What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-08-23 compared with 2022-08-22 · 161 added, 160 removed, 316 unchanged (50% of the section changed)

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There are a number of industry factors that affect our business which include, among others:

• COVID-19 Pandemic.

The global health crisis caused by COVID-19 and its resurgences has impacted and may continue to negatively impact global economic activity, which, despite progress in vaccination efforts, remains uncertain and cannot be predicted with confidence.

In addition, variants of COVID-19 continue to emerge.

While vaccines have proven effective in preventing serious illnesses and hospitalizations, there is no assurance that such vaccines will remain effective against new variants or that the protection conferred by existing vaccines will not wane over time.

Since its beginning in the early months of 2020, the COVID-19 pandemic has affected us in a number of ways including, but not limited to, the impact on employees becoming ill, quarantined, or otherwise unable to work or travel due to illness or governmental restriction, the impact on customers and their related demand and/or purchases, the impact on our suppliers' and contract manufacturers' ability to fulfill our orders on a timely basis, and the overall impact of the aforementioned items that could cause output challenges and increased costs.

The full extent to which the COVID-19 pandemic may impact our results of operations or liquidity remains uncertain.

Our operations have experienced, and likely will continue to experience, supply, labor, demand and output challenges.

We continue to monitor the impact that the COVID-19 pandemic is having on our business, the semiconductor industry, and the economies in which we operate.

• Overall Demand for Products and Applications Using Our Wolfspeed Materials and Devices .

Our potential for growth depends significantly on the adoption of Silicon Carbide and GaN materials and device products in the power and RF markets, the continued use of silicon devices in the RF telecommunications market and our ability to win new designs for these applications.

Demand also fluctuates based on various market cycles, continuously evolving industry supply chains, trade and tariff terms, inflationary impacts, as well as evolving competitive dynamics in each of the respective markets.

These uncertainties make demand difficult to forecast for us and our customers.

Lately, we have seen demand increase across all our product lines, which we believe reflects the value that the industry places on a transition to Silicon Carbide materials and devices.

Particularly, we have seen significantly higher demand for our power products as the world has continued to focus on and adopt higher efficiency energy solutions, including electrical vehicle (EV) and related technologies.

We believe these trends could have a significant positive impact on revenues in future periods as we increase capacity to meet increased demand.

• Supply Constraints.

The semiconductor industry has experienced supply constraints for certain items.

While we have successfully managed through challenges relating to obtaining certain necessary raw materials and production and processing equipment thus far, we expect the supply situation for these items to remain tight for at least the next few quarters.

While we have successfully managed through challenges relating to obtaining certain necessary raw materials and production and processing equipment thus far, and have continued to see supply availabilities and lead times stabilize across many direct materials, we expect the supply situation for certain items to remain tight for at least the next few quarters.

In addition, the ongoing military conflict between Russia and Ukraine may further exacerbate supply constraints.

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We are working closely with our customer base to best match our supply to their demand.

We have taken steps to provide continuity to our customers, to the extent possible, although we expect that constraints may continue to limit our shipments in the near term.

• Governmental Trade and Regulatory Conditions .

Our potential for growth, as with most multi-national companies, depends on a balanced and stable trade, political, geopolitical, economic and regulatory environment among the countries where we do business.

Changes in trade policy such as the imposition or extension of tariffs or export bans to specific customers or countries could reduce or limit demand for our products in certain markets.

We have taken steps to provide continuity to our customers to the extent possible, including entering into purchase agreements and providing customer reserve deposits with our suppliers to secure future supply to us, although we expect that our production capacity constraints as we continue to bring additional capacity online may continue to limit our shipments to our customers in the near term.

• Overall Demand for Products and Applications Using Our Wolfspeed Materials and Devices .

Our potential for growth depends significantly on the continued adoption of silicon carbide and GaN materials and device products in the power and RF markets, the continued use of silicon devices in the RF telecommunications market and our ability to win new designs for these applications.

Demand also fluctuates based on various domestic and global economic and market cycles, continuously evolving industry supply chains, trade and tariff terms, and inflationary impacts, as well as evolving competitive dynamics in each of the respective markets.

These uncertainties make demand difficult to forecast for us and our customers.

For example, decreasing consumer or industrial demand as a result of an economic slowdown or recession may lead our customers to delay designing in our products.

Over the past six months, we have been seeing softening demand for our RF products but significantly higher demand for our power products.

We believe the increased demand for our power products reflects the value that the industry places on a transition to silicon carbide materials and devices while also evidencing the growing global focus on adopting higher efficiency energy solutions, including electric vehicle and related technologies.

We believe these trends could have a significant positive impact on revenues in future periods as we increase capacity to meet this increased demand, but in the short and near term we expect to face production capacity constraints while we continue to work to bring additional capacity online.

• Intense and Constantly Evolving Competitive Environment.

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To remain competitive, market participants must continuously increase product performance, reduce costs and develop improved ways to serve their customers.

To address these competitive pressures, we have invested in research and development activities to support new product development, lower product costs and deliver higher levels of performance to differentiate our products in the market.

In addition, we invest in systems, people and new processes to

improve our ability to deliver a better overall experience for our customers.

To address these competitive pressures, we have invested in new production facilities, as well as research and development activities to support new product development, lower product costs and deliver higher levels of performance to differentiate our products in the market.

In addition, we invest in systems, people and new processes to improve our ability to deliver a better overall experience for our customers.

Market participants often undertake pricing strategies to gain or protect market share, increase the utilization of their production capacity and open new applications in the power and RF markets we serve.

• Governmental Trade and Regulatory Conditions .

Changes in trade policy, such as the imposition or extension of tariffs or export bans to specific customers or countries, including China's recently announced export restriction of gallium and germanium, two metals used in the manufacturing of semiconductors and electronics, could reduce or limit demand, or increase the cost of production, of our products in certain markets.

• Technological Innovation and Advancement.

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• Our year-over-year revenue increased by $175.7 million to $921.9 million.

• Gross margin increased to 33.4% from 31.3%.

• Gross margin decreased to 30.3% from 33.4%.

Gross profit increased to $279.5 million from $249.3 million.

• Operating loss from continuing operations was $380.6 million in fiscal 2023 compared to $247.8 million in fiscal 2022.

As discussed further below, operating loss from continuing operations for fiscal 2021 includes a $73.9 million expense related to the modification of our long-range plan regarding a building site in Durham, North Carolina.

• Diluted loss per share from continuing operations was $2.65 in fiscal 2023 compared to $2.46 in fiscal 2022.

• Combined cash, cash equivalents and short-term investments increased to $2,954.9 million at June 25, 2023 from $1,198.8 million at June 26, 2022.

• Convertible notes, net was $1,021.6 million at June 26, 2022 and $823.9 million at June 27, 2021.

• Net cash used in operating activities of continuing operations was $154.2 million in fiscal 2022 compared to net cash used in operating activities of continuing operations of $112.5 million in fiscal 2021.

• Long-term debt, net, including convertible notes, was $4,175.1 million at June 25, 2023 and $1,021.6 million at June 26, 2022.

As discussed further below and in Note 10, "Long-term Debt," in our consolidated financial statements in Item 8 of this Annual Report, we sold $1,750.0 million aggregate principal amount of 2029 Notes in the second quarter of fiscal 2023 and $1,250.0 million aggregate principal amount of 2030 Senior Notes in the fourth quarter of fiscal 2023.

• Net cash used in operating activities of continuing operations was $142.6 million in fiscal 2023 compared to $154.2 million in fiscal 2022.

• Purchases of property and equipment, net were $800.3 million (net of $155.5 million in reimbursements) in fiscal 2023 compared to $505.9 million (net of $139.0 million in reimbursements) in fiscal 2022.

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We believe we are uniquely positioned as an innovator in the global semiconductor industry.

The strength of our balance sheet provides us the ability to invest in our business, as indicated by our new state-of-the-art, automated 200mm Silicon Carbide device fabrication facility in Marcy, New York, which started running qualification lots in the fourth quarter of fiscal 2022, and an expansion of our materials factory at our U.S campus headquarters in Durham, North Carolina, both of which will increase our production capacity.

In fiscal 2022, we incurred $70.0 million of start-up and pre-production costs related to the ramping of production at the Marcy, New York facility.

In fiscal 2023, we expect approximately $100 million of start-up and underutilization costs primarily related to ramping of production at the Marcy, New York facility.

The completion of the LED Business Divestiture on March 1, 2021 represented a key milestone in our transformation to be a global semiconductor powerhouse focused on disruptive technology solutions for high-growth applications.

This transaction positioned us with a sharpened strategic focus to lead the semiconductor industry transition from silicon to Silicon Carbide and further strengthened our financial position, which we plan to utilize in order to support continued investments to capitalize on multi-decade growth opportunities across electrical vehicles (EVs), 5G and industrial applications.

We are focused on investing in our business to expand the scale, further develop the technologies, and accelerate the growth opportunities of Silicon Carbide materials, Silicon Carbide power devices and modules, and GaN and silicon RF devices.

The strength of our balance sheet provides us the ability to invest in our business, as indicated by our new state-of-the-art, automated 200mm silicon carbide device fabrication facility in Marcy, New York, where we recently started revenue generating production.

In addition, an expansion of our materials factory at our U.S.

campus headquarters in Durham, North Carolina, the construction of a new materials manufacturing facility in Siler City, North Carolina, and the recently announced plan to construct a new silicon carbide device fabrication facility in Saarland, Germany are all expected to increase our production capacity.

We are primarily focused on investing in our business to expand the scale, further develop the technologies, and accelerate the growth opportunities of silicon carbide materials, silicon carbide power devices and modules.

We believe these efforts will support our goals of delivering higher revenue and shareholder returns over time.

In addition, we are focused on improving the number of usable items in a production cycle (yield) as our manufacturing technologies become more complex.

Despite increased complexities in our manufacturing process, we believe we are in a position to improve yield levels to support our future growth, particularly as we transition to our new Silicon Carbide device fabrication facility in Marcy, New York.

We believe we have the ability to navigate the current environment while maintaining our capital expenditure plans to support future growth, including the completion and build out of our new facility in New York and additional production capacity in North Carolina.

Even so, the short-term impacts from COVID-19 to our financial position, results of operations and cash flows remain uncertain.

We continue to closely monitor the ongoing military conflict between Russia and Ukraine to evaluate our potential exposure to this conflict.

We do not have significant credit, supplier or customer concentrations in Russia, Belarus or Ukraine at this time.

As a result, we do not currently expect any material impacts to our consolidated financial statements.

However, we believe the full impact of the conflict remains uncertain and we continue to assess if ongoing developments, such as further sanctions or other increased involvement from countries where we operate and do business, may cause future material impacts to our consolidated financial statements.

Change in Estimate

As a result of the LED Business Divestiture and our continued investment in 200mm technology, we 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, we 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.

Design-ins are customer commitments to purchase our product and are one of the factors we use to forecast long-term demand and future revenue.

Despite increased complexities in our manufacturing processes, we believe we are in a position to improve yield levels to support our future growth, particularly as we transition more production to our new silicon carbide device fabrication facility in Marcy, New York.

We believe we have the ability to navigate the current environment while maintaining our capital expenditure plans to support future growth to meet long-term demand, which demand in the short-term and mid-term appears to be ahead of the industry's supply capabilities.

Our expansion plans to increase supply include the continued build out of our new facility in New York, the construction of additional production capacity in North Carolina and the planned construction of a new silicon carbide device fabrication facility in Saarland, Germany.

For fiscal 2024, we target approximately $2.0 billion of net capital investment.

Design-ins are customer commitments to purchase our products and are one of the factors we use to forecast long-term demand and future revenue.

To meet the qualification of a design-in, the customer provides us with documentation (e.g., a letter of intent, statement of work or developmental contract) that can include details such as the expected delivery timeline, estimated price, necessary capacity and required support.

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Sales, general and administrative 235.3 25.5 % 203.5 27.3 % 181.6 34.6 %

Factory start-up costs 160.2 17.4 % 70.0 9.4 % 8.0 1.5 %

Amortization or impairment of acquisition-related intangibles 10.9 1.2 % 13.6 1.8 % 14.5 2.8 %

Abandonment of long-lived assets — — % — — % 73.9 14.1 %

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

Loss (gain) on disposal or impairment of other assets 2.0 0.2 % (0.3) — % 1.6 0.3 %

Other operating expense 26.3 2.9 % 13.9 1.9 % 21.1 4.0 %

Operating loss (380.6) (41.3) % (247.8) (33.2) % (313.9) (59.7) %

Non-operating expense (income), net 38.3 5.1 % 26.3 5.0 % (18.5) (3.9) %

Non-operating (income) expense, net (52.1) (5.7) % 38.3 5.1 % 26.3 5.0 %

Loss before income taxes (328.5) (35.6) % (286.1) (38.3) % (340.2) (64.7) %

Income tax expense (benefit) 9.0 1.2 % 1.1 0.2 % (8.0) (1.7) %

Income tax expense 1.4 0.2 % 9.0 1.2 % 1.1 0.2 %

Net loss from continuing operations (329.9) (35.8) % (295.1) (39.5) % (341.3) (64.9) %

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Dollars) June 25, 2023 June 26, 2022 June 27, 2021 2022 to 2023 2021 to 2022

Power Products $408.9 $276.4 $132.8 $132.5 48 % $143.6 108 %

Materials Products $349.3 $295.5 $241.6 $53.8 18 % $53.9 22 %

RF Products $163.7 $174.3 $151.2 ($10.6) (6) % $23.1 15 %

Revenue $921.9 $746.2 $525.6 $175.7 24 % $220.6 42 %

The increase in revenue for fiscal 2023 compared to fiscal 2022 was primarily due to growth in our power product line, where we increased production capacity to meet strong demand.

Increased production capacity for our materials product line also contributed to increased revenues, partially offset by decreased revenues for our RF product line as a result of softening demand.

The increase in revenue for fiscal 2022 compared to fiscal 2021 was primarily due to increased demand across all of our product lines, as well as increased production capacity for our power and materials product lines to meet the strong demand during the period.

The increase in revenue for fiscal 2021 compared to fiscal 2020 was primarily due to increases in demand for power and RF devices and increases in production capacity for our power devices.

Gross Profit and Gross Margin

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Gross margin 30 % 33 % 31 %

The increase in gross profit for fiscal 2022 compared to fiscal 2021 was primarily due to increased revenues in the current period and lower manufacturing costs, including the impact of increasing the expected useful lives of certain machinery and equipment assets to more closely reflect the estimated economic lives of those assets.

The increase in gross profit for fiscal 2023 compared to fiscal 2022 was primarily due to increased revenues in our power and materials product lines, partially offset by decreased revenue in our RF product line, increased production costs, unfavorable product mix and higher stock-based compensation costs.

The decrease in gross margin for fiscal 2023 compared to fiscal 2022 was primarily due to increased production costs and unfavorable product mix.

These impacts were partially offset by a gross margin improvement in the current period resulting from realizing the full impact of our early fiscal 2022 change in estimate to increase our expected useful lives of certain machinery and equipment assets to more closely reflect the estimated economic lives of those assets.

* The change in our expected useful lives was applied in the first quarter of fiscal 2022 but had limited impact on that period's gross profit and gross margin because the majority of the impact in the first quarter of fiscal 2022 resulted in a reduction of inventory.

The increase in gross profit for fiscal 2022 compared to fiscal 2021 was primarily due to increased revenues in the current period and lower production costs, including the impact of increasing the expected useful lives of certain machinery and equipment assets to more closely reflect the estimated economic lives of those assets.

The increase in gross margin for fiscal 2022 compared to fiscal 2021 was primarily due to the same factors as the increase to gross profit, partly offset by product mix.

The increase in gross profit for fiscal 2021 compared to fiscal 2020 was primarily due to increased revenues in the current period.

The decrease in gross margin for fiscal 2021 compared to fiscal 2020 was primarily due to an unfavorable product mix shift and higher factory costs as we continued to bring on additional capacity.

As explained further below, the operating costs of each of our new facilities will largely be reflected in cost of revenue, net once such facility reaches revenue generating production.

During the period when production begins, but before the facility is at its expected utilization level, we expect some of the costs to operate the facility will not be absorbed into the cost of inventory.

We expect that these costs will be substantial as we ramp up the facility to the expected or normal utilization level.

The costs incurred to operate the facility in excess of the costs absorbed into inventory are referred to as underutilization costs and are expensed as incurred to cost of revenue, net.

We expect gross profit and gross margin to be significantly impacted in future periods from these underutilization costs in connection with our new facility construction and expansion projects, the costs of which to date have solely been expensed as factory start-up costs.

Research and Development

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Sales, General and Administrative

Sales, general and administrative expenses are comprised primarily of costs associated with our sales and marketing personnel and our executive and administrative personnel (for example, finance, human resources, information technology and legal) and consist of salaries and related compensation costs;

Sales, general and administrative (SG&A) expenses are comprised primarily of costs associated with our sales and marketing personnel and our executive and administrative personnel (for example, finance, human resources, information technology and legal) and consist of salaries and related compensation costs;

consulting and other professional services (such as litigation and other outside legal counsel fees, audit and other compliance costs);

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and travel and other costs.

Sales, general and administrative expenses were as follows:

SG&A expenses were as follows:

Fiscal Years Ended Year-Over-Year Change

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Percent of revenue 26 % 27 % 35 %

The increase in sales, general and administrative expenses in fiscal 2022 compared to fiscal 2021 was primarily due to increased salaries and benefits from increased headcount, including incentive based stock-based compensation, as well as increased consulting, legal and travel costs, partially offset by a decrease in costs related to transition services incurred in the first half of fiscal 2021 in connection with the sale of our former Lighting Products business unit.

Sales, general and administrative expenses stayed fairly steady in fiscal 2021 compared to fiscal 2020.

Increased salaries and benefits, including incentive based stock-based compensation and commissions, were partially offset by decreased information technology costs and professional and legal fees.

Additionally, further offsetting decreases related to a decrease of travel costs as a result of travel restrictions related to the COVID-19 pandemic and employee relocation expenses.

The increase in SG&A expenses in fiscal 2023 compared to fiscal 2022 was primarily due to increased salaries and benefits from increased headcount, including incentive based stock-based compensation, as well as increases in professional services, sponsorship, and travel costs.

The increase in SG&A expenses in fiscal 2022 compared to fiscal 2021 was primarily due to increased salaries and benefits from increased headcount, including incentive based stock-based compensation, as well as increased consulting, legal and travel costs, partially offset by a decrease in costs related to transition services incurred in the first half of fiscal 2021 in connection with the sale of our former Lighting Products business unit.

Factory Start-up Costs

Fiscal Years Ended Year-Over-Year Change

(in millions of U.S.

Dollars) June 25, 2023 June 26, 2022 June 27, 2021 2022 to 2023 2021 to 2022

Factory start-up costs $160.2 $70.0 $8.0 $90.2 129 % $62.0 775 %

Factory start-up costs relate to expanding our production footprint to support expected growth.

Increases in all periods presented are primarily due to the progression of construction and start-up of our new silicon carbide device fabrication facility in Marcy, New York, the start of construction on our new materials manufacturing facility in Siler City, North Carolina and the materials expansion activities at our Durham, North Carolina location.

Factory start-up costs relate to facilities that have not yet started revenue generating production.

When a new facility begins revenue generating production, the operating costs of that facility previously expensed as start-up costs will instead be primarily expensed as part of the cost of the production within the cost of revenue, net line item in our statement of operations.

For example, our new silicon carbide device fabrication facility in Marcy, New York began revenue generating production at the end of fiscal 2023 and the costs of this facility will be primarily reflected in cost of revenue, net in future periods.

Amortization or Impairment of Acquisition-Related Intangibles

As a result of our acquisitions, we recognize various amortizable intangible assets, including customer relationships, developed technology and non-compete agreements.

As a result of our acquisitions, we have recognized various amortizable intangible assets, including customer relationships, developed technology and non-compete agreements.

Amortization of intangible assets related to our acquisitions was as follows:

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Total $10.9 $13.6 $14.5 ($2.7) (20) % ($0.9) (6) %

Amortization of acquisition-related intangible assets decreased in fiscal 2022 compared to fiscal 2021 due to an intangible asset relating to non-compete agreements reaching the end of its useful life during fiscal 2022.

No other significant acquisition-related intangible activity or impairments occurred in the periods reported.

Amortization of acquisition-related intangible assets decreased in all periods presented due to certain intangible assets reaching the end of their useful lives.

No other significant acquisition-related intangible activity or impairments occurred between the periods.

Abandonment of Long-Lived Assets

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Accordingly, an expense of $73.9 million was recorded based upon an updated valuation of the property in connection with the preparation of our financial statements for the fiscal year ended June 27, 2021.

(Gain) loss on Disposal or Impairment of Other Assets

Loss (gain) on Disposal or Impairment of Other Assets

We operate a capital-intensive business.

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Due to the risk of technological obsolescence or changes in our production process, we regularly review our long-lived assets and capitalized patent costs for possible impairment.

(Gain) loss on disposal or impairment of other assets were as follows:

Loss (gain) on disposal or impairment of other assets were as follows:

Fiscal Years Ended Year-Over-Year Change

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Dollars) June 25, 2023 June 26, 2022 June 27, 2021 2022 to 2023 2021 to 2022

(Gain) loss on disposal or impairment of other assets ($0.3) $1.6 $1.5 ($1.9) (119) % $0.1 7 %

(Gain) loss on disposal or impairment of other assets primarily relate to proceeds from asset sales offset by write-offs of fixed asset projects, as well as the write-offs of impaired or abandoned patents.

Additionally, the gain on disposal or impairment of other assets for the fiscal year ended June 26, 2022 includes a $0.7 million net gain related to consideration received from the early payment of the unsecured promissory note issued by SGH at the closing of the LED Business Divestiture (the Purchase Price Note), as discussed in Note 3, "Discontinued Operations," in our consolidated financial statements included in Item 8 of this Annual Report.

Loss (gain) on disposal or impairment of other assets $2.0 ($0.3) $1.6 $2.3 (767) % ($1.9) (119) %

Loss (gain) on disposal or impairment of other assets primarily relate to proceeds from asset sales offset by write-offs of fixed asset projects, as well as the write-offs of impaired or abandoned patents.

Additionally, the gain on disposal or impairment of other assets for the fiscal year ended June 26, 2022 includes a $0.7 million net gain related to consideration received from the early payment of the unsecured promissory note (the Purchase Price Note) issued by SGH at the closing of the LED Business Divestiture (as defined below), as discussed in Note 3, "Discontinued Operations," in our consolidated financial statements included in Item 8 of this Annual Report.

Other Operating Expense

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Dollars) June 25, 2023 June 26, 2022 June 27, 2021 2022 to 2023 2021 to 2022

Factory optimization restructuring $6.1 $7.6 $8.5 ($1.5) (20) % ($0.9) (11) %

Severance and other restructuring 1.2 3.4 0.6 (2.2) (65) % 2.8 467 %

Total restructuring costs 7.3 11.0 9.1 (3.7) (34) % 1.9 21 %

Project, transformation and transaction costs 22.9 6.6 7.3 16.3 247 % (0.7) (10) %

Factory start-up costs 70.0 8.0 9.5 62.0 775 % (1.5) (16) %

Non-restructuring related executive severance — 2.8 2.1 (2.8) (100) % 0.7 33 %

Factory optimization restructuring costs — 6.1 7.6 (6.1) (100) % (1.5) (20) %

Severance costs 3.4 1.2 6.2 2.2 183 % (5.0) (81) %

Other operating expense $26.3 $13.9 $21.1 $12.4 89 % ($7.2) (34) %

Factory optimization restructuring costs relate to facility consolidations as well as disposals on certain long-lived assets.

Severance and other restructuring costs relate to corporate restructuring plans.

See Note 18, "Restructuring," in our consolidated financial statements included in Item 8 of this Annual Report for additional information on our restructuring costs.

Project, transformation and transaction costs primarily relate to professional services fees associated with completed and potential acquisitions and divestitures, as well as internal transformation programs focused on optimizing our administrative processes.

Factory start-up costs are start-up costs incurred as part of our factory optimization efforts to expand our production footprint to support expected growth.

Our factory optimization efforts began in fiscal 2019 and ended in fiscal 2022.

Additionally, we began incurring start-up costs related to the opening of a new Silicon Carbide device fabrication facility in Marcy, New York in the third quarter of fiscal 2022.

The increase in other operating expense in fiscal 2022 compared to fiscal 2021 was primarily due to increased factory start-up costs as we continued our expansion of a new Silicon Carbide device fabrication facility in Marcy, New York, partially offset by a decrease in total restructuring costs and non-restructuring related executive severance.

The decrease in other operating expense in fiscal 2021 compared to fiscal 2020 was primarily due to decreased project, transformation and transaction costs, partially offset by a slight increase in total restructuring costs.

Non-Operating Expense (Income), net

Non-operating expense (income), net was comprised of the following:

Factory optimization restructuring costs relate to our multi-year factory optimization restructuring plan, which was implemented in connection with our expansion activities between fiscal 2019 and fiscal 2022.

As part of the factory optimization restructuring plan, we incurred restructuring charges associated with the movement of equipment as well as disposals on certain long-lived assets.

The factory optimization restructuring plan concluded in fiscal 2022.

The increase in other operating expense in all periods is primarily due to increased professional service fees associated with completed and potential acquisitions and divestitures.

Non-Operating (Income) Expense, net

Non-operating (income) expense, net was comprised of the following:

Fiscal Years Ended Year-Over-Year Change

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Dollars) June 25, 2023 June 26, 2022 June 27, 2021 2022 to 2023 2021 to 2022

Gain on sale of investments, net ($0.3) ($0.4) ($1.5) $0.1 (25) % $1.1 73 %

Gain on equity investment — (8.3) (14.2) 8.3 100 % 5.9 42 %

Loss (gain) on debt extinguishment 24.8 — (11.0) 24.8 100 % 11.0 100 %

Gain on arbitration proceedings — — (7.9) — — % 7.9 100 %

Interest income ($58.2) ($11.8) ($10.1) ($46.4) 393 % ($1.7) (17) %

Interest expense 25.1 45.4 34.9 (20.3) (45) % 10.5 30 %

Other, net 0.5 (0.3) (2.5) 0.8 267 % 2.2 88 %

Non-operating expense (income), net $38.3 $26.3 ($18.5) $12.0 46 % $44.8 242 %

Gain on equity investment.

The gain on equity investment for fiscal 2021 and 2020 relates to changes in fair value of our previously held ENNOSTAR Inc.

(ENNOSTAR) investment.

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

We no longer hold any equity interest in ENNOSTAR.

Loss (gain) on debt extinguishment .

In the second quarter of fiscal 2022, all of our then-outstanding 2023 Notes were converted into shares of our common stock, which resulted in a loss on extinguishment of $24.8 million.

Additionally, in the fourth quarter of fiscal 2020, we recognized a gain on partial debt extinguishment as a result of spending $144.3 million to repurchase $150.2 million of the principal amount held on our previously held 2023 Notes.

See Note 10, "Long-term Debt," to our consolidated financial statements in Item 8 of this Annual Report for additional information.

Interest expense, net of capitalized interest 42.6 25.1 45.4 17.5 70 % (20.3) (45) %

Gain on arbitration proceedings (50.3) — — (50.3) (100) % — — %

The gain on arbitration proceedings primarily relates to an award from an arbitration proceeding in the third quarter of fiscal 2020 with a former vendor in which we were awarded damages for defective inventory.

Additionally, a small legal settlement was paid in the fourth quarter of fiscal 2020.

Loss on debt extinguishment — 24.8 — (24.8) (100) % 24.8 100 %

Gain on equity investment — — (8.3) — — % 8.3 100 %

Loss on Wafer Supply Agreement 13.6 0.8 0.8 12.8 1,600 % — — %

Gain on sale of investments, net — (0.3) (0.4) 0.3 100 % 0.1 25 %

Other, net 0.2 (0.3) (1.1) 0.5 167 % 0.8 73 %

Non-operating (income) expense, net ($52.1) $38.3 $26.3 ($90.4) (236) % $12.0 46 %

Interest income.

The increase in interest income in both periods was primarily driven by increased short-term investment balances, as well as increased returns on our short-term investments.

Our short-term investment balances increased significantly in the second quarter of fiscal 2023 resulting from the net proceeds we received from the sale of the 2029 Notes.

The increase in interest income in fiscal 2022 compared to fiscal 2021 was primarily due to interest income received on our previously held note receivable from SGH in connection with the LED Business Divestiture, partially offset by decreased investment returns from our short-term investment securities.

The decrease in interest income in fiscal 2021 compared to fiscal 2020 was primarily due to significant reductions in investment returns on our short-term investment securities.

Interest expense .

Interest expense, net of capitalized interest.

The increase in interest expense in fiscal 2023 compared to fiscal 2022 was primarily due to interest from our 2029 Notes and 2030 Senior Notes, which were not outstanding as of June 26, 2022.

This increase was partially offset by a decrease in interest expense from our 2028 Notes, primarily due to the adoption of ASU 2020-06, which eliminated interest expense relating to the accretion on discount in the current period.

In addition, an increase in interest expense from our 1.75% convertible senior notes due May 1, 2026 (the 2026 Notes), the interest of which was fully capitalized in fiscal 2022 but was almost fully expensed in fiscal 2023, was offset by a decrease in interest expense from our 0.875% convertible senior notes due September 1, 2023 (the 2023 Notes), which were extinguished in the second quarter of fiscal 2022.

The decrease in interest expense in fiscal 2022 compared to fiscal 2021 was primarily due to capitalizing interest on the 2026 Notes in connection with the building of our new silicon carbide device fabrication facility in New York, which we began capitalizing in the fourth quarter of fiscal 2021.

The decrease in interest expense resulting from the extinguishment of the 2023 Notes in the second quarter of fiscal 2022 was mostly offset by an increase in interest expense from the sale of the 2028 Notes in the third quarter of fiscal 2022.

The increase in interest expense in fiscal 2021 compared to fiscal 2020 was primarily due to the addition of the 2026 Notes on April 21, 2020, partially offset by a partial extinguishment of our then-outstanding 2023 Notes.

Other, net, primarily includes (i) foreign currency (gain) loss, net resulting from remeasurement adjustments from our international subsidiaries, (ii) net losses on the Wafer Supply Agreement entered into in fiscal 2021, pursuant to which we supply CreeLED with certain Silicon Carbide materials and fabrication services for up to four years, and (iii) a loss related to receiving an early payment for the Purchase Price Note.

See Note 2, "Discontinued Operations," in our consolidated financial statements included in Item 8 of this Annual Report for additional information on the Wafer Supply Agreement and the loss on early payment of the Purchase Price Note.

Income Tax Expense (Benefit)

Income tax expense (benefit) and our effective tax rate was as follows:

Gain on arbitration proceedings .

In the first quarter of fiscal 2023, we 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 the second quarter of fiscal 2023, a final payment was received.

The gain recognized is net of legal fees incurred.

Loss on debt extinguishment .

In the second quarter of fiscal 2022, all of our then-outstanding 2023 Notes were converted into shares of our common stock, which resulted in a loss on extinguishment of $24.8 million.

See Note 10, "Long-term Debt," to our consolidated financial statements in Item 8 of this Annual Report for additional information.

Gain on equity investment .

The gain on equity investment for fiscal 2021 relates to changes in fair value of our previously held ENNOSTAR Inc.

(ENNOSTAR) investment.

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

We no longer hold any equity interest in ENNOSTAR.

Loss on Wafer Supply Agreement .

In connection with the completed sale of our former LED Products business unit to SGH and its wholly owned subsidiary CreeLED, Inc.

(CreeLED and collectively with SGH, SMART) in fiscal 2021, we entered into a Wafer Supply and Fabrication Services Agreement (the Wafer Supply Agreement), pursuant to which we supply CreeLED with certain silicon carbide materials and fabrication services for up to four years.

We recognized a supply agreement liability in connection with this agreement, which reached full amortization in the second quarter of fiscal 2023.

We expect losses from this agreement to continue through December 2025.

Income Tax Expense

Income tax expense and our effective tax rate was as follows:

Fiscal Years Ended Year-Over-Year Change

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Dollars) June 25, 2023 June 26, 2022 June 27, 2021 2022 to 2023 2021 to 2022

Income tax expense (benefit) $9.0 $1.1 ($8.0) 7.9 718 % 9.1 114 %

Income tax expense $1.4 $9.0 $1.1 (7.6) (84) % 7.9 718 %

Effective tax rate — % (3) % — %

The change in the effective tax rate from 0% in fiscal 2021 to (3)% in fiscal 2022 was primarily due to $7.3 million of income tax expense recognized in the second quarter of fiscal 2022 related to the restructuring of our Luxembourg holding company.

This restructuring is discussed further in Note 14, "Income Taxes," to our consolidated financial statements included in Item 8 of this Annual Report.

The change in the effective tax rate from 4% in fiscal 2020 to 0% in fiscal 2021 was primarily due to the increased tax benefit recorded in fiscal 2020 related to net operating loss provisions of the Coronavirus Aid, Relief, and Economic Security Act.

The change in the effective tax rate from (3)% in fiscal 2022 as compared to 0% in fiscal 2023 and fiscal 2021 was primarily due to $7.3 million of income tax expense recognized in the second quarter of fiscal 2022 related to the restructuring of our Luxembourg holding company.

In general, the variation between our effective income tax rate and the current U.S.

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Net Loss from Discontinued Operations

As discussed above, we have classified the results of our former LED Products segment as discontinued operations in our consolidated statements of operations for all periods presented.

We have classified the results of our former LED Products segment (the LED Business) as discontinued operations in our consolidated statements of operations for all periods presented.

We ceased recording depreciation and amortization of long-lived assets of the LED Business upon classification as discontinued operations in October 2020.

We recorded net income from discontinued operations of $94.2 million, net loss from discontinued operations of $181.2 million and net income from discontinued operations of $7.0 million in fiscal 2022, 2021 and 2020, respectively.

Net income from discontinued operations in fiscal 2022 relates to the receipt of an unsecured promissory note from CreeLED as additional consideration to satisfy the earnout obligations pursuant to the Asset Purchase Agreement (the LED Purchase Agreement), dated October 18, 2020, as amended.

The additional consideration was based upon the revenue and gross profit performance of the LED Business in the first four full fiscal quarters following the closing.

Net loss from discontinued operations in fiscal 2021 includes a $112.6 million goodwill impairment, a $19.5 million impairment to assets held for sale associated with the LED Business Divestiture and a $29.1 million loss on sale.

Additionally, total costs to sell of $27.4 million were recognized throughout fiscal 2021 and fiscal 2020 and are included in net (loss) income from discontinued operations for those periods.

We recorded net income from discontinued operations of $94.2 million and net loss from discontinued operations of $181.2 million in fiscal 2022 and 2021, respectively.

Net income from discontinued operations in fiscal 2022 related to the receipt of an unsecured promissory note from CreeLED as additional consideration to satisfy the earnout obligations pursuant to the Asset Purchase Agreement (the LED Purchase Agreement), dated October 18, 2020, as amended.

The additional consideration was based upon the revenue and gross profit performance of the LED Products Business in the first four full fiscal quarters following the closing.

Net loss from discontinued operations in fiscal 2021 included a $112.6 million goodwill impairment, a $19.5 million impairment to assets held for sale associated with the LED Business Divestiture and a $29.1 million loss on sale.

Liquidity and Capital Resources

We require cash to fund our operating expenses and working capital requirements, including the purchase of goods and services in the ordinary course of business such as raw materials, supplies and capital equipment, as well as outlays for research and development, strategic acquisitions and investments.

Our principal sources of liquidity are cash on hand, marketable securities and, as described further below, availability under our line of credit.

Based on past performance and current expectations, we believe our current working capital, availability under our line of credit and anticipated cash flows from operations will be adequate to meet our cash needs for our daily operations and capital expenditures for at least the next 12 months.

With the strength of our working capital position, we believe that we have the ability to continue to invest in expansion of our production capacity, further development of our products and, when necessary or appropriate, make selective acquisitions or other strategic investments to strengthen our product portfolio or secure key intellectual properties.

Our principal sources of liquidity are cash on hand, marketable securities and our ability to issue additional 2030 Senior Notes, subject to certain conditions precedent, as discussed in Note 10, "Long-term Debt," to our consolidated financial statements in Item 8 of this Annual Report.

Based on past performance and current expectations, we believe our current working capital and anticipated cash flows from operations will be adequate to meet our cash needs for our daily operations and capital expenditures for at least the next 12 months.

With the strength of our working capital position, we believe that we have the ability to continue to invest in the near-term expansion of our production capacity, further develop our product portfolio and, when necessary or appropriate, make selective acquisitions or other strategic investments to strengthen our product portfolio or secure key intellectual properties.

However, even with our strong working capital position, we expect to need additional funding to fully complete all of our intended capacity expansions.

Sources of Liquidity

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Total cash, cash equivalents and short-term investments $2,954.9 $1,198.8 $1,756.1

The significant components of our working capital are liquid assets such as cash and cash equivalents, short-term investments, accounts receivable and inventories reduced by trade accounts payable.

In the third quarter of fiscal 2021, we implemented an at-the-market program (the ATM program) in which we sold 4,222,511 shares of our common stock at a weighted average price of $118.41 per share 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 of the program and $0.9 million in other offering costs.

In the fourth quarter of fiscal 2021, we liquidated our common stock ownership interest in ENNOSTAR and received net proceeds of $66.4 million.

The significant components of our working capital are liquid assets such as cash and cash equivalents, short-term investments, accounts receivable and inventories reduced by accounts payable and accrued expenses.

In the second quarter of fiscal 2022, all outstanding 2023 Notes were surrendered for conversion following our issuance on December 8, 2021 of a notice to holders of the 2023 Notes calling for the redemption of all outstanding 2023 Notes, resulting in the settlement of the previously outstanding $424.8 million aggregate principal amount of 2023 Notes in approximately 7.1 million shares of our common stock.

In the third quarter of fiscal 2022, we issued and sold a total of $750.0 million aggregate principal amount of the 2028 Notes, as discussed in Note 10, “Long-term Debt,” in our consolidated financial statements included in Item 8 of this Annual Report.

The total net proceeds of the 2028 Notes was $732.3 million, of which we used $108.2 million to fund the cost of entering into capped call transactions, which are expected generally to reduce the potential dilution to our common stock upon any conversion of the 2028 Notes and/or offset any potential cash payments we are required to make in excess of the principal amount of the converted 2028 Notes, as the case may be, upon conversion of the 2028 Notes.

We expect to use the remainder of the net proceeds for general corporate purposes.

In addition, during the third quarter of 2022, we received an early payment for the Purchase Price Note resulting in receipt of the principal amount of $125.0 million along with outstanding accrued and unpaid interest as of the payment date.

We have a $125 million line of credit as discussed in Note 10, “Long-term Debt,” in our consolidated financial statements included in Item 8 of this Annual Report, all of which was available for borrowing as of June 26, 2022.

The purpose of this credit facility is to provide short-term flexibility to optimize returns on our cash and investment portfolio while funding capital expenditures and other general business needs.

On January 25, 2022, we entered into an amendment to the credit agreement governing the line of credit that extends the maturity date by three years to January 9, 2026 and adopted secured overnight financing rate (SOFR) interest rates as the benchmark interest rate under the credit agreement.

In the third quarter of fiscal 2022, we issued and sold a total of $750.0 million aggregate principal amount of 2028 Notes, as discussed in Note 10, "Long-term Debt," to our consolidated financial statements in Item 8 of this Annual Report.

The total net proceeds of the 2028 Notes was $732.3 million, of which we used $108.2 million to fund the cost of entering into capped call transactions.

In the second quarter of fiscal 2023, we issued and sold a total of $1,750.0 million aggregate principal amount of 2029 Notes, as discussed in Note 10, "Long-term Debt," to our consolidated financial statements in Item 8 of this Annual Report.

The total net proceeds of the 2029 Notes was $1,718.6 million, of which we used $273.9 million to fund the cost of entering into capped call transactions.

In the fourth quarter of fiscal 2023, we sold $1,250 million aggregate principal amount of 2030 Senior Notes, as discussed in Note 10, "Long-term Debt," to our consolidated financial statements in Item 8 of this Annual Report.

The total net proceeds of the 2030 Senior Notes was approximately $1,149.3 million.

We expect to use the net proceeds for general corporate purposes.

In connection with the sale of our 2030 Senior Notes, we terminated the $125.0 million secured revolving line of credit under which we were able to borrow, repay and reborrow loans from time to time prior to its scheduled maturity date of January 9, 2026.

In addition, we received early payments on two unsecured promissory notes issued to us in connection with the sale of certain assets and subsidiaries comprising the LED Business to SMART on March 1, 2021 (the LED Business Divestiture).

In the third quarter of fiscal 2022, we received an early payment in the amount of $125.0 million, along with outstanding accrued and unpaid interest as of the payment date, relating to the unsecured promissory note issued with the completion of the transaction.

In the first quarter of fiscal 2023, we received an early payment in the amount of $101.8 million in connection with the unsecured promissory note issued in the fourth quarter of fiscal 2022 as an earn-out payment.

As of June 25, 2023, we had unrealized losses on our short-term investments of $22.7 million.

All of our short-term investments had investment grade ratings, and any such investments that were in an unrealized loss position at June 26, 2022 were in such position due to interest rate changes, sector credit rating changes, company-specific rating changes or volatile market conditions related to the conflict in Ukraine and the ongoing COVID-19 pandemic.

All of our short-term investments had investment grade ratings, and any such investments that were in an unrealized loss position at June 25, 2023 were in such position due to interest rate changes, sector credit rating changes or company-specific rating changes.

We evaluate our short-term investments for expected credit losses.

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From time to time, we evaluate strategic opportunities, including potential acquisitions, joint ventures, divestitures, spin-offs or investments in complementary businesses, and we have continued to make such evaluations.

For example, in March 2021 we completed the LED Business Divestiture, which provided us with (i) $50 million in cash, subject to customary adjustments, (ii) a $125 million unsecured promissory note due in August 2023 (which amount plus accrued and unpaid interest was prepaid during the third quarter of 2022), and (iii) an earn-out payment of $101.8 million based on the revenue and gross profit performance of the LED Business in the first four full fiscal quarters following the closing, which is payable in the form of an unsecured promissory note due March 2025.

We may also access capital markets through the issuance of debt or equity, which we may use in connection with the acquisition of complementary businesses or other significant assets or for other strategic opportunities or general corporate purposes.

Expected Uses of Liquidity

For fiscal 2023, we target approximately $550 million of net capital investment, which is primarily related to capacity and infrastructure projects to support longer-term growth and strategic priorities.

We are exploring additional expansion options and will update targeted net capital investment if and when those capacity expansion options are announced.

This target is highly dependent on the timing and overall progress on our new Silicon Carbide fabrication facility in New York and is net of approximately $275 million of expected reimbursements from the State of New York Urban Development Corporation under the GDA during the fiscal year.

We recently opened our new silicon carbide device fabrication facility in Marcy, New York, to expand capacity for production of our silicon carbide devices.

We expect to invest approximately $2.0 billion, an increase from our previously expected $1.0 billion, in construction, equipment and other related costs for the new facility through fiscal 2024, of which approximately $500 million is expected to be reimbursed over time by the State of New York through a grant program administered by the State of New York Urban Development Corporation (doing business as Empire State Development).

The increase is primarily due to capacity expansions now planned at the site as a result of increased projected demand.

As of June 26, 2022, we have spent approximately $750 million and received approximately $150 million in reimbursements.

Given our current cash position, we believe we are positioned to adequately fund the remaining construction of the facility.

We now expect to invest approximately $2.0 billion in construction, equipment and other related costs for the new facility, of which approximately $500 million is expected to be reimbursed over time by the State of New York Urban Development Corporation (doing business as Empire State Development) under a Grant Disbursement Agreement (the GDA).

As of June 25, 2023, we have spent approximately $900 million and received $305.2 million in reimbursements.

Additionally, we recently started construction on a new materials manufacturing facility in Siler City, North Carolina.

Through fiscal 2024, we expect to invest approximately $1.3 billion in construction, equipment and other related costs for the new facility, net of estimated refundable federal investment tax credits and capital grants we expect to receive through the CHIPS Act.

The timing and amount of these estimated CHIPS Act incentives is uncertain and could happen after fiscal 2024.

In addition, the facility is also further supported by an approximately $1.0 billion long-term incentive package from state, county and local governments, primarily in the form of property tax reimbursements and sales tax exemptions.

We also recently announced the intention to build a highly automated, cutting-edge wafer fabrication facility in Saarland, Germany.

We expect to invest approximately $3.5 billion in construction, equipment and other related costs for the new facility, with the vast majority of such investment occurring after fiscal 2024.

For fiscal 2024, we target approximately $2.0 billion of net capital investment, which is primarily related to capacity and infrastructure projects to support longer-term growth and strategic priorities.

This target is highly dependent on the timing and overall progress on our new silicon carbide fabrication facility in New York and the construction of our new materials manufacturing facility in Siler City, North Carolina.

Our target net capital investment figure is net of approximately $150 million of expected reimbursements from the GDA during the fiscal year.

For more details on the GDA, see Note 15, "Commitments and Contingencies," in our consolidated financial statements included in Item 8 of this Annual Report.

In addition, we may also apply for and potentially sell tax credits as part of the Inflation Reduction Act to further fund our expansion initiatives.

We have a take-or-pay supplier agreement that requires a minimum of $200 million of purchases over the next five years, as outlined further in Note 15, "Commitments and Contingencies," to our consolidated financial statements in Item 8 of this Annual Report.

Given our current cash position, we believe we will be able to fund daily operations for at least the next 12 months but we expect to need additional funding to fully complete all of our previously announced planned expansion initiatives described above.

We may seek to obtain funding through, among other avenues, government funding in both the United States or Europe, public or private equity offerings and debt financings (which may involve retiring some of our existing debt).

In addition to ordinary operating expenses, our estimated future obligations consist of leases, debt, and interest on long-term debt.

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Cash Flows from Operating Activities

Net cash used in operating activities decreased in fiscal 2023 compared to fiscal 2022 primarily due to a smaller increase in working capital in the current period compared to the prior period, which was primarily driven by increased customer reserve deposits received and a smaller increase in accounts receivable, net, both of which offset increased inventory growth.

This was partially offset by an increase in net loss during the period.

Net cash used in operating activities increased in fiscal 2022 compared to fiscal 2021 primarily due to decreased working capital as a result of inventory growth and increased receivables as a result of revenue growth.

Net cash used in operating activities increased in fiscal 2021 compared to fiscal 2020 primarily due to an increase in net loss during the period and decreased cash provided by operating activities of discontinued operations, as well as slightly decreased working capital.

Total cash flows from operating activities in fiscal 2021 and 2020 includes ($13.0) million and $62.6 million of cash (used in) provided by operating activities of discontinued operations.

Total cash flows from operating activities in fiscal 2021 includes $13.0 million of cash used in operating activities of discontinued operations.

Cash Flows from Investing Activities

Our investing activities primarily relate to short-term investment transactions, purchases of property and equipment, and property and equipment related reimbursements.

The decrease in net cash used in investing activities in fiscal 2022 compared to fiscal 2021 was primarily due to a $128.3 million increase in property and equipment related reimbursements from the State of New York Urban Development Corporation under a Grant Disbursement Agreement (the GDA) and a $81.3 million net increase in proceeds from the LED Business Divestiture.

These increases in proceeds from investing activities were partially offset by a $74.4 million increase in purchases of property and equipment and a $12.5 million decrease in net proceeds from short-term investments.

The increase in net cash used in investing activities in fiscal 2023 compared to fiscal 2022 was primarily due to an increase in net purchases of short-term investments of $436.2 million and an increase in net property and equipment purchases of $294.4 million.

The decrease in net cash used in investing activities in fiscal 2022 compared to fiscal 2021 was primarily due to a $53.9 million decrease in net property and equipment purchases and a $81.3 million net increase in proceeds from the LED Business Divestiture, partially offset by a $12.5 million increase in net purchases of short-term investments.

Additionally, we received $66.4 million in net proceeds from the liquidation of our ENNOSTAR equity investment in fiscal 2021.

The decrease in net cash used in investing activities in fiscal 2021 compared to fiscal 2020 was primarily due to an increase in net proceeds from short-term investments of $247.8 million, net proceeds from the sale of the LED Business of $43.7 million, net proceeds from the liquidation of our ENNOSTAR equity investment of $66.4 million and $10.7 million of property related reimbursements under the GDA, partially offset by an increase in property and equipment purchases of $340.6 million.

For more details on the GDA, see Note 15, "Commitments and Contingencies," in our consolidated financial statements included in Item 8 of this Annual Report.

Total cash used in investing activities in fiscal 2021 and 2020 includes $0.3 million and $12.4 million, respectively, of cash used in investing activities of discontinued operations.

Total cash used in investing activities in fiscal 2021 includes $0.3 million of cash used in investing activities of discontinued operations.

Cash Flows from Financing Activities

Net cash provided by financing activities in fiscal 2022 primarily consisted of $732.3 million in net proceeds from issuing the 2028 Notes and $22.4 million of proceeds from the issuance of common stock, partially offset by $108.2 million in cash paid for the capped call transactions and $29.1 million in tax withholdings on vested equity awards.

Net cash provided by financing activities in fiscal 2021 primarily consisted of net proceeds of $503.5 million from issuances of common stock in connection with the ATM program in the third quarter of fiscal 2021 and issuances of common stock pursuant to the exercise of employee stock options.

Net cash provided by financing activities in fiscal 2020 primarily consisted of proceeds of $575.0 million from the issuance of the 2026 Notes and net proceeds of $59.5 million from issuances of common stock pursuant to the exercise of employee stock options, partially offset by payments on long-term debt of $145.1 million, the payment of $13.6 million in debt issuance costs from the issuance of the 2026 Notes and incentive-related refundable escrow deposits of $11.5 million relating to the construction of our new Silicon Carbide fabrication facility in New York.

Net cash provided by financing activities in fiscal 2023 primarily consisted of $2.9 billion in net proceeds from issuing the 2029 Notes and the 2030 Senior Notes, partially offset by $273.9 million in cash paid for the capped call transactions in connection with issuing the 2029 Notes.

Net cash provided by financing activities in fiscal 2022 primarily consisted of $732.3 million in net proceeds from issuing the 2028 Notes, partially offset by $108.2 million in cash paid for the capped call transactions.

Net cash provided by financing activities in fiscal 2021 primarily consisted of net proceeds of $503.5 million from issuances of common stock in connection with an at-the-market program in the third quarter of fiscal 2021 and issuances of common stock pursuant to the exercise of employee stock options.

Financial and Market Risks

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If interest rates were to hypothetically increase by 100 basis points, the fair value of our short-term investments would decrease by $14.6 million at June 25, 2023 and $9.9 million at June 26, 2022.

Additionally, as part of the completed LED Business Divestiture, we hold a $101.8 million unsecured promissory note due in March 2025, which was received as an earnout payment.

The promissory note bears interest at the London Interbank Offered Rate (LIBOR) plus 3%.

A hypothetical increase in interest rates by 100 basis points would result in an immaterial impact to interest income as of June 26, 2022.

As of June 26, 2022, we maintain a secured revolving line of credit under which we can borrow, repay and reborrow loans from time to time prior to its scheduled maturity date of January 9, 2026.

As of June 26, 2022 and June 27, 2021, no balances were outstanding under the line of credit.

Currency Rate and Price Risk

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This arrangement is often referred to as a “sell-in” or “point-of-purchase” model as opposed to a “sell-through” or “point-of-sale” model, where revenue is deferred and not recognized until the distributor sells the product through to their customer.

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

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

When determining our net revenue, we make significant judgments and estimates corresponding with product shipments.

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Any adjustment to our inventories as a result of an estimated obsolescence or net realizable condition is reflected as a component of our cost of revenue.

At the point of the loss recognition, a new, lower-cost basis for that inventory is established, and any subsequent improvements in facts and circumstances do not result in the restoration or increase in that newly established lower-cost basis.

In order to determine what costs can be included in the valuation of inventories, we determine normal capacity for our manufacturing facilities based on historical patterns.

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If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be required to recognize additional impairment losses which could be material to our results of operations.

For example, we recognized an impairment to assets held for sale associated with the LED Business Divestiture of $19.5 million during the second fiscal quarter of 2021.

After an impairment loss is recognized, a new, lower cost basis for that long-lived asset is established.

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Reporting units, as defined by FASB ASC 350, “Intangibles - Goodwill and Other,” may be operating segments as a whole or an operation one level below an operating segment, referred to as a component.

We have determined that we operate as one operating and reportable seg ment.

We have determined that we have one reporting unit.

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

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Quantitative and Qualitative Disclosures About Market Risk

See the section entitled “Financial and Market Risks” included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Annual Report.

See the section entitled “Financial and Market Risks” included in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report.

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 7. Management’s Discussion and Analysis