What changed in this filing

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Item 1. Financial Statements

2021-10-28 compared with 2021-04-29 · 216 added, 351 removed, 594 unchanged (49% of the section changed)

Financial Statements (Unaudited)

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

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

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

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

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

Consolidated Balance Sheets as of September 26, 2021 and June 27, 2021

Consolidated Statements of Operations for the three months ended September 26, 2021 and September 27, 2020

Consolidated Statements of Comprehensive Loss for the three months ended September 26, 2021 and September 27, 2020

Consolidated Statements of Shareholders' Equity for the three months ended September 26, 2021 and September 27, 2020

Consolidated Statements of Cash Flows for the three months ended September 26, 2021 and September 27, 2020

Notes to Unaudited Consolidated Financial Statements

WOLFSPEED, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

in millions of U.S.

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

Dollars, except share data in thousands September 26, 2021 June 27, 2021

Current assets:

8 unchanged sentences

Current assets held for sale 1.7 1.6

Current assets of discontinued operations — 116.0

Total current assets 1,231.9 1,478.7

3 unchanged sentences

Long-term receivables 140.0 138.4

Other long-term investments 67.2 55.9

Deferred tax assets 1.0 1.0

21 unchanged sentences

Preferred stock, par value $ 0.01 ;

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

3,000 shares authorized at September 26, 2021 and June 27, 2021;

none issued and outstanding

Common stock, par value $ 0.00125 ;

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

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

200,000 shares authorized at September 26, 2021 and June 27, 2021;

116,186 and 115,691 shares issued and outstanding at September 26, 2021 and June 27, 2021, respectively

Additional paid-in-capital 3,670.6 3,676.8

2 unchanged sentences

Total shareholders’ equity 2,039.4 2,116.5

Noncontrolling interest from discontinued operations — 6.1

Total equity 2,247.0 2,089.2

Total liabilities and shareholders’ equity $ 3,248.8 $ 3,446.8

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

WOLFSPEED, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended Nine months ended

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

Three months ended

September 26, 2021 September 27, 2020

in millions of U.S.

7 unchanged sentences

Amortization or impairment of acquisition-related intangibles 3.6 3.6

Loss on disposal or impairment of other assets 0.1 0.1 0.8 1.7

(Gain) loss on disposal or impairment of other assets ( 0.2 ) 0.3

Other operating expense 12.8 8.6

2 unchanged sentences

Loss before income taxes ( 69.8 ) ( 76.1 )

Income tax benefit ( 3.0 ) ( 6.5 ) ( 4.0 ) ( 8.3 )

Income tax expense (benefit) 0.3 ( 0.8 )

Net loss from continuing operations ( 70.1 ) ( 75.3 )

Net (loss) income from discontinued operations ( 41.6 ) ( 3.7 ) ( 178.8 ) 1.7

Net loss from discontinued operations — ( 108.8 )

Net loss ( 70.1 ) ( 184.1 )

6 unchanged sentences

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

WOLFSPEED, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three months ended Nine months ended

Three months ended

(in millions of U.S.

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

Dollars) September 26, 2021 September 27, 2020

Net loss ($ 70.1 ) ($ 184.1 )

Other comprehensive loss:

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

Net unrealized loss on available-for-sale securities ( 0.8 ) —

3 unchanged sentences

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

WOLFSPEED, INC.

UNAUDITED 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

Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Shareholders' Equity

(in millions of U.S Dollars, except share data) Number of Shares Par Value

1 unchanged sentence

Net loss — — — ( 70.1 ) — ( 70.1 )

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

Unrealized loss on available-for-sale securities — — — — ( 0.8 ) ( 0.8 )

Comprehensive loss ( 70.9 )

3 unchanged sentences

Balance at September 26, 2021 116,186 $ 0.1 $ 3,670.6 ($ 1,633.2 ) $ 1.9 $ 2,039.4

Net (loss) income — — — ( 83.0 ) — ( 83.0 ) 0.3 ( 82.7 )

Unrealized loss on available-for-sale securities — — — — ( 0.5 ) ( 0.5 ) — ( 0.5 )

Comprehensive (loss) income ( 83.5 ) 0.3 ( 83.2 )

Tax withholding on vested equity awards — — ( 1.6 ) — — ( 1.6 ) — ( 1.6 )

Stock-based compensation — — 18.6 — — 18.6 — 18.6

Exercise of stock options and issuance of shares 681 — 22.7 — — 22.7 — 22.7

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

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

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

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

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

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

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

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

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

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

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

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

WOLFSPEED, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in millions of U.S.

1 unchanged sentence

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 — — — ( 37.8 ) — ( 37.8 ) — ( 37.8 )

Unrealized gain on available-for-sale securities — — — — 0.5 0.5 — 0.5

Comprehensive loss ( 37.3 ) — ( 37.3 )

Tax withholding on vested equity awards — — ( 14.3 ) — — ( 14.3 ) — ( 14.3 )

Stock-based compensation — — 17.4 — — 17.4 — 17.4

Exercise of stock options and issuance of shares 1,127 — 18.6 — — 18.6 — 18.6

Balance at September 29, 2019 107,697 $ 0.1 $ 2,895.8 ($ 885.3 ) $ 10.0 $ 2,020.6 $ 5.0 $ 2,025.6

Net (loss) income — — — ( 184.4 ) — ( 184.4 ) 0.3 ( 184.1 )

Unrealized loss on available-for-sale securities — — — — ( 0.3 ) ( 0.3 ) — ( 0.3 )

Comprehensive (loss) income ( 54.6 ) 0.3 ( 54.3 )

Tax withholding on vested equity awards — — ( 0.4 ) — — ( 0.4 ) — ( 0.4 )

Stock-based compensation — — 13.4 — — 13.4 — 13.4

Exercise of stock options and issuance of shares 334 — 10.7 — — 10.7 — 10.7

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

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

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

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

Comprehensive (loss) income ( 184.4 ) 0.3 ( 184.1 )

2 unchanged sentences

Exercise of stock options and issuance of shares 1,066 — 16.5 — — 16.5 — 16.5

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

Balance at September 27, 2020 110,296 $ 0.1 $ 3,116.2 ($ 1,223.6 ) $ 16.0 $ 1,908.7 $ 6.4 $ 1,915.1

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

WOLFSPEED, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended

Three months ended

(in millions of U.S.

Dollars) March 28, 2021 March 29, 2020

Dollars) September 26, 2021 September 27, 2020

Operating activities:

Net loss ($ 70.1 ) ($ 184.1 )

Net (loss) income from discontinued operations ( 178.8 ) 1.7

Net loss from discontinued operations — ( 108.8 )

Net loss from continuing operations ( 70.1 ) ( 75.3 )

Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:

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

Depreciation and amortization 34.6 27.4

Amortization of debt issuance costs and discount, net of capitalized interest 26.1 17.2

Amortization of debt issuance costs and discount, net of non-cash capitalized interest 5.1 9.4

Stock-based compensation 14.6 13.7

2 unchanged sentences

Realized gain on sale of investments ( 0.2 ) —

(Gain) loss on equity investment ( 7.9 ) 9.2

Loss on equity investment — 3.4

Foreign exchange gain on equity investment — ( 0.5 )

7 unchanged sentences

Accrued contract liabilities 2.7 0.2

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

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

Cash used in operating activities ( 75.5 ) ( 39.5 )

Net cash (used in) provided by operating activities of continuing operations ( 62.5 ) 0.7

Net cash used in operating activities of discontinued operations — ( 0.3 )

Cash (used in) provided by operating activities ( 62.5 ) 0.4

Investing activities:

5 unchanged sentences

Proceeds from sale of short-term investments 108.5 3.2

Proceeds from sale of business, net 36.6 —

Reimbursement of property and equipment purchases from long-term incentive agreement 50.8 —

Net cash used in investing activities of continuing operations ( 32.0 ) ( 14.8 )

7 unchanged sentences

Commitment fee on long-term incentive agreement ( 1.0 ) ( 0.5 )

Cash provided by financing activities 497.6 14.4

Cash (used in) provided by financing activities ( 22.9 ) 3.1

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

3 unchanged sentences

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

WOLFSPEED, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10 unchanged sentences

Restructuring

Shareholders' Equity

Subsequent Events

Note 1 – Basis of Presentation and New Accounting Standards

(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.

Wolfspeed, Inc.

(the Company), formally known as Cree, Inc., 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 2, “Discontinued Operations,” on March 1, 2021, the Company completed its previously announced sale of certain assets and subsidiaries comprising its former LED Products segment to SMART Global Holdings, Inc.

As discussed more fully below in Note 2, “Discontinued Operations,” on March 1, 2021, the Company completed the sale of certain assets and subsidiaries comprising its former LED Products segment (the LED Business Divestiture) 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.

(CreeLED and collectively with SGH, SMART).

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., which was completed on October 4, 2021.

In addition, the Company transferred the listing of its common stock to the New York Stock Exchange (NYSE) from The Nasdaq Global Select Market (Nasdaq).

The Company ceased trading as a Nasdaq-listed company at the end of the day on October 1, 2021 and commenced trading as a NYSE-listed company at market open on October 4, 2021 under the new ticker symbol ‘WOLF’.

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

2 unchanged sentences

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

Wolfspeed, Inc.

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

1 unchanged sentence

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

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

In the opinion of management, all normal and recurring adjustments necessary to fairly state the consolidated financial position, results of operations, comprehensive loss, shareholders' equity and cash flows at September 26, 2021, and for all periods presented, have been made.

All material intercompany accounts and transactions have been eliminated.

4 unchanged sentences

GAAP for annual financial statements.

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

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

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

The results of operations for the three months ended September 26, 2021 are not necessarily indicative of the operating results that may be attained for the entire fiscal year ending June 26, 2022 (fiscal 2022).

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

Certain accounting matters that generally require consideration of forecasted financial information were assessed regarding impacts from the COVID-19 pandemic as of September 26, 2021 and through the date of this Quarterly Report using reasonably available information as of those dates.

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

While the assessments resulted in no material impacts to the consolidated financial statements as of and for the quarter ended September 26, 2021, the Company believes the full impact of the COVID-19 pandemic remains uncertain and will continue to assess if ongoing developments related to the COVID-19 pandemic may cause future material impacts to its consolidated financial statements.

Change in Estimate

The preparation of consolidated financial statements in conformity with U.S.

1 unchanged sentence

Actual amounts could differ materially from those estimates.

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

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

No revision was

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

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

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

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

Segment Reporting

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.

As a result of the LED Business Divestiture and the Company's continued investment in 200mm technology, the Company evaluated the useful lives applied to certain machinery and equipment assets by considering industry standards and reviewing the assets' historical and estimated future use.

In the first quarter of fiscal 2022, the Company increased the expected useful lives of these assets by two to five years to more closely reflect the estimated economic lives of those assets.

This change in estimate was applied prospectively effective for the first quarter of fiscal 2022 and resulted in a decrease in depreciation expense of $ 8.4 million for the first quarter of fiscal 2022.

Approximately $ 7.1 million of the decrease in depreciation expense resulted in a reduction of inventory as of September 26, 2021 and will impact cost of revenue, net in future periods as the inventory is relieved.

The remaining $ 1.3 million of reduced depreciation expense resulted in the following:

(1) an improvement in gross profit of $ 0.5 million;

(2) an improvement in both loss before income taxes and net loss of $ 1.3 million;

and (3) an improvement in basic and diluted loss per share of $ 0.01 per share.

Recently Adopted Accounting Pronouncements

Credit Losses

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (ASU 2016-13).

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.

Accounting Pronouncements Pending Adoption

5 unchanged sentences

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.

The Company will adopt this standard on June 27, 2022, as required, and is currently evaluating the impact on its consolidated financial statements.

Note 2 – Discontinued Operations

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

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

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 former LED Products segment, (b) all of the issued and outstanding equity interests of Cree Huizhou Solid State Lighting Company Limited (Cree Huizhou), a limited liability company organized under the laws of the People’s Republic of China and an indirect wholly owned subsidiary of the Company, and (c) the Company’s ownership interest in Cree Venture LED Company Limited., the Company’s joint venture with San’an Optoelectronics Co., Ltd.

(collectively, the LED Business);

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

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

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

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

1 unchanged sentence

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

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

In fiscal 2021, 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 and Fabrication Services Agreement (the Wafer Supply Agreement), pursuant to which the Company will supply CreeLED with certain Silicon Carbide materials and fabrication services for up to four years , and (iv) a Real Estate License Agreement (LED RELA), which will allow CreeLED to use certain premises owned by the Company to conduct the LED Business for a period of up to 24 months after closing.

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

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

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

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

Three months ended Nine months ended

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

Three months ended

(in millions of U.S.

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

Dollars) September 27, 2020

Revenue, net $ 101.1

5 unchanged sentences

Goodwill impairment 105.7

Impairment on assets held for sale — — 19.5 —

(Gain) loss on disposal or impairment of long-lived assets ( 0.6 ) 0.2 ( 1.6 ) 0.4

Gain on disposal or impairment of long-lived assets ( 0.5 )

Other operating expense 4.8

Operating (loss) income ( 7.8 ) ( 1.8 ) ( 141.4 ) 8.5

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

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

Loss on sale 26.3 — 26.3 —

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

Operating loss ( 107.8 )

Non-operating expense, net 0.1

Loss before income taxes ( 107.9 )

Income tax expense 0.9

Net (loss) income ( 41.6 ) ( 3.7 ) ( 178.8 ) 1.7

Net loss ( 108.8 )

Net income attributable to noncontrolling interest 0.3

Net (loss) income attributable to controlling interest ($ 42.4 ) ($ 3.9 ) ($ 180.2 ) $ 1.2

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.

Net loss attributable to controlling interest ($ 109.1 )

As of September 27, 2020, the Company determined it would more likely than not sell all or a portion of the assets comprising its former 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 pending LED Business Divestiture of $ 19.5 million.

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

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

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

The income tax impact of the U.S.

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

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

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

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

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

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

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

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

(in millions of U.S.

Dollars) June 28, 2020

Short-term investments $ 12.0

Accounts receivable, net 41.6

Inventories 57.2

Prepaid expenses 0.1

Other current assets 5.1

Current assets of discontinued operations 116.0

Property and equipment, net 60.3

Goodwill 180.3

Intangible assets, net 22.7

Deferred tax assets 5.1

Other assets 1.7

Long-term assets of discontinued operations 270.1

Accounts payable and accrued expenses 31.0

Accrued contract liabilities 24.1

Income taxes payable 2.0

Other current liabilities 3.1

Current liabilities of discontinued operations 60.2

Other long-term liabilities 9.8

Long-term liabilities of discontinued operations 9.8

For the three months ended September 26, 2021, the Company recognized $ 0.9 million and $ 2.9 million in administrative fees related to the LED RELA and the LED TSA, respectively, of which $ 0.3 million and $ 0.9 million are included in accounts receivable, net in the consolidated balance sheets as of September 26, 2021.

Fees related to the LED RELA were recorded as lease income, see Note 4, "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 $ 17.5 million was outstanding as of September 26, 2021.

The Wafer 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 three months ended September 26, 2021 related to the Wafer Supply Agreement.

A receivable of $ 3.1 million was included in other assets in the consolidated balance sheets as of September 26, 2021.

Note 3 – Revenue Recognition

In accordance with FASB Accounting Standards Codification 606 "Revenue from Contracts with Customers" (ASC 606), the Company follows a five-step approach defined by the standard for recognizing revenue, consisting of the following:

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

(1) identify the contract with a customer;

3 unchanged sentences

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

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

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

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

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

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

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

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

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 $ 47.8 million as of September 26, 2021 and $ 45.2 million as of June 27, 2021.

The increase was primarily due to increased reserves on the Company's "ship and debit" program.

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

For the three months ended September 26, 2021, the Company did no t recognize any revenue that was included in contract liabilities as of June 27, 2021.

Revenue recognized related to performance obligations that were satisfied or partially satisfied in previous periods was not material for the three months ended September 26, 2021.

The Company conducts business in several geographic areas.

1 unchanged sentence

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

Three months ended Nine months ended

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

Three months ended

September 26, 2021 September 27, 2020

(in millions of U.S.

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

Dollars) Revenue % of Revenue Revenue % of Revenue

Europe $ 58.1 37.1 % $ 35.8 31.0 %

6 unchanged sentences

Note 4 – Leases

The Company primarily leases manufacturing, office and warehousing space.

The Company primarily leases manufacturing and office space.

The Company also has a number of bulk gas leases.

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

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

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

The Company's finance lease obligations include manufacturing equipment, manufacturing space in Malaysia, and a 49-year ground lease on a future Silicon Carbide device fabrication facility in New York.

Balance Sheet

1 unchanged sentence

Operating Leases:

March 28, 2021 June 28, 2020

September 26, 2021 June 27, 2021

Right-of-use asset (1)

14 unchanged sentences

Statement of Operations

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

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

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

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

Operating lease expense was $ 1.5 million for the three months ended September 26, 2021 and $ 1.4 million for the three months ended September 27, 2020.

Short-term lease expense, variable lease expense and sublease income were immaterial for the three months ended September 26, 2021 and September 27, 2020.

Finance lease amortization was $ 0.4 million and interest expense was $ 0.1 million for the three months ended September 26, 2021.

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

Cash flow information consisted of the following:

Nine months ended

Three months ended

(in millions of U.S.

Dollars) March 28, 2021 March 29, 2020

Dollars) September 26, 2021 September 27, 2020

Cash used in operating activities:

4 unchanged sentences

Non-cash activities:

Operating lease additions due to adoption of ASC 842 — 11.0

Operating lease additions and modifications, net 2.6 1.2

1 unchanged sentence

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

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

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

Lease Liability Maturities

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

Maturities of operating and finance lease liabilities as of September 26, 2021 were as follows (in millions of U.S.

Fiscal Year Ending Operating Leases Finance Leases Total

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(2) Weighted average discount rate of finance leases without the 49-year ground lease is 1.78 %.

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

As mentioned in Note 2, "Discontinued Operations", on March 1, 2021 and in connection with the sale of its LED Business, the Company entered into 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.

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

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

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

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 $ 0.3 million for the three and nine months ended March 28, 2021.

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

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

The Company recognized lease income of $ 0.9 million for the three months ended September 26, 2021.

The Company did no t recognize lease income for the three months ended September 27, 2020.

The Company did not recognize any variable lease income for the three months ended September 26, 2021 and September 27, 2020.

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

June 26, 2022 (remainder of fiscal 2022) 2.7

June 25, 2023 2.4

Total future minimum rental income 5.1

3 unchanged sentences

(in millions of U.S.

Dollars) March 28, 2021 June 28, 2020

Dollars) September 26, 2021 June 27, 2021

Billed trade receivables $ 106.0 $ 95.6

5 unchanged sentences

(in millions of U.S.

Dollars) March 28, 2021

Dollars) September 26, 2021

Balance at beginning of period $ 0.8

4 unchanged sentences

(in millions of U.S.

Dollars) March 28, 2021 June 28, 2020

Dollars) September 26, 2021 June 27, 2021

Raw material $ 46.8 $ 43.3

2 unchanged sentences

Inventories $ 183.0 $ 166.6

In addition to inventory held by the Company associated with the Wolfspeed business, the Company holds inventory related to the Wafer Supply Agreement entered into in connection with the LED Business Divestiture as well as unallocated inventoried costs consisting primarily of manufacturing employees’ stock-based compensation, profit sharing and quarterly or annual incentive compensation, matching contributions under the Company’s 401(k) plan, and acquisition related costs.

March 28, 2021 June 28, 2020

Wolfspeed $ 138.8 $ 97.3

Wafer Supply Agreement inventory (1)

Unallocated inventories 8.7 5.6

Consolidated inventories $ 147.5 $ 121.9

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

In addition, the Company holds inventory related to the Wafer Supply Agreement entered into in connection with the LED Business Divestiture, which is recorded within other current assets on the consolidated balance sheets.

Accounts Payable and Accrued Expenses

1 unchanged sentence

(in millions of U.S.

Dollars) March 28, 2021 June 28, 2020

Dollars) September 26, 2021 June 27, 2021

Accounts payable, trade $ 38.2 $ 44.2

Accrued salaries and wages 60.2 69.5

Accrued property and equipment 128.9 248.3

Accrued expenses 19.5 17.4

3 unchanged sentences

Other operating expense consisted of the following:

Three months ended Nine months ended

Three months ended

(in millions of U.S.

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

Dollars) September 26, 2021 September 27, 2020

Factory optimization restructuring $ 2.6 $ 1.6

3 unchanged sentences

Factory optimization start-up costs 8.6 3.0

Non-restructuring related executive severance 2.8 0.6 2.8 2.1

Other operating expense $ 12.8 $ 8.6

Accumulated Other Comprehensive Income, net of taxes

Accumulated other comprehensive income, net of taxes, consisted of the following:

(in millions of U.S.

Dollars) March 28, 2021 June 28, 2020

Currency translation gain $ — $ 9.5

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

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

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

Accumulated other comprehensive income, net of taxes, consisted of $ 1.9 million and $ 2.7 million of net unrealized gains on available-for-sale securities as of September 26, 2021 and June 27, 2021, respectively.

Amounts for both periods include a $ 2.4 million loss related to tax on unrealized gain (loss) on available-for-sale securities.

Reclassifications Out of Accumulated Other Comprehensive Income

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

Reclassifications out of accumulated other comprehensive income were $ 0.2 million for the three months ended September 26, 2021 and less than $ 0.1 million for the three months ended September 27, 2020.

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

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

Non-Operating Expense, net

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

Three months ended Nine months ended

Three months ended

(in millions of U.S.

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

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

Dollars) September 26, 2021 September 27, 2020

Foreign currency gain, net ($ 0.1 ) ($ 0.2 )

Gain on sale of investments, net ( 0.2 ) —

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

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

Loss on equity investment, net — 3.4

Interest income ( 2.6 ) ( 2.7 )

3 unchanged sentences

Non-operating expense, net $ 4.1 $ 13.9

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

(ENNOSTAR) stock price.

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

Statements of Cash Flows - non-cash activities

Nine months ended

March 28, 2021 March 29, 2020

Three months ended

September 26, 2021 September 27, 2020

Lease asset and liability additions $ 3.5 $ 1.1

1 unchanged sentence

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

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

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

Decrease in property, plant and equipment from long-term incentive related receivables 23.2 —

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

Accrued property and equipment as of September 26, 2021 and September 27, 2020 was $ 128.9 million and $ 108.2 million, respectively.

Note 6 – Investments

1 unchanged sentence

agency securities, U.S.

treasury securities, variable rate demand notes, commercial paper and certificates of deposit.

treasury securities, certificates of deposit, commercial paper and variable rate demand notes.

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

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

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

March 28, 2021

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses (1)

Credit Loss Allowance (2)

Estimated Fair Value

Short-term investments as of September 26, 2021 and June 27, 2021 consisted of the following:

September 26, 2021

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Credit Loss Allowance Estimated Fair Value

Municipal bonds $ 135.7 $ 1.7 $ — $ — $ 137.4

3 unchanged sentences

Certificates of deposit 9.5 — — — 9.5

Variable rate demand note 11.0 — — — 11.0

Commercial paper 41.2 — — — 41.2

Variable rate demand notes 20.0 — — — 20.0

Total short-term investments $ 592.0 $ 4.5 ($ 0.2 ) $ — $ 596.3

June 27, 2021

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses (1)

Estimated Fair Value

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Credit Loss Allowance Estimated Fair Value

Municipal bonds $ 139.4 $ 1.9 $ — $ — $ 141.3

3 unchanged sentences

Certificates of deposit 16.5 — — — 16.5

Variable rate demand note 2.5 — — 2.5

Commercial paper 50.0 — — — 50.0

Variable rate demand notes 20.0 — — — 20.0

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

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

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

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

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

Accrued interest receivable was $ 4.1 million and $ 5.5 million as of September 26, 2021 and June 27, 2021, respectively, and is recorded in other current assets on the consolidated balance sheets.

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

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

There were no write offs of noncollectable interest income during the three months ended September 26, 2021 and September 27, 2020.

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

March 28, 2021

September 26, 2021

Less than 12 Months Greater than 12 Months Total

4 unchanged sentences

treasury securities 20.8 — — — 20.8 —

Certificates of deposit 0.7 — — — 0.7 —

Total $ 136.6 ($ 0.2 ) $ — $ — $ 136.6 ($ 0.2 )

2 unchanged sentences

Less than 12 Months Greater than 12 Months Total

Fair Value Unrealized Loss (1)

Fair Value Unrealized Loss Fair Value Unrealized Loss

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

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

2 unchanged sentences

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

Certificates of deposit 0.7 — — — 0.7 —

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

Number of securities with an unrealized loss 134 — 134

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

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

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

Realized gains of $ 0.2 million and less than $0.1 million for the three months ended September 26, 2021 and September 27, 2020, respectively, are included in non-operating expense, 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 March 28, 2021 until the investments fully recover in market value.

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

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

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

The Company believes it is able to and intends to hold each of the investments held with an unrealized loss as of September 26, 2021 until the investments fully recover in market value.

No allowance for credit losses was recorded as of September 26, 2021.

The contractual maturities of short-term investments as of September 26, 2021 were as follows:

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

4 unchanged sentences

Certificates of deposit 9.5 — — — 9.5

Variable rate demand note — — — 11.0 11.0

Commercial paper 41.2 — — — 41.2

Variable rate demand notes — — — 20.0 20.0

Total short-term investments $ 124.6 $ 451.7 $ — $ 20.0 $ 596.3

9 unchanged sentences

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

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

As of September 26, 2021 and June 27, 2021, financial assets utilizing Level 1 inputs included money market funds and U.S.

treasury securities.

Financial assets utilizing Level 2 inputs included municipal bonds, corporate bonds, certificates of deposit, commercial paper, U.S.

agency securities, variable rate demand notes and common stock of non-U.S.

corporations.

agency securities, and variable rate demand notes.

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 March 28, 2021 and June 28, 2020.

The Company did not have any financial assets requiring the use of Level 3 inputs as of September 26, 2021 and June 27, 2021.

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

GAAP hierarchy:

March 28, 2021 June 28, 2020

September 26, 2021 June 27, 2021

(in millions of U.S.

2 unchanged sentences

Money market funds $ 108.5 $ — $ — $ 108.5 $ 96.9 $ — $ — $ 96.9

Corporate bonds — 1.5 — 1.5 — — — —

Municipal bonds — — — — — 16.0 — 16.0

agency securities — — — — — 6.0 — 6.0

treasury securities 5.0 — — 5.0 19.0 — — 19.0

Certificates of deposit — — — — — 54.3 — 54.3

Commercial paper — 32.0 — 32.0 — 62.4 — 62.4

Variable rate demand notes — — — — — 22.9 — 22.9

Total cash equivalents 108.5 32.0 — 140.5 96.9 107.3 — 204.2

6 unchanged sentences

Commercial paper — — — — — 50.0 — 50.0

Variable rate demand note — 11.0 — 11.0 — 2.5 — 2.5

Variable rate demand notes — 20.0 — 20.0 — 20.0 — 20.0

Total short-term investments 46.3 550.0 — 596.3 72.5 703.1 — 775.6

Other long-term investments:

Common stock of non-U.S.

corporations — 67.2 — 67.2 — 55.9 — 55.9

Total assets $ 364.8 $ 826.3 $ — $ 1,191.1 $ 271.8 $ 878.9 $ — $ 1,150.7

Total cash equivalents and short-term investments $ 154.8 $ 582.0 $ — $ 736.8 $ 169.4 $ 810.4 $ — $ 979.8

Note 8 – Goodwill and Intangible Assets

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

(in millions of U.S.

Dollars) Total

Balance at June 28, 2020 $ 349.7

Transfer in connection with LED Business Divestiture (1)

Balance at March 28, 2021 $ 359.2

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

There were no changes to goodwill during the three months ended September 26, 2021.

Intangible Assets, net

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

March 28, 2021 June 28, 2020

September 26, 2021 June 27, 2021

(in millions of U.S.

6 unchanged sentences

Total intangible assets $ 243.9 ($ 107.4 ) $ 136.5 $ 244.1 ($ 103.6 ) $ 140.5

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

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

Total amortization of acquisition-related intangibles assets was $ 3.6 million and $ 3.6 million for the three months ended September 26, 2021 and September 27, 2020, respectively.

Total amortization of patents and licensing rights was $ 1.3 million and $ 1.2 million for the three months ended September 26, 2021 and September 27, 2020, respectively.

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

2 unchanged sentences

Acquisition Related Intangibles Patents Total

June 27, 2021 $ 3.6 $ 1.3 $ 4.9

June 26, 2022 (remainder of fiscal 2022) $ 9.9 $ 3.8 $ 13.7

June 25, 2023 11.0 4.1 15.1

6 unchanged sentences

Revolving Line of Credit

As of March 28, 2021, the Company had a $ 125.0 million secured revolving line of credit (the Credit Agreement) under which the Company can borrow, repay and reborrow loans from time to time prior to its scheduled maturity date of January 9, 2023.

As of September 26, 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 March 28, 2021, the Company had no outstanding borrowings under the Credit Agreement, $ 125.0 million in available commitments under the Credit Agreement and $ 125.0 million available for borrowing.

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

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

As of September 26, 2021, the Company had no outstanding borrowings under the Credit Agreement, $ 125.0 million in available commitments under the Credit Agreement and $ 125.0 million available for borrowing.

For the three months ended September 26, 2021, the average interest rate was 0.15 %, related to a ten day draw of $ 20.0 million on the line of credit in the first quarter of fiscal 2022.

As of September 26, 2021, the unused line fee on available borrowings is 25 basis points.

2023 Convertible Notes

40 unchanged sentences

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:

(in millions of U.S.

Dollars) March 28, 2021 June 28, 2020

Dollars) September 26, 2021 June 27, 2021

Principal $ 999.8 $ 999.8

3 unchanged sentences

(in millions of U.S.

Dollars) March 28, 2021 June 28, 2020

Dollars) September 26, 2021 June 27, 2021

Discount related to value of conversion option $ 262.3 $ 262.3

3 unchanged sentences

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

Three months ended Nine months ended

Three months ended

(in millions of U.S.

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

Dollars) September 26, 2021 September 27, 2020

Interest expense, net of capitalized interest $ 1.1 $ 3.2

2 unchanged sentences

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

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

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

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

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

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

For the three months ended September 26, 2021 and September 27, 2020, the Company capitalized $ 2.3 million and $ 0.2 million of interest expense, respectively, and $ 5.4 million and $ 0.4 million of amortization of discount and issuance costs, respectively.

As a result, the Notes are convertible at the option of the holders through December 31, 2021.

As of September 26, 2021, the if-converted values of the 2023 and 2026 Notes exceeded their respective principal amounts by $ 175.6 million and $ 455.0 million, respectively.

The estimated fair value of the Notes is $ 1.7 billion as of September 26, 2021, as determined by a Level 2 valuation.

Note 10 – Loss Per Share

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

Three months ended Nine months ended

Three months ended

(in millions of U.S.

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

Dollars, except share data) September 26, 2021 September 27, 2020

Net loss from continuing operations ($ 70.1 ) ($ 75.3 )

Net (loss) income from discontinued operations ( 41.6 ) ( 3.7 ) ( 178.8 ) 1.7

Net loss from discontinued operations — ( 108.8 )

Net income from discontinued operations attributable to noncontrolling interest — 0.3

Net (loss) income from discontinued operations attributable to controlling interest ( 42.4 ) ( 3.9 ) ( 180.2 ) 1.2

Net loss from discontinued operations attributable to controlling interest — ( 109.1 )

Weighted average shares - basic and diluted (in thousands) 115,919 109,705

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

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

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

For the three months ended September 26, 2021 and September 27, 2020, 2.7 million and 4.5 million, respectively, of weighted average shares were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive.

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

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Stock Option Awards

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

A summary of stock option awards outstanding as of September 26, 2021 and changes during the three months then ended is as follows:

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

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Forfeited or expired — $ —

Outstanding at March 28, 2021 174 $ 28.08

Restricted Stock Awards and Units

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

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

Outstanding at September 26, 2021 125 $ 25.62

Restricted Stock Units

A summary of nonvested restricted stock unit awards (RSUs) outstanding as of September 26, 2021 and changes during the three months then ended is as follows:

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

Grant-Date Fair Value

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Forfeited ( 20 ) $ 67.05

Nonvested at March 28, 2021 2,297 $ 56.28

Nonvested at September 26, 2021 2,044 $ 70.18

Stock-Based Compensation Valuation and Expense

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

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

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

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

These variables include the expected stock price volatility over the term of the awards, projected employee stock option exercise term, the risk-free interest rate and expected dividends.

These variables include the expected stock price volatility over the term of the awards, 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 RSAs and RSUs, the grant-date fair value is based upon the market price of the Company’s common stock on the date of the grant.

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

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

Compensation expense for awards that have performance-based conditions 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.

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 Monte Carlo option pricing models require the input of highly subjective assumptions.

The estimates involve inherent uncertainties and the application of judgment.

As a result, if other assumptions had been used, recorded stock-based compensation expense could have been materially different from that depicted below.

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.

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 below.

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

Three months ended Nine months ended

Three months ended

(in millions of U.S.

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

Dollars) September 26, 2021 September 27, 2020

Cost of revenue, net $ 3.1 $ 3.4

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and (iii) projected tax credits generated.

The Company did not record an income tax benefit related to the goodwill impairment expenses described in Note 2, “Discontinued Operations,” as the impairment is non-deductible for income tax purposes.

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

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

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

As of September 26, 2021, the Company has concluded that it is necessary to recognize a full valuation allowance against its U.S.

and Luxembourg deferred tax assets.

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

As of September 26, 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 second quarter of fiscal 2022, that objective positive evidence may become available to allow the Company to conclude that 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.

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

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As of June 27, 2021, the Company's liability for unrecognized tax benefits was $ 7.4 million.

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

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

During the three months ended September 26, 2021, the Company did not record any material movement in its unrecognized tax benefits.

As a result, the total liability for unrecognized tax benefits as of September 26, 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.

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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 2010.

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.

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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 September 26, 2021, the Company has reduced property and equipment, net by $ 101.1 million as a result of GDA reimbursements, of which $ 61.5 million has been received in cash and an additional $ 26.4 million and $ 13.2 million are recorded as receivables in other current assets and other assets, respectively, in the consolidated balance sheets.

Note 14 - Restructuring

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

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

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

campus headquarters in Durham, North Carolina.

1 unchanged sentence

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

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

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

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

For the three months ended September 26, 2021, the Company expensed $ 1.6 million of restructuring charges associated with the movement of equipment related to the factory optimization plan, of which $ 0.3 million is accrued for as of September 26, 2021.

Additionally, the Company expensed $ 1.0 million of restructuring charges associated with disposals of certain long-lived assets for the three months ended September 26, 2021.

For the three months ended September 27, 2020, the Company expensed and paid $ 2.6 million of restructuring charges associated with the movement of equipment related to the factory optimization plan.

Corporate Restructuring

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

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

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

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

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

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

Sales Representatives Restructuring

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

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

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

Note 15 - Shareholders' Equity

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

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

LLC, Morgan Stanley & Co.

LLC and Truist Securities, Inc.

(the Managers).

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

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

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

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

Note 16 - Subsequent Events

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

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

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

The Company no longer holds any equity interest in ENNOSTAR.

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

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

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

What changed 10-Q

Item 1. Financial Statements