What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-08-23 compared with 2022-08-22 · 343 added, 322 removed, 1107 unchanged (38% of the section changed)

12 unchanged sentences

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”).

and its subsidiaries (the “Company”) as of June 25, 2023 and June 26, 2022, and the related consolidated statements of operations, comprehensive loss, shareholders' equity and cash flows for each of the three years in the period ended June 25, 2023, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of June 25, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

1 unchanged sentence

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 25, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases on July 1, 2019.

Changes in Accounting Principle

As discussed in Note 10 to the consolidated financial statements, the Company changed the manner in which it accounts for convertible debt on June 27, 2022.

Basis for Opinions

23 unchanged sentences

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 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.

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.

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

Distributor sales approximate a third of total net revenue of $921.9 million for the year ended June 25, 2023.

Management makes estimates of changes in selling prices when the corresponding product ships.

These estimates are calculated based upon historical experience, product shipment analysis, current economic conditions, on-hand inventory at the distributor, and customer contractual arrangements.

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

The associated reserves for ship and debit program to distributors make up a significant portion of the accrued contract liabilities account balance of $43.0 million.

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 high degree of auditor effort in performing procedures and evaluating management’s significant assumptions related to current economic conditions, historical experience and on-hand inventory at the distributor.

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 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.

These procedures included testing the effectiveness of controls relating to management’s estimate of the reserves for the ship and debit program.

These procedures also included, among others (i) testing management’s process for determining the estimate for ship and debit reserve, (ii) testing the completeness and accuracy of data inputs to the ship and debit reserve calculation, and (iii) evaluating the reasonableness of the significant assumptions used by management related to current economic conditions, historical experience and on-hand inventory at the distributor.

Evaluating management’s significant assumptions related to current economic conditions, historical experience and on-hand inventory at the distributor involved evaluating whether the significant assumptions used by management were reasonable considering management’s historical claim experience and whether the assumptions were consistent with evidence obtained in other areas of the audit.

/s/ PricewaterhouseCoopers LLP

24 unchanged sentences

Other assets 309.9 83.7

Long-term assets of discontinued operations — 1.2

Total assets $ 6,586.7 $ 3,917.5

6 unchanged sentences

Other current liabilities 37.9 31.7

Current liabilities of discontinued operations — 0.6

Total current liabilities 627.9 388.5

Long-term liabilities:

Long-term debt 1,149.5 —

Convertible notes, net 3,025.6 1,021.6

2 unchanged sentences

Other long-term liabilities 148.7 55.3

Long-term liabilities of discontinued operations — 0.6

Total long-term liabilities 4,336.9 1,089.7

8 unchanged sentences

Additional paid-in-capital 3,711.0 4,228.4

Accumulated other comprehensive (loss) income ( 25.3 ) 2.7

Accumulated other comprehensive loss ( 25.1 ) ( 25.3 )

Accumulated deficit ( 2,064.2 ) ( 1,764.0 )

14 unchanged sentences

Sales, general and administrative 235.3 203.5 181.6

Factory start-up costs 160.2 70.0 8.0

Amortization or impairment of acquisition-related intangibles 10.9 13.6 14.5

Abandonment of long-lived assets — — 73.9

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

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

Other operating expense 26.3 13.9 21.1

Operating loss ( 380.6 ) ( 247.8 ) ( 313.9 )

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

Non-operating (income) expense, net ( 52.1 ) 38.3 26.3

Loss before income taxes ( 328.5 ) ( 286.1 ) ( 340.2 )

Income tax expense (benefit) 9.0 1.1 ( 8.0 )

Income tax expense 1.4 9.0 1.1

Net loss from continuing operations ( 329.9 ) ( 295.1 ) ( 341.3 )

16 unchanged sentences

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

Net unrealized (loss) gain on available-for-sale securities ( 28.0 ) ( 3.8 ) 6.5

Net unrealized gain (loss) on available-for-sale securities 0.2 ( 28.0 ) ( 3.8 )

Comprehensive loss ( 329.7 ) ( 228.9 ) ( 535.8 )

11 unchanged sentences

Net loss from continuing operations ( 329.9 ) ( 295.1 ) ( 341.3 )

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

Adjustments to reconcile net loss to cash used in operating activities:

Depreciation and amortization 164.0 129.8 120.9

Amortization of debt issuance costs and discount, net of non-cash capitalized interest 7.5 20.1 32.8

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

Loss on extinguishment of debt — 24.8 —

Stock-based compensation 81.9 60.9 53.2

Abandonment of long-lived assets — — 73.9

Loss on disposal or impairment of long-lived assets 1.0 5.0 4.5

Amortization of premium/discount on investments 6.1 6.9 1.7

Loss on disposal or impairment of long-lived assets, including loss on disposal portion of factory optimization and start-up costs 3.8 1.0 5.0

Amortization of (premium) discount on investments, net ( 4.7 ) 6.1 6.9

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

10 unchanged sentences

Net cash used in operating activities of continuing operations ( 142.6 ) ( 154.2 ) ( 112.5 )

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

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

Cash used in operating activities ( 142.6 ) ( 154.2 ) ( 125.5 )

7 unchanged sentences

Reimbursement of property and equipment purchases from long-term incentive agreement 155.5 139.0 10.7

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

Proceeds from sale of business resulting from the receipt of transaction related note receivable 101.8 125.0 43.7

Proceeds from sale of long-term investment — — 66.4

4 unchanged sentences

Proceeds from long-term debt borrowings 1,200.0 20.0 30.0

Payments on long-term debt borrowings, including finance lease obligations ( 20.5 ) ( 30.4 ) ( 145.1 )

Proceeds from issuance of common stock 22.4 539.7 76.4

Tax withholding on vested equity awards ( 29.1 ) ( 36.2 ) ( 16.9 )

Proceeds from convertible notes 1,750.0 750.0 —

1 unchanged sentence

Cash paid for capped call transactions ( 273.9 ) ( 108.2 ) —

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

Proceeds from issuance of common stock 23.8 22.4 539.7

Tax withholding on vested equity awards ( 19.2 ) ( 29.1 ) ( 36.2 )

Payments on long-term debt borrowings, including finance lease obligations ( 0.5 ) ( 20.5 ) ( 30.4 )

Incentive-related escrow refunds — — 1.5

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

12 unchanged sentences

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

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

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

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

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

Exercise of stock options and issuance of shares 2,660 — 76.4 — — 76.4 — 76.4

Issuance of convertible notes due May 1, 2026 — — 145.4 — — 145.4 — 145.4

Partial extinguishment of convertible notes due September 1, 2023 — — ( 27.7 ) — — ( 27.7 ) — ( 27.7 )

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

Net (loss) 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 )

6 unchanged sentences

Unrealized loss on available-for-sale securities — — — — ( 28.0 ) ( 28.0 ) — ( 28.0 )

Comprehensive loss ( 228.9 ) — ( 228.9 )

Tax withholding on vested equity awards — — ( 29.1 ) — — ( 29.1 ) — ( 29.1 )

5 unchanged sentences

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

Net loss — — — ( 329.9 ) — ( 329.9 ) — ( 329.9 )

Unrealized gain on available-for-sale securities — — — — 0.2 0.2 — 0.2

Tax withholding on vested equity awards — — ( 19.2 ) — — ( 19.2 ) — ( 19.2 )

Stock-based compensation — — 84.9 — 84.9 — 84.9

Exercise of stock options and issuance of shares 999 — 23.8 — — 23.8 — 23.8

Adoption of ASU 2020-06 — — ( 333.0 ) 29.7 — ( 303.3 ) — ( 303.3 )

Capped call transactions related to the issuance of convertible notes due December 1, 2029 — — ( 273.9 ) — — ( 273.9 ) — ( 273.9 )

Balance at June 25, 2023 124,794 $ 0.2 $ 3,711.0 ($ 2,064.2 ) ($ 25.1 ) $ 1,621.9 $ — $ 1,621.9

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

13 unchanged sentences

Concentrations of Credit Risk

Retirement Savings Plan

Restructuring

Subsequent Events

1 unchanged sentence

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) 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 (the LED Business Divestiture) to SMART Global Holdings, Inc.

(SGH) and its wholly owned newly-created acquisition subsidiary CreeLED, Inc.

(CreeLED and collectively with SGH, SMART).

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

As discussed more fully below in Note 17, “Subsequent Events,” on August 22, 2023, the Company entered into a definitive agreement to sell certain assets and subsidiaries comprising its RF products lines.

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.

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

to Wolfspeed, Inc.

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.

21 unchanged sentences

Actual results could differ materially from those estimates.

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

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

12 unchanged sentences

Allowance for Doubtful Accounts

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

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

GAAP with a methodology that reflects expected credit losses.

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

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

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.

6 unchanged sentences

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.

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.

1 unchanged sentence

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

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 year ended June 28, 2020, the Company had no other-than-temporary declines below the cost basis of its investments.

For the fiscal years ended June 25, 2023, June 26, 2022 and June 27, 2021, no allowance for credit losses was recorded.

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

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

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

Unrealized gains and losses are included as a separate component of equity, net of tax, unless the Company determines there is an expected credit loss.

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.

4 unchanged sentences

These write-downs are recognized as a component of cost of revenue.

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

If that inventory is subsequently sold, the sale is recorded at the actual selling price and the related cost of revenue is recorded at the new lower cost basis.

Property and Equipment

6 unchanged sentences

Vehicles 5 years

Computer hardware/software 3 years

Computer hardware/software 3 to 5 years

Leasehold improvements Shorter of estimated useful life or lease term

4 unchanged sentences

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

Government Grant Disbursements

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

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

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

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

Government Assistance Programs and Incentives

The Company receives, or expects to receive in the future, various types of government assistance, primarily in the form of grants, refundable tax credits, property tax reimbursements and sales tax exemptions.

Government assistance is recognized when there is reasonable assurance that:

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

Government assistance related to reimbursing fixed asset purchases, such as reimbursement grants and refundable federal investment tax credits, are recorded as a reduction to the related asset(s), which then reduces depreciation expense over the expected useful life of the asset on a straight-line basis.

Silicon Carbide Device Facility in Marcy, New York

The Company receives government grants from the State of New York Urban Development Corporation to partially or fully reimburse the Company for certain property, plant and equipment purchases in connection with its construction of a new silicon carbide device fabrication facility in Marcy, New York.

To receive these grants, the Company must comply with a number of objectives outlined in the related grant disbursement agreement, as outlined in Note 15, "Commitments and Contingencies".

Grant amounts already received are subject to clawback provisions if the Company does not satisfy the agreement's outlined objectives.

As of June 25, 2023, the Company has reduced property and equipment, net by $ 399.1 million as a result of expected and received reimbursements from the State of New York Urban Development Corporation, of which $ 305.2 million has been received in cash and an additional $ 93.9 million in receivables are recorded in other current assets and in other assets in the consolidated balance sheet.

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

Manufacturing Facility in Siler City, North Carolina

In connection with the construction of a planned materials manufacturing facility in Siler City, North Carolina, the Company expects to receive a long-term incentive package from state, county and local governments, primarily in the form of property tax reimbursements and sales tax exemptions on purchased machinery and equipment.

In order to receive property tax reimbursements, the Company is required to comply with investment and job targets.

The facility is under construction and the Company anticipates beginning to recognize incentives starting in fiscal 2024.

CHIPS and Science Act of 2022 (the CHIPS Act)

The Company expects to receive refundable federal investment tax credits and capital grants through the CHIPS Act in connection with ongoing expansion projects.

As of June 25, 2023, the Company has reduced property and equipment, net by $ 167.4 million as a result of expected refundable tax credits in connection with the CHIPS Act.

Shipping and Handling Costs

28 unchanged sentences

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 seven to 15 years.

The Company is currently amortizing its acquired intangible assets with finite lives over periods ranging from 10 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.

26 unchanged sentences

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

Master supply or distributor agreements are in place with many of the Company's customers and contain terms and conditions including, but not limited to, payment, delivery, incentives and warranty.

Master supply or distributor agreements are in place with some of the Company's customers and contain terms and conditions including, but not limited to, payment, delivery, incentives and warranty.

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

19 unchanged sentences

Generally, the Company will recognize non-refundable upfront licensing fees related to patent licenses immediately upon receipt of the funds if the Company has no significant future obligations to perform under the arrangement.

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

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

At lease inception, the Company determines an arrangement is a lease if the contract involves the use of a distinct identified asset, the lessor does not have substantive substitution rights and the 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.

3 unchanged sentences

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

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.

Accounting for Leases as a Lessee

16 unchanged sentences

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.

Accounting for Leases as a Lessor

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

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

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

2 unchanged sentences

Advertising costs are included in sales, general and administrative expenses in the consolidated statements of operations and amounted to approximately $ 11.5 million, $ 7.5 million, and $ 5.1 million for the years ended June 25, 2023, June 26, 2022 and June 27, 2021, respectively.

Retirement Savings Plan

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

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

Under the 401(k) Plan, there is no fixed dollar amount of retirement benefits;

rather, the Company matches a defined percentage of employee deferrals, and employees vest in these matching funds over time.

Employees choose their investment elections from a list of available investment options.

During the fiscal years ended June 25, 2023, June 26, 2022 and June 27, 2021, the Company contributed approximately $ 12.3 million, $ 10.3 million and $ 8.0 million to the 401(k) Plan, respectively.

The Pension Benefit Guaranty Corporation does not insure the 401(k) Plan.

Research and Development

1 unchanged sentence

Research and development activities are expensed when incurred.

Loss Per Share

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

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

Earnings/Loss Per Share

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

Diluted earnings per share is determined in the same manner as basic earnings/loss per share except that the impacts from interest expense and dividends on net income/loss are removed and the number of shares is increased to assume exercise of potentially dilutive stock options, nonvested restricted stock, contingently issuable shares using the treasury stock method and the potential issuance of shares in connection with the Company's convertible notes, unless the effect of such increases would be anti-dilutive.

Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits that would be recognized in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares.

Stock-Based Compensation

The Company recognizes compensation expense for all share-based payments granted based on the fair value of the shares on the date of grant.

Compensation expense is then recognized over the award’s vesting period.

The Company accounts for its employee stock-based compensation plans using the fair value method.

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

The Company’s stock-based awards can be either service-based or performance-based.

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

For service-based restricted stock units (RSUs) and performance-based RSUs (commonly referred to as PSUs) 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.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of the Company’s Employee Stock Purchase Plan (ESPP) awards.

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

These variables include the expected stock price volatility over the term of the awards, 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.

Stock-based compensation expense is recognized net of estimated forfeitures such that expense is recognized only for those stock-based awards that are expected to vest.

A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates.

See Note 13, "Stock-based Compensation," for more information about the Company's stock-based compensation plans.

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.

6 unchanged sentences

Foreign Currency Translation

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.

All of the Company's operations have a U.S.

Dollar functional currency 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.

7 unchanged sentences

Cash paid for interest was $ 29.5 million, $ 13.1 million, and $ 14.1 million for the fiscal years ended June 25, 2023, June 26, 2022 and June 27, 2021, respectively.

Cash paid for taxes, net of refunds received, was $ 4.4 million, $ 11.0 million and $ 3.6 million for the fiscal years ended June 26, 2022, June 27, 2021 and June 28, 2020, respectively.

Cash paid (received) for taxes, net of refunds received, was $ 2.9 million, $( 4.4 ) million and $ 11.0 million for the fiscal years ended June 25, 2023, June 26, 2022 and June 27, 2021, respectively.

Recently Adopted Accounting Pronouncements

Recently Issued Accounting Pronouncements Pending Adoption

Convertible Debt Instruments

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).

In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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.

1 unchanged sentence

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

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

The Company 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.

The Company adopted this standard on June 27, 2022, the first day of its 2023 fiscal year, under the modified retrospective approach.

The adoption resulted in (i) a reduction of additional paid in capital by $ 333.0 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 $ 277.9 million as a result of removing previously recorded debt discounts, (iii) a decrease in property, plant and equipment for previously capitalized non-cash interest of $ 25.4 million and (iv) a decrease to beginning accumulated deficit as of June 27, 2022 of $ 29.7 million to recognize the cumulative gain on adoption.

The Company did not 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.

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

This standard requires 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;

1 unchanged sentence

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.

The Company adopted this standard on June 27, 2022 under the prospective approach.

Recently Issued Accounting Pronouncements Pending Adoption

Note 3 – Discontinued Operations

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.

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 subsidiary CreeLED, Inc.

(CreeLED and collectively with SGH, SMART) (the LED Business Divestiture) pursuant to the terms of the Asset Purchase Agreement (the LED Purchase Agreement), dated October 18, 2020, as amended.

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

2 unchanged sentences

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 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, 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 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.

The Earnout Note was issued by CreeLED in the fourth quarter of 2022, had a maturity date of March 27, 2025 and as explained further below, was prepaid by CreeLED in full pursuant to its terms, in connection with the forgiveness by the Company of outstanding accrued and unpaid interest as of the payment date, in the first quarter of fiscal 2023.

In fiscal 2021, the Company recognized a loss on sale of the LED Business of $ 29.1 million.

2 unchanged sentences

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.

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

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

2 unchanged sentences

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.

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 the first quarter of fiscal 2023, the Company received an early payment for the Earnout Note for the full principal amount of $ 101.8 million and the Company agreed to forgo payment by CreeLED of the outstanding accrued interest as of the payment date.

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 from discontinued operations, net of income taxes in the Company's consolidated statements of operations for the fiscal year ended June 27, 2021:

Fiscal Year Ended

(in millions of U.S.

Dollars) June 27, 2021 June 28, 2020

Dollars) June 27, 2021

Revenue, net $ 272.8

8 unchanged sentences

Other operating expense 18.7

Operating (loss) income ( 141.4 ) 14.7

Operating loss ( 141.4 )

Non-operating income ( 0.3 )

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

Loss before income taxes and loss on sale ( 141.1 )

Loss on sale 29.1

(Loss) income before income taxes ( 170.2 ) 15.2

Loss before income taxes ( 170.2 )

Income tax expense 11.0

Net (loss) income ( 181.2 ) 7.0

Net loss ( 181.2 )

Net income attributable to noncontrolling interest 1.4

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

Net loss attributable to controlling interest ($ 182.6 )

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

1 unchanged sentence

As of December 27, 2020, the Company recorded an additional impairment to goodwill of $ 6.9 million and an impairment to assets held for sale associated with the LED Business Divestiture of $ 19.5 million.

For the fiscal years ended June 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.

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

1 unchanged sentence

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 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.

For the fiscal years ended June 25, 2023, June 26, 2022 and June 27, 2021, the Company recognized $ 2.4 million, $ 3.6 million and $ 1.2 million in administrative fees related to the LED RELA, respectively, none of which is included in accounts receivable, net in the consolidated balance sheets as of June 25, 2023.

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.

For the fiscal years ended June 25, 2023, June 26, 2022 and June 27, 2021, the Company recognized $ 6.0 million, $ 9.2 million and $ 4.0 million in administrative fees related to the LED TSA, respectively, of which $ 0.2 million are included in accounts receivable, net in the consolidated balance sheets as of June 25, 2023.

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 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.

At the inception of the Wafer Supply Agreement, the Company recorded a supply agreement liability of $ 31.0 million, none of which was outstanding as of June 25, 2023.

The Company recognized a net loss of $ 13.6 million, $ 0.8 million and $ 0.8 million in non-operating expense, net for the fiscal years ended June 25, 2023, June 26, 2022 and June 27, 2021, respectively, related to the Wafer Supply Agreement.

A receivable of $ 1.3 million was included in other assets in the consolidated balance sheets as of June 25, 2023.

8 unchanged sentences

Contract liabilities were $ 73.8 million and $ 47.8 million as of June 25, 2023 and June 26, 2022, respectively.

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

The increase was primarily due to increased customer reserve deposits and ship and debit reserves.

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

9 unchanged sentences

For the fiscal years ended June 25, 2023 and June 26, 2022, the Company did no t recognize any material revenue that was included in contract liabilities at the start of each respective fiscal year.

Product Line Revenue

The Company sells products from within three product lines:

Power Products, silicon carbide and GaN materials (Materials Products) and RF Products.

Revenue from these three product lines is as follows:

Fiscal Years Ended

(in millions of U.S.

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

Power Products $ 408.9 $ 276.4 $ 132.8

Materials Products 349.3 295.5 241.6

RF Products 163.7 174.3 151.2

Total $ 921.9 $ 746.2 $ 525.6

Geographic Information

5 unchanged sentences

(in millions of U.S.

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

Dollars) Revenue % Revenue % Revenue %

Europe $ 291.5 31.6 % $ 260.4 34.9 % $ 188.9 35.9 %

China 211.2 28.3 % 100.1 19.0 % 65.0 13.8 %

Hong Kong 214.1 23.2 % 162.6 21.8 % 80.7 15.4 %

Asia Pacific (excluding China and Hong Kong) 194.3 21.1 % 128.9 17.3 % 114.7 21.8 %

United States 188.6 20.5 % 142.7 19.1 % 117.3 22.3 %

Japan 30.5 4.1 % 42.5 8.1 % 52.1 11.1 %

South Korea 22.4 3.0 % 32.1 6.1 % 47.7 10.1 %

China 29.6 3.2 % 48.6 6.5 % 19.4 3.7 %

Other 3.8 0.4 % 3.0 0.4 % 4.6 0.9 %

1 unchanged sentence

Note 5 – Leases

The Company primarily leases manufacturing and office space.

The Company primarily leases manufacturing and office spaces.

The Company also has a number of bulk gas leases.

14 unchanged sentences

Finance lease assets (4)

$ 10.3 $ 15.5

Current portion of finance lease liabilities 0.5 0.5

7 unchanged sentences

Operating lease expense was $ 11.0 million, $ 8.1 million and $ 5.5 million in fiscal 2023, 2022 and 2021, respectively.

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

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

Short-term lease expense was immaterial in fiscal 2023, 2022 and 2021.

Finance lease amortization was $ 0.8 million, $ 1.2 million and $ 1.0 million, and interest expense was $ 0.3 million, $ 0.3 million and $ 0.3 million, in fiscal 2023, 2022 and 2021, respectively.

3 unchanged sentences

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

Cash used in operating activities:

Cash (used in) provided by operating activities:

Cash paid for operating leases ($ 6.7 ) ($ 8.1 ) ($ 5.7 )

Cash received for tenant allowance on operating leases 17.8 — —

Cash paid for interest portion of financing leases ( 0.3 ) ( 0.3 ) ( 0.3 )

22 unchanged sentences

(2) Weighted average discount rate of finance leases without the 49 -year ground lease is 3.50 %.

As mentioned in Note 3, "Discontinued Operations," on March 1, 2021 and in connection with the LED Business Divestiture, the Company entered into the LED RELA pursuant to which the Company leases to CreeLED approximately 58,000 square feet of the Company’s property and certain facilities in Durham, North Carolina for a total of $ 3.6 million per year.

The lease term is 24 months and expires on February 28, 2023.

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

A notice of thirty days is permitted under certain circumstances as defined in the agreement.

The agreement does not contain any renewal provisions.

The Company recognized lease income of $ 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.

As mentioned in Note 3, "Discontinued Operations," on March 1, 2021 and in connection with the LED Business Divestiture, the Company entered into the LED RELA pursuant to which the Company leased to CreeLED approximately 58,000 square feet of the Company’s property and certain facilities in Durham, North Carolina for a total of $ 3.6 million per year.

The lease term was 24 months and expired on February 26, 2023.

In addition, the Company leases space to a third party at one of its owned facilities.

The Company recognized lease income of $ 2.5 million, $ 3.6 million and $ 1.2 million for the fiscal years ended June 25, 2023, June 26, 2022 and June 27, 2021, respectively.

The Company did no t recognize any variable lease income for the fiscal years ended June 25, 2023, June 26, 2022 and June 27, 2021.

Note 6 – Financial Statement Details

29 unchanged sentences

Accrued interest receivable 10.1 5.9

Receivable on the Wafer Supply Agreement 2.7 7.0

Short-term deposit on long-term incentive agreement 10.0 —

Insurance deposit 6.3 —

VAT receivables 4.8 0.2

Inventory related to the Wafer Supply Agreement 3.9 3.9

Deferred product costs 2.5 1.8

Other receivables 2.2 2.2

Receivable on the Wafer Supply Agreement 1.3 2.7

Other 1.8 4.0

16 unchanged sentences

Depreciation of property and equipment totaled $ 148.1 million, $ 100.4 million and $ 100.5 million for the years ended June 25, 2023, June 26, 2022 and June 27, 2021, 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.

During the years ended June 25, 2023, June 26, 2022 and June 27, 2021, the Company recognized approximately $ 3.7 million, $ 1.0 million and $ 4.3 million, respectively, as losses on disposals or impairments of property and equipment of which $ 1.8 million, $ 1.3 million, and $ 3.4 million are related to the Company's start-up and factory optimization activities and are reflected in other operating expense for the years ended June 25, 2023, June 26, 2022 and June 27, 2021, respectively.

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

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

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

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

As of June 25, 2023 and June 26, 2022, the Company held $ 66.5 million and $ 58.6 million, respectively, 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

6 unchanged sentences

Accrued expenses 97.3 37.2

Other 6.5 1.7

Accounts payable and accrued expenses $ 536.9 $ 307.7

4 unchanged sentences

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

Factory optimization restructuring $ 6.1 $ 7.6 $ 8.5

Severance and other restructuring 1.2 3.4 0.6

Total restructuring costs 7.3 11.0 9.1

Project, transformation and transaction costs 22.9 6.6 7.3

Factory start-up costs 70.0 8.0 9.5

Non-restructuring related executive severance — 2.8 2.1

Factory optimization restructuring costs (1)

Severance costs 3.4 1.2 6.2

Other operating expense $ 26.3 $ 13.9 $ 21.1

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

(1) Factory optimization restructuring costs relate to the Company's multi-year factory optimization restructuring plan, which was implemented in connection with the Company's expansion activities between fiscal 2019 and fiscal 2022.

As part of the factory optimization restructuring plan, the Company 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.

Non-Operating Expense (Income), net

3 unchanged sentences

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

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 )

Interest income ($ 58.2 ) ($ 11.8 ) ($ 10.1 )

Interest expense 25.1 45.4 34.9

Interest expense, net of capitalized interest 42.6 25.1 45.4

Gain on arbitration proceedings (1)

Loss on debt extinguishment (2)

Gain on equity investment — — ( 8.3 )

Loss on Wafer Supply Agreement 13.6 0.8 0.8

Gain on sale of investments, net — ( 0.3 ) ( 0.4 )

Other, net 0.2 ( 0.3 ) ( 1.1 )

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

Non-operating (income) expense, net ($ 52.1 ) $ 38.3 $ 26.3

(1) In the first quarter of fiscal 2023, 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 the second quarter of fiscal 2023, a final payment, net of legal fees, was received.

The arbitration award is recognized as non-operating income, net of legal fees incurred.

(2) As discussed further in Note 10, "Long-term Debt," in the second quarter of fiscal 2022, all outstanding 2023 Notes (as defined below) were surrendered for conversion, resulting in the settlement of all outstanding 2023 Notes in shares, with fractional shares paid in cash.

Accumulated Other Comprehensive (Loss) Income, net of taxes

2 unchanged sentences

Reclassifications Out of Accumulated Other Comprehensive Income

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.

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

The Company reclassified a net loss of less than $ 0.1 million and a net gain of $ 0.3 million and $ 0.4 million on available for sale securities out of accumulated other comprehensive income for the fiscal years ended June 25, 2023, June 26, 2022, and June 27, 2021, respectively.

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

4 unchanged sentences

Lease asset and liability additions $ 63.8 $ 39.0 $ 7.9

$ 39.0 $ 7.9 $ 28.3

Lease asset and liability modifications, net 0.5 8.6 1.7

2 unchanged sentences

Settlement of 2023 Notes in shares of common stock (2)

Decrease in property, plant and equipment from investment tax credit receivables 167.4 — —

Decrease in property, plant and equipment from long-term incentive related receivables 114.0 119.0 16.4

Accrued property and equipment as of the fiscal year end date 328.4 132.1 248.3

(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.

(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.

9 unchanged sentences

(in millions of U.S.

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

Municipal bonds $ 166.5 $ 0.1 ($ 4.4 ) $ 162.2

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

Corporate bonds $ 512.3 $ — ($ 16.7 ) $ — $ 495.6

agency securities 4.0 — ( 0.1 ) 3.9

treasury securities 261.8 — ( 1.4 ) — 260.4

Municipal bonds 179.7 — ( 4.4 ) — 175.3

Certificates of deposit 112.3 — — — 112.3

agency securities 77.0 — ( 0.2 ) — 76.8

Commercial paper 50.2 — — — 50.2

Variable rate demand notes 27.3 — — — 27.3

5 unchanged sentences

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

Municipal bonds $ 150.0 ($ 4.4 ) $ 1.0 $ — $ 151.0 ($ 4.4 )

Corporate bonds $ 151.5 ($ 0.5 ) $ 324.1 ($ 16.2 ) $ 475.6 ($ 16.7 )

agency securities 3.9 ( 0.1 ) — — 3.9 ( 0.1 )

treasury securities 229.3 ( 0.5 ) 31.1 ( 0.9 ) 260.4 ( 1.4 )

Municipal bonds 61.4 ( 0.4 ) 105.9 ( 4.0 ) 167.3 ( 4.4 )

agency securities 74.8 ( 0.2 ) 2.0 — 76.8 ( 0.2 )

Commercial Paper 3.9 — — — 3.9 —

Total $ 520.9 ($ 1.6 ) $ 463.1 ($ 21.1 ) $ 984.0 ($ 22.7 )

3 unchanged sentences

(in millions of U.S.

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

Municipal bonds 139.4 1.9 — 141.3

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

Corporate bonds 465.8 — ( 17.8 ) — 448.0

agency securities 15.8 — — 15.8

treasury securities 72.3 0.3 ( 0.1 ) 72.5

Certificates of deposit 16.5 — — 16.5

Commercial paper 50.0 — — 50.0

Municipal bonds 166.5 0.1 ( 4.4 ) — 162.2

Variable rate demand notes 69.4 — — — 69.4

treasury securities 66.5 — ( 0.7 ) — 65.8

agency securities 4.0 — ( 0.1 ) — 3.9

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

4 unchanged sentences

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

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

Corporate bonds $ 431.1 ($ 17.4 ) $ 8.3 ($ 0.4 ) $ 439.4 ($ 17.8 )

agency securities 10.7 — — — 10.7 —

Municipal bonds 150.0 ( 4.4 ) 1.0 — 151.0 ( 4.4 )

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

Certificates of deposit 0.7 — — — 0.7 —

agency securities 3.9 ( 0.1 ) — — 3.9 ( 0.1 )

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

1 unchanged sentence

Additionally, the Company held cash equivalent securities in unrealized loss positions as of June 25, 2023 and June 26, 2022.

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 25, 2023, the Company held two cash equivalent securities in unrealized loss positions with an aggregate fair value of $ 18.5 million and an aggregate unrealized loss of less than $ 0.1 million.

4 unchanged sentences

There were no write-offs of noncollectable interest income for the years ended June 25, 2023 and June 26, 2022.

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

Realized gains and losses are included in non-operating expense (income), net in the consolidated statements of operations.

Unrealized gains and losses are included as a separate component of equity, net of tax, unless the Company determines there is an expected credit loss.

The Company evaluates its investments for expected credit losses.

The Company believes it is able to and intends to hold each of the investments held with an unrealized loss as of June 25, 2023 until the investments fully recover in market value.

No allowance for credit losses was recorded as of June 26, 2022.

No allowance for credit losses was recorded as of June 25, 2023 and June 26, 2022.

The contractual maturities of short-term investments at June 25, 2023 were as follows:

1 unchanged sentence

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

Municipal bonds $ 40.3 $ 121.9 $ — $ — $ 162.2

Corporate bonds $ 303.7 $ 191.9 $ — $ — $ 495.6

agency securities 2.0 1.9 — — 3.9

treasury securities 220.9 39.5 — — 260.4

Municipal bonds 91.5 81.4 — 2.4 175.3

Certificates of deposit 112.3 — — — 112.3

agency securities 66.8 10.0 — — 76.8

Commercial paper 50.2 — — — 50.2

Variable rate demand notes — — 9.7 17.6 27.3

7 unchanged sentences

• Level 1 - Valuations based on quoted prices in active markets for identical instruments that the Company is able to access.

Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

Because valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

• Level 2 - Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

10 unchanged sentences

June 25, 2023 June 26, 2022

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

(in millions of U.S.

Dollars) Level 1 Level 2 Total Level 1 Level 2 Total

Cash equivalents:

Money market funds $ 230.4 $ — $ 230.4 $ 115.9 $ — $ 115.9

Municipal bonds — — — — — 16.0 — 16.0

agency securities — — — — — 6.0 — 6.0

treasury securities 20.7 — 20.7 69.0 — 69.0

Commercial paper — 7.0 7.0 — 59.4 59.4

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

Total cash equivalents 251.1 7.0 258.1 184.9 59.4 244.3

Short-term investments:

Municipal bonds — 162.2 — 162.2 — 141.3 — 141.3

Corporate bonds — 495.6 495.6 — 448.0 448.0

agency securities — 3.9 — 3.9 — 15.8 — 15.8

treasury securities 260.4 — 260.4 65.8 — 65.8

Municipal bonds — 175.3 175.3 — 162.2 162.2

Certificates of deposit — 112.3 112.3 — — —

agency securities — 76.8 76.8 — 3.9 3.9

Commercial paper — 50.2 50.2 — — —

33 unchanged sentences

Revolving Line of Credit

As of June 26, 2022, the Company had a $ 125.0 million secured revolving line of credit (the Credit Agreement) under which the Company can borrow, repay and reborrow loans from time to time prior to its scheduled maturity date of January 9, 2026.

The Credit Agreement requires the Company to maintain a ratio of certain cash equivalents and marketable securities to outstanding loans and letter of credit obligations greater than 1.25 :1, with no other financial covenants.

The Company classifies balances outstanding under the Credit Agreement as long-term debt in the consolidated balance sheets.

As of June 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 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.

On June 23, 2023, the Company terminated its previously held $ 125.0 million secured revolving line of credit (the Credit Agreement) under which the Company was able to borrow, repay and reborrow loans from time to time prior to its scheduled maturity date of January 9, 2026.

The Company did not have any borrowings under the Credit Agreement during the fiscal year ended June 25, 2023.

Under the agreement, the Company paid an unused line fee on available borrowings of 25 basis points.

2023 Convertible Notes

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.

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 (collectively, the 2023 Notes).

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.

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 an additional convertible note offering (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.

1 unchanged sentence

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).

However, any 2023 Notes called for redemption would not be redeemed if such note was 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 note plus accrued and unpaid interest on such note 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.

10 unchanged sentences

In addition, following certain corporate events that occur prior to the maturity date, or following the Company's issuance of a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its 2026 Notes in connection with such a corporate event, or who elects to convert any 2026 Notes called for redemption during the related redemption period in certain circumstances.

The Company may not redeem the 2026 Notes prior to May 1, 2023.

The Company may redeem for cash all or any portion of the 2026 Notes, at its option, on a redemption date occurring on or after May 1, 2023 and on or before the 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.

2 unchanged sentences

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;

(1) during any calendar quarter commencing after the calendar quarter ending June 30, 2020 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

(2) during the five business day period after any ten consecutive trading day period in which the trading price per $1.0 thousand principal amount of 2026 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of its common stock and the conversion rate on each such trading day;

22 unchanged sentences

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.

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 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.

Capped Call Transactions in relation to the 2028 Notes

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 2028 Notes Capped Call Transactions) with each of the 2028 Notes Capped Call Counterparties.

The 2028 Notes 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 2028 Capped Call Transactions are expected generally to reduce the potential dilutive effect on the common stock upon any conversion of 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 2028 Notes Capped Call Transactions.

The 2028 Notes Capped Call Transactions are separate transactions entered into by the Company with each of the 2028 Notes 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 2028 Notes Capped Call Transactions.

2029 Convertible Notes

On November 21, 2022, the Company sold $ 1,525.0 million aggregate principal amount of 1.875 % convertible senior notes due December 1, 2029 to qualified institutional buyers pursuant to Rule 144A under the Securities Act and an additional $ 225.0 million aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment options of the underwriters (the 2029 Notes).

The total net proceeds from the 2029 Notes offering was approximately $ 1,718.6 million.

The Company used approximately $ 273.9 million of the net proceeds from the 2029 Notes to fund the cost of entering into capped call transactions, as described below.

The conversion rate will initially be 8.4118 shares of common stock per one thousand dollars in principal amount of 2029 Notes (equivalent to an initial conversion price of approximately $ 118.88 per share of common stock).

The conversion rate will be subject to adjustment for some events, but will not be adjusted for any accrued and unpaid interest.

In addition, following certain corporate events that occur prior to the maturity date, or following the Company's issuance of a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its 2029 Notes in connection with such a corporate event, or who elects to convert any 2029 Notes called for redemption during the related redemption period in certain circumstances.

The Company may not redeem the 2029 Notes prior to December 4, 2026.

The Company may redeem for cash all or any portion of the 2029 Notes, at its option, on a redemption date occurring on or after December 4, 2026 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 2029 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 2029 Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the 2029 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Holders may convert their 2029 Notes at their option at any time prior to the close of business on the business day immediately preceding June 1, 2029 only under the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ended March 31, 2023 (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 2029 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 2029 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 June 1, 2029 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2029 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.

Capped Call Transactions in relation to the 2029 Notes

On November 16, 2022, in connection with the pricing of the 2029 Notes, the Company entered into privately negotiated capped call transactions with certain of the initial purchasers or their affiliates and another financial institution (the 2029 Notes 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 2029 Notes Capped Call Transactions) with each of the 2029 Notes Capped Call Counterparties.

The 2029 Notes 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 2029 Notes.

The 2029 Notes Capped Call Transactions are expected generally to reduce the potential dilutive effect on the common stock upon any conversion of 2029 Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted 2029 Notes, as the case may be, with such reduction and/or offset subject to a cap which initially is $ 202.538 per share, representing a premium of 130 % over the last reported sale price per share of our common stock on November 16, 2022, subject to certain adjustments under the terms of the 2029 Notes Capped Call Transactions.

The 2029 Notes Capped Call Transactions are separate transactions entered into by the Company with each of the 2029 Notes Capped Call Counterparties, are not part of the terms of the 2029 Notes, and do not affect any holder’s rights under the 2029 Notes.

Holders of the 2029 Notes do not have any rights with respect to the 2029 Notes Capped Call Transactions.

Accounting for the 2023 Notes, 2026 Notes, 2028 Notes and 2029 Notes

In accounting for the issuance of the 2023 Notes, 2026 Notes and 2028 Notes, the Company separated such 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 Notes, 2026 Notes 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 2023 Notes, 2026 Notes and 2028 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 during 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.

2 unchanged sentences

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;

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

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

Upon adoption of ASU 2020-06 on June 27, 2022, the first day of fiscal 2023, the unamortized discounts on the 2026 Notes and 2028 Notes were eliminated and the liability and equity components relating to the debt issuance costs for the 2026 Notes and 2028 Notes are now presented as a single liability.

Debt issuance costs for the 2026 Notes and 2028 Notes will be amortized to interest expense over their respective terms at an effective annual interest rate of 2.2 % and 0.6 %, respectively.

Debt issuance costs in relation to the 2029 Notes were accounted for as a reduction of the principal balance and will be amortized to interest expense over the term of the 2029 Notes at an effective interest rate of 2.1 %.

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

(in millions of U.S.

3 unchanged sentences

Net carrying amount $ 3,025.6 $ 1,021.6

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

The net carrying amount of the equity component of the Outstanding Convertible Notes is as follows:

(in millions of U.S.

Dollars) June 26, 2022 June 27, 2021

Dollars) June 25, 2023 (1)

June 26, 2022

Discount related to value of conversion option $ — $ 341.1

Partial extinguishment of 2023 Notes — ( 27.7 )

Debt issuance costs — ( 8.1 )

Net carrying amount $ — $ 333.0

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

(1) As discussed above, the equity components of the 2026 Notes and 2028 Notes were eliminated upon adoption of ASU 2020-06 on June 27, 2022, the first day of fiscal 2023.

The last reported sale price of the Company's common stock was not greater than or equal to 130 % of the applicable conversion price for any of the Outstanding Convertible Notes for at least 20 trading days in the 30 consecutive trading days ended on June 30, 2023.

As a result, none of the Outstanding Convertible Notes are convertible at the option of the holders through September 30, 2023.

2030 Senior Notes

On June 23, 2023 (the Issue Date), the Company sold $ 1,250 million aggregate principal amount of senior secured notes due 2030 (the 2030 Senior Notes).

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

The total net proceeds are net of debt issuance costs and an original issue discount of $ 50.0 million.

The 2030 Senior Notes bear interest (i) during the first three years after the Issue Date at a rate of 9.875 % per annum, (ii) during the fourth year after the Issue Date at a rate of 10.875 % per annum, and (iii) at all times thereafter, 11.875 % per annum, and will mature on the earlier of (x) June 23, 2030 and (y) September 1, 2029, if more than $ 175.0 million in aggregate principal amount of the 2029 Notes remain outstanding on such date.

Subject to the fulfillment of certain conditions precedent, the Company may, at its discretion, issue and sell additional 2030 Senior Notes in an amount not to exceed $ 750.0 million.

The Indenture related to the 2030 Senior Notes (the 2030 Senior Notes Indenture) requires the Company to make an offer to repurchase the 2030 Senior Notes with 100 % of the net cash proceeds of (x) certain core asset sales and casualty events and (y) certain non-core asset sales and casualty events, in either case in excess of $ 25.0 million since the Issue Date, subject to the ability to (so long as no default or event of default exists under the 2030 Senior Notes Indenture), reinvest the proceeds of such casualty events and asset sales (other than the proceeds of sales of certain core assets of the Company), at a price equal to the lesser of (i) 109.875 % of the principal amount of the 2030 Senior Notes being repurchased and (ii) if such disposition or casualty event occurred (x) during the fourth year after the Issue Date, 109.40625 % of the principal amount of such 2030 Senior Notes being repurchased, (y) during the fifth year after the Issue Date, 104.9375 % of the principal amount of such 2030 Senior Notes being repurchased and (z) during and after the sixth year after the Issue Date, 100 % of the principal amount of such 2030 Senior Notes being repurchased (this clause (ii), the Applicable Redemption Price).

The Company is also required to offer to

repurchase the 2030 Senior Notes upon a change in control, at a price equal to, (i) if the change of control occurs during the first three years after the Issue Date, a customary make-whole redemption price minus 3.00 % of the principal amount of Senior Notes being purchased and (ii) if such change of control occurs after the third anniversary of the Issue Date, the Applicable Redemption Price.

The Company may prepay the 2030 Senior Notes at any time, subject to:

(i) if the prepayment occurs prior to the third anniversary of the Issue Date, by paying a customary make-whole premium and (ii) if the prepayment occurs on or after the third anniversary of the Issue Date, by paying the Applicable Redemption Price.

Further, the Company has the right, prior to the third anniversary of the Issue Date, to make an optional redemption of up to 35 % of the aggregate principal amount of the 2030 Senior Notes with the proceeds of qualified equity issuances, at a redemption price equal to 109.875 %.

The 2030 Senior Notes Indenture contains certain customary affirmative covenants, negative covenants and events of default, including a liquidity maintenance financial covenant requiring the Company to have an aggregate amount of unrestricted cash and cash equivalents maintained in accounts over which the trustee and collateral agent has been granted a perfected first lien security interest of at least $ 500.0 million as of the last day of any calendar month (the Liquidity Covenant).

Upon the Company achieving 30 % utilization at its silicon carbide device fabrication facility in Marcy, New York and generating at least $ 240.0 million of revenue from the Company's Power product line, that are manufactured or produced on wafers that are fabricated at the Marcy, New York facility (the MVF Products), in each case over a six month period, the level of the Liquidity Covenant shall be permanently reduced to $ 325.0 million.

Upon the Company’s achieving 50 % utilization at its Marcy, New York facility and generating at least $ 450.0 million of revenue from MVF Products, in each case over a six month period, the Liquidity Covenant will be permanently reduced to zero .

As of June 25, 2023, the Company was in compliance with all covenants relating to the 2030 Senior Notes.

The 2030 Senior Notes are superior in right of payment to the Company's unsecured indebtedness to the extent of the collateral securing the 2030 Senior Notes.

Beyond the value of the collateral securing the 2030 Notes, the 2026 Notes, 2028 Notes, 2029 Notes and 2030 Senior Notes (Corporate Debt Holdings) 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 Corporate Debt Holdings;

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

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

Debt issuance costs in relation to the 2030 Senior Notes were accounted for as a reduction of the principal balance and, along with the original issue discount, will be amortized over the term of the 2030 Senior Notes at an effective interest rate of 12.4 %.

The net carrying amount of the liability component of the 2030 Senior Notes is as follows:

(in millions of U.S.

Dollars) June 25, 2023

Principal $ 1,250.0

Unamortized discount and issuance costs ( 100.5 )

Net carrying amount $ 1,149.5

Interest Expense for the Corporate Debt Holdings

The interest expense, net recognized related to the Corporate Debt Holdings is as follows:

Fiscal Years Ended

4 unchanged sentences

Total interest expense, net $ 39.8 $ 22.7 $ 43.2

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

The Company capitalizes interest in connection with ongoing capacity expansions.

For the fiscal year ended June 25, 2023, the Company capitalized $ 0.8 million of interest expense and $ 0.2 million of amortization of discount and issuance costs.

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 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 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.

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.

Fair Value of the Corporate Debt Holdings

The estimated fair value of Corporate Debt is $ 3.9 billion as of June 25, 2023, as determined by a Level 2 valuation.

Note 11 – Shareholders’ Equity

7 unchanged sentences

For future issuance upon conversion of the 2028 Notes 7,958

For future issuance upon conversion of the 2029 Notes 19,873

Total common shares reserved 55,428

20 unchanged sentences

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’s stock-based awards can be either service-based or performance-based.

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.

At June 25, 2023, there were 6.0 million shares authorized for issuance under the ESPP, as amended, with 5.1 million shares remaining for future issuance.

The ESPP limits employee contributions to 15 % of each employee’s compensation (as defined in the plan) and allows employees to purchase shares at a 15 % discount to the fair market value of common stock on the purchase date two times per year.

The ESPP limits employee contributions to 15 % of each employee’s compensation (as defined in the plan) and allows employees to purchase shares at a 15 % discount, subject to IRS limitations.

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.

31 unchanged sentences

Stock-Based Compensation Valuation and Expense

The Company accounts for its employee stock-based compensation plans using the fair value method.

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

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

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.

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

Stock-based compensation expense is recognized net of estimated forfeitures such that expense is recognized only for those stock-based awards that are expected to vest.

A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates.

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

21 unchanged sentences

Dividend yield — — —

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

The range of assumptions used for performance-based awards with market conditions were as follows:

Fiscal Years Ended

2 unchanged sentences

0.11 - 1.66 %

0.28 - 1.66 %

Expected life, in years 3.0

1 unchanged sentence

48.9 - 60.5 %

48.9 - 55.2 %

Average correlation coefficient of peer companies 0.48

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.

Awards are valued using the Monte Carlo model.

All performance-based awards with market conditions for the fiscal years ended June 25, 2023 and June 26, 2022 were issued on a single date each year and therefore no range is shown.

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

22 unchanged sentences

Loss before income taxes ($ 328.5 ) ($ 286.1 ) ($ 340.2 )

The following were the components of income tax expense (benefit):

The following were the components of income tax expense:

Fiscal Years Ended

8 unchanged sentences

Total deferred 0.5 0.6 0.7

Income tax expense (benefit) $ 9.0 $ 1.1 ($ 8.0 )

Actual income tax expense (benefit) differed from the amount computed by applying each period's U.S.

Income tax expense $ 1.4 $ 9.0 $ 1.1

Actual income tax expense differed from the amount computed by applying each period's U.S.

federal statutory tax rate to pre-tax earnings as a result of the following:

16 unchanged sentences

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

Net operating loss carryback — — % — — % ( 7.2 ) 4 %

Provision to return adjustments 0.1 — % 0.3 — % ( 0.2 ) — %

3 unchanged sentences

Other 0.6 — % 0.3 — % 0.1 — %

Income tax expense (benefit) $ 9.0 ( 3 ) % $ 1.1 — % ($ 8.0 ) 4 %

Income tax expense $ 1.4 — % $ 9.0 ( 3 ) % $ 1.1 — %

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:

6 unchanged sentences

Federal and state net operating loss carryforwards 366.1 321.0

Federal credits 48.2 42.1

State credits 1.2 1.2

Federal income tax credits 59.0 48.2

State income tax credits 1.0 1.2

48C investment tax credits 35.7 35.7

3 unchanged sentences

Lease liabilities 29.5 12.6

Capitalized research and development 57.1 —

Convertible notes 73.7 —

Other 6.9 4.7

5 unchanged sentences

Intangible assets ( 22.7 ) ( 19.1 )

Investments — ( 1.1 )

Prepaid taxes and other ( 0.5 ) ( 0.6 )

24 unchanged sentences

For the fiscal year ended June 25, 2023, the Company increased the U.S.

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.

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.

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.

valuation allowance by $ 204.7 million due to a decrease in deferred tax liabilities related to convertible notes upon adoption of ASU 2020-06, increase in deferred tax assets related to the 2029 Notes Capped Call Transactions, and increases in deferred tax assets related to the current year domestic loss and domestic capitalized research and development.

As of June 25, 2023, the Company had approximately $ 2.2 million of foreign net operating loss carryovers, of which less than $ 0.1 million are offset by a valuation allowance.

8 unchanged sentences

As of June 26, 2022, the Company’s liability for unrecognized tax benefits was $ 7.2 million.

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.

During the fiscal year ended June 25, 2023, the Company recognized a $ 2.6 million increase to the liability for unrecognized tax benefits primarily due to an increase in generated research and development credits.

As a result, the total liability for unrecognized tax benefits as of June 25, 2023 was $ 9.8 million.

6 unchanged sentences

Balance at beginning of period $ 7.2 $ 7.4 $ 7.4

Decrease related to current year change in law — — —

Increases related to prior year tax positions 1.7 — —

2 unchanged sentences

Expiration of statute of limitations for assessment of taxes ( 0.1 ) ( 0.2 ) —

Increases related to current year positions 1.2 — —

Balance at end of period $ 9.8 $ 7.2 $ 7.4

17 unchanged sentences

Note 15 – Commitments and Contingencies

The Company is currently a party to various legal proceedings.

The Company is currently a party to various legal proceedings, including the case described below.

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

2 unchanged sentences

The outcomes in these matters are not reasonably estimable.

In October 2021, The Trustees of Purdue University (Purdue) filed a complaint against the Company in the U.S.

District Court for the Middle District of North Carolina, alleging infringement of U.S.

7,498,633 (the '633 Patent), entitled "High-voltage power semiconductor device," and 8,035,112 (the '112 Patent), entitled "SIC power DMOSFET with self-aligned source contact." In the complaint, Purdue also alleges willful infringement, and seeks unspecified monetary damages and attorneys’ fees.

In August 2022, Purdue voluntarily withdrew all allegations as to the '112 Patent after having disclaimed all rights to that patent.

The Company denies Purdue’s remaining allegations and has developed numerous defenses, including non-infringement, multiple invalidity grounds, and unenforceability due to inequitable conduct before the U.S.

Patent & Trademark Office.

The litigation with Purdue is in the middle of fact discovery, and trial is currently scheduled to begin in August 2024.

Due to the stage of the case, the Company is unable to estimate the possible range of loss, if any, at this time.

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

5 unchanged sentences

As of June 25, 2023, 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 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.

Supply Commitments

From time to time, the Company may enter into agreements with its suppliers which require the Company to commit to a minimum of product purchases or make capacity reservation deposits.

In the third quarter of fiscal 2023, the Company entered into an agreement with a supplier which requires a minimum commitment of product purchases on a take-or-pay basis of $ 200.0 million over the next five years .

During the fiscal year ended June 25, 2023, the Company purchased $ 12.3 million of product under this agreement.

As of June 25, 2023, minimum future product purchases for fiscal years 2024, 2025, 2026, 2027 and 2028 are $ 1.1 million, $ 26.8 million, $ 36.0 million, $ 50.1 million and $ 73.7 million, respectively.

In addition, the Company will pay quarterly capacity reservation deposits through the second quarter of fiscal 2026.

The capacity reservation deposits will total $ 60.0 million and are refundable through credits on future product purchases.

The Company paid $ 5.5 million in fiscal 2023 in connection with the agreement, which is recognized in prepaid expenses on the consolidated balance sheet.

Note 16 – Concentrations of Risk

7 unchanged sentences

For the fiscal year ended June 25, 2023, two customers represented 18 % and 17 % 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 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.

No other customers individually accounted for more than 10% of revenue for the fiscal years ended June 25, 2023, June 26, 2022 and June 27, 2021.

Three customers accounted for 15 %, 14 % and 13 % of the accounts receivable balance as of June 25, 2023, respectively.

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

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

No other customers accounted for more than 10% of the accounts receivable balance as of June 25, 2023 and June 26, 2022.

Note 17 – Retirement Savings Plan

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

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

Under the 401(k) Plan, there is no fixed dollar amount of retirement benefits;

rather, the Company matches a defined percentage of employee deferrals, and employees vest in these matching funds over time.

Employees choose their investment elections from a list of available investment options.

During the fiscal years ended June 26, 2022, June 27, 2021 and June 28, 2020, the Company contributed approximately $ 10.3 million, $ 8.0 million and $ 7.7 million to the 401(k) Plan, respectively.

The Pension Benefit Guaranty Corporation does not insure the 401(k) Plan.

Note 18 - Restructuring

The Company has approved various operational plans that include restructuring costs.

All restructuring costs are recorded in other operating expense on the consolidated statement of operations.

Corporate Restructuring

In 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.

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

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

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 a large materials factory at its U.S.

campus headquarters in Durham, North Carolina.

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 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 $ 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 17 - 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.

2033 CRD Notes

In July 2023, the Company entered into an Unsecured Customer Refundable Deposit Agreement (the CRD Agreement) with a customer, pursuant to which the customer will provide the Company up to $ 2 billion in unsecured deposits.

Under the CRD Agreement, the Company received an initial deposit of $ 1 billion with additional deposits of up to an additional $ 1 billion at the Company's request, subject to certain conditions during the 2024 calendar year.

Unless previously terminated in accordance with its terms, the CRD Agreement will mature on July 5, 2033, and the amount of the deposits, together with accrued and unpaid interest, will be required to be repaid to the customer at such time.

The deposits under the CRD Agreement will bear interest, payable on a semi-annual basis, at a base rate of 6 % per annum, with the potential for an increased variable rate of either 10 % or 15 % in connection with any inability of the Company to satisfy supply targets under a ten-year wafer supply agreement with the same customer.

The Company may voluntarily prepay the deposits, in whole or in part, at any time at a price equal to 106 % of the principal amount of the deposits prepaid.

Upon the occurrence of a change of control, the customer may require the Company to prepay the deposits in whole at a variable prepayment price depending on the day of prepayment.

RF Business Divestiture

On August 22, 2023, the Company entered into a definitive agreement (the RF Purchase Agreement) to sell its radio frequency product line (RF Products) to MACOM Technology Solutions Holdings, Inc.

(MACOM) for approximately $ 75 million in cash, subject to a customary purchase price adjustment, and 711,528 shares of MACOM common stock (the Shares), valued at $ 50 million based on the 30 trading day trailing average closing price for MACOM’s common stock through August 21, 2023 (the RF Business Divestiture).

The Company expects to close the transaction by the end of calendar 2023.

In connection with the RF Business Divestiture, MACOM will assume control of Wolfspeed’s 100mm gallium nitride wafer fabrication facility in Research Triangle Park, North Carolina (the RTP Fab) approximately two years following the closing of the transaction (the Closing) to accommodate the Company’s relocation of certain production equipment (the RTP Fab Transfer).

Prior to the RTP Fab Transfer, the Shares will be subject to restrictions on transfer.

The Company will forfeit one-quarter of the Shares if the RTP Fab Transfer has not occurred by the fourth anniversary of the Closing.

The Company and MACOM will also enter into certain ancillary and related agreements, including (i) an Intellectual Property Assignment and License Agreement, which will assign to MACOM certain intellectual property owned by the Company and its affiliates and license to MACOM certain additional intellectual property owned by the Company, (ii) a Transition Services Agreement (RF TSA), pursuant to which the Company will provide MACOM certain limited transition services following the Closing, (iii) a Master Supply Agreement, pursuant to which Wolfspeed will continue to operate the RTP Fab and supply MACOM with Epi-wafers and fabrication services between the date of the Closing and the date on which the RTP Fab Transfer is complete (RTP Fab Transfer Date), (iv) a Long-Term Epi Supply Agreement (LTA), pursuant to which MACOM will purchase from the Company Epi-wafers from the Closing until the fifth anniversary of the RTP Fab Transfer Date, (v) an Epi Research and Development Agreement, pursuant to which the Company will provide MACOM certain research and development activities and other technical manufacturing support services related to the RF Business during the period between the Closing and expiration of the LTA, (vi) a Real Estate License Agreement, which will allow MACOM to use certain portions of the RTP Fab to conduct the RF Business between the Closing and the RTP Fab Transfer Date, and (vii) a Lease Agreement, which will allow MACOM to lease the premises of the RTP Fab for a period of 15 years after the RTP Fab Transfer Date.

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