, subject to customary adjustments, (ii) an unsecured promissory note issued to the Company by SGH in the amount of $ 125 million (the Purchase Price Note), (iii) the potential to receive an earn-out payment of up to $ 125 million based on the revenue and gross profit performance of the LED Business in the first four full fiscal quarters following the closing (the Earnout Period), also payable in the form of a unsecured promissory note of SGH (the Earnout Note), and (iv) the assumption of certain liabilities.

The Purchase Price Note and the Earnout Note, if earned, will accrue interest at a rate of three-month LIBOR plus 3.0 % with interest paid every three months and one bullet payment of principal and all accrued and unpaid interest will be payable on each note’s maturity date.

The Purchase Price Note will mature on August 15, 2023, and the Earnout Note, if issued, will mature on the third anniversary of the completion of the Earnout Period.

In connection with the closing of the LED Business Divestiture, the Company and SMART will also enter into certain ancillary and related agreements, including (i) an Intellectual Property Assignment and License Agreement, which will assign to SMART certain intellectual property owned by the Company and its affiliates and license to SMART certain additional intellectual property owned by the Company, (ii) a Transition Services Agreement, which is designed to ensure a smooth transition of the LED Business to SMART, (iii) a Wafer Supply and Fabrication Services Agreement (the Wafer Supply Agreement), pursuant to which the Company will supply SMART with certain silicon carbide materials and fabrication services for four years , and (iv) a Real Estate License Agreement, which will allow SMART to use certain premises owned by the Company to conduct the LED Business for a period of up to 24 months after closing.

The completion of the LED Business Divestiture is subject to the satisfaction or waiver of a number of conditions set forth in the Purchase Agreement, including the receipt of governmental and regulatory consents and approvals and expiration of any mandatory waiting period related thereto, and other customary closing conditions.

The Purchase Agreement provides for customary termination rights of the parties.

Because the LED Business Divestiture represents a strategic shift that will have a major effect on the Company’s operations and financial results, the Company has classified the results of the LED Business as discontinued operations in the Company’s consolidated statements of operations for all periods presented.

and (ii) SMART assumed certain liabilities related to the LED Business.

The Company retained certain assets used in and pre-closing liabilities associated with the LED Products segment.

The purchase price for the LED Business consisted of (i) a payment of $ 50 million in cash, subject to customary adjustments, (ii) an unsecured promissory note issued to the Company by SGH in the amount of $ 125 million (the Purchase Price Note), (iii) the potential to receive an earn-out payment between $ 2.5 million and $ 125 million based on the revenue and gross profit performance of the LED Business in the first four full fiscal quarters following the closing (the Earnout Period), also payable in the form of a unsecured promissory note of SGH (the Earnout Note), and (iv) the assumption of certain liabilities.

The Purchase Price Note and the Earnout Note will accrue interest at a rate of three-month LIBOR plus 3.0 % with interest paid every three months and one bullet payment of principal and all accrued and unpaid interest will be payable on the maturity date of the Purchase Price Note and Earnout Note.

The Purchase Price Note will mature on August 15, 2023, and the Earnout Note will mature on March 27, 2025.

The Company recognized a loss on sale of the LED Business of $ 26.3 million.

The cost of selling the LED Business was $ 27.4 million, which was recognized throughout fiscal 2020 and 2021.

In connection with the closing of the LED Business Divestiture, the Company and CreeLED also entered into certain ancillary and related agreements, including (i) an Intellectual Property Assignment and License Agreement, which assigned to CreeLED certain intellectual property owned by the Company and its affiliates and licensed to CreeLED certain additional intellectual property owned by the Company, (ii) a Transition Services Agreement (LED TSA), (iii) a Wafer Supply and Fabrication Services Agreement (the Wafer Supply Agreement), pursuant to which the Company will supply CreeLED with certain silicon carbide materials and fabrication services for up to four years , and (iv) a Real Estate License Agreement (LED RELA), which will allow CreeLED to use certain premises owned by the Company to conduct the LED Business for a period of up to 24 months after closing.

Because the LED Business Divestiture represented a strategic shift that will have a major effect on the Company’s operations and financial results, the Company has classified the results of the LED Business as discontinued operations in the Company’s consolidated statements of operations for all periods presented.

The Company ceased recording depreciation and amortization of long-lived assets conveying in the Purchase Agreement upon classification as discontinued operations in October 2020.

Additionally, the related assets and liabilities associated with discontinued operations are classified as held for sale in the consolidated balance sheets.

The assets and liabilities held for sale as of December 27, 2020 are classified as current in the consolidated balance sheet as the Company expects the transaction to close and proceeds to be collected within one year.

Additionally, the related assets and liabilities associated with discontinued operations are classified as held for sale in the consolidated balance sheets as of June 28, 2020.

The following table presents the financial results of the LED Business as (loss) income from discontinued operations, net of income taxes in the Company's consolidated statements of operations:

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 27, 2020 December 29, 2019 December 27, 2020 December 29, 2019

Dollars) March 28, 2021 March 29, 2020 March 28, 2021 March 29, 2020

Revenue, net $ 66.5 $ 101.7 $ 272.8 $ 336.0

10 unchanged sentences

Non-operating income ( 0.3 ) ( 0.2 ) ( 0.3 ) ( 0.3 )

(Loss) income before income taxes and loss on sale ( 7.5 ) ( 1.6 ) ( 141.1 ) 8.8

Loss on sale 26.3 — 26.3 —

(Loss) income before income taxes ( 33.8 ) ( 1.6 ) ( 167.4 ) 8.8

6 unchanged sentences

As of December 27, 2020, the Company recorded an additional impairment to goodwill of $ 6.9 million and an impairment to assets held for sale associated with the pending LED Business Divestiture of $ 19.5 million.

The following table presents the assets and liabilities of the LED Business classified as discontinued operations:

For the three and nine months ended March 28, 2021, the Company recognized $ 7.8 million and $ 11.4 million of income tax expense related to discontinued operations, respectively, which primarily related to the foreign operations of the LED Business.

Income tax expense related to discontinued operations for the three and nine months ended March 28, 2021 includes $4.1 million of income tax expense related to the sale of the issued and outstanding equity interests of Cree Huizhou in the third quarter of fiscal 2021.

For the three and nine months ended March 29, 2020, the Company recognized $ 2.1 million and $ 7.1 million of income tax expense related to discontinued operations, respectively, which primarily related to the foreign operations of the LED Business.

The income tax impact of the U.S.

operations of the LED Business for all periods presented were offset with a valuation allowance as described in Note 12, "Income Taxes."

For the three and nine months ended March 28, 2021, the Company recognized $ 0.3 million and $ 1.0 million in administrative fees related to the LED RELA and the LED TSA, respectively, all of which are included in accounts receivable, net in the consolidated balance sheets as of March 28, 2021.

These fees were recorded as a reduction in expense within the line item in the consolidated statements of operations in which costs were incurred.

At the inception of the Wafer Supply Agreement, the Company recorded a supply agreement liability of $ 31.0 million, of which $ 27.9 million was outstanding as of March 28, 2021.

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

The Company recognized a net loss of $ 0.1 million in non-operating expense, net for the three and nine months ended March 28, 2021 related to the Wafer Supply Agreement.

A receivable of $ 7.2 million was included in other assets in the consolidated balance sheets as of March 28, 2021.

The following table presents the assets and liabilities of the LED Business classified as discontinued operations as of June 28, 2020:

(in millions of U.S.

Dollars) December 27, 2020 June 28, 2020

Dollars) June 28, 2020

Short-term investments $ 12.0

9 unchanged sentences

Other assets 1.7

Valuation allowance on held for sale assets ( 19.5 ) —

Long-term assets of discontinued operations 270.1

6 unchanged sentences

Long-term liabilities of discontinued operations 9.8

(1) Long-term assets and liabilities of discontinued operations as of December 27, 2020 are classified as current on the consolidated balance sheet as the Company expects the transaction to close within twelve months of the balance sheet date.

Note 3 – Revenue Recognition

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Contract liabilities primarily include various rights of return and customer deposits, as well as deferred revenue and price protection guarantees.

Contract liabilities were $ 51.7 million as of December 27, 2020 and $ 47.9 million as of June 28, 2020.

The increase was primarily due to increased reserve liabilities.

Contract liabilities were $ 46.7 million as of March 28, 2021 and $ 47.9 million as of June 28, 2020.

The decrease was primarily due to decreased customer deposits offset by increased reserve liabilities.

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.

For the three and six months ended December 27, 2020, the Company did not recognize any revenue that was included in contract liabilities as of June 28, 2020.

Revenue recognized related to performance obligations that were satisfied or partially satisfied in previous periods was not material for the three and six months ended December 27, 2020.

For the three and nine months ended March 28, 2021, the Company did no t recognize any revenue that was included in contract liabilities as of June 28, 2020.

Revenue recognized related to performance obligations that were satisfied or partially satisfied in previous periods was not material for the three and nine months ended March 28, 2021.

The Company conducts business in several geographic areas.

1 unchanged sentence

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

Three months ended Six months ended

December 27, 2020 December 29, 2019 December 27, 2020 December 29, 2019

Three months ended Nine months ended

March 28, 2021 March 29, 2020 March 28, 2021 March 29, 2020

(in millions of U.S.

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

Europe $ 49.9 36.3 % $ 45.8 40.2 % $ 139.0 36.6 % $ 136.6 37.7 %

United States 31.2 22.7 % 22.2 19.5 % 85.1 22.4 % 78.5 21.7 %

China 26.9 19.6 % 13.0 11.4 % 73.5 19.4 % 46.9 12.9 %

Europe 53.3 42.0 % 45.8 37.9 % 89.1 36.7 % 90.8 36.6 %

Japan 10.5 7.6 % 12.5 11.0 % 31.9 8.4 % 46.9 12.9 %

South Korea 6.9 5.0 % 13.7 12.0 % 20.5 5.4 % 35.5 9.8 %

Other 11.9 8.8 % 6.7 5.9 % 29.8 7.8 % 17.9 5.0 %

4 unchanged sentences

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.

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

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

Balance Sheet

1 unchanged sentence

Operating Leases:

December 27, 2020 June 28, 2020

March 28, 2021 June 28, 2020

Right-of-use asset (1)

14 unchanged sentences

Statement of Operations

Operating lease expense was $ 1.4 million and $ 2.8 million for the three and six months ended December 27, 2020, respectively, and $ 1.2 million and $ 2.4 million for the three and six months ended December 29, 2019, respectively.

Short-term lease expense, variable lease expense and lease income were immaterial for the three and six months ended December 27, 2020 and December 29, 2019.

Finance lease amortization was $ 0.2 million and $ 0.4 million and interest expense was $ 0.1 million and $ 0.2 million for the three and six months ended December 27, 2020, respectively.

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

Operating lease expense was $ 1.3 million and $ 4.1 million for the three and nine months ended March 28, 2021, respectively, and $ 1.3 million and $ 3.7 million for the three and nine months ended March 29, 2020, respectively.

Short-term lease expense and variable lease expense were immaterial for the three and nine months ended March 28, 2021 and March 29, 2020.

Finance lease amortization was $ 0.2 million and $ 0.6 million and interest expense was less than $ 0.1 million and $ 0.2 million for the three and nine months ended March 28, 2021, respectively.

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

Cash flow information consisted of the following:

Six months ended

Nine months ended

(in millions of U.S.

Dollars) December 27, 2020 December 29, 2019

Dollars) March 28, 2021 March 29, 2020

Cash used in operating activities:

8 unchanged sentences

Transfer of finance lease liability to accounts payable and accrued expenses (2)

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

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

(2) In the first quarter of fiscal 2021, the Company executed the available bargain purchase option for certain finance leases relating to property and equipment, net, in order to purchase the assets.

Lease Liability Maturities

Maturities of operating and finance lease liabilities as of December 27, 2020 were as follows (in millions of U.S.

Maturities of operating and finance lease liabilities as of March 28, 2021 were as follows (in millions of U.S.

Fiscal Year Ending Operating Leases Finance Leases Total

15 unchanged sentences

(2) Weighted average discount rate of finance leases without the 49-year ground lease is 3.40 %.

As mentioned in Note 2, "Discontinued Operations", on March 1, 2021 and in connection with the sale of its LED Business, the Company entered into a Real Estate License Agreement pursuant to which the Company leases to CreeLED approximately 58,000 square feet of the Company’s property and certain facilities in Durham, North Carolina for a total of $ 3.6 million per year.

The lease term is 24 months and expires on February 28, 2023.

The Company accounts for the lease and non-lease components under this agreement as a single lease component.

Lease income is recognized on a straight-line basis over the lease term.

Subject to certain provisions in the agreement, CreeLED may terminate its rights or a portion of its rights under the agreement at any time with sixty days written notice.

A notice of thirty days is permitted under certain circumstances as defined in the agreement.

The agreement does not contain any renewal provisions.

The Company recognized lease income of $ 0.3 million for the three and nine months ended March 28, 2021.

The Company did no t recognize any variable lease income for the three and nine month periods ended March 28, 2021 and March 29, 2020.

Future minimum rental income relating to the Real Estate License Agreement is as follows (in millions of U.S.

June 27, 2021 (remainder of fiscal 2021) 0.9

June 26, 2022 3.6

June 25, 2023 2.4

Total future minimum rental income 6.9

Note 5 – Financial Statement Details

2 unchanged sentences

(in millions of U.S.

Dollars) December 27, 2020 June 28, 2020

Dollars) March 28, 2021 June 28, 2020

Billed trade receivables $ 82.9 $ 71.5

5 unchanged sentences

(in millions of U.S.

Dollars) December 27, 2020

Dollars) March 28, 2021

Balance at beginning of period $ 0.7

4 unchanged sentences

(in millions of U.S.

Dollars) December 27, 2020 June 28, 2020

Dollars) March 28, 2021 June 28, 2020

Raw material $ 42.4 $ 36.9

2 unchanged sentences

Inventories $ 147.5 $ 121.9

In addition to inventory held by the Company associated with the Wolfspeed business, the Company holds inventory related to a future Wafer Supply Agreement to be entered into in connection with the LED Business Divestiture as well as unallocated inventoried costs consisting 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.

December 27, 2020 June 28, 2020

In addition to inventory held by the Company associated with the Wolfspeed business, the Company holds inventory related to the Wafer Supply Agreement entered into in connection with the LED Business Divestiture as well as unallocated inventoried costs consisting 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.

March 28, 2021 June 28, 2020

Wolfspeed $ 138.8 $ 97.3

Inventory related to future Wafer Supply Agreement 17.1 19.0

Wafer Supply Agreement inventory (1)

Unallocated inventories 8.7 5.6

Consolidated inventories $ 147.5 $ 121.9

(1) Inventory related to the Wafer Supply Agreement as of March 28, 2021 is recorded within other current assets in the consolidated balance sheets.

Accounts Payable and Accrued Expenses

1 unchanged sentence

(in millions of U.S.

Dollars) December 27, 2020 June 28, 2020

Dollars) March 28, 2021 June 28, 2020

Accounts payable, trade $ 75.7 $ 88.1

5 unchanged sentences

Other operating expense consisted of the following:

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 27, 2020 December 29, 2019 December 27, 2020 December 29, 2019

Dollars) March 28, 2021 March 29, 2020 March 28, 2021 March 29, 2020

Factory optimization restructuring $ 3.8 $ 1.1 $ 6.7 $ 3.5

8 unchanged sentences

(in millions of U.S.

Dollars) December 27, 2020 June 28, 2020

Dollars) March 28, 2021 June 28, 2020

Currency translation gain $ — $ 9.5

1 unchanged sentence

Accumulated other comprehensive income, net of taxes $ 3.5 $ 16.0

(1) Amounts as of December 27, 2020 and June 28, 2020 include a $ 2.4 million loss related to tax on unrealized gain (loss) on available-for-sale securities.

(1) Amounts as of March 28, 2021 and June 28, 2020 include a $ 2.4 million loss related to tax on unrealized gain (loss) on available-for-sale securities.

Reclassifications Out of Accumulated Other Comprehensive Income

Reclassifications out of accumulated other comprehensive income were $ 0.2 million for the three and six months ended December 27, 2020 and $ 0.1 million for the three and six months ended December 29, 2019.

Reclassifications out of accumulated other comprehensive income were $ 0.1 million and $ 0.3 million for the three and nine months ended March 28, 2021 and $ 0.9 million and $ 1.0 million for the three and nine months ended March 29, 2020.

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

Non-Operating (Income) Expense, net

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

Three months ended Six months ended

Additionally, for the three and nine months ended March 28, 2021, $ 9.5 million of currency translation gain was reclassified to loss on sale of discontinued operations within net loss on discontinued operations on the consolidated statements of operations.

Non-Operating Expense, net

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

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 27, 2020 December 29, 2019 December 27, 2020 December 29, 2019

Foreign currency loss, net ($ 2.2 ) ($ 1.3 ) ($ 2.4 ) ($ 1.2 )

Dollars) March 28, 2021 March 29, 2020 March 28, 2021 March 29, 2020

Foreign currency (gain) loss, net ($ 0.1 ) $ 0.3 ($ 2.5 ) ($ 0.9 )

Gain on sale of investments, net ( 0.1 ) ( 0.9 ) ( 0.3 ) ( 1.0 )

Gain on equity investment, net ( 10.4 ) ( 6.4 ) ( 7.0 ) ( 9.9 )

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

(Gain) loss on equity investment, net ( 0.9 ) 19.1 ( 7.9 ) 9.2

Interest income ( 1.9 ) ( 3.2 ) ( 6.8 ) ( 13.4 )

Interest expense, net of capitalized interest 11.2 7.5 36.2 22.6

Loss on Wafer Supply Agreement 0.1 — 0.1 —

Other, net ( 0.2 ) ( 0.1 ) 0.1 ( 0.4 )

Non-operating (income) expense, net ($ 3.1 ) ($ 5.0 ) $ 10.8 ($ 6.6 )

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

Non-operating expense, net $ 8.1 $ 14.7 $ 18.9 $ 8.1

The change in (gain) loss on equity investment, net is due to fluctuations in the Lextar Electronics Corporation (Lextar) stock price, and following January 6, 2021, ENNOSTAR Inc.

(ENNOSTAR) stock price.

The gain on arbitration proceeding is due to an award from an arbitration proceeding related to a claim by the Company against a contract manufacturer.

Statements of Cash Flows - non-cash activities

Six months ended

December 27, 2020 December 29, 2019

Nine months ended

March 28, 2021 March 29, 2020

Lease asset and liability additions (1)

1 unchanged sentence

Transfer of finance lease liability to accounts payable and accrued expenses (2)

(1) $ 11.0 million of the lease asset and liability additions for the six months ended December 29, 2019 relates to the increase of right-of-use assets and matching lease liabilities as a result of adopting ASC 842.

(1) $ 11.0 million of the lease asset and liability additions for the nine months ended March 29, 2020 relates to the increase of right-of-use assets and matching lease liabilities as a result of adopting ASC 842.

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

Accrued property and equipment as of December 27, 2020 and December 29, 2019 was $ 145.0 million and $ 6.2 million, respectively.

Accrued property and equipment as of March 28, 2021 and March 29, 2020 was $ 165.6 million and $ 6.8 million, respectively.

Note 6 – Investments

3 unchanged sentences

All short-term investments are classified as available-for-sale.

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

Short-term investments as of December 27, 2020 and June 28, 2020 consisted of the following:

December 27, 2020

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

Short-term investments as of March 28, 2021 and June 28, 2020 consisted of the following:

March 28, 2021

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses (1)

20 unchanged sentences

Total short-term investments $ 782.0 $ 8.9 $ — $ 790.9

(1) The Company had an unrealized loss of less than $ 0.1 million as of December 27, 2020 and June 28, 2020.

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

(2) Credit loss allowance is applicable beginning in the first quarter of fiscal 2021 due to adoption of ASU 2016-13, which replaced the Company's other than temporary impairment analysis with an expected credit losses model.

The Company does not include accrued interest in estimated fair values of short-term investments and does not record an allowance for credit losses on receivables related to accrued interest.

Accrued interest receivable was $ 3.8 million and $ 4.3 million as of December 27, 2020 and June 28, 2020, respectively, and is recorded in other current assets on the consolidated balance sheets.

Accrued interest receivable was $ 4.0 million and $ 4.3 million as of March 28, 2021 and June 28, 2020, respectively, and is recorded in other current assets on the consolidated balance sheets.

When necessary, write offs of noncollectable interest income are recorded as a reversal to interest income.

There were no write offs of noncollectable interest income for each of the three and six month periods ended December 27, 2020 and December 29, 2019.

There were no write offs of noncollectable interest income for each of the three and nine month periods ended March 28, 2021 and March 29, 2020.

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

December 27, 2020

March 28, 2021

Less than 12 Months Greater than 12 Months Total

Fair Value Unrealized Loss (1)

Fair Value Unrealized Loss Fair Value Unrealized Loss

Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss

Municipal bonds $ 6.4 $ — $ — $ — $ 6.4 $ —

2 unchanged sentences

treasury securities 19.4 — — — 19.4 —

Certificates of deposit 0.7 — — — 0.7 —

Total $ 153.1 ($ 0.2 ) $ — $ — $ 153.1 ($ 0.2 )

10 unchanged sentences

Number of securities with an unrealized loss 46 — 46

(1) S ecurities with an unrealized loss of less than 12 months for the periods as of December 27, 2020 and June 28, 2020 have an unrealized loss value of less than $ 0.1 million, individually and in the aggregate.

(1) S ecurities with an unrealized loss of less than 12 months for the period as of June 28, 2020 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 gains of $ 0.2 million for the three and six months ended December 27, 2020 and $ 0.1 million for the three and six months ended December 29, 2019 are included in non-operating expense in the consolidated statements of operations.

Realized gains of $ 0.1 million and $ 0.3 million for the three and nine months ended March 28, 2021 and realized gains of $ 0.9 million and $ 1.0 million for the three and nine months ended March 29, 2020 are included in non-operating expense in the consolidated statements of operations.

Unrealized gains and losses are included as a separate component of equity, net of tax, unless the Company determines there is an expected credit loss.

The Company evaluates its investments for expected credit losses.

The Company believes it is able to and intends to hold each of the investments held with an unrealized loss as of December 27, 2020 until the investments fully recover in market value.

None of the investments with an unrealized loss as of December 27, 2020 had credit downgrades in the current period.

No allowance for credit losses was recorded as of December 27, 2020.

The contractual maturities of short-term investments as of December 27, 2020 were as follows:

The Company believes it is able to and intends to hold each of the investments held with an unrealized loss as of March 28, 2021 until the investments fully recover in market value.

None of the investments with an unrealized loss as of March 28, 2021 had credit downgrades in the current period.

No allowance for credit losses was recorded as of March 28, 2021.

The contractual maturities of short-term investments as of March 28, 2021 were as follows:

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

18 unchanged sentences

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

As of December 27, 2020 and June 28, 2020, financial assets utilizing Level 1 inputs included money market funds and U.S.

As of March 28, 2021 and June 28, 2020, financial assets utilizing Level 1 inputs included money market funds and U.S.

treasury securities.

4 unchanged sentences

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

The Company did not have any financial assets requiring the use of Level 3 inputs as of December 27, 2020 and June 28, 2020.

The Company did not have any financial assets requiring the use of Level 3 inputs as of March 28, 2021 and June 28, 2020.

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

GAAP hierarchy:

December 27, 2020 June 28, 2020

March 28, 2021 June 28, 2020

(in millions of U.S.

2 unchanged sentences

Money market funds $ 290.1 $ — $ — $ 290.1 $ 199.9 $ — $ — $ 199.9

Corporate bonds — 1.5 — 1.5 — — — —

agency securities — 11.5 — 11.5 — 19.6 — 19.6

17 unchanged sentences

Note 8 – Goodwill and Intangible Assets

The following table summarizes changes in goodwill during the six months ended December 27, 2020:

The following table summarizes changes in goodwill during the nine months ended March 28, 2021:

(in millions of U.S.

2 unchanged sentences

Transfer in connection with LED Business Divestiture (1)

Balance at December 27, 2020 $ 359.2

(1) In the second quarter of fiscal 2021, the Company determined that as part of its goodwill impairment analysis on held for sale assets related to the pending LED Business Divestiture, it was necessary to transfer a portion of goodwill from the former LED Products segment, now classified as discontinued operations, to goodwill associated with continuing operations.

Balance at March 28, 2021 $ 359.2

(1) In the second quarter of fiscal 2021, the Company determined that as part of its goodwill impairment analysis on held for sale assets related to the pending LED Business Divestiture, it was necessary to transfer a portion of goodwill from the former LED Products segment, then classified as discontinued operations, to goodwill associated with continuing operations.

Intangible Assets, net

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

December 27, 2020 June 28, 2020

March 28, 2021 June 28, 2020

(in millions of U.S.

6 unchanged sentences

Total intangible assets $ 243.7 ($ 99.1 ) $ 144.6 $ 246.3 ($ 89.4 ) $ 156.9

Total amortization of acquisition-related intangibles assets was $ 3.6 million and $ 7.2 million for the three and six months ended December 27, 2020 and $ 3.6 million and $ 7.2 million for the three and six months ended December 29, 2019.

Total amortization of patents and licensing rights was $ 1.4 million and $ 2.6 million for the three and six months ended December 27, 2020 and $ 1.2 million and $ 2.4 million for the three and six months ended December 29, 2019.

Total amortization of acquisition-related intangibles assets was $ 3.7 million and $ 10.9 million for the three and nine months ended March 28, 2021 and $ 3.7 million and $ 10.9 million for the three and nine months ended March 29, 2020.

Total amortization of patents and licensing rights was $ 2.0 million and $ 4.6 million for the three and nine months ended March 28, 2021 and $ 2.0 million and $ 4.4 million for the three and nine months ended March 29, 2020.

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

11 unchanged sentences

Revolving Line of Credit

As of December 27, 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.

As of March 28, 2021, 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.

The Credit Agreement requires 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, with no other financial covenants.

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

As of December 27, 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 three and six months ended December 27, 2020, the average interest rate was 0.00 %.

As of December 27, 2020, the unused line fee on available borrowings is 25 basis points.

As of March 28, 2021, 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 three and nine months ended March 28, 2021, the average interest rate was 0.09 % and 0.04 %, respectively, related to a seven day draw of $ 30.0 million on the line of credit in the third quarter of fiscal 2021.

As of March 28, 2021, the unused line fee on available borrowings is 25 basis points.

2023 Convertible Notes

42 unchanged sentences

(in millions of U.S.

Dollars) December 27, 2020 June 28, 2020

Dollars) March 28, 2021 June 28, 2020

Principal $ 999.8 $ 999.8

3 unchanged sentences

(in millions of U.S.

Dollars) December 27, 2020 June 28, 2020

Dollars) March 28, 2021 June 28, 2020

Discount related to value of conversion option $ 262.3 $ 262.3

3 unchanged sentences

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

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 27, 2020 December 29, 2019 December 27, 2020 December 29, 2019

Dollars) March 28, 2021 March 29, 2020 March 28, 2021 March 29, 2020

Interest expense, net of capitalized interest $ 2.5 $ 1.3 $ 8.5 $ 3.8

1 unchanged sentence

Total interest expense, net $ 10.5 $ 7.1 $ 34.6 $ 21.0

The Company capitalizes interest related to the Notes in connection with the building of a new silicon carbide fabrication facility in New York.

For the three and six months ended December 27, 2020, the Company capitalized $ 0.6 million and $ 0.8 million of interest expense, respectively, and $ 1.3 million and $ 1.7 million of amortization of discount and issuance costs, respectively.

No interest expense was capitalized for the three and six months ended December 29, 2019.

The estimated fair value of the Notes is $ 2,053.8 million as of December 27, 2020, as determined by a Level 2 valuation.

The Company capitalizes interest related to the Notes in connection with the building of a new silicon carbide device fabrication facility in New York.

For the three and nine months ended March 28, 2021, the Company capitalized $ 1.0 million and $ 1.8 million of interest expense, respectively, and $ 2.1 million and $ 3.8 million of amortization of discount and issuance costs, respectively.

No interest expense was capitalized for the three and nine months ended March 29, 2020.

The last reported sale price of the Company's common stock was greater than or equal to 130 % of the applicable conversion price for both the 2023 and 2026 Notes for at least 20 trading days in the 30 consecutive trading days ended on March 31, 2021.

As a result, the Notes are convertible at the option of the holders through June 30, 2021.

The estimated fair value of the Notes is $ 2.1 billion as of March 28, 2021, as determined by a Level 2 valuation.

Note 10 – Loss Per Share

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

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars, except share data) December 27, 2020 December 29, 2019 December 27, 2020 December 29, 2019

Dollars, except share data) March 28, 2021 March 29, 2020 March 28, 2021 March 29, 2020

Net loss from continuing operations ($ 66.5 ) ($ 56.2 ) ($ 196.1 ) ($ 153.4 )

7 unchanged sentences

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 from continuing operations.

For the three and six months ended December 27, 2020, 3.5 million and 3.9 million of weighted average shares were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive.

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

For the three and nine months ended March 28, 2021, 3.1 million and 3.6 million of weighted average shares were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive.

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

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

16 unchanged sentences

Stock Option Awards

A summary of stock option awards outstanding as of December 27, 2020 and changes during the six months then ended is as follows:

A summary of stock option awards outstanding as of March 28, 2021 and changes during the nine months then ended is as follows:

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

3 unchanged sentences

Forfeited or expired ( 10 ) $ 64.51

Outstanding at December 27, 2020 235 $ 27.94

Outstanding at March 28, 2021 174 $ 28.08

Restricted Stock Awards and Units

A summary of nonvested restricted stock awards (RSAs) and restricted stock unit awards (RSUs) outstanding as of December 27, 2020 and changes during the six months then ended is as follows:

A summary of nonvested restricted stock awards (RSAs) and restricted stock unit awards (RSUs) outstanding as of March 28, 2021 and changes during the nine months then ended is as follows:

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

4 unchanged sentences

Forfeited ( 340 ) $ 53.18

Nonvested at December 27, 2020 2,698 $ 55.50

Nonvested at March 28, 2021 2,297 $ 56.28

Stock-Based Compensation Valuation and Expense

16 unchanged sentences

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

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 27, 2020 December 29, 2019 December 27, 2020 December 29, 2019

Dollars) March 28, 2021 March 29, 2020 March 28, 2021 March 29, 2020

Cost of revenue, net $ 4.1 $ 2.7 $ 11.2 $ 7.1

12 unchanged sentences

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

and Luxembourg deferred tax assets, as of the six months ended December 27, 2020.

and Luxembourg deferred tax assets, as of the nine months ended March 28, 2021.

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

2 unchanged sentences

As of June 28, 2020, the Company's liability for unrecognized tax benefits was $ 7.4 million.

During the six months ended December 27, 2020, the Company did no t record any material movement in its unrecognized tax benefits.

As a result, the total liability for unrecognized tax benefits as of December 27, 2020 was $ 7.4 million.

During the nine months ended March 28, 2021, the Company did not record any material movement in its unrecognized tax benefits.

As a result, the total liability for unrecognized tax benefits as of March 28, 2021 was $ 7.4 million.

If any portion of this $ 7.4 million is recognized, the Company will then include that portion in the computation of its effective tax rate.

16 unchanged sentences

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.

13 unchanged sentences

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

For the three and six months ended December 27, 2020, the Company expensed $ 0.9 million and $ 3.1 million of restructuring charges associated with the movement of equipment related to the factory optimization plan, respectively, of which $ 0.1 million is accrued for as of December 27, 2020.

Additionally, the Company expensed $ 0.4 million and $ 0.8 million of restructuring charges associated with disposals of certain long-lived assets for the three and six months ended December 27, 2020.

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

For the three and nine months ended March 28, 2021, the Company expensed $ 1.2 million and $ 4.3 million of restructuring charges associated with the movement of equipment related to the factory optimization plan, respectively, of which $ 0.1 million is accrued for as of March 28, 2021.

Additionally, the Company expensed $ 2.6 million and $ 3.4 million of restructuring charges associated with disposals of certain long-lived assets for the three and nine months ended March 28, 2021.

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

Corporate Restructuring

In September 2020, the Company realigned certain resources to further focus on areas vital to our growth while driving efficiencies.

As a result, the Company recorded $ 0.0 million and $ 2.8 million in severance-related costs during the three and six months ended December 27, 2020.

The plan has concluded and all expenses have been paid as of December 27, 2020.

As a result, the Company recorded $ 0.0 million and $ 2.8 million in severance-related costs during the three and nine months ended March 28, 2021.

The plan has concluded and all expenses have been paid as of March 28, 2021.

Additionally, in February 2021, the Company realigned the structure of its Asia sales presence.

As a result, the Company recorded $ 0.6 million in severance related costs during the three and nine months ended March 28, 2021.

The plan has concluded and all expenses have been paid as of March 28, 2021.

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 $ 0.0 million and $ 0.8 million in contract termination costs during the three and six months ended December 29, 2019.

The plan has concluded and all expenses have paid as of December 27, 2020.

As a result, the Company recorded $ 0.0 million and $ 0.8 million in contract termination costs during the three and nine months ended March 29, 2020.

The plan has concluded and all expenses have paid as of March 28, 2021.

Note 15 - Shareholders' Equity

On February 11, 2021, the Company established an “at-the-market” offering program (the ATM Program) pursuant to which the Company could offer and sell, from time to time through sales agents, up to an aggregate of $ 500 million of the Company’s common stock.

The ATM Program was conducted pursuant to an equity distribution agreement (the Equity Distribution Agreement) entered into by the Company and Wells Fargo Securities, LLC, BMO Capital Markets Corp., BofA Securities Inc., Canaccord Genuity LLC, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Goldman Sachs & Co.

LLC, Morgan Stanley & Co.

LLC and Truist Securities, Inc.

(the Managers).

On February 19, 2021, the Company announced that it sold approximately $ 500.0 million of common stock under the ATM Program.

As such, the ATM Program automatically terminated in accordance with the terms of the Equity Distribution Agreement.

In total, the Company sold and received payment for 4,222,511 additional shares of common stock at a weighted average price of $ 118.41 per share through the ATM Program for total gross proceeds of approximately $ 500.0 million and net proceeds of approximately $ 489.1 million, after $ 10.0 million in commissions to the Managers and $ 0.9 million in other offering costs.

The Company expects to use the net proceeds for general corporate purposes.

Note 16 - Subsequent Events

On March 29, 2021, the Company began liquidating its common stock ownership interest in ENNOSTAR.

From March 29, 2021 to April 16, 2021, the Company sold all of its previously held 22,825,000 shares in ENNOSTAR for an average price of 82.93 New Taiwanese Dollars per share.

Total net proceeds from selling the equity interest in ENNOSTAR totaled $ 66.1 million.

The Company no longer holds any equity interest in ENNOSTAR.

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

What changed 10-Q

Item 1. Financial Statements