What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-08-22 compared with 2021-08-18 · 300 added, 414 removed, 1129 unchanged (39% of the section changed)

1 unchanged sentence

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 238 )

Consolidated Balance Sheets as of June 26, 2022 and June 27, 2021

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Cree, Inc.

To the Board of Directors and Shareholders of Wolfspeed, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

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

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

and its subsidiaries (the “Company”) as of June 26, 2022 and June 27, 2021, 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 26, 2022, including the related notes (collectively referred to as the “consolidated financial statements”).

3 unchanged sentences

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.

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.

Basis for Opinions

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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

Reserves for distributor programs - Ship and debit

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.

Certain distributors may be provided customer pricing arrangements under the Company’s “ship and debit” program.

Distributor sales account for approximately a third of total net revenue of $746.2 million for the year ended June 26, 2022 and the associated reserves for ship and debit program to distributors make up a portion of the accrued contract liabilities account balance of $35.9 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.

The credits associated with this program 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 ship and debit, which includes developing assumptions related to changes in selling prices.

The principal considerations for our determination that performing procedures relating to ship and debit reserves for distributor programs is a critical audit matter are the significant judgment by management in estimating the reserves for ship and debit, 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.

These procedures included testing the effectiveness of controls relating to the valuation of ship and debit reserve.

These procedures also included, among others, (1) testing management’s process for determining the estimate for ship and debit reserve, (2) evaluating the appropriateness of management’s methodology to calculate the ship and debit reserve, (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 reserve calculation, and (5) evaluating the reasonableness of management’s prior period estimates for ship and debit reserve to actual credits granted during the current period by performing a retrospective comparison subsequent to year-end.

/s/ PricewaterhouseCoopers LLP

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We have served as the Company’s auditor since 2013.

WOLFSPEED, INC.

CONSOLIDATED BALANCE SHEETS

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Current assets held for sale 1.6 1.6

Current assets of discontinued operations — 116.0

Total current assets 1,762.4 1,478.7

3 unchanged sentences

Long-term receivables 104.7 138.4

Other long-term investments — 55.9

Deferred tax assets 1.0 1.0

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Additional paid-in-capital 4,228.4 3,676.8

Accumulated other comprehensive income 2.7 16.0

Accumulated other comprehensive (loss) income ( 25.3 ) 2.7

Accumulated deficit ( 1,764.0 ) ( 1,563.1 )

Total shareholders’ equity 2,439.3 2,116.5

Noncontrolling interest from discontinued operations — 6.1

Total equity 2,116.5 2,089.2

Total liabilities and shareholders’ equity $ 3,917.5 $ 3,446.8

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

WOLFSPEED, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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Abandonment of long-lived assets — 73.9 —

Loss on disposal or impairment of other assets 1.6 1.5 5.0

(Gain) loss on disposal or impairment of other assets ( 0.3 ) 1.6 1.5

Other operating expense 83.9 29.1 32.9

4 unchanged sentences

Net loss from continuing operations ( 295.1 ) ( 341.3 ) ( 197.6 )

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

Net income (loss) from discontinued operations 94.2 ( 181.2 ) 7.0

Net loss ( 200.9 ) ( 522.5 ) ( 190.6 )

6 unchanged sentences

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

WOLFSPEED, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

4 unchanged sentences

Other comprehensive income (loss):

Currency translation gain — — 4.4

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

4 unchanged sentences

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

WOLFSPEED, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

4 unchanged sentences

Net loss ($ 200.9 ) ($ 522.5 ) ($ 190.6 )

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

Net income (loss) from discontinued operations 94.2 ( 181.2 ) 7.0

Net loss from continuing operations ( 295.1 ) ( 341.3 ) ( 197.6 )

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

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

Depreciation and amortization 129.8 120.9 97.1

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 ) —

Amortization of debt issuance costs and discount, net of non-cash capitalized interest 20.1 32.8 26.2

Loss (gain) on extinguishment of debt 24.8 — ( 11.0 )

Stock-based compensation 60.9 53.2 47.2

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Amortization of premium/discount on investments 6.1 6.9 1.7

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

Realized gain on sale of investments ( 0.3 ) ( 0.4 ) ( 1.5 )

Gain on equity investment — ( 8.3 ) ( 14.2 )

Foreign exchange gain on equity investment — ( 2.2 ) ( 2.2 )

Deferred income taxes 0.7 0.9 ( 0.5 )

6 unchanged sentences

Accrued contract liabilities 2.6 ( 2.8 ) 5.5

Net cash (used in) provided by operating activities of continuing operations ( 112.5 ) ( 91.6 ) 97.2

Net cash used in operating activities of continuing operations ( 154.2 ) ( 112.5 ) ( 91.6 )

Net cash (used in) provided by operating activities of discontinued operations — ( 13.0 ) 62.6

Cash (used in) provided by operating activities ( 125.5 ) ( 29.0 ) 202.3

Cash used in operating activities ( 154.2 ) ( 125.5 ) ( 29.0 )

Investing activities:

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Reimbursement of property and equipment purchases from long-term incentive agreement 139.0 10.7 —

Proceeds from sale of business, net 43.7 — 219.0

Proceeds from sale of business, net, including receipt of note receivable 125.0 43.7 —

Proceeds from sale of long-term investment — 66.4 —

9 unchanged sentences

Payments of debt issuance costs ( 17.7 ) — ( 13.6 )

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 paid for capped call transactions ( 108.2 ) — —

Incentive-related escrow refunds/(deposits) — 1.5 ( 11.5 )

Commitment fees on long-term incentive agreement ( 1.0 ) ( 0.5 ) —

Cash provided by financing activities 615.9 504.1 464.3

4 unchanged sentences

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

WOLFSPEED, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

3 unchanged sentences

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 — — — ( 375.1 ) — ( 375.1 ) — ( 375.1 )

Currency translation gain — — — — 4.4 4.4 — 4.4

Net (loss) income — — — ( 191.7 ) — ( 191.7 ) 1.1 ( 190.6 )

Unrealized gain on available-for-sale securities — — — — 6.5 6.5 — 6.5

Comprehensive loss ( 366.2 ) — ( 366.2 )

Comprehensive (loss) income ( 185.2 ) 1.1 ( 184.1 )

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

Adoption of ASC 606

— — — 10.3 — 10.3 — 10.3

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 September 1, 2023 — — 110.6 — — 110.6 — 110.6

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 — — — ( 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 )

Net (loss) income — — — ( 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) income ( 537.2 ) 1.4 ( 535.8 )

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

1 unchanged sentence

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

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 )

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

Net loss — — — ( 200.9 ) — ( 200.9 ) — ( 200.9 )

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 — — — — ( 28.0 ) ( 28.0 ) — ( 28.0 )

3 unchanged sentences

Exercise of stock options and issuance of shares 978 — 22.4 — — 22.4 — 22.4

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 )

Issuance of shares related to the extinguishment of convertible notes due September 1, 2023 7,126 0.1 416.1 — — 416.2 — 416.2

Issuance of convertible notes due February 15, 2028 — — 187.6 — — 187.6 — 187.6

Capped call transactions related to the issuance of convertible notes due February 15, 2028 — — ( 108.2 ) — — ( 108.2 ) — ( 108.2 )

Balance at June 26, 2022 123,795 $ 0.2 $ 4,228.4 ($ 1,764.0 ) ($ 25.3 ) $ 2,439.3 $ — $ 2,439.3

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

WOLFSPEED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Restructuring

Quarterly Results of Operations - Unaudited

Subsequent Events

Note 1 – Business

(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.

Wolfspeed, Inc.

(the Company), formerly 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 product families include Silicon Carbide and GaN materials, power devices and RF devices targeted for various applications such as electric vehicles, fast charging, 5G, renewable energy and storage, and aerospace and defense.

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.

(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.

On October 4, 2021, the Company changed its corporate name from Cree, Inc.

to Wolfspeed, Inc.

in the later part of calendar year 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.

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.

Additionally, the Company recently opened its Silicon Carbide device fabrication facility in New York.

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.

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The Company’s 2022, 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 2023 fiscal year will be a 52-week fiscal year.

The next 53-week fiscal year will be for the Company's 2024 fiscal year.

Reclassifications

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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 evaluates its estimates on an ongoing basis, including those related to revenue recognition, 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.

1 unchanged sentence

Certain accounting matters that generally require consideration of forecasted financial information were assessed regarding impacts from the COVID-19 pandemic as of June 26, 2022 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.

While the assessments resulted in no material impacts to the consolidated financial statements as of June 26, 2022 and June 27, 2021 and for the years ended June 26, 2022, 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.

Change in Estimate

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 $ 33.3 million for the fiscal year ended June 26, 2022.

Approximately $ 10.4 million of the decrease in year-to-date depreciation expense resulted in a net reduction of inventory as of June 26, 2022 and the remaining $ 22.9 million resulted in an improvement in both loss before income taxes and net loss, of which $ 19.6 million related to an improvement in gross profit.

This change in estimate resulted in an improvement in year-to-date basic and diluted loss per share of $ 0.19 per share.

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.

The Company operates as a single reporting segment.

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

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

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

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

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

Investments in certain securities may be classified into three categories:

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• 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.

However, as explained further below, the Company evaluates each individual security in an unrealized loss position for expected credit losses and if it is evaluated as having an expected credit loss, unrealized losses of that security are included in earnings.

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.

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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.

For the fiscal years ended June 26, 2022 and 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.

For the fiscal year ended June 28, 2020, 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.

1 unchanged sentence

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.

Fair Value of Financial Instruments

The Company performs recurring fair value measurements for its cash equivalents and short-term investments, as discussed further in Note 8, "Fair Value of Financial Instruments." In addition, cash, accounts and interest receivable, accounts payable and other liabilities approximate their fair values at June 26, 2022 and June 27, 2021 due to the short-term nature of these instruments.

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

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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.

The Company is currently amortizing its acquired intangible assets with finite lives over periods ranging from seven 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.

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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.

The costs of defending legal claims against the Company are expensed as incurred.

Revenue Recognition

2 unchanged sentences

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

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

performance obligations under the terms of the contract are satisfied.

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

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

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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.

These agreements sometimes require minimum purchase commitments and/or involve potential penalties to the Company if a defined supply schedule is not met.

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.

1 unchanged sentence

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.

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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.

Accordingly, estimates for these rights are recognized at the time of sale as a contract liability and a reduction of product revenue.

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.

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

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

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

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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 adopted FASB Accounting Standards Codification 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.

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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.

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.

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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.

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.

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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.

The Company does not have operations with a functional currency other than the U.S.

Dollar and therefore no foreign currency translation adjustments are recognized in other comprehensive loss in the consolidated statements of comprehensive loss.

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.

Dollar and as such, the Company experiences varying amounts of foreign currency exchange gains and losses.

Joint Venture

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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.

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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.

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).

In August 2020, 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.

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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, the first day of its 2023 fiscal year, under the modified retrospective approach.

The adoption is expected to result in (i) a reduction of additional paid in capital by approximately $ 330 million for the recombination of the equity conversion component of the convertible notes outstanding, which was initially separated and recorded in equity, (ii) an increase in the cumulative convertible note carrying value of approximately $ 275 million as a result of removing previously recorded debt discounts, (iii) a decrease in property, plant and equipment for previously capitalized interest of approximately $ 25 million and (iv) a decrease to beginning accumulated deficit as of June 27, 2022 of approximately $ 30 million to recognize the cumulative gain on adoption.

The Company does not expect to recognize a discrete tax impact related to the opening deferred tax balances as of June 27, 2022 due to a full U.S valuation allowance.

Government Assistance

In November 2021, FASB issued ASU 2021-10, Government Assistance (Topic 832) - Disclosures by Business Entities about Government Assistance.

This standard will require entities to provide annual disclosures regarding government assistance.

More specifically, the amendments in the standard improve financial reporting by requiring disclosures that increase the transparency of transactions with a government accounted for by applying a grant or contribution accounting model by analogy, including (1) the types of transactions;

(2) the accounting for those transactions;

and (3) the effect of those transactions on an entity's financial statements.

An entity can apply the amendments prospectively or retrospectively.

The Company will adopt this standard on June 27, 2022, as required.

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

(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.

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.

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., 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.

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 Purchase Price Note had a maturity date of August 15, 2023, and as explained further below, was prepaid by SGH in full pursuant to its terms, along with outstanding accrued and unpaid interest as of the payment date, in the third quarter of fiscal 2022.

The Earnout Note was issued in the fourth quarter of 2022 and will mature on March 27, 2025.

The Earnout Note will accrue interest at a rate of three-month LIBOR plus 3.0 % with interest paid every three months .

One bullet payment of principal and all accrued and unpaid interest will be payable on the maturity date of the Earnout Note.

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 Agreement, pursuant to which the Company will supply CreeLED with certain silicon carbide materials and fabrication services for up to four years , and (iv) a Real Estate License Agreement (LED RELA), which will allow CreeLED to use certain premises owned by the Company to conduct the LED Business for a period of up to 24 months after closing.

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

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

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

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

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.

In the third quarter of fiscal 2022, the Company received an early payment for the Purchase Price Note.

The principal amount of $ 125.0 million was paid in full, along with outstanding accrued interest as of the payment date (the Early Payment).

In conjunction with the Early Payment, the Company transferred naming rights and trademarks related to Cree, Inc.

and the CREE brand to SMART (the Trademark Transfer), resulting in a write-off of trademarks of $ 1.1 million and recorded within (gain) loss on disposal or impairment of other assets in the consolidated statements of operations.

Because the Early Payment did not include additional consideration in exchange for the Trademark Transfer, the Company allocated consideration from the principal amount to the value of the trademarks transferred to SMART.

The Company allocated $ 1.8 million of the Early Payment to the value of trademarks transferred to SMART, resulting in a gain recorded in (gain) loss on disposal or impairment of other assets in the consolidated statements of operations.

The remaining unallocated portion of the Early Payment of $ 123.2 million was then applied to the note receivable balance of $ 124.4 million at the time of payment, resulting in a loss of $ 1.2 million recorded in non-operating expense, net on the consolidated statements of operations.

The net impact to the consolidated statements of operations from the Early Payment was a loss of $ 0.5 million.

In the fourth quarter of fiscal 2022, the Company received the Earnout Note with a principal amount of $ 101.8 million.

As a result, the Company recorded a net gain of $ 94.2 million within discontinued operations, net in the consolidated statements of operations for fiscal year ended June 26, 2022.

The gain recorded is net of $ 3.9 million in taxes and $ 1.2 million in transaction fees.

Additionally, the amount is less a previously recorded gain of $ 2.5 million, which was recorded in fiscal 2021 as part of the total loss on sale to account for the minimum amount of the Earnout Note.

In addition to the $ 94.2 million net gain from discontinued operations recognized in fiscal year ended June 26, 2022 as a result of receiving the Earnout Note, 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 for the fiscal years ended June 27, 2021 and June 28, 2020:

Fiscal Years Ended

(in millions of U.S.

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

Dollars) June 27, 2021 June 28, 2020

Revenue, net $ 272.8 $ 433.2

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For the fiscal years ended June 26, 2022, June 27, 2021 and June 28, 2020, the Company recognized $ 3.9 million, $ 11.0 million and $ 8.2 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.

Income tax expense related to discontinued operations for the fiscal year ended June 26, 2022 and June 27, 2021 includes $ 2.4 million and $ 4.1 million, respectively, 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.

For the fiscal years ended June 26, 2022 and June 27, 2021, the Company recognized $ 3.6 million and $ 1.2 million in administrative fees related to the LED RELA, respectively, of which $ 0.3 million are included in accounts receivable, net in the consolidated balance sheets as of June 26, 2022.

Fees related to the LED RELA were recorded as lease income.

See Note 5, "Leases" below for additional information.

For the fiscal years ended June 26, 2022 and June 27, 2021, the Company recognized $ 9.2 million and $ 4.0 million in administrative fees related to the LED TSA, respectively, of which $ 0.6 million are included in accounts receivable, net in the consolidated balance sheets as of June 26, 2022.

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 $ 6.4 million was outstanding as of June 26, 2022.

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.

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

The Company recognized a net loss of $ 0.8 million and $ 0.8 million in non-operating expense, net for the fiscal years ended June 26, 2022 and June 27, 2021, respectively, related to the Wafer Supply Agreement.

A receivable of $ 2.7 million was included in other assets in the consolidated balance sheets as of June 26, 2022.

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

(in millions of U.S.

Dollars) June 28, 2020

Short-term investments $ 12.0

Accounts receivable, net 41.6

Inventories 57.2

Prepaid expenses 0.1

Other current assets 5.1

Current assets of discontinued operations 116.0

Property and equipment, net 60.3

Goodwill 180.3

Intangible assets, net 22.7

Deferred tax assets 5.1

Other assets 1.7

Long-term assets of discontinued operations 270.1

Accounts payable and accrued expenses 31.0

Accrued contract liabilities 24.1

Income taxes payable 2.0

Other current liabilities 3.1

Current liabilities of discontinued operations 60.2

Other long-term liabilities 9.8

Long-term liabilities of discontinued operations 9.8

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

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

Note 4 – Revenue Recognition

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

The Company follows a five-step approach for recognizing revenue, consisting of the following:

(1) identify the contract with a customer;

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Contract liabilities were $ 47.8 million and $ 45.2 million as of June 26, 2022 and June 27, 2021, 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.

The increase was primarily due to increased reserves on the Company's "ship and debit" program, partially offset by decreased customer deposits.

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

Practical Expedients and Exemptions

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

The majority of the Company’s fulfillment costs as

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

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

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

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

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.

For the fiscal years ended June 26, 2022 and June 27, 2021, the Company did no t recognize any material revenue that was included in contract liabilities at the start of each respective fiscal year.

Geographic Information

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Europe $ 260.4 34.9 % $ 188.9 35.9 % $ 171.4 36.4 %

United States 117.3 22 % 106.5 23 % 122.0 23 %

China 211.2 28.3 % 100.1 19.0 % 65.0 13.8 %

United States 142.7 19.1 % 117.3 22.3 % 106.5 22.6 %

Japan 30.5 4.1 % 42.5 8.1 % 52.1 11.1 %

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

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

The Company's finance lease obligations primarily relate to contract manufacturing space in Malaysia and a 49 -year ground lease on the Company's Silicon Carbide device fabrication facility in New York.

Balance Sheet

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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.

Operating lease expense was $ 8.1 million, $ 5.5 million and $ 5.4 million in fiscal 2022, 2021 and 2020, respectively.

Short-term lease expense was $ 0.8 million in fiscal 2022.

In fiscal 2021 and 2020, short-term lease expense was immaterial.

Finance lease amortization was $ 1.2 million, $ 1.0 million and $ 0.7 million, and interest expense was $ 0.3 million, $ 0.3 million and $ 0.2 million, in fiscal 2022, 2021 and 2020, respectively.

Cash flow information consisted of the following (1) :

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(in millions of U.S.

Dollars) June 27, 2021 June 28, 2020

Dollars) June 26, 2022 June 27, 2021 June 28, 2020

Cash used in operating activities:

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Cash paid for principal portion of finance leases 0.5 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)

(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.

(1) See Note 6, "Financial Statement Details," for non-cash activities related to leases.

Lease Liability Maturities

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Total lease payments 89.1 17.4 106.5

Future tenant improvement allowances ( 19.0 ) — ( 19.0 )

Imputed lease interest ( 21.9 ) ( 7.3 ) ( 29.2 )

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The agreement does not contain any renewal provisions.

The Company recognized lease income of $ 1.2 million for the year ended June 27, 2021.

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

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

June 26, 2022 3.6

June 25, 2023 2.4

Total future minimum rental income 6.0

The Company recognized lease income of $ 3.6 million and $ 1.2 million for the fiscal years ended June 26, 2022 and June 27, 2021, respectively.

The Company did no t recognize any variable lease income for the fiscal year ended June 28, 2020.

Total future minimum rental income relating to the LED RELA is $ 2.4 million, all of which is expected to occur in the fiscal year ending June 25, 2023.

Note 6 – Financial Statement Details

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Inventories $ 227.0 $ 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.

June 27, 2021 June 28, 2020

Wolfspeed $ 159.2 $ 97.3

Wafer Supply Agreement inventory (1)

Unallocated inventories 7.4 5.6

Consolidated inventories $ 166.6 $ 121.9

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

Other Current Assets

Other current assets consisted of the following:

(in millions of U.S.

Dollars) June 26, 2022 June 27, 2021

Reimbursement receivable on long-term incentive agreement $ 132.5 $ 4.6

Accrued interest receivable 5.9 5.5

Receivable on the Wafer Supply Agreement 2.7 7.0

Inventory related to the Wafer Supply Agreement 3.9 3.9

Deferred product costs 2.5 1.8

Other 3.9 5.1

Other current assets $ 151.4 $ 27.9

Property and Equipment, net

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Depreciation of property and equipment totaled $ 100.4 million, $ 100.5 million and $ 76.7 million for the years ended June 26, 2022, June 27, 2021 and June 28, 2020, respectively.

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.

During the years ended June 26, 2022, June 27, 2021 and June 28, 2020, the Company recognized approximately $ 1.0 million, $ 4.3 million and $ 3.3 million, respectively, as losses on disposals or impairments of property and equipment of which $ 1.3 million, $ 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 26, 2022, 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.

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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

The carrying value of the abandoned assets has been reduced to an estimated salvage value of approximately $ 20.0 million as of June 26, 2022 and June 27, 2021.

The majority of the Company's property and equipment, net is in the United States.

As of June 26, 2022 and June 27, 2021, the Company held $ 58.6 million and $ 34.2 million of property and equipment, net outside of the United States, primarily related to assets held at contract manufacturing space in Malaysia.

Accounts Payable and Accrued Expenses

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Accrued salaries and wages 80.6 69.5

Accrued property and equipment 132.1 248.3

Accrued expenses 30.7 17.4

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Accounts payable and accrued expenses $ 307.7 $ 381.1

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)

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.

Other Operating Expense

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Project, transformation and transaction costs 6.6 7.3 12.2

Factory optimization start-up costs 8.0 9.5 1.5

Factory start-up costs 70.0 8.0 9.5

Non-restructuring related executive severance — 2.8 2.1

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Dollars) June 26, 2022 June 27, 2021 June 28, 2020

(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 sale of investments, net ($ 0.3 ) ($ 0.4 ) ($ 1.5 )

Gain on equity investment — ( 8.3 ) ( 14.2 )

Loss (gain) on debt extinguishment 24.8 — ( 11.0 )

Gain on arbitration proceedings — — ( 7.9 )

1 unchanged sentence

Interest expense 25.1 45.4 34.9

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

Loss on Wafer Supply Agreement 0.8 — —

Other, net 0.5 ( 0.3 ) ( 2.5 )

Non-operating expense (income), net $ 38.3 $ 26.3 ($ 18.5 )

Accumulated Other Comprehensive (Loss) Income, net of taxes

Accumulated other comprehensive (loss) income, net of taxes, consisted of $ 25.3 million of net unrealized losses on available-for-sale securities and $ 2.7 million of net unrealized gains on available-for-sale securities as of June 26, 2022 and June 27, 2021, respectively.

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

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.

The Company reclassified a net gain of $ 0.3 million, $ 0.4 million and $ 1.5 million on available for sale securities out of accumulated other comprehensive income for the fiscal years ended June 26, 2022, June 27, 2021, and June 28, 2020, 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.

1 unchanged sentence

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.

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

Statements of Cash Flows - non-cash activities

6 unchanged sentences

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

Settlement of 2023 Notes in shares of common stock (3)

Decrease in property, plant and equipment from long-term incentive related receivables 119.0 16.4 —

Accrued property and equipment as of the fiscal year end date 132.1 248.3 79.4

(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.

(3) As discussed further in Note 10, "Long-term Debt," in the second quarter of fiscal 2022, all outstanding 0.875 % convertible senior notes due September 1, 2023 (the 2023 Notes) were surrendered for conversion, resulting in the settlement of all outstanding 2023 Notes in shares, with fractional shares paid in cash.

Note 7 – Investments

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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.

The Company did not have any long-term investments as of June 26, 2022 and June 27, 2021.

Short-term investments as of June 26, 2022 consist of the following:

6 unchanged sentences

treasury securities 66.5 — ( 0.7 ) 65.8

Certificates of deposit 16.5 — — 16.5

Commercial paper 50.0 — — 50.0

Variable rate demand note 20.0 — — 20.0

Variable rate demand notes 69.4 — — 69.4

Total short-term investments $ 772.2 $ 0.1 ($ 23.0 ) $ 749.3

8 unchanged sentences

treasury securities 65.8 ( 0.7 ) — — 65.8 ( 0.7 )

Certificates of deposit 0.7 — — — 0.7 —

Total $ 650.8 ($ 22.6 ) $ 9.3 ($ 0.4 ) $ 660.1 ($ 23.0 )

3 unchanged sentences

(in millions of U.S.

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

Estimated Fair Value

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

Municipal bonds 139.4 1.9 — 141.3

4 unchanged sentences

Commercial paper 50.0 — — 50.0

Variable rate demand note 2.5 — — 2.5

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.

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:

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(in millions of U.S.

Dollars) Fair Value Unrealized Loss (1)

Fair Value Unrealized Loss Fair Value Unrealized Loss

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

Municipal bonds $ 13.4 $ — $ — $ — $ 13.4 $ —

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

Certificates of deposit 0.7 — — — 0.7 —

Total $ 206.5 ($ 0.4 ) $ — $ — $ 206.5 ($ 0.4 )

Number of securities with an unrealized loss 128 — 128

(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.

Additionally, the Company held cash equivalent securities in unrealized loss positions as of June 26, 2022 and June 27, 2021.

As of June 26, 2022, the Company held six cash equivalent securities in unrealized loss positions with an aggregate fair value of $ 69.0 million and an aggregate unrealized loss of less than $ 0.1 million.

As of June 27, 2021, the Company held six cash equivalent securities in unrealized loss positions with an aggregate fair value of $ 21.4 million and an aggregate unrealized loss of less than $ 0.1 million.

All cash equivalents in unrealized loss positions as of June 26, 2022 and June 27, 2021 have been in unrealized loss positions for less than 12 months.

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.

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treasury securities 34.4 31.4 — — 65.8

Certificates of deposit 16.5 — — — 16.5

Commercial paper 50.0 — — — 50.0

Variable rate demand note — — — 20.0 20.0

Variable rate demand notes — — 14.7 54.7 69.4

Total short-term investments $ 192.9 $ 487.0 $ 14.7 $ 54.7 $ 749.3

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• 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.

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

As of June 26, 2022, financial assets utilizing Level 1 inputs included U.S.

treasury securities and money market funds, and financial assets utilizing Level 2 inputs included municipal bonds, corporate bonds, U.S.

agency securities, commercial paper 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.

10 unchanged sentences

treasury securities 69.0 — — 69.0 — — — —

Certificates of deposit — — — — — 54.3 — 54.3

Commercial paper — 59.4 — 59.4 — 62.4 — 62.4

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

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

Total cash equivalents 184.9 59.4 — 244.3 96.9 107.3 — 204.2

6 unchanged sentences

Commercial paper — — — — — 50.0 — 50.0

Variable rate demand note — 20.0 — 20.0 — 2.5 — 2.5

Variable rate demand notes — 69.4 — 69.4 — 20.0 — 20.0

Total short-term investments 65.8 683.5 — 749.3 72.5 703.1 — 775.6

Other long-term investments:

Common stock of non-U.S.

corporations — — — — — 55.9 — 55.9

Total assets $ 250.7 $ 742.9 $ — $ 993.6 $ 169.4 $ 810.4 $ — $ 979.8

Note 9 – Goodwill and Intangible Assets

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

(in millions of U.S.

Balance at June 28, 2020 $ 349.7

Transfer in connection with LED Business Divestiture (1)

Balance at June 27, 2021 $ 359.2

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

There were no changes to goodwill during the fiscal year ended June 26, 2022.

As of the first day of its fourth quarter of fiscal 2022, the Company performed a qualitative impairment test on the goodwill balance and concluded there was no impairment.

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As of June 26, 2022, 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.

For the fiscal year ended June 26, 2022, the average interest rate was 0.04 %, related to a ten -day draw of $ 20.0 million on the line of credit in the first quarter of fiscal 2022.

As of June 26, 2022, the unused line fee on available borrowings is 25 basis points.

On January 25, 2022, the Company entered into an amendment to the Credit Agreement that extended the maturity date by three years to January 9, 2026 and adopted secured overnight financing rate (SOFR) interest rates as the benchmark interest rate.

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.

On August 24, 2018, the Company sold $ 500.0 million aggregate principal amount of the 2023 Notes 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 total net proceeds from the 2023 Notes offering was approximately $ 562.1 million.

As discussed further below, the Company repurchased approximately $ 150.2 million aggregate principal amount of the 2023 Notes using a portion of net proceeds from the sale of the 2026 Notes (as defined and explained below) in April 2020.

On December 8, 2021 (the Redemption Notice Date), the Company issued a notice (the Redemption Notice) to holders of the 2023 Notes calling all outstanding 2023 Notes for redemption.

The Redemption Notice designated December 23, 2021 as the redemption date (the Redemption Date).

On the Redemption Date, the Redemption Price (as defined below) would have become due and payable on each of the 2023 Notes to be redeemed, and interest thereon would cease to accrue.

However, any 2023 Notes called for redemption would not be redeemed if such notes were converted before the Redemption Date.

The Redemption Price for the 2023 Notes called for redemption was an amount in cash equal to the principal amount of such notes plus accrued and unpaid interest on such notes to, but excluding, the Redemption Date, which equated to a Redemption Price of $1,002.72222 per $1,000 principal amount of 2023 Notes (the Redemption Price).

As of the Redemption Notice Date, the conversion rate of the 2023 Notes was 16.6745 shares of the Company's common stock per $1,000 principal amount of such notes.

However, in accordance with the Indenture, dated as of August 24, 2018, between the Company and U.S.

Bank National Association, as trustee, which governed the terms of the 2023 Notes, the conversion rate for 2023 Notes that were converted after the Redemption Notice Date was increased to 16.7769 shares of the Company's common stock per $1,000 principal amount of such notes.

Before the Redemption Date, all outstanding 2023 Notes were surrendered for conversion, resulting in the settlement of all outstanding 2023 Notes in approximately 7.1 million shares of the Company's common stock, with cash in lieu of any fractional shares.

The fair value of shares issued upon conversion of all outstanding 2023 Notes was $ 788.0 million.

The amount of cash paid for fractional shares was immaterial.

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 2026 Notes offering was approximately $ 561.4 million.

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).

1 unchanged sentence

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 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 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 40 th 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 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;

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 change 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 ended 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 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.

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 in April 2020 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.

2028 Convertible Notes

The total net proceeds from the debt offerings was approximately $ 561.4 million.

On February 3, 2022, the Company sold $ 650.0 million aggregate principal amount of 0.25 % convertible senior notes due February 15, 2028 to qualified institutional buyers pursuant to Rule 144A under the Securities Act and an additional $ 100.0 million aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment options of the underwriters (the 2028 Notes).

The total net proceeds from the 2028 Notes offering was approximately $ 732.3 million.

The Company used approximately $ 108.2 million of the net proceeds from the 2028 Notes to fund the cost of entering into capped call transactions, as described below.

The conversion rate will initially be 7.8602 shares of common stock per one thousand dollars in principal amount of 2028 Notes (equivalent to an initial conversion price of approximately $ 127.22 per share of common stock).

1 unchanged sentence

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 2028 Notes in connection with such a corporate event, or who elects to convert any 2028 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 Company may not redeem the 2028 Notes prior to February 18, 2025.

The Company may redeem for cash all or any portion of the 2028 Notes, at its option, on a redemption date occurring on or after February 18, 2025 and on or before the 40 th 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 2028 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;

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 2028 Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the 2028 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Holders may convert their 2028 Notes at their option at any time prior to the close of business on the business day immediately preceding August 16, 2027 only under the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending March 31, 2022 (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 2028 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;

1 unchanged sentence

or (4) upon the occurrence of specified corporate events.

On or after August 16, 2027 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2028 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.

Capped Call Transactions

On January 31, 2022, in connection with the pricing of the 2028 Notes, the Company entered into privately negotiated capped call transactions with certain of the initial purchasers or affiliates thereof (the Capped Call Counterparties).

In connection with the exercise by the initial purchasers of their option to purchase additional notes, the Company entered into additional privately negotiated capped call transactions (such transactions, collectively, the Capped Call Transactions) with each of the Capped Call Counterparties.

The Capped Call Transactions initially cover, subject to customary anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that initially underlie the 2028 Notes.

The Capped Call Transactions are expected generally to reduce the potential dilutive effect on the common stock upon any conversion of the 2028 Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted 2028 Notes, as the case may be, with such reduction and/or offset subject to a cap which initially is $ 212.04 per share, representing a premium of 125 % over the last reported sale price per share of the Company's common stock on January 31, 2022, subject to certain adjustments under the terms of the Capped Call Transactions.

The Capped Call Transactions are separate transactions entered into by the Company with each of the Capped Call Counterparties, are not part of the terms of the 2028 Notes, and do not affect any holder’s rights under the 2028 Notes.

Holders of the 2028 Notes do not have any rights with respect to the Capped Call Transactions.

Accounting for 2023 Notes, 2026 Notes and 2028 Notes (collectively, the Notes)

In accounting for the issuance of the 2023 Notes, 2026 Notes and 2028 Notes, the Company separated the Notes into liability and equity components.

The carrying amount of the equity component representing the conversion option was $ 110.6 million, $ 145.4 million and $ 187.6 million for the 2023, 2026 and 2028 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;

Due to the partial extinguishment of the 2023 Notes in connection with the issuance of the 2026 Notes, the equity component of the 2023 Notes was reduced by $ 27.7 million in the fourth quarter of fiscal 2020.

As a result of the full conversion of all outstanding 2023 Notes, the Company remeasured the outstanding liability for the 2023 Notes using a market rate for debt without a conversion option (the Market Rate) as of the Redemption Notice Date.

The Company performed a present value calculation using the Market Rate and determined the fair value of the debt as of the Redemption Notice Date was $ 416.1 million, $ 24.7 million higher than the carrying value of the 2023 Notes as of the Redemption Notice Date.

As a result, the Company recorded a loss on extinguishment of $ 24.8 million, which included a $ 0.1 million loss on extinguishment expense related to third party fees.

Additionally, the equity component of the 2023 Notes was reduced to zero .

The equity components of the 2026 and 2028 Notes are not remeasured as long as they continue 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 2026 and 2028 Notes at an effective annual interest rate of 7.45 % and 5.59 %, respectively.

The 2026 and 2028 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 2026 and 2028 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;

14 unchanged sentences

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

Fiscal Years Ended

(in millions of U.S.

3 unchanged sentences

Total interest expense, net $ 22.7 $ 43.2 33.0

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

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

For the fiscal year ended June 26, 2022, the Company capitalized $ 9.9 million of interest expense and $ 23.2 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.

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 the fiscal year ended June 28, 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 the 2026 Notes for at least 20 trading days in the 30 consecutive trading days ended on June 30, 2022.

As a result, the 2026 Notes are convertible at the option of the holders during the calendar quarter ended September 30, 2022.

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.

As of June 26, 2022, the if-converted values of the 2026 Notes exceeded the principal amounts by $ 292.7 million.

The estimated fair value of the Notes is $ 1.5 billion, as determined by a Level 2 valuation as of June 26, 2022.

Note 11 – Shareholders’ Equity

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

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

LLC, Morgan Stanley & Co.

LLC and Truist Securities, Inc.

(the Managers).

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

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

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

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

At June 26, 2022, the Company had reserved a total of approximately 36.6 million shares of its common stock for future issuance as follows (in thousands):

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Net loss from continuing operations $ ( 295.1 ) $ ( 341.3 ) $ ( 197.6 )

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

Net income (loss) from discontinued operations 94.2 ( 181.2 ) 7.0

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 )

Net income (loss) from discontinued operations attributable to controlling interest 94.2 ( 182.6 ) 5.9

Weighted average number of common shares - basic and diluted (in thousands) 120,120 112,346 107,935

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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.

Performance-based conditions may be tied to future financial and/or operating performance of the Company, external based market metrics or internal performance metrics.

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

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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.

At the end of each six-month period in April and October, participants may 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.

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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 24, 2022 (the last trading day of fiscal 2022) of $ 71.40 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 26, 2022.

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

As of June 26, 2022, there was no unrecognized compensation cost related to nonvested stock options.

The following table summarizes information about stock options outstanding and exercisable at June 26, 2022 (shares in thousands):

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21 0.5 26.92 21 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 26, 2022, June 27, 2021 and June 28, 2020 was $ 5.6 million, $ 30.8 million and $ 22.8 million, respectively.

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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.

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 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 service-based RSUs and performance-based RSUs with internal metrics, the grant-date fair value is based upon the market price of the Company’s common stock on the date of the grant.

For performance-based RSUs, 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.

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

For performance-based 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.

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.

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0.11 - 1.66 %

0.28 - 1.66 %

Expected life, in years 3.0

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48.9 - 60.5 %

48.9 - 55.2 %

Average correlation coefficient of peer companies 0.47

Dividend yield — — —

There was only one grant for performance-based awards with market conditions for the fiscal year ended June 26, 2022 and therefore no range is shown.

The following describes each of these assumptions and the Company’s methodology for determining each assumption:

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Foreign ( 0.1 ) — ( 2.8 )

State — — ( 0.2 )

Total deferred 0.6 0.7 ( 1.0 )

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Increase (decrease) in valuation allowance ( 51.6 ) 18 % 75.0 ( 22 ) % 50.3 ( 25 ) %

Partial extinguishment of convertible notes — — % ( 6.0 ) 3 % — — %

Extinguishment of convertible notes ( 4.5 ) 2 % — — % ( 6.0 ) 3 %

Stock-based compensation ( 3.3 ) 1 % ( 2.8 ) 1 % 2.1 ( 1 ) %

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Provision to return adjustments 0.3 — % ( 0.2 ) — % ( 1.3 ) 1 %

Tax on distributable foreign earnings — — % — — % — — %

Impact of rate changes 0.5 — % 2.7 ( 1 ) % 0.8 — %

Expiration of state credits 0.1 — % 0.7 — % 0.9 — %

Corporate restructuring adjustment 129.1 ( 45 ) % — — % — — %

Other 0.3 — % 0.1 — % 0.1 — %

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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.

deferred tax assets as of June 26, 2022.

As of June 27, 2021, the U.S.

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For the fiscal year ended June 26, 2022, 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.

valuation allowance by $ 46.6 million primarily due to an increase in deferred tax assets related to the current year domestic loss and tax credits generated offset by the current year increase in the domestic deferred tax liability on property and equipment, net.

As of June 27, 2021, the Luxembourg valuation allowance was $ 121.8 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.

In the second quarter of fiscal 2022, the Company concluded its due diligence and commenced a plan to restructure its Luxembourg holding company, resulting in the recognition of $ 7.3 million of income tax expense.

The $ 7.3 million of income tax expense represents the net effect of $ 129.1 million of income tax expense generated from taxable income as a result of the restructuring plan offset by a full release of the valuation allowance against the Company’s Luxembourg net operating loss deferred tax assets, which totaled $ 121.8 million.

As of June 26, 2022, the Company does not have a valuation allowance against Luxembourg deferred tax assets.

As of June 26, 2022, the Company had approximately $ 2.4 million of foreign net operating loss carryovers, of which less than $ 0.1 million are offset by a valuation allowance.

Of the Company's foreign net operating loss carryovers, $ 2.4 million have no carry forward limitation.

As of June 26, 2022, the Company had approximately $ 1.5 billion of federal net operating loss carryovers and $ 313.4 million of state net operating loss carryovers which are fully offset by a valuation allowance.

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As of June 27, 2021, 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.

During the fiscal year ended June 26, 2022, the Company recognized a $ 0.2 million decrease to the liability for unrecognized tax benefits due to statute expiration.

As a result, the total liability for unrecognized tax benefits as of June 26, 2022 was $ 7.2 million.

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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.

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 its Silicon Carbide device fabrication facility in Marcy, New York.

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

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As of June 26, 2022, 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 $ 2.7 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.

As of June 26, 2022, the Company has reduced property and equipment, net by $ 285.1 million as a result of GDA reimbursements, of which $ 149.7 million has been received in cash and an additional $ 132.5 million and $ 2.9 million are recorded as receivables in other current assets and other assets, respectively, in the consolidated balance sheets.

The Company started receiving cash reimbursements in the fourth quarter of fiscal 2021.

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.

Financial instruments, which may subject the Company to a concentration of risk, consist principally of short-term investments, cash equivalents, accounts receivable and long-term receivables.

Short-term investments consist primarily of municipal bonds, corporate bonds, U.S.

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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.

For the fiscal year ended June 26, 2022, two customers represented 20 % and 18 % of revenue, respectively.

For the fiscal year ended June 27, 2021, three customers represented 18 %, 13 % and 10 % of revenue, respectively.

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

No other customers individually accounted for more than 10% of revenue for the fiscal years ended June 26, 2022, June 27, 2021 and June 28, 2020.

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.

Three customers accounted for 18 %, 16 % and 14 % of the accounts receivable balance as of June 26, 2022, respectively.

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

No other customers accounted for more than 10% of the accounts receivable balance as of June 26, 2022 and June 27, 2021.

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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 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.

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

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

1 unchanged sentence

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.

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.

In January 2022, the Company commenced a plan to open a global IT shared services hub in Belfast, Northern Ireland in partnership with the Northern Ireland government.

As a result, the Company recorded $ 1.2 million in severance-related costs for the fiscal year ended June 26, 2022, all of which is accrued for as of June 26, 2022.

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.

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

campus headquarters in Durham, North Carolina.

As part of the plan, the Company 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.

As part of the plan, the Company has incurred 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 Silicon Carbide device fabrication facility in Marcy, New York to complement the expansion of the Company's Silicon Carbide materials production capacity 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.

The factory optimization restructuring plan concluded in fiscal 2022.

For the fiscal years ended June 26, 2022, June 27, 2021 and June 28, 2020, the Company expensed $ 4.8 million, $ 5.2 million and $ 9.0 million, respectively, of restructuring charges associated with the movement of equipment related to the factory optimization plan, of which $ 0.2 million was accrued for as of June 26, 2022.

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.

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 )

Additionally, the Company expensed $ 1.3 million and $ 3.4 million of restructuring charges associated with disposals of certain long-lived assets for the fiscal years ended June 26, 2022 and June 27, 2021, respectively.

The Company incurred less expense in connection with the plan than previously projected due to strategic changes in the Company's capacity expansion plans at its Durham and RTP facilities.

Note 19 - Subsequent Events

In July 2022, the Company received an arbitration award in relation to a former customer failing to fulfill contractual obligations to purchase a certain amount of product over a period of time.

In August 2022, the Company received payment for the arbitration award in the amount of $ 49.0 million, net of estimated attorneys' fees and other costs, and will recognize a corresponding gain from arbitration in the first quarter of fiscal 2023.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data