What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-08-18 compared with 2020-08-19 · 462 added, 422 removed, 1081 unchanged (45% of the section changed)

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We have audited the accompanying consolidated balance sheets of Cree, Inc.

and its subsidiaries (the “Company”) as of June 28, 2020 and June 30, 2019, and the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for each of the three years in the period ended June 28, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of June 27, 2021 and June 28, 2020, and the related consolidated statements of operations, of comprehensive loss, of shareholders' equity and of cash flows for each of the three years in the period ended June 27, 2021, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of June 27, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Changes in Accounting Principles

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

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

Basis for Opinions

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

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

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

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

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Current assets held for sale 1.6 1.3

Current assets of discontinued operations — 116.0

Total current assets 1,478.7 1,592.8

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Intangible assets, net 140.5 156.9

Long-term receivables 138.4 —

Other long-term investments — 55.9

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Other assets 35.5 33.6

Long-term assets of discontinued operations 1.2 270.1

Total assets $ 3,446.8 $ 3,231.0

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Other current liabilities 38.6 22.2

Current liabilities of discontinued operations 0.6 60.2

Total current liabilities 448.8 291.2

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Other long-term liabilities 44.5 43.8

Long-term liabilities of discontinued operations 0.6 9.8

Total long-term liabilities 881.5 850.6

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Total shareholders’ equity 2,116.5 2,083.1

Non-controlling interest 6.1 5.0

Noncontrolling interest from discontinued operations — 6.1

Total equity 2,116.5 2,089.2

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Amortization or impairment of acquisition-related intangibles 14.5 14.5 15.6

Abandonment of long-lived assets 73.9 — —

Loss on disposal or impairment of other assets 1.6 1.5 5.0

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Operating loss ( 313.9 ) ( 224.1 ) ( 93.5 )

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

Non-operating expense (income), net 26.3 ( 18.5 ) 29.4

Loss before income taxes ( 340.2 ) ( 205.6 ) ( 122.9 )

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Net loss from continuing operations ( 341.3 ) ( 197.6 ) ( 118.5 )

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

Net (loss) income from discontinued operations ( 181.2 ) 7.0 ( 256.6 )

Net loss ( 522.5 ) ( 190.6 ) ( 375.1 )

Net income attributable to noncontrolling interest 1.1 — 0.1

Net income from discontinued operations attributable to noncontrolling interest 1.4 1.1 —

Net loss attributable to controlling interest ($ 523.9 ) ($ 191.7 ) ($ 375.1 )

Basic and diluted loss per share

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

Continuing operations ($ 3.04 ) ($ 1.83 ) ($ 1.14 )

Net loss attributable to controlling interest ($ 4.66 ) ($ 1.78 ) ($ 3.62 )

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Currency translation gain — — 4.4

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

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

Net unrealized (loss) gain on available-for-sale securities ( 3.8 ) 6.5 4.5

Comprehensive loss ( 535.8 ) ( 184.1 ) ( 366.2 )

Net income attributable to non-controlling interest 1.1 — 0.1

Net income from discontinued operations attributable to noncontrolling interest 1.4 1.1 —

Comprehensive loss attributable to controlling interest ($ 537.2 ) ($ 185.2 ) ($ 366.2 )

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Operating activities:

Net loss ($ 522.5 ) ($ 190.6 ) ($ 375.1 )

Net (loss) income from discontinued operations ( 181.2 ) 7.0 ( 256.6 )

Net loss from continuing operations ( 341.3 ) ( 197.6 ) ( 118.5 )

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

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

Depreciation and amortization 120.9 97.1 86.2

Amortization of debt issuance costs and discount 26.3 18.3 —

Amortization of debt issuance costs and discount, net of capitalized interest 32.8 26.2 18.3

Gain on partial extinguishment of debt — ( 11.0 ) —

Stock-based compensation 53.2 47.2 42.9

Abandonment of long-lived assets 73.9 — —

Loss on disposal or impairment of long-lived assets 5.0 4.5 5.0

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Purchases of patent and licensing rights ( 5.9 ) ( 4.4 ) ( 3.3 )

Proceeds from sale of property and equipment 2.6 0.3 0.6

Proceeds from sale of property and equipment, including insurance proceeds 2.3 2.6 0.3

Purchases of short-term investments ( 475.0 ) ( 821.4 ) ( 517.2 )

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Proceeds from sale of short-term investments 51.7 118.0 46.4

Purchase of acquired business, net of cash acquired — — ( 429.2 )

Reimbursement of property and equipment purchases from long-term incentive agreement 10.7 — —

Proceeds from sale of business, net 43.7 — 219.0

Proceeds from sale of long-term investment 66.4 — —

Net cash used in investing activities of continuing operations ( 448.3 ) ( 474.5 ) ( 202.1 )

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Financing activities:

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

Payment of acquisition-related contingent consideration — — ( 1.8 )

Proceeds from long-term debt borrowings 30.0 — 95.0

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

Refunds on incentive-related escrow deposits 1.5 — —

Incentive-related refundable escrow deposits — ( 11.5 ) —

Commitment fee on long-term incentive agreement ( 0.5 ) — —

Cash provided by financing activities 504.1 464.3 406.5

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

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

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

Share data in thousands, U.S.

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

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

Currency translation gain — — — — 0.6 0.6 — 0.6

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

Comprehensive loss ( 285.3 ) 0.1 ( 285.2 )

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

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

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

Exercise of stock options and issuance of shares 3,814 — 92.6 — — 92.6 — 92.6

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

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

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Comprehensive loss ( 366.2 ) — ( 366.2 )

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

Tax withholding on vested equity awards — — ( 21.6 ) — — ( 21.6 ) — ( 21.6 )

Adoption of ASC 606

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Comprehensive loss ( 185.2 ) 1.1 ( 184.1 )

Income tax expense from stock option exercises — — ( 16.9 ) — — ( 16.9 ) — ( 16.9 )

Tax withholding on vested equity awards — — ( 16.9 ) — — ( 16.9 ) — ( 16.9 )

Stock-based compensation — — 54.9 — — 54.9 — 54.9

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

Net loss — — — ( 523.9 ) — ( 523.9 ) 1.4 ( 522.5 )

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 — — — — ( 3.8 ) ( 3.8 ) — ( 3.8 )

Comprehensive loss ( 537.2 ) 1.4 ( 535.8 )

Tax withholding on vested equity awards — — ( 36.2 ) — — ( 36.2 ) — ( 36.2 )

Stock-based compensation — — 67.1 — — 67.1 — 67.1

Exercise of stock options and issuance of shares 2,238 — 50.6 — — 50.6 — 50.6

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 June 27, 2021 115,691 $ 0.1 $ 3,676.8 ($ 1,563.1 ) $ 2.7 $ 2,116.5 $ — $ 2,116.5

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

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Commitments and Contingencies

Reportable Segments

Concentrations of Credit Risk

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Note 1 – Business

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

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

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

The Company operates in two reportable segments:

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

(the Company) is an innovator of wide bandgap semiconductors, focused on silicon carbide and gallium nitride (GaN) materials and devices for power and radio-frequency (RF) applications.

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

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 3, “Discontinued Operations,” on March 1, 2021, the Company completed the 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.

The Company’s continuing operations consist of the Wolfspeed business, which includes silicon carbide and GaN materials, power devices and RF devices based on wide bandgap semiconductor materials and silicon.

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

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

• LED Products , which consists of LED chips and LED components.

The Company's LED products enable its customers to develop and market LED-based products for lighting, video screens, automotive and specialty lighting applications.

Previously, the Company designed, manufactured and sold LED lighting fixtures and lamps for the commercial, industrial and consumer markets.

The Company referred to these product lines as the Lighting Products business unit.

As discussed in Note 3, “Discontinued Operations,” on May 13, 2019, the Company sold its Lighting Products business unit to IDEAL Industries, Inc.

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

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

In January 2021, the Company announced plans to change its corporate name from Cree, Inc.

to Wolfspeed, Inc.

in the later part of calendar year 2021.

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.

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Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and the joint venture.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

All material intercompany accounts and transactions have been eliminated.

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Actual results could differ materially from those estimates.

Certain accounting matters that generally require consideration of forecasted financial information were assessed regarding impacts from the COVID-19 outbreak as of June 28, 2020 and through the date of this Annual Report using reasonably available information as of those dates.

Certain accounting matters that generally require consideration of forecasted financial information were assessed regarding impacts from the COVID-19 pandemic as of June 27, 2021 and through the date of this Annual Report using reasonably available information as of those dates.

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

While the assessments resulted in no material impacts to the consolidated financial statements as of and for the year ended June 28, 2020, the Company believes the full impact of the outbreak remains uncertain and will continue to assess if ongoing developments related to the outbreak may cause future material impacts to its consolidated financial statements.

While the assessments resulted in no material impacts to the consolidated financial statements as of and for the years ended June 27, 2021 and June 28, 2020, 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 Information

GAAP requires segmentation based on an entity’s internal organization and reporting of revenue and operating income based upon internal accounting methods commonly referred to as the “management approach.” Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (CODM), or decision making group, in deciding how to allocate resources and in assessing performance.

The Company’s CODM is its Chief Executive Officer.

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

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.

The Company's identified CODM is the Chief Executive Officer.

Cash and Cash Equivalents

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The Company has not historically experienced any losses due to such concentration of credit risk.

Accounts Receivable

For product revenue, the Company typically invoices its customers at the time of shipment for the sales order value of products shipped.

Accounts receivable are recognized at the invoiced amount and are not subject to any interest or finance charges.

The Company does not have any off-balance sheet credit exposure related to any of its customers.

Allowance for Doubtful Accounts

On June 29, 2020, the first day of the 2021 fiscal year, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standard Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (ASU 2016-13) using the modified retrospective transition method, which replaced the incurred loss impairment methodology in U.S.

GAAP with a methodology that reflects expected credit losses.

Upon adoption, prior period balances were not adjusted and the Company determined no cumulative-effect adjustment to retained earnings as of June 29, 2020 was required.

Under this new standard, expected credit losses for the Company's receivables are evaluated on a collective (pool) basis and aggregated on the basis of similar risk characteristics.

These aggregated risk pools are reassessed at each measurement date.

A combination of factors is considered in determining the appropriate estimate of expected credit losses, including broad-based economic indicators as well as customers' financial strength, credit standing, payment history and any historical defaults.

Prior to the adoption of ASU 2016-13, the Company evaluated the collectability of accounts receivable based on a combination of factors.

In cases where the Company became aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, the Company would recognize an allowance against amounts due, and thereby reduce the net recognized receivable to the amount the Company reasonably believed would be collected.

For all other customers, the Company recognized an allowance for doubtful accounts based on the length of time the receivables were past due and consideration of other factors such as industry conditions, the current business environment and the Company’s historical experience.

Investments in certain securities may be classified into three categories:

• Held-to-Maturity – Debt securities that the entity has the positive intent and ability to hold to maturity, which are reported at amortized cost.

• Trading – Debt and equity securities that are bought and held principally for the purpose of selling in the near term, which are reported at fair value, with unrealized gains and losses included in earnings.

• Available-for-Sale – Debt and equity securities not classified as either held-to-maturity or trading securities, which are reported at fair value with unrealized gains or losses excluded from earnings and reported as a separate component of shareholders’ equity.

• Trading – Debt securities that are bought and held principally for the purpose of selling in the near term, which are reported at fair value, with unrealized gains and losses included in earnings.

• Available-for-Sale – Debt securities not classified as either held-to-maturity or trading securities, which are reported at fair value with unrealized gains or losses excluded from earnings and reported as a separate component of shareholders’ equity.

The Company reassesses the appropriateness of the classification (i.e.

held-to-maturity, trading or available-for-sale) of its investments at the end of each reporting period.

When the fair value of an investment declines below its original cost, the Company considers all available evidence to evaluate whether the decline is other-than-temporary.

Among other things, the Company considers the duration and extent of the decline and economic factors influencing the capital markets.

For the fiscal years ended June 28, 2020, June 30, 2019, and June 24, 2018, the Company had no other-than-temporary declines below the cost basis of its investments.

Upon adoption of ASU 2016-13, available-for-sale debt securities in an unrealized loss position at each measurement date are individually evaluated for expected credit losses.

The Company evaluates whether the unrealized loss is due to market factors or changes in the investment holdings' credit rating.

An expected credit loss will be recorded when an investment in an unrealized loss position is determined to have lost value from a decreased credit rating.

The Company does not record an allowance for credit losses on receivables related to accrued interest.

For the fiscal year ended June 27, 2021, no allowance for credit losses was recorded.

Before the adoption of ASU 2016-13, the Company evaluated investments that experienced a decline below its original cost to determine whether the decline is other-than-temporary.

Among other things, the Company considered the duration and extent of the decline and the economic factors that influenced the capital markets.

For the fiscal years ended June 28, 2020, and June 30, 2019, the Company had no other-than-temporary declines below the cost basis of its investments.

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

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

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

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

Other long-term investments consist of the Company's approximately 16 % common stock ownership interest in Lextar Electronics Corporation (Lextar), which the Company acquired in December 2014.

The Company currently utilizes the fair value option in accounting for its investment in Lextar.

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (FIFO) method or an average cost method.

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The cost and related accumulated depreciation of the assets are removed from the accounts upon disposition and any resulting gain or loss is reflected in operating income.

The Company considers a long-lived asset to be abandoned after the Company has ceased use of such asset and there is no longer intent to use or repurpose the asset in the future.

Abandoned long-lived assets are recorded at their salvage value, if any.

Government Grant Disbursements

Government grant disbursements are recognized when there is reasonable assurance that:

(1) the Company will comply with the relevant conditions and (2) the grant disbursement will be received.

The Company receives grant disbursements from the State of New York Development Corporation relating to property, plant and equipment purchases in connection with its construction of a new silicon carbide device fabrication facility in Marcy, New York.

Grant disbursements are recorded as a reduction to the related asset(s), which then reduces depreciation expense over the expected useful life of the asset on a straight-line basis.

Shipping and Handling Costs

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The Company recognizes goodwill as an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.

The Company tests goodwill for impairment at least annually as of the first day of the fiscal fourth quarter, or when indications of potential impairment exist.

The Company tests goodwill for impairment at least annually as of the first day of its fiscal fourth quarter, or when indications of potential impairment exist.

The Company monitors for the existence of potential impairment indicators throughout the fiscal year.

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Reporting units may be operating segments as a whole, or an operation one level below an operating segment, referred to as a component.

The Company has determined that its reporting units are its two operating and reportable segments.

The Company may initiate goodwill impairment testing by considering qualitative factors to determine whether it is more likely than not that a reportable segment’s carrying value is greater than its fair value.

The Company has determined that it has one reporting unit, Wolfspeed.

The Company may initiate goodwill impairment testing by considering qualitative factors to determine whether it is more likely than not that a reporting unit’s carrying value is greater than its fair value.

Such factors may include the following, among others:

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The quantitative test compares the fair value of a reporting unit with its carrying amount, including goodwill.

If the fair value of the reportable segment exceeds the carrying value of the net assets associated with the segment, goodwill is not considered impaired.

If the carrying value of the net assets associated with the reportable segment exceeds the fair value of the segment, the Company recognizes an impairment loss in an amount equal to the excess, not to exceed the carrying value of the reportable segment's goodwill.

If the fair value of the reporting unit exceeds the carrying value of the net assets associated with the reporting unit, goodwill is not considered impaired.

If the carrying value of the net assets associated with the reporting unit exceeds the fair value of the reporting unit, the Company recognizes an impairment loss in an amount equal to the excess, not to exceed the carrying value of the reporting unit's goodwill.

Once an impairment loss is recognized, the adjusted carrying value of the goodwill becomes the new accounting basis of the goodwill for the reporting unit.

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

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

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

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

The fair value is reconciled back to the Company ’ s consolidated market capitalization.

Finite-Lived Intangible Assets

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Substantially all of the Company's revenue is derived from product sales.

Revenue is recognized at a point in time based on the Company’s evaluation of when the customer obtains control of the products, and all performance obligations under the terms of the contract are satisfied.

Revenue is recognized at a point in time based on the Company’s evaluation of when the customer obtains control of the products, and all

performance obligations under the terms of the contract are satisfied.

If customer acceptance clauses are present and it cannot be objectively determined that control has been transferred based on the contract and shipping terms, revenue is only recorded when customer acceptance is received and all performance obligations have been satisfied.

Sales of products typically do not include more than one performance obligation.

A substantial portion of the Company’s products are sold through distributors.

A portion of the Company’s products are sold through distributors.

Distributors stock inventory and sell the Company’s products to their own customer base, which may include:

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Revenue is measured based on the amount of net consideration to which the Company expects to be entitled to receive in exchange for products or services.

Variable consideration is recognized as a reduction of net revenue with a corresponding reserve at the time of revenue recognition, and consists primarily of sales incentives or rebates, price concessions and return allowances.

Variable consideration is recognized as a reduction of net revenue with a corresponding reserve at the time of revenue recognition, and consists primarily of sales incentives, price concessions and return allowances.

Variable consideration is estimated based on contractual terms, historical analysis of customer purchase volumes, or historical analysis using specific data for the type of consideration being assessed.

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

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

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These credits are applied against the reserve that the Company establishes upon initial shipment of product to the distributor.

In addition, the Company runs sales incentive programs with certain distributors, such as product rebates.

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

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

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

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

The Company adopted FASB ASC 606 "Revenue from Contracts with Customers" (Topic 606) (ASC 606) on June 25, 2018 using the modified retrospective approach.

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

Depending on the terms, leases are classified as either operating or finance leases, if the Company is the lessee, or as operating, sales-type or direct financing leases, if the Company is the lessor.

The Company does not have any sales-type or direct financing leases.

Lease agreements frequently include other services such as maintenance, electricity, security, janitorial and reception services.

The Company accounts for the lease and non-lease components in its arrangements as a single lease component.

The Company adopted FASB ASC 842 "Leases" (ASC 842) on July 1, 2019 under the modified retrospective transition approach with the cumulative effect of application recognized at the effective date, without adjustment to prior comparative periods.

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

Accounting for Leases as a Lessee

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

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

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

Finance lease assets are generally amortized over the term of the lease.

If the finance lease transfers ownership of the underlying asset to the Company or the Company is reasonably certain it will exercise an option to purchase the underlying asset, the finance lease assets are amortized on a straight-line basis over the useful life of the asset.

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

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

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

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

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

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These variable lease payments are expensed as incurred.

Accounts Receivable

For product revenue, the Company typically invoices its customers at the time of shipment for the sales order value of products shipped.

Accounts receivable are recognized at the invoiced amount and are not subject to any interest or finance charges.

The Company does not have any off-balance sheet credit exposure related to any of its customers.

Allowance for Doubtful Accounts

The Company evaluates the collectability of accounts receivable based on a combination of factors.

In cases where the Company becomes aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, the Company will recognize an allowance against amounts due, and thereby reduce the net recognized receivable to the amount the Company reasonably believes will be collected.

For all other customers, the Company recognizes an allowance for doubtful accounts based on the length of time the receivables are past due and consideration of other factors such as industry conditions, the current business environment and the Company’s historical experience.

Accounting for Leases as a Lessor

In accordance with FASB ASC 842, "Leases", lease income is recognized on a straight-line basis over the lease term.

Variable lease payments, if any, are recognized as income in the period received.

The underlying asset in an operating lease is carried at depreciated cost and is included in property and equipment.

The Company expenses the costs of producing advertisements at the time production occurs and expenses the cost of communicating the advertising in the period in which the advertising is used.

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Research and Development

Research and development expenses consist primarily of employee salaries and related compensation costs, occupancy costs, consulting costs and the cost of development equipment and supplies.

Research and development activities are expensed when incurred.

Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the applicable period.

Basic loss per share is computed by dividing net loss attributable to controlling interest by the weighted average number of shares of common stock outstanding for the applicable period.

Diluted loss per share is determined in the same manner as basic loss per share except that the number of shares is increased to assume exercise of potentially dilutive stock options, nonvested restricted stock and contingently issuable shares using the treasury stock method, unless the effect of such increases would be anti-dilutive.

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Foreign Currency Translation

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

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

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

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

Due to the sale of the Lighting Products business unit in fiscal 2019 and the sale of the LED Products segment in fiscal 2021, the Company no longer has operations with a functional currency other than the U.S.

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

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

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

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

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

The Company's interest in Cree Venture LED was included in the LED Business Divestiture and its related activity is classified as discontinued operations.

Supplemental Cash Flow Information

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

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

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

Cash paid for interest was $ 14.1 million, $ 5.9 million, and $ 4.0 million for the fiscal years ended June 27, 2021, June 28, 2020 and June 30, 2019, respectively.

Cash paid for taxes, net of refunds received, was $ 11.0 million, $ 3.6 million and $ 0.5 million for the fiscal years ended June 27, 2021, June 28, 2020 and June 30, 2019, respectively.

Recently Adopted Accounting Pronouncements

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

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

Codification Improvements to ASC 842, Leases.

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

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

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

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

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

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

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

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

The standard did not materially impact the Company's results

from operations and had no impact on cash flows.

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

The reported results as of and for the year ended June 28, 2020 reflect the application of the new accounting guidance, while the reported results for prior periods have not been adjusted and continue to be reported in accordance with the Company's historical accounting under ASC 840, Leases.

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

Simplifying the Accounting for Income Taxes.

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

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

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

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

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

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

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

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

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

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

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

Recently Issued Accounting Pronouncements

Credit Losses

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Measurement of Credit Losses on Financial Instruments.

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

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

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

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

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

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

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

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

This standard replaces the incurred loss impairment methodology in current U.S.

GAAP with a methodology that reflects expected credit losses.

The Company adopted this standard using the modified retrospective transition method on June 29, 2020, the first day of its 2021 fiscal year.

Upon adoption, prior period balances were not adjusted and the Company determined no cumulative-effect adjustment to retained earnings as of June 29, 2020 was required.

Under this new standard, expected credit losses for the Company's receivables are evaluated on a collective (pool) basis and aggregated on the basis of similar risk characteristics.

These aggregated risk pools are reassessed at each measurement date.

Available-for-sale debt securities in an unrealized loss position at each measurement date are individually evaluated for expected credit losses.

The Company evaluates whether the unrealized loss is due to market factors or changes in the investment holdings' credit rating.

An expected credit loss will be recorded when an investment in an unrealized loss position is determined to have lost value from a decreased credit rating and the Company does not expect to recover the fair value of the security.

Recently Issued Accounting Pronouncements Pending Adoption

Convertible Debt Instruments

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40).

This standard simplifies the accounting for convertible instruments by eliminating the cash conversion and the beneficial conversion accounting models.

This update also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity.

The update requires an entity to use the if-converted method for all convertible instruments in the diluted earnings per share calculation.

An entity may use either a modified or full retrospective approach for adoption.

The Company expects to adopt this standard by June 27, 2022 and is currently evaluating the impact on its consolidated financial statements.

Note 3 – Discontinued Operations

Lighting Business

On May 13, 2019, the Company completed the sale of (a) certain manufacturing facilities and equipment, inventory, intellectual property rights, contracts and real estate of the Company used by the Company's Lighting Products business unit, which includes LED lighting fixtures, lamps and corporate lighting solutions for commercial, industrial and consumer applications, and (b) all of the issued and outstanding equity interests of E-conolight LLC (E-conolight), Cree Canada Corp.

and Cree Europe S.r.l., each a wholly owned subsidiary of the Company (collectively, the Lighting Products business unit) to IDEAL, pursuant to the Purchase Agreement, dated March 14, 2019, as amended between Cree and IDEAL (the Purchase Agreement).

The Company retained certain liabilities associated with the Lighting Products business unit arising prior to the closing of the sale.

The Lighting Products business unit represented the Lighting Products segment disclosed in the Company's historical financial statements.

The aggregate net proceeds from the sale of the Lighting Products business unit was $ 219.0 million in cash, which is subject to certain adjustments.

The aggregate net proceeds from the sale of the Lighting Products business unit was $ 219.0 million in cash, which was subject to certain adjustments.

Additionally, the Company is entitled to an earnout payment subject to the future performance of the Lighting Products business unit.

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

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

Products business unit to IDEAL;

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

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

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

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

Fiscal Years Ended

June 30, 2019 June 24, 2018

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

(in millions of U.S.

Dollars) June 30, 2019

Revenue, net $ 419.8

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Loss on disposal or impairment of long-lived assets 2.0

Operating loss ( 250.9 ) ( 301.1 )

Non-operating income — ( 1.3 )

Loss before income taxes and loss on sale ( 250.9 )

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Loss before income taxes ( 317.1 )

Income tax expense (benefit) 0.1 ( 36.3 )

Income tax expense 0.1

Net loss ($ 317.2 )

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

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

The Company recognized $ 4.2 million, $ 10.5 million and $ 1.6 million in administrative fees for the fiscal years ended June 27, 2021, June 28, 2020 and June 30, 2019, respectively, relating to the TSA, of which $ 1.6 million was accrued in accounts receivable, net in the consolidated balance sheets as of June 28, 2020.

Less than $ 0.1 million was accrued in accounts receivable, net in the consolidated balance sheets as of June 27, 2021.

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

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

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

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

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

The LED Supply Agreement was transferred in connection with the LED Business Divestiture.

The Company recognized $ 4.2 million, $ 12.0 million and $ 2.1 million of revenue related to the LED Supply Agreement for the fiscal years ended June 27, 2021, June 28, 2020 and June 30, 2019, respectively, which is included in revenue from discontinued operations.

As of June 28, 2020, $ 0.7 million of revenue related to the LED Supply Agreement was accrued in accounts receivable, net and is included in current assets of discontinued operations on the consolidated balance sheets.

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

The contract liability is recorded in current and long-term liabilities of discontinued operations on the consolidated balance sheets.

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

Pursuant to the LED 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, the Company’s joint venture with San’an Optoelectronics Co., Ltd.

(collectively, the LED Business);

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 $ 29.1 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 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 LED 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 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:

Fiscal Years Ended

(in millions of U.S.

Dollars) June 27, 2021 June 28, 2020 June 30, 2019

Revenue, net $ 272.8 $ 433.2 $ 541.8

Cost of revenue, net 213.3 343.4 394.5

Gross profit 59.5 89.8 147.3

Operating expenses:

Research and development 22.3 32.2 36.8

Sales, general and administrative 29.4 29.7 31.8

Goodwill impairment 112.6 — —

Impairment on assets held for sale 19.5 — —

Gain on disposal or impairment of long-lived assets ( 1.6 ) ( 0.1 ) ( 0.3 )

Other operating expense 18.7 13.3 1.4

Operating (loss) income ( 141.4 ) 14.7 77.6

Non-operating income ( 0.3 ) ( 0.5 ) ( 0.1 )

(Loss) income before income taxes and loss on sale ( 141.1 ) 15.2 77.7

Loss on sale 29.1 — —

(Loss) income before income taxes ( 170.2 ) 15.2 77.7

Income tax expense 11.0 8.2 17.1

Net (loss) income ( 181.2 ) 7.0 60.6

Net income attributable to noncontrolling interest 1.4 1.1 —

Net (loss) income attributable to controlling interest ($ 182.6 ) $ 5.9 $ 60.6

As of September 27, 2020, the Company determined it would more likely than not sell all or a portion of the assets comprising the LED Products segment below carrying value.

As a result, the Company recorded an impairment to goodwill of $ 105.7 million.

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 LED Business Divestiture of $ 19.5 million.

For the fiscal years ended June 27, 2021, June 28, 2020 and June 30, 2019, the Company recognized $ 11.0 million, $ 8.2 million and $ 17.1 million, respectively, of income tax expense related to discontinued operations, which primarily related to the foreign operations of the LED Business.

Income tax expense related to discontinued operations for the fiscal year ended June 27, 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.

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 14, "Income Taxes."

For the fiscal year ended June 27, 2021, the Company recognized $ 1.2 million and $ 4.0 million in administrative fees related to the LED RELA and the LED TSA, respectively, of which $ 0.3 million and $ 0.7 million are included in accounts receivable, net in the consolidated balance sheets as of June 27, 2021.

Fees related to the LED RELA were recorded as lease income, see Note 5, "Leases." Fees related to the LED TSA 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 $ 22.7 million was outstanding as of June 27, 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 $ 0.8 million in non-operating expense, net for the fiscal year ended June 27, 2021 related to the Wafer Supply Agreement.

A receivable of $ 7.0 million was included in other assets in the consolidated balance sheets as of June 27, 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) June 28, 2020

Short-term investments $ 12.0

Accounts receivable, net 41.6

Inventories 57.2

Prepaid expenses 0.1

Other current assets 5.1

Current assets of discontinued operations 116.0

Property and equipment, net 60.3

Goodwill 180.3

Intangible assets, net 22.7

Deferred tax assets 5.1

Other assets 1.7

Long-term assets of discontinued operations 270.1

Accounts payable and accrued expenses 31.0

Accrued contract liabilities 24.1

Income taxes payable 2.0

Other current liabilities 3.1

Current liabilities of discontinued operations 60.2

Other long-term liabilities 9.8

Long-term liabilities of discontinued operations 9.8

As of June 27, 2021, certain leases conveying to SMART as part of the LED Purchase Agreement, including an office lease in Hong Kong, were still legally held by the Company.

As of June 27, 2021, the assets and liabilities related to these leases are classified as held for sale in the consolidated balance sheets.

Note 4 – Revenue Recognition

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

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

Contract liabilities primarily include various rights of return and customer deposits, as well as a reserve on the Company's "ship and debit" program.

Contract liabilities were $ 45.2 million and $ 47.9 million as of June 27, 2021 and June 28, 2020, respectively.

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

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 reduction to accounts receivable.

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

however, they did impact the changes in

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

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

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

Practical Expedients and Exemptions

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Contract assets, such as costs to obtain or fulfill contracts, are an insignificant component of the Company’s revenue recognition process.

The majority of the Company’s fulfillment costs as a manufacturer consist of inventory, fixed assets, and intangible assets, all of which are accounted for under the respective guidance for those asset types.

The majority of the Company’s fulfillment costs as

a manufacturer consist of inventory, fixed assets, and intangible assets, all of which are accounted for under the respective guidance for those asset types.

The Company’s accounts receivable balance represents the Company’s unconditional right to receive consideration from its customers with contracts.

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Sales tax, value-added tax, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue, and shipping and handling costs are treated as fulfillment activities and are included in cost of revenue in the Company’s consolidated statements of operations.

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

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

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

For the fiscal years ended June 27, 2021 and June 28, 2020, the Company did no t recognize any revenue that was included in contract liabilities as of June 29, 2020 and July 1, 2019, respectively.

Revenue recognized related to performance obligations that were satisfied or partially satisfied in previous periods was not material for the fiscal years ended June 27, 2021 and June 28, 2020.

Geographic Information

The Company conducts business in several geographic areas.

Revenue is attributed to a particular geographic region based on the shipping address for the products.

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

For the Years Ended

June 27, 2021 June 28, 2020 June 30, 2019

(in millions of U.S.

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

Europe $ 188.9 36 % $ 171.4 36 % $ 162.9 30 %

United States 117.3 22 % 106.5 23 % 122.0 23 %

China 100.1 19 % 65.0 14 % 116.3 22 %

Japan 42.5 8 % 52.1 11 % 68.7 13 %

South Korea 32.1 6 % 47.7 10 % 32.5 6 %

Other 44.7 9 % 28.0 6 % 35.8 6 %

Total $ 525.6 $ 470.7 $ 538.2

Note 5 – Leases

The Company primarily leases manufacturing, office and warehousing space.

The Company primarily leases manufacturing and office space.

The Company also has a number of bulk gas leases.

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

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

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

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

Balance Sheet

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

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

Operating Leases:

June 27, 2021 June 28, 2020

Right-of-use asset (1)

$ 12.1 $ 12.3

Current lease liability (2)

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Finance lease assets (4)

$ 15.5 $ 15.4

Current portion of finance lease liabilities 5.2 3.6

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Statement of Operations

Operating lease expense was $ 6.4 million in fiscal 2020.

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

Lease income was immaterial in fiscal 2020.

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

Operating lease expense was $ 5.5 million and $ 5.4 million in fiscal 2021 and 2020, respectively.

In fiscal 2021 and 2020, short-term lease expense, variable lease expense and sublease income were immaterial.

Finance lease amortization was $ 1.0 million and $ 0.7 million, and interest expense was $ 0.3 million and $ 0.2 million, in fiscal 2021 and 2020, respectively.

Cash flow information consisted of the following:

Fiscal year ended

Fiscal years ended

(in millions of U.S.

Dollars) June 28, 2020

Dollars) June 27, 2021 June 28, 2020

Cash used in operating activities:

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Finance lease additions 4.8 15.7

Transfer of finance lease liability to accounts payable and accrued expenses (1)

(1) 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

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(2) Weighted average discount rate of finance leases without the 49 -year ground lease is 1.24 %.

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

Fiscal Years Ending (in millions of U.S.

June 28, 2020 $ 4.1

June 27, 2021 2.3

June 26, 2022 1.2

As mentioned in Note 3, "Discontinued Operations," on March 1, 2021 and in connection with the LED Business Divestiture, the Company entered into the LED RELA 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.

Subject to certain provisions in the LED RELA, 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 $ 1.2 million for the year ended June 27, 2021.

The Company did no t recognize any variable lease income for the years ended June 27, 2021 and June 28, 2020.

Future minimum rental income relating to the LED RELA is as follows (in millions of U.S.

June 26, 2022 3.6

June 25, 2023 2.4

Total future minimum rental payments $ 8.3

Note 6 – Acquisition

Infineon Radio Frequency Power Business

On March 6, 2018, the Company acquired certain assets of the Infineon Radio Frequency Power Business (RF Power), pursuant to an asset purchase agreement with Infineon in exchange for a base purchase price of $ 429.2 million, subject to certain adjustments.

As part of the agreement, the Company paid $ 427.0 million of cash on the purchase date and agreed to purchase certain additional non-U.S.

property and equipment related to the RF Power business from Infineon for approximately $ 2.2 million, which was completed during the fourth quarter of fiscal 2018.

The acquisition allows the Company to expand its product portfolio into the wireless market.

The acquisition of the RF Power business from Infineon was accounted for as a business combination.

The assets, liabilities and operating results of the RF Power business have been included in the Company's consolidated financial statements from the date of acquisition.

Additionally, the RF Power business's results from operations are reported as part of the Company's Wolfspeed segment.

The final purchase price allocation is as follows:

(in millions of U.S.

Inventories $ 22.5

Property and equipment 11.7

Other receivables 0.4

Intangible assets 149.0

Goodwill 249.0

Accrued expenses and liabilities ( 3.4 )

Net assets acquired $ 429.2

The weighted average life of the acquired intangible assets is approximately 13.8 years.

The components of the acquired intangible assets are as follows:

(in millions of U.S.

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

Lease agreement (1)

Customer relationships 92.0 15

Developed technology 44.0 14

Non-compete agreements 12.0 4

Total identifiable intangible assets $ 149.0

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

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

For tax purposes, in accordance with Section 197 of the Internal Revenue Code of 1986, as amended (the IRC), $ 245.0 million of the acquired goodwill will be amortized over 15 years.

The results of the RF Power business reflected in the Company's consolidated statements of operations for the fiscal year ended June 24, 2018 from the date of acquisition (March 6, 2018) are as follows:

(in millions of U.S.

Dollars) Amount

Revenue $ 29.0

Net loss from continuing operations ( 11.7 )

The Company incurred total transaction costs related to the acquisition of approximately $ 3.8 million.

These costs were primarily included in operating expenses in the consolidated statements of operations in fiscal 2018.

Supplemental Pro Forma Financial Information

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

Fiscal Year Ended

(in millions of U.S.

Dollars, except share data) June 24, 2018

Revenue $ 990.3

Net loss from continuing operations ( 20.8 )

Basic loss per share from continuing operations ($ 0.21 )

Diluted loss per share from continuing operations ($ 0.21 )

Total future minimum rental income 6.0

Note 6 – Financial Statement Details

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Inventories $ 166.6 $ 121.9

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.

June 27, 2021 June 28, 2020

Wolfspeed $ 159.2 $ 97.3

Wafer Supply Agreement inventory (1)

Unallocated inventories 7.4 5.6

Consolidated inventories $ 166.6 $ 121.9

(1) Inventory related to the Wafer Supply Agreement as of June 27, 2021 is recorded within other current assets in the consolidated balance sheets.

Property and Equipment, net

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Depreciation of property and equipment totaled $ 100.5 million, $ 76.7 million and $ 64.9 million for the years ended June 27, 2021, June 28, 2020 and June 30, 2019, respectively.

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

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

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

During the years ended June 27, 2021, June 28, 2020 and June 30, 2019, the Company recognized approximately $ 4.3 million, $ 3.3 million and $ 0.2 million, respectively, as losses on disposals or impairments of property and equipment of which $ 3.4 million and $ 3.0 million are related to the Company's factory optimization plan and are reflected in other operating expense for the years ended June 27, 2021 and June 28, 2020, respectively.

The remaining amount of these charges are reflected in loss on disposal or impairment of other assets in the consolidated statements of operations.

In the fourth quarter of fiscal 2021, the Company modified its long-range plan regarding a portion of its Durham, North Carolina campus.

As a result, the Company has decided it will no longer complete the construction of certain buildings on the Durham campus.

The carrying value of the abandoned assets has been reduced to an estimated salvage value of approximately $ 20.0 million as of June 27, 2021.

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

(in millions of U.S.

Dollars) June 27, 2021 June 28, 2020

United States $ 1,258.1 $ 758.2

China 2.3 2.6

Other 31.9 10.0

Total $ 1,292.3 $ 770.8

Accounts Payable and Accrued Expenses

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Accounts payable and accrued expenses $ 381.1 $ 189.8

Accounts payable and accrued expenses as of June 27, 2021 and June 28, 2020 includes accrued property and equipment of $ 248.3 million and $ 79.4 million, respectively.

Accrued property and equipment as of June 30, 2019 was $ 20.1 million.

Accumulated Other Comprehensive Income, net of taxes

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Accumulated other comprehensive income, net of taxes $ 2.7 $ 16.0

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

(1) Amounts as of June 27, 2021 and June 28, 2020 include a $ 2.4 million loss related to tax on the net unrealized gain on available-for-sale securities.

Other Operating Expense

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See Note 18, "Restructuring" for more details on the Company's restructuring costs.

Non-Operating (Income) Expense, net

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

Non-Operating Expense (Income), net

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

Fiscal Years Ended

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Foreign currency (gain) loss, net ( 1.3 ) ( 2.0 ) 1.3

Loss on Wafer Supply Agreement 0.8 — —

Other, net 0.2 ( 0.5 ) ( 0.3 )

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

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)

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

Non-operating expense (income), net $ 26.3 ($ 18.5 ) $ 29.4

Reclassifications Out of Accumulated Other Comprehensive Income

The Company reclassified a net gain of $ 0.4 million and $ 1.5 million and a net loss of $ 0.1 million, on available for sale securities out of accumulated other comprehensive income for the fiscal years ended June 27, 2021, June 28, 2020, and June 30, 2019, respectively.

For the fiscal year ended June 28, 2020, an additional net gain of $ 0.5 million was reclassified to net (loss) income from discontinued operations on the consolidated statements of operations.

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

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

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

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

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

Additionally, in fiscal 2019, $ 5.2 million of currency translation loss related to the former Lighting Products business unit was reclassified out of accumulated other comprehensive income and recognized in the consolidated statements of operations as part of the loss on sale of discontinued operations.

In fiscal 2021, $ 9.5 million of currency translation gain related to the former LED Products segment was reclassified out of accumulated other comprehensive income and recognized in the consolidated statements of operations as part of the loss on sale of discontinued operations.

Statements of Cash Flows - non-cash activities

Twelve months ended

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

Fiscal Years Ended

June 27, 2021 June 28, 2020 June 30, 2019

Lease asset and liability additions (1)

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Lease asset and liability modifications, net 1.7 4.8 —

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

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

Receivables for property, plant and equipment related insurance proceeds 1.9 — —

Decrease in property, plant and equipment from long-term incentive related receivables 16.4 — —

(1) $ 11.0 million of the lease asset and liability additions for the year ended June 28, 2020 related to the increase of right-of-use assets and matching lease liabilities as a result of adopting ASC 842.

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

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

(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.

Note 7 – Investments

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

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

As of June 28, 2020, other long-term investments consisted of the Company's formerly held ownership interest in ENNOSTAR Inc.

(formerly Lextar Electronics Corporation) (ENNOSTAR).

In the fourth quarter of fiscal 2021, the Company liquidated its common stock ownership interest in ENNOSTAR.

The Company did not have any long-term investments as of June 27, 2021.

Short-term investments as of June 27, 2021 consist of the following:

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(in millions of U.S.

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

Estimated Fair Value

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

Municipal bonds $ 139.4 $ 1.9 $ — $ 141.3

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Total short-term investments $ 770.5 $ 5.5 ($ 0.4 ) $ 775.6

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

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

2 unchanged sentences

(in millions of U.S.

Dollars) Fair Value Unrealized Loss (1)

Fair Value Unrealized Loss Fair Value Unrealized Loss

Dollars) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss

Municipal bonds $ 28.8 $ — $ — $ — $ 28.8 $ —

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treasury securities 47.9 ( 0.1 ) — — 47.9 ( 0.1 )

Certificates of deposit 0.7 — — — 0.7 —

Total $ 227.9 ($ 0.4 ) $ — $ — $ 227.9 ($ 0.4 )

Number of securities with an unrealized loss 134 — 134

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

Short-term investments as of June 28, 2020 consist of the following:

1 unchanged sentence

(in millions of U.S.

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

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

Estimated Fair Value

Municipal bonds 130.0 2.0 — 132.0

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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 June 28, 2020.

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Number of securities with an unrealized loss 46 — 46

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

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

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 $ 5.5 million and $ 4.3 million as of June 27, 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 the years ended June 27, 2021 and June 28, 2020.

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

Realized gains on the sale of investments for the fiscal year ended June 28, 2020 of $ 2.0 million were included in non-operating (income) expense, net in the consolidated statements of operations and unrealized gains and losses are included as a separate component of equity, net of tax, unless the loss is determined to be other-than-temporary.

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

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

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

Realized gains and losses are included in non-operating expense (income), net 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 June 27, 2021 until the investments fully recover in market value.

No allowance for credit losses was recorded as of June 27, 2021.

The contractual maturities of short-term investments at June 27, 2021 were as follows:

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Money market funds $ 96.9 $ — $ — $ 96.9 $ 199.9 $ — $ — $ 199.9

Corporate bonds — — — — — 15.0 — 15.0

Municipal bonds — 16.0 — 16.0 — — — —

agency securities — 6.0 — 6.0 — 19.6 — 19.6

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Commercial paper — 62.4 — 62.4 — 11.1 — 11.1

Variable rate demand note — 22.9 — 22.9 — — — —

Total cash equivalents 96.9 107.3 — 204.2 218.9 85.0 — 303.9

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Note 9 – Goodwill and Intangible Assets

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

• LED Products

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

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

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

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

Goodwill by reporting unit as of June 28, 2020 and June 30, 2019 was as follows:

The following table summarizes changes in goodwill during the fiscal year ended June 27, 2021:

(in millions of U.S.

Dollars) June 28, 2020 June 30, 2019

Wolfspeed $ 349.7 $ 349.7

LED Products 180.3 $ 180.3

Consolidated total $ 530.0 $ 530.0

Balance at June 28, 2020 $ 349.7

Transfer in connection with LED Business Divestiture (1)

Balance at June 27, 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 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.

As of the first day of its fourth quarter of fiscal 2021, the Company performed a qualitative impairment test on the goodwill balance and concluded there was no impairment.

Intangible Assets

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Non-compete agreements 12.2 ( 10.1 ) 2.1 12.2 ( 7.1 ) 5.1

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

Acquisition related intangible assets 177.0 ( 63.4 ) 113.6 177.0 ( 48.9 ) 128.1

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Total amortization of acquisition-related intangibles assets was $ 14.5 million, $ 14.5 million and $ 15.6 million and total amortization of patents and licensing rights was $ 5.9 million, $ 5.9 million and $ 5.7 million for the years ended June 27, 2021, June 28, 2020 and June 30, 2019, respectively.

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

The Company invested $ 5.9 million, $ 4.4 million and $ 3.3 million for the years ended June 27, 2021, June 28, 2020 and June 30, 2019, respectively, for patent and licensing rights.

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As of June 27, 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.

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

The 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 June 27, 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 year ended June 28, 2020, the average interest rate was 0.00 %.

For the fiscal year ended June 27, 2021, the average interest rate was 0.03 %, related to a seven day draw of $ 30.0 million on the line of credit in the third quarter of fiscal 2021.

As of June 27, 2021, the unused line fee on available borrowings is 25 basis points.

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

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

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

The conversion rate will initially be 16.6745 shares of common stock per one thousand dollars in principal amount of 2023 Notes (equivalent to an initial conversion price of approximately $ 59.97 per share of common stock).

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The redemption price will be 100 % of the principal amount of the 2023 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

If the Company undergoes certain fundamental changes related to the Company's common stock, holders may require the Company to repurchase for cash all or any portions of their 2023 Notes at a fundamental repurchase price equal to 100 % of the principal amount of the 2023 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

If the Company undergoes certain fundamental changes related to the Company's common stock, holders may require the Company to repurchase for cash all or any portion of their 2023 Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the 2023 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Holders may convert their 2023 Notes at their option at any time prior to the close of business on the business day immediately preceding March 1, 2023 only under the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending December 31, 2018 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

(2) during the five business day period after any ten consecutive trading day period in which the trading price per $1.0 thousand principal amount of 2023 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of its common stock and the conversion rate on each such trading day;

(2) during the five business day period after any ten consecutive trading day period in which the trading price per one thousand dollars in principal amount of 2023 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of its common stock and the conversion rate on each such trading day;

(3) if the Company calls such 2023 Notes for redemption, at any time prior to the close of business on the second business day immediately preceding the redemption date;

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The Company used approximately $ 144.3 million of the net proceeds from the sale of the 2026 Notes to repurchase approximately $ 150.2 million aggregate principal amount of the 2023 Notes, including approximately $ 0.2 million of accrued interest on such notes, in privately negotiated transactions.

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

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

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

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

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

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

The Notes are equal in right of payment to any of the Company’s unsecured indebtedness;

senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated in right of payment to the Notes;

effectively subordinated in right of payment of any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness;

and structurally subordinated to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries.

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

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Dollars) June 27, 2021 June 28, 2020

Discount related to value of conversion options $ 262.3 $ 113.3

Discount related to value of conversion option $ 262.3 $ 262.3

Partial extinguishment of 2023 Notes ( 27.7 ) ( 27.7 )

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Net carrying amount $ 228.3 $ 228.3

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

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

(in millions of U.S.

Dollars) June 28, 2020 June 30, 2019

Interest expense $ 6.8 $ 4.3

Amortization of discount and issuance costs 26.2 18.3

Total interest expense $ 33.0 $ 22.6

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

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

Dollars) June 27, 2021 June 28, 2020 June 30, 2019

Interest expense, net of capitalized interest $ 10.4 $ 6.8 4.3

Amortization of discount and issuance costs, net of capitalized interest 32.8 26.2 18.3

Total interest expense, net $ 43.2 $ 33.0 22.6

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 fiscal year ended June 27, 2021, the Company capitalized $ 3.3 million of interest expense and $ 7.3 million of amortization of discount and issuance costs.

No interest was capitalized for fiscal years ended June 28, 2020 and June 30, 2019.

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 June 30, 2021.

As a result, the Notes are convertible at the option of the holders during the calendar quarter ended September 30, 2021.

As of June 27, 2021, the if-converted values of the 2023 and 2026 Notes exceeded their respective principal amounts by $ 273.5 million and $ 623.1 million, respectively.

The estimated fair value of the Notes is $ 1.9 billion, as determined by a Level 2 valuation as of June 27, 2021.

Note 11 – 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.

At June 27, 2021, the Company had reserved a total of approximately 42.2 million shares of its common stock for future issuance as follows (in thousands):

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Net loss from continuing operations $ ( 341.3 ) $ ( 197.6 ) $ ( 118.5 )

Net income attributable to noncontrolling interest 1.1 — 0.1

Loss from continuing operations attributable to controlling interest ( 191.7 ) ( 57.9 ) ( 16.5 )

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

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

Net (loss) income from discontinued operations ( 181.2 ) 7.0 ( 256.6 )

Net income from discontinued operations attributable to noncontrolling interest 1.4 1.1 —

Net (loss) income from discontinued operations attributable to controlling interest ( 182.6 ) 5.9 ( 256.6 )

Weighted average number of common shares - basic and diluted (in thousands) 112,346 107,935 103,576

Loss per share - basic:

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

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

Loss per share - diluted:

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

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

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

For the fiscal years ended June 28, 2020, June 30, 2019 and June 24, 2018, 5.4 million, 9.0 million and 11.3 million of dilutive shares were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive.

(Loss) earnings per share - basic and diluted:

Continuing operations $ ( 3.04 ) $ ( 1.83 ) $ ( 1.14 )

Discontinued operations attributable to controlling interest $ ( 1.63 ) $ 0.05 $ ( 2.48 )

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 fiscal years ended June 27, 2021, June 28, 2020 and June 30, 2019, 3.4 million, 5.4 million and 9.0 million, respectively, of dilutive shares were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive.

Future earnings per share of the Company are also subject to dilution from conversion of its convertible notes under certain conditions as described in Note 10, “Long-term Debt.”

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As with non-performance based awards, compensation expense is recognized over the vesting period.

The vesting period runs from the date of grant to the expected date that the performance objective is likely to be achieved.

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

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

The Company also has an Employee Stock Purchase Plan (ESPP) that provides employees with the opportunity to purchase common stock at a discount.

14 unchanged sentences

The total intrinsic value in the table above represents the total pretax intrinsic value, which is the total difference between the closing price of the Company’s common stock on June 25, 2021 (the last trading day of fiscal 2021) of $ 98.59 and the exercise price for in-the-money options that would have been received by the holders if all instruments had been exercised on June 27, 2021.

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

As of June 27, 2021, there was no unrecognized compensation cost related to non-vested stock options.

The following table summarizes information about stock options outstanding and exercisable at June 27, 2021 (shares in thousands):

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13 0.2 45.13 13 45.13

$ 55.01 to $ 73.00

44 0.5 61.93 44 61.93

Total 142 142

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

Fiscal Years Ended

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

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

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

Dollars) $ 22.8 $ 63.3 $ 24.3

Restricted Stock Awards and Units

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

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

Total intrinsic value of options exercised for the fiscal years ended June 27, 2021, June 28, 2020 and June 30, 2019 was $ 30.8 million, $ 22.8 million and $ 63.3 million, respectively.

Restricted Stock Units

A summary of nonvested restricted stock units (RSUs) outstanding as of June 27, 2021 and changes during the year then ended is as follows (shares in thousands):

Number of RSUs Weighted Average Grant-Date Fair Value

Nonvested at June 28, 2020 2,932 $ 43.89

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Nonvested at June 27, 2021 2,168 $ 57.38

The aggregate fair value of awards vested in fiscal years ended June 27, 2021, June 28, 2020 and June 30, 2019, based on the market price of the Company's common stock on the vesting date, was $ 110.6 million, $ 49.8 million and $ 68.1 million, respectively.

As of June 27, 2021, there was $ 73.4 million of unrecognized compensation cost related to nonvested awards, which is expected to be recognized over a weighted average period of 1.88 years.

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The fair value method requires the Company to estimate the grant-date fair value of its stock-based awards and amortize this fair value to compensation expense over the requisite service period or vesting term.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of the Company’s stock option and ESPP awards.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of the Company’s ESPP awards.

The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables.

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Due to the inherent limitations of option-valuation models, future events that are unpredictable and the estimation process utilized in determining the valuation of the stock-based awards, the ultimate value realized by award holders may vary significantly from the amounts expensed in the Company’s financial statements.

For RSAs and RSUs, the grant-date fair value is based upon the market price of the Company’s common stock on the date of the grant.

For RSUs, the grant-date fair value is based upon the market price of the Company’s common stock on the date of the grant.

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

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Total stock-based compensation expense $ 53.2 $ 48.8 $ 42.9

Stock-based compensation expense may differ from the impact of stock-based compensation to additional paid in capital due to manufacturing related stock-based compensation capitalized within inventory.

The Black-Scholes and Monte Carlo option pricing models require the input of highly subjective assumptions.

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Dividend yield — — —

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

Risk-free interest rate 1.75 %

Expected life, in years 4.0

Volatility 38.6 %

Dividend yield —

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

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

The range of assumptions used for issued performance units valued using the Monte Carlo model were as follows:

Fiscal Years Ended

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Average volatility of peer companies 48.9 - 60.5 %

48.9 - 55.2 %

Average correlation coefficient of peer companies 0.36 - 0.51

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Tax exempt interest ( 0.1 ) — % ( 0.5 ) — % ( 0.4 ) — %

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

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

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2.7 ( 1 ) % 0.3 — % 0.4 — %

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

Other foreign adjustments ( 0.1 ) — % 0.3 — % ( 0.1 ) — %

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48C investment tax credits 36.6 37.5

Investments 0.3 —

Stock-based compensation 6.1 8.3

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Total gross deferred liability ( 97.3 ) ( 99.7 )

Deferred tax asset, net $ 4.5 $ 3.6

Deferred tax liability, net ($ 1.5 ) ($ 0.6 )

The components giving rise to the net deferred tax assets (liabilities) have been included in the consolidated balance sheets as follows:

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Total $ 1.2 ($ 1.8 )

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

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

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

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For the fiscal year ended June 27, 2021, the Company increased the U.S.

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

valuation allowance by $ 87.4 million primarily due to the Company's current year domestic loss and tax credits generated.

As of June 28, 2020, the Luxembourg valuation allowance was $ 3.3 million.

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

For the fiscal year ended June 27, 2021, the Company increased this valuation allowance by $ 118.5 million due to the current year loss in Luxembourg driven primarily by the LED Business Divestiture.

As a result of the LED Business Divestiture and the liquidation of the Company’s common stock ownership interest in ENNOSTAR, the Company began reviewing its legal entity structure, including its Luxembourg holding company, during the fourth quarter of fiscal 2021.

As of June 27, 2021, the Company is still performing the due diligence necessary to understand its ability and desire to restructure its Luxembourg holding company.

If the Company determines it is willing and able to execute a restructuring of its Luxembourg holding company, it is reasonably possible the action could generate taxable income of the right character to utilize all or a portion of the Company’s existing $ 121.8 million of deferred tax assets in Luxembourg.

As a result, the Company believes it is reasonably possible within the next twelve months, and potentially as early as the first quarter of fiscal 2022, that objective positive evidence may become available to allow the Company to conclude all or a portion of the $ 121.8 million of Luxembourg deferred tax assets are realizable.

This determination would result in the release of all or a portion of the Luxembourg valuation allowance.

The release of the Luxembourg valuation allowance could result in the recognition of $ 121.8 million of net operating loss deferred tax assets and a decrease to income tax expense in the period the release is recorded.

As of June 27, 2021, the Company had approximately $ 491.8 million of foreign net operating loss carryovers, of which $ 488.5 million are offset by a valuation allowance.

Of the Company's foreign net operating loss carryovers, $ 7.8 million have no carry forward limitation and the remaining $ 484.0 million will begin to expire in fiscal 2035.

As of June 28, 2020, the Company had approximately $ 795.9 million of federal net operating loss carryovers and $ 235.0 million of state net operating loss carryovers which are fully offset by a valuation allowance.

As of June 27, 2021, the Company had approximately $ 1.1 billion of federal net operating loss carryovers and $ 251.0 million of state net operating loss carryovers which are fully offset by a valuation allowance.

Additionally, the Company had $ 78.7 million of federal and $ 1.6 million of state income tax credit carryforwards which are fully offset by a valuation allowance.

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

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

During the fiscal year ended June 27, 2021, the Company had no material changes to its unrecognized tax benefits.

As a result, the total liability for unrecognized tax benefits as of June 27, 2021 was $ 7.4 million.

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The Company's policy is to include interest and penalties related to unrecognized tax benefits within the income tax expense (benefit) line item in the consolidated statements of operations.

Interest and penalties relating to unrecognized tax benefits recognized in the consolidated statements of operations totaled less than $ 0.1 million for the fiscal years ending June 28, 2020, June 30, 2019, and June 24, 2018.

Interest and penalties relating to unrecognized tax benefits recognized in the consolidated statements of operations totaled less than $ 0.1 million for the fiscal years ended June 27, 2021, June 28, 2020, and June 30, 2019.

The Company accrued less than $ 0.1 million for interest and penalties relating to unrecognized tax benefits in the consolidated balance sheets as of June 27, 2021 and June 28, 2020.

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The Company has determined that $ 171.4 million of the $ 189.7 million of undistributed foreign earnings are expected to be repatriated in the foreseeable future.

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

The Company expects to incur $ 1.4 million of foreign income taxes upon repatriation of the $ 171.4 million foreign earnings.

As of June 27, 2021, the Company has not provided income taxes on the remaining undistributed foreign earnings of $ 18.3 million as the Company continues to maintain its intention to reinvest these earnings in foreign operations indefinitely.

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While management presently believes that the ultimate outcome of such proceedings, individually and in the aggregate, will not materially harm the Company’s financial position, cash flows, or overall trends in results of operations, legal proceedings are subject to inherent uncertainties, and unfavorable rulings could occur.

An unfavorable ruling could include money damages or, in matters for which injunctive relief or other conduct remedies may be sought, an injunction prohibiting the Company from selling one or more products at all or in particular ways.

Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on the Company’s business, results of operation, financial position and overall trends.

An unfavorable ruling could include monetary damages or, in matters for which injunctive relief or other conduct remedies may be sought, an injunction prohibiting the Company from selling one or more products at all or in particular ways.

Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on the Company’s business, results of operations, financial position and overall trends.

The outcomes in these matters are not reasonably estimable.

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

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

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

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

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

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

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

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

Note 17 - Reportable Segments

Reportable segments are components of the Company that the Chief Operating Decision Maker (CODM) regularly reviews when allocating resources and assessing performance.

The Company’s CODM reviews segment performance and allocates resources based upon segment revenue and segment gross profit.

The Company's identified CODM is the Chief Executive Officer.

The Company’s operating and reportable segments are:

• LED Products

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

Financial Results by Reportable Segment

The table below reflects the results of the Company’s reportable segments as reviewed by the CODM for fiscal 2020, 2019 and 2018.

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

The Company’s CODM does not review inter-segment transactions when evaluating segment performance and allocating resources to each segment, and inter-segment transactions are not included in the segment revenue presented in the table below.

As such, total segment revenue in the table below is equal to the Company’s consolidated revenue.

The Company’s CODM reviews gross profit as the lowest and only level of segment profit.

As such, all items below gross profit in the consolidated statements of operations must be included to reconcile the consolidated gross profit presented in the table below to the Company’s consolidated loss before income taxes.

In order to determine gross profit for each reportable segment, the Company allocates direct costs and indirect costs to each segment’s cost of revenue.

The Company allocates indirect costs, such as employee benefits for manufacturing employees, shared facilities services, information technology, purchasing, and customer service, when the costs are identifiable and beneficial to the reportable segment.

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

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

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

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

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

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

These costs were not allocated to the reportable segments’ gross profit for fiscal 2018 because they represent an adjustment which does not provide comparability to the corresponding prior period and therefore were not reviewed by the Company's CODM when evaluating segment performance and allocating resources.

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

Revenue Gross Profit and Gross Margin

Year Ended Year Ended

(in millions of U.S.

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

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

Wolfspeed gross margin 39 % 48 % 48 %

LED Products 433.2 541.8 596.3 91.1 150.0 157.9

LED Products gross margin 21 % 28 % 26 %

Total segment reporting $ 903.9 $ 1,080.0 $ 924.9 275.7 408.7 316.4

Unallocated costs (1)

( 27.4 ) ( 17.7 ) ( 9.0 )

COGS acquisition related costs — — ( 5.4 )

Consolidated gross profit $ 248.3 $ 391.0 $ 302.0

Consolidated gross margin 27 % 36 % 33 %

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

Assets by Reportable Segment

Inventories are the only assets reviewed by the Company’s CODM when evaluating segment performance and allocating resources to the segments.

The CODM reviews all of the Company's assets other than inventories on a consolidated basis.

The following table sets forth the Company’s inventories by reportable segment for the fiscal years ended June 28, 2020 and June 30, 2019.

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

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

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

(in millions of U.S.

Dollars) June 28, 2020 June 30, 2019

Wolfspeed $ 97.3 $ 81.6

LED Products 76.2 99.2

Total segment inventories 173.5 180.8

Unallocated inventories 5.6 6.6

Consolidated inventories $ 179.1 $ 187.4

Geographic Information

The Company conducts business in several geographic areas.

Revenue is attributed to a particular geographic region based on the shipping address for the products.

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

For the Years Ended

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

(in millions of U.S.

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

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

China 260.4 29 % 367.2 34 % 390.5 42 %

Europe 243.7 27 % 255.0 24 % 167.4 18 %

Other 187.7 21 % 196.4 18 % 146.8 16 %

Total $ 903.9 $ 1,080.0 $ 924.9

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

(in millions of U.S.

Dollars) June 28, 2020 June 30, 2019

United States $ 773.1 $ 558.6

China 53.3 61.8

Other 4.7 4.8

Total $ 831.1 $ 625.2

As of June 27, 2021, the annual cost of satisfying the objectives of the GDA and the SUNY Agreement, excluding the direct and indirect costs associated with employment, varies from $ 2.5 million to $ 5.2 million per year through fiscal 2031.

As of June 27, 2021, the Company has reduced property, plant and equipment by $ 27.1 million as a result of GDA reimbursements, of which $ 10.7 million has been received in cash and an additional $ 4.6 million and $ 11.8 million are recorded as receivables in other current assets and other assets, respectively, in the consolidated balance sheets.

Note 16 – Concentrations of Risk

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The Company sells its products on account to manufacturers, distributors and others worldwide and generally requires no collateral.

Revenue from Arrow Electronics, Inc.

represented 15 %, 19 % and 21 % of revenue for the fiscal years ended June 28, 2020, June 30, 2019 and June 24, 2018, respectively.

Arrow Electronics, Inc.

is a customer of the LED Products and Wolfspeed segments.

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

For the fiscal year ended June 27, 2021, ST Microelectronics, Inc.

(STMicroelectronics), Arrow Electronics, Inc.

(Arrow) and Sumitomo Corporation (Sumitomo) represented 18 %, 13 % and 10 % of revenue, respectively.

For the fiscal year ended June 28, 2020, STMicroelectronics and Sumitomo represented 19 % and 14 % of revenue, respectively.

For the fiscal year ended June 30, 2019, Arrow, Sumitomo and STMicroelectronics represented 14 %, 14 % and 11 % of revenue, respectively.

No other customers individually accounted for more than 10% of revenue for the fiscal years ended June 27, 2021, June 28, 2020 and June 30, 2019.

STMicroelectronics and Arrow accounted for 16 % and 16 % of the accounts receivable balance as of June 27, 2021, respectively.

STMicroelectronics and Infineon accounted for 14 % and 11 % of the accounts receivable balance as of June 28, 2020, respectively.

No other customers accounted for more than 10% of the accounts receivable balance as of June 27, 2021 and June 28, 2020.

Note 17 – Retirement Savings Plan

The Company sponsors one employee benefit plan (the 401(k) Plan) pursuant to Section 401(k) of the IRC.

The Company sponsors one employee benefit plan (the 401(k) Plan) pursuant to Section 401(k) of the Internal Revenue Code.

employees are eligible to participate under the 401(k) Plan on the first day of a new fiscal month after the date of hire.

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

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

For the fiscal year ended June 30, 2019, $ 2.6 million was expensed relating to this corporate restructuring plan.

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

As a result, the Company recorded $ 2.8 million in severance-related costs for the fiscal year ended June 27, 2021.

The plan has concluded and all expenses have been paid as of June 27, 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 for the fiscal year ended June 27, 2021.

The plan has concluded and all expenses have been paid as of June 27, 2021.

Factory Optimization Restructuring

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

campus headquarters in Durham, North Carolina.

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

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

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

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

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

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

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

campus headquarters in Durham, North Carolina.

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

The Company expects approximately $ 90.0 million in restructuring charges related to the factory optimization plan to be incurred through 2024.

For the fiscal years ended June 27, 2021, June 28, 2020 and June 30, 2019, the Company expensed $ 5.2 million, $ 9.0 million and $ 4.1 million, respectively, of restructuring charges associated with the movement of equipment related to the factory optimization plan, of which $ 0.1 million was accrued for as of June 27, 2021.

Additionally, the Company expensed $ 3.4 million of restructuring charges associated with disposals of certain long-lived assets for the fiscal year ended June 27, 2021.

Sales Restructuring

In June 2019, the Company approved and implemented a sales restructuring plan to restructure and realign the Company's geographical sales team with the skills and experience needed to execute on the Company's business objectives.

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

The Company recorded $ 0.2 million in restructuring expense relating to this plan in the fourth quarter of fiscal 2019.

No additional restructuring expense relating to this plan is expected.

Sales Representatives Restructuring

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

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

As a result, the Company recorded $ 0.6 million in contract termination costs during the fiscal year ended June 28, 2020, of which $ 0.1 million was accrued in other current liabilities as of June 28, 2020.

Note 19 – Quarterly Results of Operations - Unaudited

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(in millions of U.S.

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

Dollars, except share data) September 27,

2020 December 27,

2020 March 28,

2021 June 27,

2021 Fiscal Year 2021

Revenue, net $ 115.5 $ 127.0 $ 137.3 $ 145.8 $ 525.6

1 unchanged sentence

Gross profit 35.5 41.3 44.0 43.8 164.6

Net loss from continuing operations ( 75.3 ) ( 54.3 ) ( 66.5 ) ( 145.2 ) ( 341.3 )

Net loss from discontinued operations ( 108.8 ) ( 28.4 ) ( 41.6 ) ( 2.4 ) ( 181.2 )

Net loss ( 184.1 ) ( 82.7 ) ( 108.1 ) ( 147.6 ) ( 522.5 )

Net income attributable to noncontrolling interest — 0.3 0.2 0.6 1.1

Net income from discontinued operations attributable to noncontrolling interest 0.3 0.3 0.8 — 1.4

Net loss attributable to controlling interest ( 184.4 ) ( 83.0 ) ( 108.9 ) ( 147.6 ) ( 523.9 )

Basic and diluted loss per share:

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

Continuing operations ($ 0.69 ) ($ 0.49 ) ($ 0.59 ) ($ 1.26 ) ($ 3.04 )

Net loss attributable to controlling interest ($ 1.68 ) ($ 0.75 ) ($ 0.96 ) ($ 1.28 ) ($ 4.66 )

(in millions of U.S.

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

Dollars, except share data) September 29,

2019 December 29,

2019 March 29,

2020 June 28,

2020 Fiscal Year 2020

Revenue, net $ 127.7 $ 120.7 $ 113.9 $ 108.4 $ 470.7

2 unchanged sentences

Net loss from continuing operations ( 39.3 ) ( 57.9 ) ( 56.2 ) ( 44.2 ) ( 197.6 )

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

Net income (loss) from discontinued operations 1.5 3.9 ( 3.7 ) 5.3 7.0

Net loss ( 37.8 ) ( 54.0 ) ( 59.9 ) ( 38.9 ) ( 190.6 )

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

Net income from discontinued operations attributable to noncontrolling interest — 0.3 0.2 0.6 1.1

Net loss attributable to controlling interest ( 37.8 ) ( 54.3 ) ( 60.1 ) ( 39.5 ) ( 191.7 )

Basic and diluted loss per share:

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

Continuing operations ($ 0.37 ) ($ 0.54 ) ($ 0.52 ) ($ 0.41 ) ($ 1.83 )

Net loss attributable to controlling interest ($ 0.35 ) ($ 0.50 ) ($ 0.56 ) ($ 0.36 ) ($ 1.78 )

1 unchanged sentence

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data