WOLFSPEED, INC. 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 47 Consolidated Balance Sheets as of June 27, 2021 and June 28, 2020 49 Consolidated Statements of Operations for the years ended June 27, 2021, June 28, 2020 and June 30, 2019 50 Consolidated Statements of Comprehensive Loss for the years ended June 27, 2021, June 28, 2020 and June 30, 2019 51 Consolidated Statements of Cash Flows for the years ended June 27, 2021, June 28, 2020 and June 30, 2019 52 Consolidated Statements of Shareholders’ Equity for the years ended June 27, 2021, June 28, 2020 and June 30, 2019 53 Notes to Consolidated Financial Statements 54 46 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Cree, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Cree, Inc. 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). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 27, 2021 and June 28, 2020, and the results of its operations and its cash flows for each of the three years in the period ended June 27, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 27, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. 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 the manner in which it accounts for revenues from contracts with customers on June 25, 2018. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the 47 Table of Contents company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Reserves for distributor programs - Ship and debit and price protection rights As described in Note 2 to the consolidated financial statements, products are sold to distributors at negotiated prices and the distributors are required to pay for the products purchased within the Company’s standard commercial terms. Certain distributors may be provided limited rights that allow them to return a portion of inventory and receive credits for changes in selling price (price protection rights) or customer pricing arrangements under the Company’s “ship and debit” program. Distributor sales account for approximately 26% of total net revenue of $525.6 million for the year ended June 27, 2021 and the associated reserves for ship and debit and price protection rights programs to distributors make up a portion of the accrued contract liabilities account balance of $22.9 million. Under the Company’s ship and debit program, subsequent to the initial product purchase, a distributor may request a price allowance for a particular part number(s) for certain target customers, prior to the distributor reselling the particular part to that customer. If the Company approves an allowance and the distributor resells the product to the target customer, the Company credits the distributor according to the allowance the Company approved. Under the price protection rights program, if the Company issues a new price book for its products, the Company will provide a credit to certain distributors for inventory quantities on hand. The credits associated with these programs are applied against the reserve the Company establishes upon initial shipment of product to the distributor. Upon shipment, management uses significant judgment in establishing reserves for the ship and debit and price protection rights programs, which includes developing assumptions related to changes in selling prices. The principal considerations for our determination that performing procedures relating to reserves for distributor programs - ship and debit and price protection rights is a critical audit matter are the significant judgment by management in estimating the reserves for ship and debit and price protection rights programs, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to management’s assumption related to changes in selling prices. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of ship and debit and price protection rights reserves. These procedures also included, among others, (1) testing management’s process for determining the estimate for ship and debit and price protection rights reserves, (2) evaluating the appropriateness of management’s methodology to calculate the ship and debit and price protection rights reserves, (3) evaluating the reasonableness of management’s significant assumption related to changes in selling prices, which included the evaluation of management’s ability to estimate the changes in selling prices in comparison to historical selling prices, (4) testing the completeness and accuracy of data inputs to the ship and debit and price protection rights reserves calculation, and (5) evaluating the reasonableness of management’s prior period estimates for ship and debit and price protection rights reserves to actual credits granted during the current period by performing a retrospective comparison subsequent to year-end. /s/PricewaterhouseCoopers LLP Raleigh, North Carolina August 18, 2021 We have served as the Company’s auditor since 2013. 48 Table of Contents CREE, INC. CONSOLIDATED BALANCE SHEETS June 27, 2021 June 28, 2020 in millions of U.S. Dollars, except share data in thousands Assets Current assets: Cash and cash equivalents $ 379.0 $ 448.8 Short-term investments 775.6 790.9 Total cash, cash equivalents and short-term investments 1,154.6 1,239.7 Accounts receivable, net 95.9 72.4 Inventories 166.6 121.9 Income taxes receivable 6.4 6.6 Prepaid expenses 25.7 26.2 Other current assets 27.9 8.7 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 Property and equipment, net 1,292.3 770.8 Goodwill 359.2 349.7 Intangible assets, net 140.5 156.9 Long-term receivables 138.4 — Other long-term investments — 55.9 Deferred tax assets 1.0 1.2 Other assets 35.5 33.6 Long-term assets of discontinued operations 1.2 270.1 Total assets $ 3,446.8 $ 3,231.0 Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued expenses $ 381.1 $ 189.8 Accrued contract liabilities 22.9 14.2 Income taxes payable 0.4 1.2 Finance lease liabilities 5.2 3.6 Other current liabilities 38.6 22.2 Current liabilities of discontinued operations 0.6 60.2 Total current liabilities 448.8 291.2 Long-term liabilities: Convertible notes, net 823.9 783.8 Deferred tax liabilities 2.5 1.8 Finance lease liabilities - long-term 10.0 11.4 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 Commitments and contingencies Shareholders’ equity: Preferred stock, par value $ 0.01 ; 3,000 shares authorized at June 27, 2021 and June 28, 2020; none issued and outstanding — — Common stock, par value $ 0.00125 ; 200,000 shares authorized at June 27, 2021 and June 28, 2020; 115,691 and 109,230 shares issued and outstanding at June 27, 2021 and June 28, 2020, respectively 0.1 0.1 Additional paid-in-capital 3,676.8 3,106.2 Accumulated other comprehensive income 2.7 16.0 Accumulated deficit ( 1,563.1 ) ( 1,039.2 ) Total shareholders’ equity 2,116.5 2,083.1 Noncontrolling interest from discontinued operations — 6.1 Total equity 2,116.5 2,089.2 Total liabilities and shareholders’ equity $ 3,446.8 $ 3,231.0 The accompanying notes are an integral part of the consolidated financial statements 49 Table of Contents CREE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Years Ended June 27, 2021 June 28, 2020 June 30, 2019 in millions of U.S. Dollars, except share data Revenue, net $ 525.6 $ 470.7 $ 538.2 Cost of revenue, net 361.0 312.2 294.5 Gross profit 164.6 158.5 243.7 Operating expenses: Research and development 177.8 152.0 121.1 Sales, general and administrative 181.6 181.7 168.9 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 Other operating expense 29.1 32.9 26.6 Operating loss ( 313.9 ) ( 224.1 ) ( 93.5 ) Non-operating expense (income), net 26.3 ( 18.5 ) 29.4 Loss before income taxes ( 340.2 ) ( 205.6 ) ( 122.9 ) Income tax expense (benefit) 1.1 ( 8.0 ) ( 4.4 ) Net loss from continuing operations ( 341.3 ) ( 197.6 ) ( 118.5 ) Net (loss) income from discontinued operations ( 181.2 ) 7.0 ( 256.6 ) Net loss ( 522.5 ) ( 190.6 ) ( 375.1 ) 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 ($ 3.04 ) ($ 1.83 ) ($ 1.14 ) Net loss attributable to controlling interest ($ 4.66 ) ($ 1.78 ) ($ 3.62 ) Weighted average shares - basic and diluted (in thousands) 112,346 107,935 103,576 The accompanying notes are an integral part of the consolidated financial statements 50 Table of Contents CREE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Fiscal Years Ended June 27, 2021 June 28, 2020 June 30, 2019 in millions of U.S. Dollars Net loss ($ 522.5 ) ($ 190.6 ) ($ 375.1 ) Other comprehensive income (loss): Currency translation gain — — 4.4 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 from discontinued operations attributable to noncontrolling interest 1.4 1.1 — Comprehensive loss attributable to controlling interest ($ 537.2 ) ($ 185.2 ) ($ 366.2 ) The accompanying notes are an integral part of the consolidated financial statements 51 Table of Contents CREE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Years Ended in millions of U.S. Dollars June 27, 2021 June 28, 2020 June 30, 2019 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 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, 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 Amortization of premium/discount on investments 6.9 1.7 2.3 Realized (gain) loss on sale of investments ( 0.4 ) ( 1.5 ) 0.1 (Gain) loss on equity investment ( 8.3 ) ( 14.2 ) 16.2 Foreign exchange (gain) loss on equity investment ( 2.2 ) ( 2.2 ) 1.3 Deferred income taxes 0.9 ( 0.5 ) ( 0.6 ) Changes in operating assets and liabilities: Accounts receivable, net ( 23.5 ) ( 3.2 ) ( 10.4 ) Inventories ( 44.6 ) ( 8.5 ) ( 24.3 ) Prepaid expenses and other assets ( 20.0 ) ( 3.0 ) ( 3.6 ) Accounts payable, trade 21.7 ( 7.2 ) 24.3 Accrued salaries and wages and other liabilities 15.3 ( 24.9 ) 40.8 Accrued contract liabilities ( 2.8 ) 5.5 17.2 Net cash (used in) provided by operating activities of continuing operations ( 112.5 ) ( 91.6 ) 97.2 Net cash (used in) provided by operating activities of discontinued operations ( 13.0 ) 62.6 105.1 Cash (used in) provided by operating activities ( 125.5 ) ( 29.0 ) 202.3 Investing activities: Purchases of property and equipment ( 570.5 ) ( 229.9 ) ( 124.7 ) Purchases of patent and licensing rights ( 5.9 ) ( 4.4 ) ( 3.3 ) 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 ) Proceeds from maturities of short-term investments 428.3 460.6 177.4 Proceeds from sale of short-term investments 51.7 118.0 46.4 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 ) Net cash used in investing activities of discontinued operations ( 0.3 ) ( 12.4 ) ( 25.0 ) Cash used in investing activities ( 448.6 ) ( 486.9 ) ( 227.1 ) Financing activities: Proceeds from long-term debt borrowings 30.0 — 95.0 Payments on long-term debt borrowings, including finance lease obligations ( 30.4 ) ( 145.1 ) ( 387.0 ) Proceeds from issuance of common stock 539.7 76.4 158.0 Tax withholding on vested equity awards ( 36.2 ) ( 16.9 ) ( 21.6 ) Proceeds from convertible notes — 575.0 575.0 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 Effects of foreign exchange changes on cash and cash equivalents 0.2 ( 0.1 ) ( 0.1 ) Net change in cash and cash equivalents ( 69.8 ) ( 51.7 ) 381.6 Cash and cash equivalents, beginning of period 448.8 500.5 118.9 Cash and cash equivalents, end of period $ 379.0 $ 448.8 $ 500.5 The accompanying notes are an integral part of the consolidated financial statements 52 Table of Contents CREE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ 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 Number of Shares Par Value Share data in thousands, U.S. Dollar information in millions Balance at June 24, 2018 101,488 $ 0.1 $ 2,549.1 ($ 482.7 ) $ 0.6 $ 2,067.1 $ 5.0 $ 2,072.1 Net loss — — — ( 375.1 ) — ( 375.1 ) — ( 375.1 ) Currency translation gain — — — — 4.4 4.4 — 4.4 Unrealized gain on available-for-sale securities — — — — 4.5 4.5 — 4.5 Comprehensive loss ( 366.2 ) — ( 366.2 ) Tax withholding on vested equity awards — — ( 21.6 ) — — ( 21.6 ) — ( 21.6 ) Adoption of ASC 606 — — — 10.3 — 10.3 — 10.3 Stock-based compensation — — 78.0 — — 78.0 — 78.0 Exercise of stock options and issuance of shares 5,082 — 158.0 — — 158.0 — 158.0 Issuance of convertible notes due September 1, 2023 — — 110.6 — — 110.6 — 110.6 Balance at June 30, 2019 106,570 $ 0.1 $ 2,874.1 ($ 847.5 ) $ 9.5 $ 2,036.2 $ 5.0 $ 2,041.2 Net loss — — — ( 191.7 ) — ( 191.7 ) 1.1 ( 190.6 ) Unrealized gain on available-for-sale securities — — — — 6.5 6.5 — 6.5 Comprehensive loss ( 185.2 ) 1.1 ( 184.1 ) Tax withholding on vested equity awards — — ( 16.9 ) — — ( 16.9 ) — ( 16.9 ) Stock-based compensation — — 54.9 — — 54.9 — 54.9 Exercise of stock options and issuance of shares 2,660 — 76.4 — — 76.4 — 76.4 Issuance of convertible notes due May 1, 2026 — — 145.4 — — 145.4 — 145.4 Partial extinguishment of convertible notes due September 1, 2023 — — ( 27.7 ) — — ( 27.7 ) — ( 27.7 ) Balance at June 28, 2020 109,230 $ 0.1 $ 3,106.2 ($ 1,039.2 ) $ 16.0 $ 2,083.1 $ 6.1 $ 2,089.2 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. 53 Table of Contents CREE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 Business 55 Note 2 Basis of Presentation and Summary of Significant Accounting Policies 56 Note 3 Discontinued Operations 63 Note 4 Revenue Recognition 67 Note 5 Leases 68 Note 6 Financial Statement Details 70 Note 7 Investments 74 Note 8 Fair Value of Financial Instruments 77 Note 9 Goodwill and Intangible Assets 78 Note 10 Long-term Debt 79 Note 11 Shareholders' Equity 82 Note 12 Loss Per Share 83 Note 13 Stock-Based Compensation 84 Note 14 Income Taxes 87 Note 15 Commitments and Contingencies 91 Note 16 Concentrations of Credit Risk 92 Note 17 Retirement Savings Plan 92 Note 18 Restructuring 93 Note 19 Quarterly Results of Operations - Unaudited 94 54 Table of Contents Note 1 – Business Overview Cree, Inc. (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. 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 device fabrication facility in New York. The Company operates research and development facilities in North Carolina, California, Arkansas, Arizona and New York. Cree, Inc. is a North Carolina corporation established in 1987, and its headquarters are in Durham, North Carolina. 55 Table of Contents Note 2 – Basis of Presentation and Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated. Fiscal Year The Company’s fiscal year is a 52 or 53-week period ending on the last Sunday in the month of June. The Company’s 2021 and 2020 fiscal years were 52-week fiscal years. The Company's 2019 fiscal year was a 53-week fiscal year. The Company’s 2022 fiscal year will be a 52-week fiscal year. Reclassifications Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net loss or shareholders’ equity. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. The Company evaluates its estimates on an ongoing basis, including those related to revenue recognition, product warranty obligations, valuation of inventories, tax related contingencies, valuation of stock-based compensation, valuation of long-lived and intangible assets, other contingencies and litigation, among others. The Company generally bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. 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 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 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 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 Cash and cash equivalents consist of unrestricted cash accounts and highly liquid investments with an original maturity of three months or less when purchased. Cash and cash equivalents are stated at cost, which approximates fair value. The Company holds cash and cash equivalents at several major financial institutions, which often exceed insurance limits set by the Federal Deposit Insurance Corporation (FDIC). 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. 56 Table of Contents 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 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 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. 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 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. 57 Table of Contents Inventories 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. The Company writes down its inventory balances for estimates of excess and obsolete amounts. These write-downs are recognized as a component of cost of revenue. At the point of the write-down, a new lower cost basis for that inventory is established, and any subsequent improvements in facts and circumstances do not result in the restoration or increase in that newly established lower cost basis. If that inventory is subsequently sold, the sale is recorded at the actual selling price and the related cost of revenue is recorded at the new lower cost basis. Property and Equipment Property and equipment are stated at cost and depreciated on a straight-line basis over the assets’ estimated useful lives. Leasehold improvements are amortized over the lesser of the asset life or the term of the related lease. In general, the Company’s policy for useful lives is as follows: Furniture and fixtures 5 years Buildings and building improvements 5 to 40 years Machinery and equipment 3 to 15 years Vehicles 5 years Computer hardware/software 3 years Leasehold improvements Shorter of estimated useful life or lease term Expenditures for repairs and maintenance are charged to expense as incurred. The costs for major renewals and improvements are capitalized and depreciated over their estimated useful lives. 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 Shipping and handling costs are included in cost of revenue, net in the consolidated statements of operations and are recognized as a period expense during the period in which they are incurred. Goodwill and Intangible Assets The Company recognizes the assets acquired and liabilities assumed in business combinations at their respective fair values at the date of acquisition, with any excess purchase price recognized as goodwill. Valuation of intangible assets entails significant estimates and assumptions including, but not limited to, estimating future cash flows from product revenue, developing appropriate discount rates, continuation of customer relationships and renewal of customer contracts, and approximating the useful lives of the intangible assets acquired. Goodwill 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 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. 58 Table of Contents The Company conducts impairment testing for goodwill at the reporting unit level. 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 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: a significant decline in the reporting unit ’ s expected future cash flows; a sustained, significant decline in the Company ’ s stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates; as well as changes in management, key personnel, strategy and customers . If the Company's qualitative assessment indicates it is more likely than not that the estimated fair value of a reporting unit exceeds its carrying value, no further analysis is required and goodwill is not impaired. Otherwise, the Company performs a quantitative goodwill impairment test to determine if goodwill is impaired. The quantitative test compares the fair value of a reporting unit with its carrying amount, including 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 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. The fair value is reconciled back to the Company ’ s consolidated market capitalization. Finite-Lived Intangible Assets U.S. GAAP requires that intangible assets, other than goodwill and indefinite-lived intangibles, must be amortized over their useful lives. The Company is currently amortizing its acquired intangible assets with finite lives over periods ranging from four to 15 years. Patent rights reflect costs incurred by the Company in applying for and maintaining patents owned by the Company and costs incurred in purchasing patents and related rights from third parties. Licensing rights reflect costs incurred by the Company in acquiring licenses under patents owned by others. The Company amortizes both on a straight-line basis over the expected useful life of the associated patent rights, which is generally the lesser of 20 years from the date of the patent application or the license period. Royalties payable under licenses for patents owned by others are generally expensed as incurred. The Company reviews its capitalized patent portfolio and recognizes impairment charges when circumstances warrant, such as when patents have been abandoned or are no longer being pursued. Long-Lived Assets The Company reviews long-lived assets such as property and equipment for impairment based on changes in circumstances that indicate their carrying amounts may not be recoverable. In making these determinations, the Company uses certain assumptions, including but not limited to: (1) estimations of the fair market value of the assets and (2) estimations of future cash flows expected to be generated by these assets, which are based on additional assumptions such as asset utilization, length of service the asset will be used in the Company’s operations and estimated salvage values. Contingent Liabilities The Company recognizes contingent liabilities when it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Disclosure in the notes to the financial statements is required for loss contingencies that do not meet both these conditions if there is a reasonable possibility that a loss may have been incurred. See Note 15, “Commitments and Contingencies,” for a discussion of loss contingencies in connection with pending and threatened litigation. The Company expenses as incurred the costs of defending legal claims against the Company. Revenue Recognition Revenue is recognized when control of a good or service promised in a contract (i.e., performance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. 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 59 Table of Contents 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 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: value added resellers; manufacturers who incorporate the Company’s products into their own manufactured goods; or ultimate end users of the Company’s products. The Company recognizes revenue upon shipment of its products to its distributors. This arrangement is often referred to as a “sell-in” or “point-of-purchase” model as opposed to a “sell-through” or “point-of-sale” model, where revenue is deferred and not recognized until the distributor sells the product through to their customer. Master supply or distributor agreements are in place with many of the Company's customers and contain terms and conditions including, but not limited to payment, delivery, incentives and warranty. These agreements typically do not require minimum purchase commitments. If a master supply, distributor or other similar agreement is not in place with a customer, the Company considers a purchase order, which is governed by the Company’s standard terms and conditions, to be the contract governing the relationship with that customer. Pricing terms are negotiated independently on a stand-alone basis. 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, 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. Some of the Company’s distributors are provided limited rights that allow them to return a portion of inventory (product exchange rights or stock rotation rights) and receive credits for changes in selling prices (price protection rights) or customer pricing arrangements under the Company’s “ship and debit” program or other targeted sales incentives. These estimates are calculated based upon historical experience, product shipment analysis, current economic conditions, on-hand inventory at the distributor, and customer contractual arrangements. The Company believes that it can reasonably and reliably estimate the allowance for distributor credits at the time of sale. Accordingly, estimates for these rights are recognized at the time of sale as a reduction of product revenue and as a contract liability. From time to time, the Company will issue a new price book for its products, and provide a credit to certain distributors for inventory quantities on hand if required by the Company’s agreement with the distributor. This practice is known as price protection. These credits are applied against the reserve that the Company establishes upon initial shipment of product to the distributor. Under the ship and debit program, products are sold to distributors at negotiated prices and the distributors are required to pay for the products purchased within the Company’s standard commercial terms. Subsequent to the initial product purchase, a distributor may request a price allowance for a particular part number(s) for certain target customers, prior to the distributor reselling the particular part to that customer. If the Company approves an allowance and the distributor resells the product to the target customer, the Company credits the distributor according to the allowance the Company approved. These credits are applied against the reserve that the Company establishes upon initial shipment of product to the distributor. The Company also has inventory consignment agreements in which revenue is recognized at a point in time, when the customer or distributor pulls product from consignment inventory that the Company stores at designated locations. Delivery and transfer of control occur at that point, when title and risk of loss transfers and the customer or distributor becomes obligated to pay for the products pulled from inventory. Until the products are pulled for use or sale by the customer or distributor, the Company retains control over the products’ disposition, including the right to pull back or relocate the products. From time to time, the Company may enter into licensing arrangements related to its intellectual property. Revenue from licensing arrangements is recognized when earned and estimable. The timing of revenue recognition is dependent on the terms of each license agreement. Generally, the Company will recognize non-refundable upfront licensing fees related to patent licenses immediately upon receipt of the funds if the Company has no significant future obligations to perform under the arrangement. 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. The Company adopted FASB ASC 606 "Revenue from Contracts with Customers" (Topic 606) (ASC 606) on June 25, 2018 using the modified retrospective approach. 60 Table of Contents Leases 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. Assets and liabilities are recognized based on the present value of lease payments over the lease term. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The exercise of the renewal option is at the Company's sole discretion and the Company considers these options in determining the lease term used to establish its right-of-use assets and lease liabilities. The Company will remeasure its lease liability and adjust the related right-of-use asset upon the occurrence of the following: lease modifications not accounted for as a separate contract; a triggering event that changes the certainty of the lessee exercising an option to renew or terminate the lease, or purchase the underlying asset; a change to the amount probable of being owed by the Company under a residual value guarantee; or the resolution of a contingency upon which the variable lease payments are based such that those payments become fixed. Because most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The Company would use the implicit rate when readily determinable. Operating lease expense is generally recognized on a straight-line basis over the lease term. Finance lease assets are 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. 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. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as increases in lease payments based on changes in index rates, are not included in the right-of-use assets or liabilities. These variable lease payments are expensed as incurred. 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. Advertising 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. Advertising costs are included in sales, general and administrative expenses in the consolidated statements of operations and amounted to approximately $ 5.1 million, $ 3.8 million, and $ 3.7 million for the years ended June 27, 2021, June 28, 2020 and June 30, 2019, respectively. 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. 61 Table of Contents Loss Per Share 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. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits that would be recognized in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares. Stock-Based Compensation The Company recognizes compensation expense for all share-based payments granted based on the fair value of the shares on the date of grant. Compensation expense is then recognized over the award’s vesting period. Fair Value of Financial Instruments Cash and cash equivalents, short-term investments, accounts and interest receivable, accounts payable and other liabilities approximate their fair values at June 27, 2021 and June 28, 2020 due to the short-term nature of these instruments. Taxes Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are recognized for deductible temporary differences, along with net operating loss carryforwards and credit carryforwards, if it is more likely than not that the tax benefits will be realized. To the extent a deferred tax asset cannot be recognized under the preceding criteria, valuation allowances are established. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Taxes payable which are not based on income are accrued ratably over the period to which they apply. For example, payroll taxes are accrued each period end based upon the amount of payroll taxes that are owed as of that date; whereas taxes such as property taxes and franchise taxes are accrued over the fiscal year to which they apply if paid at the end of a period, or they are amortized ratably over the fiscal year if they are paid in advance. Foreign Currency Translation 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 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. Dollar. The Company and its subsidiaries transact business in currencies other than the U.S. Dollar and as such, the Company will continue to experience varying amounts of foreign currency exchange gains and losses. Joint Venture Effective July 17, 2017, the Company entered into a Shareholders Agreement with San’an Optoelectronics Co., Ltd. (San’an) and Cree Venture LED Company Limited (Cree Venture LED) pursuant to which the Company and San’an funded their contributions to Cree Venture LED and agreed upon the management and operation of Cree Venture LED. The Company contributed $ 5.1 million of cash for a 51 % ownership interest and San’an contributed $ 4.9 million of cash for a 49 % ownership interest. Cree Venture LED has a five -member board of directors, three of which were designated by the Company and two of which were designated by San’an. The Company's interest in Cree Venture LED was included in the LED Business Divestiture and its related activity is classified as discontinued operations. 62 Table of Contents Supplemental Cash Flow Information 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 Credit Losses In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This 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. 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. 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 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 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 63 Table of Contents Company; (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; and (iv) a Real Estate License Agreement, which will allow IDEAL to use certain premises owned by the Company to conduct the Lighting Products business unit after closing. 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 year ended June 30, 2019 are as follows: (in millions of U.S. Dollars) June 30, 2019 Revenue, net $ 419.8 Cost of revenue, net 324.3 Gross profit 95.5 Research and development 37.1 Sales, general and administrative 100.6 Amortization or impairment of acquisition-related intangibles 116.4 Goodwill impairment charges 90.3 Loss on disposal or impairment of long-lived assets 2.0 Loss before income taxes and loss on sale ( 250.9 ) Loss on sale 66.2 Loss before income taxes ( 317.1 ) Income tax expense 0.1 Net loss ($ 317.2 ) 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 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. LED Business 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. 64 Table of Contents 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. 65 Table of Contents 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. 66 Table of Contents 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 Assets 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 Liabilities 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 In accordance with ASC 606, the Company follows a five-step approach for recognizing revenue, consisting of the following: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. 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. The decrease was primarily due to decreased customer deposits offset by increased reserve liabilities. Contract liabilities are recorded within accrued contract liabilities and other long-term liabilities on the balance sheet. Before the adoption of ASC 606, liabilities relating to various rights of return were recorded as a deduction to accounts receivable. Practical Expedients and Exemptions The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Incidental contract costs that are not material in context of the delivery of products are expensed as incurred. Sales commissions are expensed when the amortization period is less than one year. 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 67 Table of Contents 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. Payments are typically due within 30 days of the completion of the performance obligation and invoicing, and therefore do not contain significant financing components. 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. 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 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. Variable costs include lease payments that were volume or usage-driven in accordance with the use of the underlying asset, as well as non-lease components incurred with respect to actual terms rather than contractually fixed amounts. For details on the Company's lease policies, see the significant accounting policy disclosures in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies." The Company's finance lease obligations primarily relate to Wolfspeed manufacturing space in Malaysia and a 49 -year ground lease on a future silicon carbide device fabrication facility in New York. 68 Table of Contents Balance Sheet Lease assets and liabilities and the corresponding balance sheet classifications are as follows (in millions of U.S. Dollars): Operating Leases: June 27, 2021 June 28, 2020 Right-of-use asset (1) $ 12.1 $ 12.3 Current lease liability (2) 4.5 4.8 Non-current lease liability (3) 7.5 7.5 Total operating lease liabilities 12.0 12.3 Finance Leases: Finance lease assets (4) $ 15.5 $ 15.4 Current portion of finance lease liabilities 5.2 3.6 Finance lease liabilities, less current portion 10.0 11.4 Total finance lease liabilities 15.2 15.0 (1) Within other assets on the consolidated balance sheets. (2) Within other current liabilities on the consolidated balance sheets. (3) Within other long-term liabilities on the consolidated balance sheets. (4) Within property and equipment, net on the consolidated balance sheets. Statement of Operations Operating lease expense was $ 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 Flows Cash flow information consisted of the following: Fiscal years ended (in millions of U.S. Dollars) June 27, 2021 June 28, 2020 Cash used in operating activities: Cash paid for operating leases $ 5.7 $ 5.5 Cash paid for interest portion of financing leases 0.3 0.1 Cash used in financing activities: Cash paid for principal portion of finance leases 0.4 0.8 Non-cash operating activities: Operating lease additions due to adoption of ASC 842 — 11.0 Operating lease additions and modifications, net 4.8 6.4 Finance lease additions 4.8 15.7 Transfer of finance lease liability to accounts payable and accrued expenses (1) 4.2 — (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. 69 Table of Contents Lease Liability Maturities Maturities of operating and finance lease liabilities as of June 27, 2021 were as follows (in millions of U.S. Dollars): Fiscal Year Ending Operating Leases Finance Leases Total June 26, 2022 $ 4.7 $ 5.5 $ 10.2 June 25, 2023 3.6 0.7 4.3 June 30, 2024 2.2 0.7 2.9 June 29, 2025 1.2 0.7 1.9 June 28, 2026 0.7 0.7 1.4 Thereafter 0.2 14.6 14.8 Total lease payments 12.6 22.9 35.5 Imputed lease interest ( 0.6 ) ( 7.7 ) ( 8.3 ) Total lease liabilities $ 12.0 $ 15.2 $ 27.2 Supplemental Disclosures Operating Leases Finance Leases Weighted average remaining lease term (in months) (1) 35 469 Weighted average discount rate (2) 2.85 % 2.48 % (1) Weighted average remaining lease term of finance leases without the 49 -year ground lease is 65 months. (2) Weighted average discount rate of finance leases without the 49 -year ground lease is 1.24 %. Lease Income 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. Dollars): June 26, 2022 3.6 June 25, 2023 2.4 Total future minimum rental income 6.0 Note 6 – Financial Statement Details Accounts Receivable, net Accounts receivable, net consisted of the following: (in millions of U.S. Dollars) June 27, 2021 June 28, 2020 Billed trade receivables $ 95.6 $ 71.5 Unbilled contract receivables 0.6 1.2 Royalties 0.5 0.4 96.7 73.1 Allowance for bad debts ( 0.8 ) ( 0.7 ) Accounts receivable, net $ 95.9 $ 72.4 70 Table of Contents Changes in the Company’s allowance for bad debts were as follows: Fiscal Years Ended (in millions of U.S. Dollars) June 27, 2021 June 28, 2020 June 30, 2019 Balance at beginning of period $ 0.7 $ 0.2 $ 0.2 Current period provision change 0.1 0.6 — Write-offs, net of recoveries — ( 0.1 ) — Balance at end of period $ 0.8 $ 0.7 $ 0.2 Inventories Inventories consisted of the following: (in millions of U.S. Dollars) June 27, 2021 June 28, 2020 Raw material $ 43.3 $ 36.9 Work-in-progress 109.5 73.9 Finished goods 13.8 11.1 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) — 19.0 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 Property and equipment, net consisted of the following: (in millions of U.S. Dollars) June 27, 2021 June 28, 2020 Machinery and equipment $ 988.6 $ 859.9 Land and buildings 383.9 363.1 Computer hardware/software 51.5 46.8 Furniture and fixtures 8.0 8.1 Leasehold improvements and other 9.6 9.7 Vehicles 0.7 0.6 Finance lease assets 15.5 15.4 Construction in progress 767.8 366.8 Property and equipment, gross 2,225.6 1,670.4 Accumulated depreciation ( 933.3 ) ( 899.6 ) Property and equipment, net $ 1,292.3 $ 770.8 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. 71 Table of Contents 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 Accounts payable and accrued expenses consisted of the following: (in millions of U.S. Dollars) June 27, 2021 June 28, 2020 Accounts payable, trade $ 44.2 $ 88.1 Accrued salaries and wages 69.5 42.3 Accrued expenses 265.7 55.3 Other 1.7 4.1 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 Accumulated other comprehensive income, net of taxes consisted of the following: (in millions of U.S. Dollars) June 27, 2021 June 28, 2020 Currency translation gain $ — $ 9.5 Net unrealized gain on available-for-sale securities (1) 2.7 6.5 Accumulated other comprehensive income, net of taxes $ 2.7 $ 16.0 (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. 72 Table of Contents Other Operating Expense The following table summarizes the components of other operating expense: Fiscal Years Ended (in millions of U.S. Dollars) June 27, 2021 June 28, 2020 June 30, 2019 Factory optimization restructuring $ 7.6 $ 8.5 $ 4.1 Severance and other restructuring 3.4 0.6 2.8 Total restructuring costs 11.0 9.1 6.9 Project, transformation and transaction costs 7.3 12.2 16.9 Factory optimization start-up costs 8.0 9.5 1.5 Non-restructuring related executive severance 2.8 2.1 1.3 Other operating expense $ 29.1 $ 32.9 $ 26.6 See Note 18, "Restructuring" for more details on the Company's restructuring costs. Non-Operating Expense (Income), net The following table summarizes the components of non-operating expense (income), net: Fiscal Years Ended (in millions of U.S. Dollars) June 27, 2021 June 28, 2020 June 30, 2019 (Gain) loss on sale of investments, net ($ 0.4 ) ($ 1.5 ) $ 0.1 (Gain) loss on equity investment ( 8.3 ) ( 14.2 ) 16.2 Gain on partial debt extinguishment — ( 11.0 ) — Gain on arbitration proceedings — ( 7.9 ) — Interest income ( 10.1 ) ( 16.3 ) ( 13.9 ) Interest expense 45.4 34.9 26.0 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 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. 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. 73 Table of Contents Statements of Cash Flows - non-cash activities Fiscal Years Ended June 27, 2021 June 28, 2020 June 30, 2019 Lease asset and liability additions (1) $ 7.9 $ 28.3 $ — Lease asset and liability modifications, net 1.7 4.8 — Transfer of finance lease liability to accounts payable and accrued expenses (2) 4.2 — — 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. (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 Investments consist of municipal bonds, corporate bonds, U.S. agency securities, U.S. treasury securities, commercial paper, certificates of deposit, and variable rate demand notes. All short-term investments are classified as available-for-sale. 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. 74 Table of Contents Short-term investments as of June 27, 2021 consist of the following: June 27, 2021 (in millions of U.S. Dollars) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Municipal bonds $ 139.4 $ 1.9 $ — $ 141.3 Corporate bonds 456.5 3.3 ( 0.3 ) 459.5 U.S. agency securities 15.8 — — 15.8 U.S. treasury securities 72.3 0.3 ( 0.1 ) 72.5 Certificates of deposit 16.5 — — 16.5 Commercial paper 50.0 — — 50.0 Variable rate demand note 20.0 — — 20.0 Total short-term investments $ 770.5 $ 5.5 ($ 0.4 ) $ 775.6 The following table presents the gross unrealized losses and estimated fair value of the Company’s short-term investments, aggregated by investment type and the length of time that individual securities have been in a continuous unrealized loss position: June 27, 2021 Less than 12 Months Greater than 12 Months Total (in millions of U.S. Dollars) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Municipal bonds $ 28.8 $ — $ — $ — $ 28.8 $ — Corporate bonds 133.8 ( 0.3 ) — — 133.8 ( 0.3 ) U.S. agency securities 16.7 — — — 16.7 — U.S. 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 Short-term investments as of June 28, 2020 consist of the following: June 28, 2020 (in millions of U.S. Dollars) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses (1) Estimated Fair Value Municipal bonds 130.0 2.0 — 132.0 Corporate bonds 473.8 6.3 — 480.1 U.S. agency securities 29.1 — — 29.1 U.S. treasury securities 52.3 0.6 — 52.9 Certificates of deposit 83.3 — — 83.3 Commercial paper 11.0 — — 11.0 Variable rate demand note 2.5 — — 2.5 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. 75 Table of Contents The following table presents the gross unrealized losses and estimated fair value of the Company’s short-term investments, aggregated by investment type and the length of time that individual securities have been in a continuous unrealized loss position: June 28, 2020 Less than 12 Months Greater than 12 Months Total (in millions of U.S. Dollars) Fair Value Unrealized Loss (1) Fair Value Unrealized Loss Fair Value Unrealized Loss Municipal bonds $ 14.3 $ — $ — $ — $ 14.3 $ — Corporate bonds 29.1 — — — 29.1 — U.S. agency securities 8.6 — — — 8.6 — U.S. treasury securities 13.8 — — — 13.8 — Total $ 65.8 $ — $ — $ — $ 65.8 $ — Number of securities with an unrealized loss 46 — 46 (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 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: (in millions of U.S. Dollars) Within One Year After One, Within Five Years After Five, Within Ten Years After Ten Years Total Municipal bonds $ 24.7 $ 116.6 $ — $ — $ 141.3 Corporate bonds 80.3 379.2 — — 459.5 U.S. agency securities 3.5 12.3 — — 15.8 U.S. treasury securities 24.7 47.8 — — 72.5 Certificates of deposit 16.5 — — — 16.5 Commercial paper 50.0 — — — 50.0 Variable rate demand note — — — 20.0 20.0 Total short-term investments $ 199.7 $ 555.9 $ — $ 20.0 $ 775.6 76 Table of Contents Note 8 – Fair Value of Financial Instruments Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches, including quoted market prices and discounted cash flows. U.S. GAAP also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability. The fair value hierarchy is categorized into three levels based on the reliability of inputs as follows: • Level 1 - Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. • Level 2 - Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. • Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The financial assets for which the Company performs recurring fair value remeasurements are cash equivalents, short-term investments and long-term investments. As of June 27, 2021, financial assets utilizing Level 1 inputs included money market funds, U.S. treasury securities and U.S. agency securities, and financial assets utilizing Level 2 inputs included municipal bonds, corporate bonds, certificates of deposit, commercial paper, variable rate demand notes and common stock of non-U.S. corporations. Level 2 assets are valued based on quoted prices in active markets for instruments that are similar or using a third-party pricing service’s consensus price, which is a weighted average price based on multiple sources. These sources determine prices utilizing market income models which factor in, where applicable, transactions of similar assets in active markets, transactions of identical assets in infrequent markets, interest rates, bond or credit default swap spreads and volatility. The Company did not have any financial assets requiring the use of Level 3 inputs as of June 27, 2021. There were no transfers between Level 1 and Level 2 during the year ended June 27, 2021. 77 Table of Contents Financial instruments carried at fair value were as follows: June 27, 2021 June 28, 2020 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 96.9 $ — $ — $ 96.9 $ 199.9 $ — $ — $ 199.9 Municipal bonds — 16.0 — 16.0 — — — — U.S. agency securities — 6.0 — 6.0 — 19.6 — 19.6 U.S. treasury securities — — — — 19.0 — — 19.0 Certificates of deposit — — — — — 54.3 — 54.3 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 Short-term investments: Municipal bonds — 141.3 — 141.3 — 132.0 — 132.0 Corporate bonds — 459.5 — 459.5 — 480.1 — 480.1 U.S. agency securities — 15.8 — 15.8 — 29.1 — 29.1 U.S. treasury securities 72.5 — — 72.5 52.9 — — 52.9 Certificates of deposit — 16.5 — 16.5 — 83.3 — 83.3 Commercial paper — 50.0 — 50.0 — 11.0 — 11.0 Variable rate demand note — 20.0 — 20.0 — 2.5 — 2.5 Total short-term investments 72.5 703.1 — 775.6 52.9 738.0 — 790.9 Other long-term investments: Common stock of non-U.S. corporations — — — — — 55.9 — 55.9 Total assets $ 169.4 $ 810.4 $ — $ 979.8 $ 271.8 $ 878.9 $ — $ 1,150.7 Note 9 – Goodwill and Intangible Assets Goodwill The following table summarizes changes in goodwill during the fiscal year ended June 27, 2021: (in millions of U.S. Dollars) Balance at June 28, 2020 $ 349.7 Transfer in connection with LED Business Divestiture (1) 9.5 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. 78 Table of Contents Intangible Assets Intangible assets, net included the following: June 27, 2021 June 28, 2020 (in millions of U.S. Dollars) Gross Accumulated Amortization Net Gross Accumulated Amortization Net Intangible assets: Customer relationships $ 96.8 ($ 25.1 ) $ 71.7 $ 96.8 ($ 19.0 ) $ 77.8 Developed technology 68.0 ( 28.2 ) 39.8 68.0 ( 22.8 ) 45.2 Non-compete agreements 12.2 ( 10.1 ) 2.1 12.2 ( 7.1 ) 5.1 Acquisition related intangible assets 177.0 ( 63.4 ) 113.6 177.0 ( 48.9 ) 128.1 Patent and licensing rights 67.1 ( 40.2 ) 26.9 69.3 ( 40.5 ) 28.8 Total intangible assets 244.1 ( 103.6 ) 140.5 246.3 ( 89.4 ) 156.9 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. 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. For the fiscal years ended June 27, 2021, June 28, 2020 and June 30, 2019, the Company recognized $ 0.7 million, $ 1.2 million and $ 0.6 million, respectively, in impairment charges related to its patent portfolio. Total future amortization expense of intangible assets is estimated to be as follows: (in millions of U.S. Dollars) Fiscal Year Ending Acquisition Related Intangibles Patents Total June 26, 2022 $ 13.5 $ 4.9 $ 18.4 June 25, 2023 11.0 4.0 15.0 June 30, 2024 10.4 3.4 13.8 June 29, 2025 10.4 2.6 13.0 June 28, 2026 9.3 1.9 11.2 Thereafter 59.0 10.1 69.1 Total future amortization expense $ 113.6 $ 26.9 $ 140.5 Note 10 – Long-term Debt Revolving Line of Credit 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. 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 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. 79 Table of Contents 2023 Convertible Notes On August 24, 2018, the Company sold $ 500.0 million aggregate principal amount of 0.875 % convertible senior notes due September 1, 2023 to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the Securities Act), and an additional $ 75.0 million aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment options of the underwriters (the 2023 Notes). The total net proceeds from the debt offering was approximately $ 562.1 million. 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). The conversion rate will be subject to adjustment for some events, but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, or following the Company's issuance of a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its 2023 Notes in connection with such a corporate event, or who elects to convert any 2023 Notes called for redemption during the related redemption period in certain circumstances. The Company may not redeem the 2023 Notes prior to September 1, 2021. The Company may redeem for cash all or any portion of the 2023 Notes, at its option, on a redemption date occurring on or after September 1, 2021 and on or before the 40th scheduled trading day immediately before the maturity date, if the last reported sales price of its common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides a notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. The redemption price will be 100 % of the principal amount of the 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 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 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; or (4) upon the occurrence of specified corporate events. On or after March 1, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2023 Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company's election. 2026 Convertible Notes On April 21, 2020, the Company sold $ 500.0 million aggregate principal amount of 1.75 % convertible senior notes due May 1, 2026 to qualified institutional buyers pursuant to Rule 144A under the Securities Act and an additional $ 75.0 million aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment options of the underwriters (the 2026 Notes). The total net proceeds from the debt offerings was approximately $ 561.4 million. 80 Table of Contents The conversion rate will initially be 21.1346 shares of common stock per one thousand dollars in principal amount of 2026 Notes (equivalent to an initial conversion price of approximately $ 47.32 per share of common stock). The conversion rate will be subject to adjustment for some events, but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, or following the Company's issuance of a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its 2026 Notes in connection with such a corporate event, or who elects to convert any 2026 Notes called for redemption during the related redemption period in certain circumstances. The Company may not redeem the 2026 Notes prior to May 1, 2023. The Company may redeem for cash all or any portion of the 2026 Notes, at its option, on a redemption date occurring on or after May 1, 2023 and on or before the 40th scheduled trading day immediately before the maturity date, if the last reported sales price of its common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides a notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. The redemption price will be 100 % of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company undergoes certain fundamental changes related to the Company's common stock, holders may require the Company to repurchase for cash all or any portions of their 2026 Notes at a fundamental repurchase price equal to 100 % of the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. Holders may convert their 2026 Notes at their option at any time prior to the close of business on the business day immediately preceding November 3, 2025 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending June 30, 2020 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period in which the trading price per $1.0 thousand principal amount of 2026 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of its common stock and the conversion rate on each such trading day; (3) if the Company calls such 2026 Notes for redemption, at any time prior to the close of business on the second business day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after November 3, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2026 Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company's election. The Company used approximately $ 144.3 million of the net proceeds from the sale of the 2026 Notes to repurchase approximately $ 150.2 million aggregate principal amount of the 2023 Notes, including approximately $ 0.2 million of accrued interest on such notes, in privately negotiated transactions. Accounting for 2023 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. The amounts were determined by deducting the fair value of the liability component from the par value of each of the Notes. Due to the partial extinguishment of the 2023 Notes, the equity component of the 2023 Notes was reduced by $ 27.7 million. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount (the debt discount), along with related issuance fees, are amortized to interest expense over the term of the Notes at an effective 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: 81 Table of Contents (in millions of U.S. Dollars) June 27, 2021 June 28, 2020 Principal $ 999.8 $ 999.8 Unamortized discount and issuance costs ( 175.9 ) ( 216.0 ) Net carrying amount $ 823.9 $ 783.8 The net carrying amount of the equity component of the Notes is as follows: (in millions of U.S. Dollars) June 27, 2021 June 28, 2020 Discount related to value of conversion option $ 262.3 $ 262.3 Partial extinguishment of 2023 Notes ( 27.7 ) ( 27.7 ) Debt issuance costs ( 6.3 ) ( 6.3 ) Net carrying amount $ 228.3 $ 228.3 The interest expense, net recognized related to the Notes is as follows: (in millions of U.S. 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. 82 Table of Contents 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): Number of Shares For exercise of outstanding common stock options 142 For vesting of outstanding stock units 2,168 For future equity awards under 2013 Long-Term Incentive Compensation Plan 5,329 For future issuance under the Non-Employee Director Stock Compensation and Deferral Program 45 For future issuance to employees under the 2020 Employee Stock Purchase Plan 5,839 For future issuance upon conversion of the 2023 Notes 12,560 For future issuance upon conversion of the 2026 Notes 16,102 Total common shares reserved 42,185 Note 12 – Loss Per Share The details of the computation of basic and diluted loss per share are as follows: Fiscal Years Ended (in millions of U.S. Dollars, except share data) June 27, 2021 June 28, 2020 June 30, 2019 Net loss from continuing operations $ ( 341.3 ) $ ( 197.6 ) $ ( 118.5 ) 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) 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.” 83 Table of Contents Note 13 – Stock-Based Compensation Overview of Employee Stock-Based Compensation Plans The Company currently has one equity-based compensation plan, the 2013 Long-Term Incentive Compensation Plan (2013 LTIP), from which stock-based compensation awards can be granted to employees and directors. At June 27, 2021, there were 15.9 million shares authorized for issuance under the plan and 5.3 million shares remaining for future grants. The 2013 LTIP provides for awards in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other awards. The Company has other equity-based compensation plans that have been terminated so that no future grants can be made under those plans, but under which stock options, restricted stock and restricted stock units are currently outstanding. The Company’s stock-based awards can be either service-based or performance-based. Performance-based conditions are generally tied to future financial and/or operating performance of the Company and/or external based market metrics. The compensation expense with respect to performance-based grants is recognized if the Company believes it is probable that the performance condition will be achieved. The Company reassesses the probability of the achievement of the performance condition at each reporting period, and adjusts the compensation expense for subsequent changes in the estimate or actual outcome. As with non-performance based awards, compensation expense is recognized over the vesting period. 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. At June 27, 2021, there were 6.0 million shares authorized for issuance under the ESPP, as amended, with 5.8 million shares remaining for future issuance. The ESPP limits employee contributions to 15 % of each employee’s compensation (as defined in the plan) and allows employees to purchase shares at a 15 % discount to the fair market value of common stock on the purchase date two times per year. The ESPP provides for a twelve-month participation period, divided into two equal six-month purchase periods, and also provides for a look-back feature. At the end of each six-month period in April and October, participants purchase the Company’s common stock through the ESPP at a 15 % discount to the fair market value of the common stock on the first day of the twelve-month participation period or the purchase date, whichever is lower. The plan also provides for an automatic reset feature to start participants on a new twelve-month participation period if the fair market value of common stock declines during the first six-month purchase period. Stock Option Awards The following table summarizes option activity as of June 27, 2021 and changes during the fiscal year then ended (shares in thousands): Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Total Intrinsic Value (in millions of U.S. Dollars) Outstanding at June 28, 2020 983 $ 37.88 Granted — — Exercised ( 830 ) 39.34 Forfeited or expired ( 11 ) 64.51 Outstanding at June 27, 2021 142 27.37 1.62 $ 10.1 Vested and expected to vest at June 27, 2021 142 27.37 1.62 $ 10.1 Exercisable at June 27, 2021 142 27.37 1.62 $ 10.1 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 27, 2021, there was no unrecognized compensation cost related to non-vested stock options. 84 Table of Contents The following table summarizes information about stock options outstanding and exercisable at June 27, 2021 (shares in thousands): Options Outstanding Options Exercisable Range of Exercise Price Number Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Weighted Average Exercise Price $ 0.01 to $ 25.00 66 2.1 $ 24.34 66 $ 24.34 $ 25.01 to $ 35.00 62 1.4 26.92 62 26.92 $ 35.01 to $ 45.00 1 0.8 35.17 1 35.17 $ 45.01 to $ 55.00 13 0.2 45.13 13 45.13 Total 142 142 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 Granted 1,059 67.00 Vested ( 1,459 ) 38.12 Forfeited ( 364 ) 53.14 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. Stock-Based Compensation Valuation and Expense The Company accounts for its employee stock-based compensation plans using the fair value method. 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 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. These variables include the expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, the risk-free interest rate and expected dividends. 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 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. 85 Table of Contents Stock-based compensation expense is recognized net of estimated forfeitures such that expense is recognized only for those stock-based awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Total stock-based compensation expense was classified in the consolidated statements of operations as follows: Fiscal Years Ended (in millions of U.S. Dollars) June 27, 2021 June 28, 2020 June 30, 2019 Cost of revenue, net $ 14.4 $ 10.0 $ 7.8 Research and development 8.7 8.0 6.2 Sales, general and administrative 30.1 30.8 28.9 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. The assumptions listed below represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if other assumptions had been used, recorded share-based compensation expense could have been materially different from that depicted above. The range of assumptions used to value stock issued under the ESPP were as follows: Fiscal Years Ended June 27, 2021 June 28, 2020 June 30, 2019 Risk-free interest rate 0.03 - 0.17 % 0.12 - 2.67 % 2.39 - 2.67 % Expected life, in years 0.5 - 1.0 0.5 - 1.0 0.5 - 1.0 Volatility 52.4 - 82.6 % 34.5 - 82.6 % 34.5 - 39.6 % Dividend yield — — — The range of assumptions used for issued performance units valued using the Monte Carlo model were as follows: Fiscal Years Ended June 27, 2021 June 28, 2020 June 30, 2019 Risk-free interest rate 0.11 - 1.66 % 0.28 - 1.66 % 2.68 % Expected life, in years 3.0 3.0 3.0 Average volatility of peer companies 48.9 - 60.5 % 48.9 - 55.2 % 46.8 % Average correlation coefficient of peer companies 0.36 - 0.51 0.36 - 0.45 0.34 Dividend yield — — — The following describes each of these assumptions and the Company’s methodology for determining each assumption: Risk-Free Interest Rate The Company estimates the risk-free interest rate using the U.S. Treasury bill rate with a remaining term equal to the expected life of the award. Expected Life The expected life represents the period the awards are expected to be outstanding. In determining the appropriate expected life of its stock options, the Company segregates its grantees into categories based upon employee levels that are expected to be indicative of similar option-related behavior. The expected useful lives for each of these categories are then estimated giving consideration to (1) the weighted average vesting periods, (2) the contractual lives of the stock options, (3) the relationship between the exercise price and the fair market value of the Company’s common stock, (4) expected employee turnover, (5) the expected future volatility of the Company’s common stock, and (6) past and expected exercise behavior, among other factors. 86 Table of Contents Expected Volatility The Company estimates expected volatility for the options and ESPP awards giving consideration to the expected life of the respective award, the Company’s current expected growth rate, implied volatility in traded options for its common stock, and the historical volatility of its common stock. For purposes of estimating volatility for use in the Monte Carlo model for the market-based awards, the Company utilizes historical volatilities of the Company and the members of the defined peer group. Expected Dividend Yield The Company estimates the expected dividend yield by giving consideration to its current dividend policies as well as those anticipated in the future considering the Company’s current plans and projections. The Company has not historically issued dividends. Correlation Coefficient The correlation coefficients are calculated based upon the price data used to calculate the historical volatilities and are used to model the way in which each entity tends to move in relation to its peers. Note 14 – Income Taxes The following were the components of loss before income taxes: Fiscal Years Ended (in millions of U.S. Dollars) June 27, 2021 June 28, 2020 June 30, 2019 Domestic ($ 348.7 ) ($ 210.3 ) ($ 92.2 ) Foreign 8.5 4.7 ( 30.7 ) Loss before income taxes ($ 340.2 ) ($ 205.6 ) ($ 122.9 ) The following were the components of income tax expense (benefit): Fiscal Years Ended (in millions of U.S. Dollars) June 27, 2021 June 28, 2020 June 30, 2019 Current: Federal $ 0.1 ($ 7.3 ) $ 1.4 Foreign 0.1 0.2 0.5 State 0.2 0.1 0.3 Total current 0.4 ( 7.0 ) 2.2 Deferred: Federal 0.7 1.8 ( 1.9 ) Foreign — ( 2.8 ) ( 4.5 ) State — — ( 0.2 ) Total deferred 0.7 ( 1.0 ) ( 6.6 ) Income tax expense (benefit) $ 1.1 ($ 8.0 ) ($ 4.4 ) 87 Table of Contents Actual income tax expense (benefit) differed from the amount computed by applying each period's U.S. federal statutory tax rate to pre-tax earnings as a result of the following: Fiscal Years Ended (in millions of U.S. Dollars) June 27, 2021 % of Loss June 28, 2020 % of Loss June 30, 2019 % of Loss Federal income tax provision at statutory rate ($ 71.4 ) 21 % ($ 43.2 ) 21 % ($ 25.8 ) 21 % (Decrease) increase in income tax expense resulting from: State tax provision, net of federal benefit ( 1.9 ) 1 % ( 1.9 ) 1 % ( 2.0 ) 2 % Tax exempt interest ( 0.1 ) — % ( 0.5 ) — % ( 0.4 ) — % (Decrease) increase in tax reserve — — % ( 0.3 ) — % 0.5 — % Research and development credits ( 4.3 ) 1 % ( 3.3 ) 2 % ( 2.8 ) 2 % Foreign tax credit ( 0.4 ) — % ( 0.3 ) — % ( 0.4 ) — % Increase (decrease) in valuation allowance 75.0 ( 22 ) % 50.3 ( 25 ) % 4.3 ( 4 ) % Partial extinguishment of convertible notes — — % ( 6.0 ) 3 % — — % Stock-based compensation ( 2.8 ) 1 % 2.1 ( 1 ) % 0.7 ( 1 ) % Statutory rate differences 1.1 — % 1.2 ( 1 ) % 6.0 ( 5 ) % Foreign earnings taxed in U.S. 2.7 ( 1 ) % 0.3 — % 0.4 — % Other foreign adjustments ( 0.1 ) — % 0.3 — % ( 0.1 ) — % Net operating loss carryback — — % ( 7.2 ) 4 % — — % Provision to return adjustments ( 0.2 ) — % ( 1.3 ) 1 % 11.8 ( 10 ) % Tax on distributable foreign earnings — — % — — % — — % Impact of rate changes 2.7 ( 1 ) % 0.8 — % 2.7 ( 2 ) % Expiration of state credits 0.7 — % 0.9 — % 1.2 ( 1 ) % Other 0.1 — % 0.1 — % ( 0.5 ) — % Income tax expense (benefit) $ 1.1 — % ($ 8.0 ) 4 % ($ 4.4 ) 4 % 88 Table of Contents The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows: (in millions of U.S. Dollars) June 27, 2021 June 28, 2020 Deferred tax assets: Compensation $ 10.4 $ 4.4 Inventories 13.6 7.9 Sales return reserve and allowance for bad debts 2.3 2.6 Federal and state net operating loss carryforwards 360.6 180.1 Federal credits 42.1 30.3 State credits 1.2 1.9 48C investment tax credits 36.6 37.5 Investments 0.3 — Stock-based compensation 6.1 8.3 Deferred revenue 26.3 23.1 Lease liabilities 6.2 6.5 Other 4.5 5.0 Total gross deferred assets 510.2 307.6 Less valuation allowance ( 414.4 ) ( 208.5 ) Deferred tax assets, net 95.8 99.1 Deferred tax liabilities: Property and equipment ( 36.9 ) ( 27.8 ) Intangible assets ( 16.6 ) ( 19.2 ) Investments ( 1.1 ) ( 1.6 ) Prepaid taxes and other ( 0.7 ) ( 0.7 ) Foreign earnings recapture — ( 2.0 ) Taxes on unremitted foreign earnings ( 1.5 ) — Lease assets ( 6.1 ) ( 6.3 ) Convertible notes ( 34.4 ) ( 42.1 ) Total gross deferred liability ( 97.3 ) ( 99.7 ) Deferred tax liability, net ($ 1.5 ) ($ 0.6 ) 89 Table of Contents The components giving rise to the net deferred tax assets (liabilities) have been included in the consolidated balance sheets as follows: Balance at June 27, 2021 (in millions of U.S. Dollars) Assets Liabilities U.S. federal income taxes $ — ($ 2.5 ) Foreign income taxes 1.0 — Total $ 1.0 ($ 2.5 ) Balance at June 28, 2020 (in millions of U.S. Dollars) Assets Liabilities U.S. federal income taxes $ — ($ 1.8 ) Foreign income taxes 1.2 — Total $ 1.2 ($ 1.8 ) 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. and Luxembourg deferred tax assets as of June 27, 2021. As of June 28, 2020, the U.S. valuation allowance was $ 205.2 million. For the fiscal year ended June 27, 2021, the Company increased the U.S. 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 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 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. The federal and state net operating loss carryovers will begin to expire in fiscal 2038 and fiscal 2022, respectively. The federal and state income tax credit carryforwards will begin to expire in fiscal 2031 and fiscal 2022, respectively. U.S. GAAP requires a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is cumulatively more than 50% likely to be realized upon ultimate settlement. As of June 28, 2020, the Company’s liability for unrecognized tax benefits was $ 7.4 million. 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. If any portion of this $ 7.4 million is recognized, the Company will then include that portion in the computation of its effective tax rate. Although the ultimate timing of the resolution and/or closure of audits is highly uncertain, the Company believes it is reasonably possible that $ 0.6 million of gross unrecognized tax benefits will change in the next 12 months as a result of statute requirements or settlement with tax authorities. 90 Table of Contents The following is a tabular reconciliation of the Company’s change in uncertain tax positions: Fiscal Years Ended (in millions of U.S. Dollars) June 27, 2021 June 28, 2020 June 30, 2019 Balance at beginning of period $ 7.4 $ 8.2 $ 8.6 Decrease related to current year change in law — — — Increases related to prior year tax positions — — 0.5 Decreases related to prior year tax positions — — — Settlements with tax authorities — ( 0.1 ) — Expiration of statute of limitations for assessment of taxes — ( 0.7 ) ( 0.9 ) Balance at end of period $ 7.4 $ 7.4 $ 8.2 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 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. The Company files U.S. federal, U.S. state and foreign tax returns. For U.S. federal purposes, the Company is generally no longer subject to tax examinations for fiscal years prior to 2017. For U.S. state tax returns, the Company is generally no longer subject to tax examinations for fiscal years prior to 2017. For foreign purposes, the Company is generally no longer subject to examination for tax periods prior to 2011. Certain carryforward tax attributes generated in prior years remain subject to examination, adjustment and recapture. The Company provides for income taxes on the earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered indefinitely reinvested outside the United States. As of June 27, 2021, the Company has approximately $ 189.7 million of undistributed earnings for certain non-U.S. subsidiaries. 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 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. If, at a later date, these earnings were repatriated to the United States, the Company would be required to pay approximately $ 0.3 million in taxes on these amounts. Note 15 – Commitments and Contingencies Litigation The Company is currently a party to various legal proceedings. 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 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. 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 device fabrication facility in Marcy, New York. 91 Table of Contents The GDA was signed in the fourth quarter of fiscal 2020 and requires the Company to satisfy a number of objectives for the Company to receive reimbursements through the span of the 13 -year agreement. These objectives include maintaining a certain level of local employment, investing a certain amount in locally administered research and development activities and the payment of an annual commitment fee for the first six years . Additionally, the Company has agreed, under a separate agreement (the SUNY Agreement), to sponsor the creation of two endowed faculty chairs and fund a scholarship program at SUNY Polytechnic Institute. 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 Financial instruments, which may subject the Company to a concentration of risk, consist principally of short-term investments, cash equivalents and accounts receivable. Short-term investments consist primarily of municipal bonds, corporate bonds, U.S. agency securities, U.S. treasury securities, commercial paper, certificates of deposit, and variable rate demand notes at interest rates that vary by security. The Company’s cash equivalents consist primarily of money market funds. Certain bank deposits may at times be in excess of the FDIC insurance limits. The Company sells its products on account to manufacturers, distributors and others worldwide and generally requires no collateral. 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 Internal Revenue Code. All U.S. employees are eligible to participate under the 401(k) Plan on the first day of a new fiscal month after the date of hire. Under the 401(k) Plan, there is no fixed dollar amount of retirement benefits; rather, the Company matches a defined percentage of employee deferrals, and employees vest in these matching funds over time. Employees choose their investment elections from a list of available investment options. During the fiscal years ended June 27, 2021, June 28, 2020 and June 30, 2019, the Company contributed approximately $ 8.0 million, $ 7.7 million and $ 7.3 million to the 401(k) Plan, respectively. The Pension Benefit Guaranty Corporation does not insure the 401(k) Plan. 92 Table of Contents Note 18 - Restructuring The Company has approved various operational plans that include restructuring costs. All restructuring costs are recorded in other operating expense on the consolidated statement of operations. Corporate Restructuring In April 2018, the Company approved a corporate restructuring plan. The purpose was to restructure and realign the Company's cost base with the long-range business strategy that was announced in February 2018. The restructuring activity was completed in the second quarter of fiscal 2019. 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 an expansion of its materials factory at its U.S. campus headquarters in Durham, North Carolina. 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. 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 the fiscal year ended June 28, 2020, of which $ 0.1 million was accrued in other current liabilities as of June 28, 2020. 93 Table of Contents Note 19 – Quarterly Results of Operations - Unaudited The following is a summary of the Company’s consolidated quarterly results of operations for each of the fiscal years ended June 27, 2021 and June 28, 2020: (in millions of U.S. 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 Cost of revenue, net 80.0 85.7 93.3 102.0 361.0 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 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 ($ 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 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 Cost of revenue, net 75.2 85.1 72.6 79.3 312.2 Gross profit 52.5 35.6 41.3 29.1 158.5 Net loss from continuing operations ( 39.3 ) ( 57.9 ) ( 56.2 ) ( 44.2 ) ( 197.6 ) 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 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 ($ 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 ) Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 94 Table of Contents