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Item 1. Financial Statements

2023-11-02 compared with 2023-04-27 · 302 added, 358 removed, 495 unchanged (57% of the section changed)

Financial Statements (Unaudited)

Consolidated Balance Sheets as of March 26, 2023 and June 26, 2022

Consolidated Statements of Operations for the three and nine months ended March 26, 2023 and March 27, 2022

Consolidated Statements of Comprehensive Loss for the three and nine months ended March 26, 2023 and March 27, 2022

Consolidated Statements of Shareholders' Equity for the nine months ended March 26, 2023 and March 27, 2022

Consolidated Statements of Cash Flows for the nine months ended March 26, 2023 and March 27, 2022

Consolidated Balance Sheets as of September 24, 2023 and June 2 5 , 2023

Consolidated Statements of Operations for the three months ended September 2 4 , 2023 and September 2 5 , 2022

Consolidated Statements of Comprehensive Loss for the three months ended September 2 4 , 2023 and Se ptember 2 5 , 2022

Consolidated Statements of Shareholders' Equity for the three months ended September 2 4 , 2023 and September 2 5 , 2022

Consolidated Statements of Cash Flows for the three months ended September 2 4 , 2023 and Se ptember 2 5 , 2022

Notes to Unaudited Consolidated Financial Statements

2 unchanged sentences

in millions of U.S.

Dollars, except share data in thousands March 26, 2023 June 26, 2022

Dollars, except share data in thousands September 24, 2023 June 25, 2023

Current assets:

7 unchanged sentences

Other current assets 153.7 131.5

Current assets held for sale — 1.6

Current assets held for sale from discontinued operations 13.7 38.9

Total current assets 4,079.7 3,606.5

5 unchanged sentences

Other assets 392.1 303.3

Long-term assets held for sale from discontinued operations — 125.0

Total assets $ 7,312.8 $ 6,586.7

6 unchanged sentences

Other current liabilities 56.3 35.7

Current liabilities held for sale from discontinued operations 89.1 8.6

Total current liabilities 749.3 627.8

Long-term liabilities:

Long-term debt 2,131.5 1,149.5

Convertible notes, net 3,027.9 3,025.6

2 unchanged sentences

Other long-term liabilities 145.1 143.5

Long-term liabilities held for sale from discontinued operations — 5.3

Total long-term liabilities 5,317.8 4,337.0

2 unchanged sentences

Preferred stock, par value $ 0.01 ;

3,000 shares authorized at March 26, 2023 and June 26, 2022;

3,000 shares authorized at September 24, 2023 and June 25, 2023;

none issued and outstanding

Common stock, par value $ 0.00125 ;

200,000 shares authorized at March 26, 2023 and June 26, 2022;

124,437 and 123,795 shares issued and outstanding at March 26, 2023 and June 26, 2022, respectively

200,000 shares authorized at September 24, 2023 and June 25, 2023;

125,321 and 124,794 shares issued and outstanding at September 24, 2023 and June 25, 2023, respectively

Additional paid-in-capital 3,728.6 3,711.0

6 unchanged sentences

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended Nine months ended

March 26, 2023 March 27, 2022 March 26, 2023 March 27, 2022

Three months ended

in millions of U.S.

Dollars, except share data

Dollars, except share data September 24, 2023 September 25, 2022

Revenue, net $ 197.4 $ 189.4

4 unchanged sentences

Sales, general and administrative 64.1 50.0

Factory start-up costs 8.4 38.4

Amortization or impairment of acquisition-related intangibles 0.3 0.5

Loss (gain) on disposal or impairment of other assets 1.7 ( 0.6 ) 1.9 ( 0.3 )

Loss on disposal or impairment of other assets 0.1 0.1

Other operating expense 2.6 1.9

Operating loss ( 94.9 ) ( 63.5 )

Non-operating (income) expense, net ( 2.9 ) 3.8 ( 53.4 ) 35.7

Non-operating expense (income), net 28.5 ( 49.5 )

Loss before income taxes ( 123.4 ) ( 14.0 )

Income tax expense 0.2 0.1

Net loss from continuing operations ( 123.6 ) ( 14.1 )

Net loss from discontinued operations ( 272.1 ) ( 12.1 )

Net loss ($ 395.7 ) ($ 26.2 )

Basic and diluted loss per share

Continuing operations ($ 0.99 ) ($ 0.11 )

Net loss ($ 3.16 ) ($ 0.21 )

Weighted average shares - basic and diluted (in thousands) 125,105 124,035

2 unchanged sentences

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three months ended Nine months ended

Three months ended

(in millions of U.S.

Dollars) March 26, 2023 March 27, 2022 March 26, 2023 March 27, 2022

Dollars) September 24, 2023 September 25, 2022

Net loss ($ 395.7 ) ($ 26.2 )

Other comprehensive loss:

Other comprehensive income (loss):

Net unrealized gain (loss) on available-for-sale securities 1.9 ( 7.0 )

3 unchanged sentences

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

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

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

(in millions of U.S.

2 unchanged sentences

Net loss — — — ( 395.7 ) — ( 395.7 )

Unrealized loss on available-for-sale securities — — — — ( 7.0 ) ( 7.0 )

Comprehensive loss ( 33.2 )

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

Stock-based compensation — — 23.2 — — 23.2

Exercise of stock options and issuance of shares 415 — 0.5 — — 0.5

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

Balance at September 25, 2022 124,210 $ 0.2 $ 3,902.2 ($ 1,760.5 ) ($ 32.3 ) $ 2,109.6

Net loss — — — ( 90.9 ) — ( 90.9 )

Unrealized gain on available-for-sale securities — — — — 1.9 1.9

Comprehensive loss ( 87.2 )

Tax withholding on vested equity awards — — ( 15.0 ) — — ( 15.0 )

1 unchanged sentence

Exercise of stock options and issuance of shares 21 — 0.5 — — 0.5

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

Balance at December 25, 2022 124,413 $ 0.2 $ 3,660.0 ($ 1,851.4 ) ($ 28.6 ) $ 1,780.2

Net loss — — — ( 99.5 ) — ( 99.5 )

Unrealized gain on available-for-sale securities — — — — 5.5 5.5

Comprehensive loss ( 94.0 )

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

Stock-based compensation — — 20.8 — — 20.8

Exercise of stock options and issuance of shares 24 — 0.2 — — 0.2

Balance at March 26, 2023 124,437 $ 0.2 $ 3,680.6 ($ 1,950.9 ) ($ 23.1 ) $ 1,706.8

Balance at September 24, 2023 125,321 $ 0.2 $ 3,728.6 ($ 2,459.9 ) ($ 23.2 ) $ 1,245.7

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

1 unchanged sentence

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

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

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

(in millions of U.S.

3 unchanged sentences

Unrealized loss on available-for-sale securities — — — — ( 7.0 ) ( 7.0 )

Comprehensive loss ( 70.9 )

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

1 unchanged sentence

Exercise of stock options and issuance of shares 20 — 0.5 — — 0.5

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

Balance at September 25, 2022 124,210 $ 0.2 $ 3,902.2 ($ 1,760.5 ) ($ 32.3 ) $ 2,109.6

Net loss — — — ( 96.7 ) — ( 96.7 )

Unrealized loss on available-for-sale securities — — — — ( 3.6 ) ( 3.6 )

Comprehensive loss ( 100.3 )

Tax withholding on vested equity awards — — ( 2.8 ) — — ( 2.8 )

Stock-based compensation — — 15.7 — — 15.7

Exercise of stock options and issuance of shares 258 — 10.7 — — 10.7

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

Balance at December 26, 2021 123,570 $ 0.2 $ 4,110.3 ($ 1,729.9 ) ($ 1.7 ) $ 2,378.9

Net loss — — — ( 66.5 ) — ( 66.5 )

Unrealized loss on available-for-sale securities — — — — ( 16.3 ) ( 16.3 )

Comprehensive loss ( 82.8 )

Tax withholding on vested equity awards — — ( 0.8 ) — — ( 0.8 )

Stock-based compensation — — 15.4 — — 15.4

Exercise of stock options and issuance of shares 29 — 0.3 — — 0.3

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

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

Balance at March 27, 2022 123,599 $ 0.2 $ 4,204.6 ($ 1,796.4 ) ($ 18.0 ) $ 2,390.4

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

1 unchanged sentence

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended

Three months ended

(in millions of U.S.

Dollars) March 26, 2023 March 27, 2022

Dollars) September 24, 2023 September 25, 2022

Operating activities:

Net loss ($ 395.7 ) ($ 26.2 )

Net loss from discontinued operations ( 272.1 ) ( 12.1 )

Net loss from continuing operations ( 123.6 ) ( 14.1 )

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

1 unchanged sentence

Amortization of debt issuance costs and discount, net of non-cash capitalized interest 7.2 1.3

Loss on extinguishment of debt — 24.8

Stock-based compensation 19.7 19.8

Loss on disposal or impairment of long-lived assets, including loss on disposal portion of factory optimization and start-up costs 3.7 1.0

Loss on disposal or impairment of long-lived assets, including loss on disposal portion of factory start-up costs — 1.9

Amortization of (premium) discount on investments, net ( 5.3 ) 1.4

Realized gain on sale of investments — ( 0.3 )

Deferred income taxes 0.3 0.2

3 unchanged sentences

Prepaid expenses and other assets ( 34.7 ) 0.6

Accounts payable, trade 4.1 11.3

Accounts payable ( 18.1 ) ( 4.8 )

Accrued salaries and wages and other liabilities 45.3 ( 25.2 )

Accrued contract liabilities 5.8 0.4

Net cash used in operating activities of continuing operations ( 112.7 ) ( 6.7 )

Net cash used in operating activities of discontinued operations ( 34.7 ) ( 6.0 )

Cash used in operating activities ( 147.4 ) ( 12.7 )

2 unchanged sentences

Purchases of patent and licensing rights ( 1.3 ) ( 1.1 )

Proceeds from sale of property and equipment, including insurance proceeds 1.7 2.7

Proceeds from sale of property and equipment — 1.6

Purchases of short-term investments ( 775.3 ) ( 28.9 )

3 unchanged sentences

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

Cash used in investing activities ( 1,000.7 ) ( 378.0 )

Net cash (used in) provided by investing activities of continuing operations ( 784.2 ) 106.6

Net cash used in investing activities of discontinued operations ( 1.7 ) ( 3.8 )

Cash (used in) provided by investing activities ( 785.9 ) 102.8

Financing activities:

Proceeds from long-term debt borrowings 1,000.0 —

Payments on long-term debt borrowings, including finance lease obligations ( 0.4 ) ( 20.4 )

Payments of debt issuance costs ( 46.0 ) —

Proceeds from issuance of common stock 0.5 0.5

Tax withholding on vested equity awards ( 15.0 ) ( 16.9 )

Proceeds from convertible notes 1,750.0 750.0

Payments of debt issuance costs ( 31.4 ) ( 17.7 )

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

Payments on long-term debt borrowings, including finance lease obligations ( 0.1 ) ( 0.2 )

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

Cash provided by financing activities 1,437.0 608.3

Cash provided by (used in) financing activities 938.4 ( 17.6 )

Effects of foreign exchange changes on cash and cash equivalents ( 0.1 ) ( 0.4 )

19 unchanged sentences

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.

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.

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

The Company also uses contract manufacturers for certain products and aspects of product fabrication, assembly and packaging.

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

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

As discussed more fully below in Note 2, “Discontinued Operations,” on August 22, 2023, the Company entered into a definitive agreement to sell certain assets comprising its RF product line (the RF Business Divestiture).

The RF Business Divestiture represents a strategic shift that will have a major effect on the Company's operations and financial results.

As a result, the Company has classified the results and cash flows of the RF product line as discontinued operations in its consolidated statements of operations and consolidated statements of cash flows for all periods presented.

Additionally, the related assets and liabilities associated with the transaction are classified as held for sale in the consolidated balance sheets.

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

The Company’s continuing operations consist of power devices, which are used in electric vehicles, motor drives, power supplies, solar and transportation applications, and silicon carbide and GaN materials, which are targeted for customers who use them to manufacture products for RF, power and other applications.

The majority of the Company's products are manufactured at production facilities located in North Carolina, New York and Arkansas for continuing operations and in California for discontinued operations.

The Company also uses contract manufacturers for certain products and aspects of product fabrication, assembly and packaging for both continuing and discontinued operations.

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

Wolfspeed, Inc.

2 unchanged sentences

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

In the opinion of management, all normal and recurring adjustments necessary to fairly state the consolidated financial position, results of operations, comprehensive loss, shareholders' equity and cash flows at March 26, 2023, and for all periods presented, have been made.

In the opinion of management, all normal and recurring adjustments necessary to fairly state the consolidated financial position, results of operations, comprehensive loss, shareholders' equity and cash flows at September 24, 2023, and for all periods presented, have been made.

All material intercompany accounts and transactions have been eliminated.

6 unchanged sentences

GAAP for annual financial statements.

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 26, 2022 (fiscal 2022) (the 2022 Form 10-K).

The results of operations for the three and nine months ended March 26, 2023 are not necessarily indicative of the operating results that may be attained for the entire fiscal year ending June 25, 2023 (fiscal 2023).

The results of operations for the three months ended September 24, 2023 are not necessarily indicative of the operating results that may be attained for the entire fiscal year ending June 30, 2024 (fiscal 2024).

Recently Adopted Accounting Pronouncements

Convertible Debt Instruments

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.

This update also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity.

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

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

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

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

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

(2) the accounting for those transactions;

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

An entity can apply the amendments prospectively or retrospectively.

The Company adopted this standard on June 27, 2022 and will apply the amendments prospectively.

The required disclosures will be reflected in the Company’s Annual Report on Form 10-K for the fiscal year ending June 25, 2023.

Accounting Pronouncements Pending Adoption

Note 2 – Discontinued Operations

On March 1, 2021, the Company completed the sale of certain assets and subsidiaries comprising its former LED Products segment to SMART Global Holdings, Inc.

RF Business Divestiture

On August 22, 2023, the Company entered into a definitive agreement (the RF Purchase Agreement) to sell its RF product line (the RF Business) 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 MACOM 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) (the RTP Fab Transfer).

The RTP Fab Transfer will occur after the Closing to accommodate the Company’s relocation of certain production equipment currently located in the RTP Fab to its fabrication facility in Durham, North Carolina.

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

The Company will forfeit one-quarter of the MACOM 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, 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 (the RTP Fab Transfer Date), (iv) a Long-Term Epi Supply Agreement (the LTA), pursuant to which MACOM will purchase from the Company Epi-wafers from the RTP Fab Transfer Date 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.

The completion of the RF Business Divestiture is subject to the satisfaction or waiver of a number of conditions set forth in the RF Purchase Agreement.

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

The Company ceased recording depreciation and amortization of long-lived assets conveying in the RF Purchase Agreement upon classification as discontinued operations in August 2023.

Additionally, the related assets and liabilities associated with the RF Business Divestiture, with the exception of current and long-term assets associated with the RTP Fab, are classified as held for sale in the consolidated balance sheets.

The assets and liabilities held for sale as of September 24, 2023 are classified as current in the consolidated balance sheet as the Company expects the transaction to close within one year.

The RTP Fab is not considered within the RF Business Divestiture disposal group and the current and long-term assets associated with the RTP Fab are not classified as held for sale in the consolidated balance sheets.

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

Three months ended

(in millions of U.S.

Dollars) September 24, 2023 September 25, 2022

Revenue, net $ 32.8 $ 51.9

Cost of revenue, net 37.9 39.7

Gross (loss) profit ( 5.1 ) 12.2

Operating expenses:

Research and development 20.3 14.9

Sales, general and administrative 7.7 5.0

Amortization of intangibles 1.5 2.4

Impairment on assets held for sale 144.6 —

Excess loss liability on assets held for sale 75.4 —

Other operating expense 17.1 2.1

Operating loss ( 271.7 ) ( 12.2 )

Non-operating income — ( 0.2 )

Loss before income taxes ( 271.7 ) ( 12.0 )

Income tax expense 0.4 0.1

Net loss ($ 272.1 ) ($ 12.1 )

As of September 24, 2023, the Company recorded an impairment to assets held for sale associated with the pending RF Business Divestiture of $ 144.6 million and an excess loss liability on assets held for sale of $ 75.4 million.

The following table presents the assets and liabilities of the RF Business classified as discontinued operations:

(in millions of U.S.

Dollars) September 24, 2023 June 25, 2023

Assets (current and long-term)

Inventories 35.5 38.7

Other current assets 0.1 0.2

Property and equipment, net 26.5 27.1

Intangible assets, net 89.9 91.2

Other assets 6.3 6.7

Valuation allowance on held for sale assets ( 144.6 ) —

Assets held for sale from discontinued operations (1)

Liabilities (current and long-term)

Accounts payable and accrued expenses 1.9 2.4

Accrued contract liabilities 4.5 4.0

Finance lease liabilities 0.1 0.1

Other current liabilities 2.3 2.1

Other long-term liabilities 4.9 5.3

Excess loss liability on held for sale assets 75.4 —

Liabilities held for sale of discontinued operations (1)

(1) Assets and liabilities of discontinued operations as of September 24, 2023 are classified as current on the consolidated balance sheet as the Company expects the transaction to close within twelve months of the balance sheet date .

LED Business Divestiture

On March 1, 2021, the Company completed the sale of certain assets and subsidiaries comprising its former LED Products segment (the LED Business) 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 Company Limited., the Company’s joint venture with San’an Optoelectronics Co., Ltd.

(collectively, the LED Business);

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

The Company retained certain assets used in and pre-closing liabilities associated with the 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 an unsecured promissory note (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 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.

The cost of selling the LED Business was $ 27.4 million, which was recognized throughout fiscal 2020 and 2021.

In connection with the closing of the LED Business Divestiture, the Company and CreeLED also entered into certain ancillary and related agreements, including (i) an Intellectual Property Assignment and License Agreement, which assigned to CreeLED certain intellectual property owned by the Company and its affiliates and licensed to CreeLED certain additional intellectual property owned by the Company, (ii) a Transition Services Agreement (LED TSA), (iii) a Wafer Supply and Fabrication Services Agreement (the Wafer Supply Agreement), pursuant to which the Company will supply CreeLED with certain Silicon Carbide materials and fabrication services for up to four years , and (iv) a Real Estate License Agreement (LED RELA), which will allow CreeLED to use certain premises owned by the Company to conduct the LED Business for a period of up to 24 months after closing.

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.

In the first quarter of fiscal 2023, the Company received an early payment for the Earnout Note.

The principal amount of $ 101.8 million was paid in full and the Company agreed to forgo payment by CreeLED of the outstanding accrued interest as of the payment date.

For the three and nine months ended March 26, 2023, the Company recognized $ 0.6 million and $ 2.4 million in administrative fees related to the LED RELA, respectively, none of which is included in accounts receivable, net in the consolidated balance sheet as of March 26, 2023.

For the three and nine months ended March 27, 2022, the Company recognized $ 0.9 million and $ 2.7 million in administrative fees related to the LED RELA, respectively.

Fees related to the LED RELA were recorded as lease income, see Note 4, "Leases."

For the three and nine months ended March 26, 2023, the Company recognized $ 1.5 million and $ 5.2 million in administrative fees related to the LED TSA, respectively, of which $ 0.5 million is included in accounts receivable, net in the consolidated balance sheet as of March 26, 2023.

For the three and nine months ended March 27, 2022, the Company recognized $ 2.1 million and $ 7.4 million in administrative fees related to the LED TSA, respectively.

In connection with the closing of the LED Business Divestiture, the Company and CreeLED also entered into certain ancillary and related agreements, including (i) an Intellectual Property Assignment and License Agreement, which assigned to CreeLED certain intellectual property owned by the Company and its affiliates and licensed to CreeLED certain additional intellectual property owned by the Company, (ii) a Transition Services Agreement (the LED TSA), (iii) a Wafer Supply and Fabrication Services Agreement (the Wafer Supply Agreement), pursuant to which the Company will supply CreeLED with certain silicon carbide materials and fabrication services for up to four years , and (iv) a Real Estate License Agreement (the LED RELA), which will allow CreeLED to use certain premises owned by the Company to conduct the LED Business for a period of up to 24 months after closing.

For the three months ended September 25, 2022, the Company recognized $ 0.9 million in administrative fees related to the LED RELA.

Fees related to the LED RELA were recorded as lease income, see Note 4, "Leases." The LED RELA concluded in the third quarter of fiscal 2023.

For the three months ended September 25, 2022, the Company recognized $ 1.9 million in administrative fees related to the LED TSA.

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, none of which was outstanding as of March 26, 2023.

For the three and nine months ended March 26, 2023, the Company recognized a net loss of $ 4.8 million and $ 7.3 million, respectively, in non-operating income, net related to the Wafer Supply Agreement, of which a receivable of $ 2.0 million is included in other assets in the consolidated balance sheet as of March 26, 2023.

For the three and nine months ended March 27, 2022, the Company recognized a net loss of $ 0.5 million and $ 1.4 million, respectively, in non-operating income, net related to the Wafer Supply Agreement.

The LED TSA concluded in the fourth quarter of fiscal 2023.

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 September 24, 2023.

For the three months ended September 24, 2023 and September 25, 2022, the Company recognized a net loss of $ 6.9 million and a net gain of $ 0.1 million, respectively, in non-operating expense (income), net related to the Wafer Supply Agreement, of which a receivable of $ 0.9 million is included in other assets in the consolidated balance sheet as of September 24, 2023.

Note 3 – Revenue Recognition

6 unchanged sentences

Contract liabilities primarily include various rights of return and customer deposits, as well as a reserve on the Company's "ship and debit" program.

Contract liabilities were $ 72.3 million as of March 26, 2023 and $ 47.8 million as of June 26, 2022.

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

Contract liabilities were $ 75.6 million as of September 24, 2023 and $ 69.8 million as of June 25, 2023.

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

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

For the three and nine months ended March 26, 2023, the Company did not recognize revenue that was included in contract liabilities as of June 26, 2022.

For the three months ended September 24, 2023, the Company did not recognize any material revenue that was included in contract liabilities as of June 25, 2023.

Product Line Revenue

The Company's continuing operations sells products from within two product lines:

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

Revenue from these two product lines is as follows:

Three months ended

(in millions of U.S.

Dollars) September 24, 2023 September 25, 2022

Power Products $ 101.2 $ 104.5

Materials Products 96.2 84.9

Total $ 197.4 $ 189.4

Geographic Information

The Company conducts business in several geographic areas.

Revenue is attributed to a particular geographic region based on the shipping address for the products.

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

Three months ended Nine months ended

March 26, 2023 March 27, 2022 March 26, 2023 March 27, 2022

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

Three months ended

September 24, 2023 September 25, 2022

(in millions of U.S.

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

Dollars) Revenue % of Revenue Revenue % of Revenue

Europe $ 75.3 38.1 % $ 70.5 37.2 %

China 63.7 27.9 % 50.4 26.8 % 181.7 26.5 % 143.0 27.6 %

Asia Pacific (excluding China) 51.1 22.3 % 30.7 16.3 % 145.0 21.1 % 88.6 17.1 %

Asia Pacific (excluding China and Hong Kong) 44.6 22.6 % 35.7 18.8 %

Hong Kong 34.1 17.3 % 41.5 21.9 %

United States 30.7 15.6 % 35.6 18.8 %

China 12.0 6.1 % 4.7 2.5 %

Other 0.7 0.3 % 1.4 0.8 %

9 unchanged sentences

Operating Leases:

March 26, 2023 June 26, 2022

September 24, 2023 June 25, 2023

Right-of-use asset (1)

13 unchanged sentences

Statement of Operations

Operating lease expense was $ 2.7 million and $ 7.4 million for the three and nine months ended March 26, 2023, respectively, and $ 1.8 million and $ 6.6 million for the three and nine months ended March 27, 2022, respectively.

Short-term lease expense, variable lease expense and sublease income were immaterial for the three and nine months ended March 26, 2023 and March 27, 2022.

Finance lease amortization was $ 0.2 million and $ 0.6 million and interest expense was $ 0.1 million and $ 0.2 million for the three and nine months ended March 26, 2023, respectively.

Finance lease amortization was $ 0.2 million and $ 0.9 million and interest expense was less than $ 0.1 million and $ 0.2 million for the three and nine months ended March 27, 2022, respectively.

Operating lease expense was $ 3.3 million and $ 1.8 million for the three months ended September 24, 2023 and September 25, 2022, respectively.

Finance lease amortization was $ 0.2 million and interest expense was $ 0.1 million for the three months ended September 24, 2023.

Finance lease amortization was $ 0.2 million and interest expense was $ 0.1 million for the three months ended September 25, 2022.

Cash flow information consisted of the following (1) :

Nine months ended

Three months ended

(in millions of U.S.

Dollars) March 26, 2023 March 27, 2022

Dollars) September 24, 2023 September 25, 2022

Cash (used in) provided by operating activities:

Cash paid for operating leases ($ 2.4 ) ($ 1.0 )

Cash received from tenant improvement allowance on operating lease 7.4 —

Cash received for tenant allowance on operating lease 0.4 —

Cash paid for interest portion of financing leases ( 0.1 ) ( 0.1 )

3 unchanged sentences

Lease Liability Maturities

Maturities of operating and finance lease liabilities as of March 26, 2023 were as follows (in millions of U.S.

Maturities of operating and finance lease liabilities as of September 24, 2023 were as follows (in millions of U.S.

Fiscal Year Ending Operating Leases Finance Leases Total

14 unchanged sentences

4.35 % 2.67 %

(1) Weighted average remaining lease term of finance leases excluding the 49-year ground lease is 42 months.

(2) Weighted average discount rate of finance leases excluding the 49-year ground lease is 3.55 %.

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

(1) Weighted average remaining lease term of finance leases without the 49-year ground lease is 37 months.

(2) Weighted average discount rate of finance leases without the 49-year ground lease is 3.51 %.

As mentioned in Note 2, "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.

The Company recognized lease income of $ 0.6 million and $ 2.4 million for the three and nine months ended March 26, 2023, respectively.

The Company recognized lease income of $ 0.9 million and $ 2.7 million for the three and nine months ended March 27, 2022, respectively.

The Company did not recognize any variable lease income for the three and nine months ended March 26, 2023 and March 27, 2022.

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

The Company recognized lease income of $ 0.2 million and $ 0.9 million for the three months ended September 24, 2023 and September 25, 2022, respectively.

Note 5 – Financial Statement Details

2 unchanged sentences

(in millions of U.S.

Dollars) March 26, 2023 June 26, 2022

Dollars) September 24, 2023 June 25, 2023

Billed trade receivables $ 150.6 $ 152.1

3 unchanged sentences

Accounts receivable, net $ 154.2 $ 154.8

Changes in the Company’s allowance for bad debts were as follows:

(in millions of U.S.

Dollars) March 26, 2023

Balance at beginning of period $ 1.2

Current period provision change ( 0.5 )

Write-offs, net of recoveries —

Balance at end of period $ 0.7

Inventories consisted of the following:

(in millions of U.S.

Dollars) March 26, 2023 June 26, 2022

Dollars) September 24, 2023 June 25, 2023

Raw material $ 105.2 $ 90.7

2 unchanged sentences

Inventories $ 340.9 $ 288.8

In addition to inventory held by the Company associated with the power and materials product lines, the Company holds inventory related to a master supply agreement that will be entered into in connection with the RF Business Divestiture (the Master Supply Agreement).

Of the total inventory noted above, $ 30.7 million and $ 29.7 million relates to the future Master Supply Agreement as of September 24, 2023 and June 25, 2023, respectively.

Other Current Assets

1 unchanged sentence

(in millions of U.S.

Dollars) March 26, 2023 June 26, 2022

Dollars) September 24, 2023 June 25, 2023

Reimbursement receivable on long-term incentive agreement $ 99.5 $ 91.3

Accrued interest receivable 13.3 10.1

Inventory related to Wafer Supply Agreement 4.0 3.9

VAT receivables 3.3 0.2

Receivable on Wafer Supply Agreement 2.0 2.7

Other receivables 11.0 2.2

Deferred product costs 0.4 2.5

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

VAT receivables 9.8 4.8

Insurance deposit 4.2 6.3

Inventory related to the Wafer Supply Agreement 3.6 3.9

Receivable on the Wafer Supply Agreement 0.9 1.3

Other 1.4 1.6

3 unchanged sentences

(in millions of U.S.

Dollars) March 26, 2023 June 26, 2022

Dollars) September 24, 2023 June 25, 2023

Accounts payable, trade $ 64.9 $ 44.9

1 unchanged sentence

Accrued property and equipment 340.2 328.4

Accrued expenses and other 99.5 37.2

Accrued expenses 54.2 97.3

Accounts payable and accrued expenses $ 548.9 $ 534.5

1 unchanged sentence

Other operating expense consisted of the following:

Three months ended Nine months ended

Three months ended

(in millions of U.S.

Dollars) March 26, 2023 March 27, 2022 March 26, 2023 March 27, 2022

Factory start-up costs 44.7 21.4 120.7 41.0

Dollars) September 24, 2023 September 25, 2022

Project, transformation and transaction costs $ 2.6 $ 0.9

Factory optimization restructuring (1)

Severance costs 0.5 0.5 2.0 0.5

Executive severance costs — 1.0

Other operating expense $ 2.6 $ 1.9

(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.

Accumulated Other Comprehensive Loss, net of taxes

Accumulated other comprehensive loss, net of taxes, consisted of $ 23.1 million and $ 25.3 million of net unrealized losses on available-for-sale securities as of March 26, 2023 and June 26, 2022, respectively.

Accumulated other comprehensive loss, net of taxes, consisted of $ 23.2 million and $ 25.1 million of net unrealized losses on available-for-sale securities as of September 24, 2023 and June 25, 2023, respectively.

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

Reclassifications Out of Accumulated Other Comprehensive Loss

Reclassifications out of accumulated other comprehensive loss was a loss of less than $ 0.1 million for both the three and nine months ended March 26, 2023 and a less than $ 0.1 million gain and a $ 0.3 million gain for the three and nine months ended March 27, 2022, respectively.

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

Non-Operating (Income) Expense, net

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

Three months ended Nine months ended

Reclassifications out of accumulated other comprehensive loss was a less than $ 0.1 million gain for both the three months ended September 24, 2023 and the three months ended September 25, 2022.

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

Non-Operating Expense (Income), net

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

Three months ended

(in millions of U.S.

Dollars) March 26, 2023 March 27, 2022 March 26, 2023 March 27, 2022

Dollars) September 24, 2023 September 25, 2022

Interest income ( 40.6 ) ( 4.3 )

1 unchanged sentence

Gain on arbitration proceedings (1)

— — ( 50.3 ) —

Loss on debt extinguishment (2)

Loss on Wafer Supply Agreement 4.8 0.5 7.3 1.4

Loss on early payment of transaction-related note receivable (3)

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

Loss (gain) on Wafer Supply Agreement 6.9 ( 0.1 )

Other, net 0.5 ( 0.5 )

Non-operating (income) expense, net ($ 2.9 ) $ 3.8 ($ 53.4 ) $ 35.7

Non-operating expense (income), net $ 28.5 ($ 49.5 )

(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 9, "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.

(3) As discussed further in Note 2, "Discontinued Operations," in the third quarter of fiscal 2022, the Company recognized a loss of $ 1.2 million related to the early payment of the Purchase Price Note.

Statements of Cash Flows - non-cash activities

Nine months ended

Three months ended

(in millions of U.S.

Dollars) March 26, 2023 March 27, 2022

Dollars) September 24, 2023 September 25, 2022

Lease asset and liability additions $ 1.0 $ 0.4

Lease asset and liability modifications, net 1.8 —

Lease terminations — ( 0.2 )

Settlement of 2023 Notes in shares of common stock (1)

Decrease in property, plant and equipment from investment tax credit receivables 73.5 —

Decrease in property, plant and equipment from long-term incentive related receivables 47.7 22.1

(1) As discussed further in Note 9, "Long-term Debt," in the second quarter of fiscal 2022, all outstanding 2023 Notes were surrendered for conversion, resulting in the settlement of all outstanding 2023 Notes in shares, with fractional shares paid in cash.

Accrued property and equipment as of March 26, 2023 and March 27, 2022 was $ 306.0 million and $ 88.3 million, respectively.

Accrued property and equipment as of September 24, 2023 and September 25, 2022 was $ 340.2 million and $ 146.3 million, respectively.

Note 6 – Investments

Short-term investments consisted of the following (in millions of U.S.

March 26, 2023

September 24, 2023

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

Corporate bonds $ 612.8 $ 0.1 ($ 16.7 ) $ — $ 596.2

treasury securities $ 691.6 $ — ($ 1.3 ) $ — $ 690.3

Certificates of deposit 203.5 — — — 203.5

Corporate bonds 483.8 — ( 15.0 ) — 468.8

Municipal bonds 146.0 — ( 4.3 ) — 141.7

Commercial paper 127.9 — — — 127.9

agency securities 72.8 — ( 0.2 ) — 72.6

Certificates of deposit 57.1 — — — 57.1

Variable rate demand notes 27.2 — — — 27.2

Commercial paper 34.7 — — — 34.7

Total short-term investments $ 1,606.4 $ — ($ 20.8 ) $ — $ 1,585.6

2 unchanged sentences

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

Municipal bonds 166.5 0.1 ( 4.4 ) — 162.2

treasury securities 261.8 — ( 1.4 ) — 260.4

Variable rate demand notes 69.4 — — — 69.4

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

Total short-term investments $ 1,220.6 $ — ($ 22.7 ) $ — $ 1,197.9

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

The Company did not have any long-term investments as of March 26, 2023 and June 26, 2022.

The Company did not have any long-term investments as of September 24, 2023 and June 25, 2023.

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

March 26, 2023

September 24, 2023

Less than 12 Months Greater than 12 Months Total

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

treasury securities $ 631.5 ($ 0.7 ) $ 26.3 ($ 0.7 ) $ 657.8 ($ 1.4 )

Corporate bonds 157.5 ( 0.5 ) 292.2 ( 14.4 ) 449.7 ( 14.9 )

Municipal bonds 43.2 ( 0.2 ) 93.7 ( 4.1 ) 136.9 ( 4.3 )

treasury securities 54.6 — 31.2 ( 0.7 ) 85.8 ( 0.7 )

agency securities 70.6 ( 0.2 ) 2.0 — 72.6 ( 0.2 )

Commercial Paper 4.0 — — — 4.0 —

Total $ 906.8 ($ 1.6 ) $ 414.2 ($ 19.2 ) $ 1,321.0 ($ 20.8 )

4 unchanged sentences

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

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

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 )

Number of securities with an unrealized loss 95 234 329

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

As of March 26, 2023, the Company held one cash equivalent security in an unrealized loss position with a fair value of $ 14.8 million and an unrealized loss of less than $ 0.1 million.

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.

All cash equivalents in unrealized loss positions as of March 26, 2023 and June 26, 2022 have been in unrealized loss positions for less than 12 months.

Additionally, the Company held cash equivalent securities in unrealized loss positions as of September 24, 2023 and June 25, 2023.

As of September 24, 2023, the Company held six cash equivalent securities in an unrealized loss position with a fair value of $ 92.6 million and an 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.

All cash equivalents in unrealized loss positions as of September 24, 2023 and June 25, 2023 have been in unrealized loss positions for less than 12 months.

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

Accrued interest receivable was $ 12.0 million and $ 5.9 million as of March 26, 2023 and June 26, 2022, respectively, and is recorded in other current assets on the consolidated balance sheets.

Accrued interest receivable was $ 13.3 million and $ 10.1 million as of September 24, 2023 and June 25, 2023, respectively, and is recorded in other current assets on the consolidated balance sheets.

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

There were no write-offs of noncollectable interest income during the three and nine months ended March 26, 2023 and March 27, 2022.

There were no write-offs of noncollectable interest income during the three months ended September 24, 2023 and September 25, 2022.

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

2 unchanged sentences

The Company evaluates its investments for expected credit losses.

The Company believes it is able to and intends to hold each of the investments held with an unrealized loss as of March 26, 2023 until the investments fully recover in market value.

No allowance for credit losses was recorded as of March 26, 2023.

The contractual maturities of short-term investments as of March 26, 2023 were as follows:

The Company believes it is able to and intends to hold each of the investments held with an unrealized loss as of September 24, 2023 until the investments fully recover in market value.

No allowance for credit losses was recorded as of September 24, 2023.

The contractual maturities of short-term investments as of September 24, 2023 were as follows:

(in millions of U.S.

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

Corporate bonds $ 356.5 $ 239.7 $ — $ — $ 596.2

treasury securities $ 591.4 $ 98.9 $ — $ — $ 690.3

Certificates of deposit 203.5 — — — 203.5

Corporate bonds 218.1 250.7 — — 468.8

Municipal bonds 58.1 81.2 — 2.4 141.7

Commercial paper 127.9 — — — 127.9

agency securities 72.6 — — — 72.6

Certificates of deposit 57.1 — — — 57.1

Variable rate demand notes — — 9.7 17.5 27.2

Commercial paper 34.7 — — — 34.7

Total short-term investments $ 1,125.2 $ 430.8 $ 9.7 $ 19.9 $ 1,585.6

10 unchanged sentences

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

As of March 26, 2023 and June 26, 2022, financial assets utilizing Level 1 inputs included U.S.

treasury securities and money market funds.

Financial assets utilizing Level 2 inputs included commercial paper, certificates of deposit, corporate bonds, municipal bonds, variable rate demand notes and U.S.

agency securities.

As of September 24, 2023 and June 25, 2023, financial assets utilizing Level 1 inputs included U.S.

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

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

Level 2 assets are valued based on quoted prices in active markets for instruments that are similar or using a third-party pricing service’s consensus price, which is a weighted average price based on multiple sources.

These sources determine prices utilizing market income models which factor in, where applicable, transactions of similar assets in active markets, transactions of identical assets in infrequent markets, interest rates, bond or credit default swap spreads and volatility.

The Company did not have any financial assets requiring the use of Level 3 inputs as of March 26, 2023 and June 26, 2022.

The Company did not have any financial assets requiring the use of Level 3 inputs as of September 24, 2023 and June 25, 2023.

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

GAAP hierarchy:

March 26, 2023 June 26, 2022

September 24, 2023 June 25, 2023

(in millions of U.S.

4 unchanged sentences

Commercial paper — 7.5 7.5 — 7.0 7.0

Certificates of deposit — 3.8 3.8 — — —

Total cash equivalents 495.5 11.3 506.8 251.1 7.0 258.1

Short-term investments:

Corporate bonds — 596.2 596.2 — 448.0 448.0

treasury securities 690.3 — 690.3 260.4 — 260.4

Certificates of deposit — 203.5 203.5 — — —

Corporate bonds — 468.8 468.8 — 495.6 495.6

Municipal bonds — 141.7 141.7 — 175.3 175.3

Commercial paper — 127.9 127.9 — 50.2 50.2

agency securities — 72.6 72.6 — 76.8 76.8

Certificates of deposit — 57.1 57.1 — 112.3 112.3

Variable rate demand notes — 27.2 27.2 — 27.3 27.3

Commercial paper — 34.7 34.7 — — —

Total short-term investments 690.3 895.3 1,585.6 260.4 937.5 1,197.9

1 unchanged sentence

Note 8 – Goodwill and Intangible Assets

There were no changes to goodwill during the nine months ended March 26, 2023.

There were no changes to goodwill during the three months ended September 24, 2023.

Intangible Assets, net

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

March 26, 2023 June 26, 2022

September 24, 2023 June 25, 2023

(in millions of U.S.

Dollars) Gross Accumulated Amortization Net Gross Accumulated Amortization Net

Customer relationships $ 96.8 ($ 35.8 ) $ 61.0 $ 96.8 ($ 31.2 ) $ 65.6

Developed technology 68.0 ( 37.3 ) 30.7 68.0 ( 33.6 ) 34.4

Non-compete agreements 12.2 ( 12.2 ) — 12.2 ( 12.2 ) —

Acquisition related intangible assets (1)

24.0 ( 22.0 ) 2.0 24.0 ( 21.7 ) 2.3

Patent and licensing rights 49.0 ( 26.3 ) 22.7 56.7 ( 34.4 ) 22.3

Total intangible assets $ 73.0 ($ 48.3 ) $ 24.7 $ 80.7 ($ 56.1 ) $ 24.6

Total amortization of acquisition-related intangibles assets was $ 2.6 million and $ 8.3 million for the three and nine months ended March 26, 2023, respectively, and $ 3.4 million and $ 10.6 million for the three and nine months ended March 27, 2022, respectively.

Total amortization of patents and licensing rights was $ 1.2 million and $ 3.7 million for the three and nine months ended March 26, 2023, respectively, and $ 1.3 million and $ 4.1 million for the three and nine months ended March 27, 2022, respectively.

(1) Relates to developed technology

Total amortization of acquisition-related intangibles assets was $ 0.3 million for the three months ended September 24, 2023 and $ 0.5 million for the three months ended September 25, 2022.

Total amortization of patents and licensing rights was $ 1.0 million for the three months ended September 24, 2023, and $ 1.0 million for the three months ended September 25, 2022.

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

10 unchanged sentences

Note 9 – Long-term Debt

Revolving Line of Credit

As of March 26, 2023, 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 March 26, 2023, the Company had no outstanding borrowings under the Credit Agreement, $ 125.0 million in available commitments under the Credit Agreement and $ 125.0 million available for borrowing.

For the three and nine months ended March 26, 2023, the average interest rate was 0.00 % due to no borrowings.

As of March 26, 2023, the unused line fee on available borrowings is 25 basis points.

2026 Convertible Notes

On August 24, 2018, the Company sold $ 500.0 million aggregate principal amount of 0.875 % convertible senior notes due September 1, 2023 to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the Securities Act), and an additional $ 75.0 million aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment options of the underwriters (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 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.

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

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

However, any 2023 Notes called for redemption would not be redeemed if such 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.

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

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

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

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

The amount of cash paid for fractional shares was immaterial.

2026 Convertible Notes

On April 21, 2020, the Company sold $ 500.0 million aggregate principal amount of 1.75 % convertible senior notes due May 1, 2026 to qualified institutional buyers pursuant to Rule 144A under the Securities Act and an additional $ 75.0 million aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment options of the underwriters (the 2026 Notes).

On April 21, 2020, the Company sold $ 500.0 million aggregate principal amount of 1.75 % convertible senior notes due May 1, 2026 to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the Securities Act) and an additional $ 75.0 million aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment options of the underwriters (the 2026 Notes).

The total net proceeds from the 2026 Notes offering was approximately $ 561.4 million.

The conversion rate will initially be 21.1346 shares of common stock per one thousand dollars in principal amount of 2026 Notes (equivalent to an initial conversion price of approximately $ 47.32 per share of common stock).

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

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

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

The Company may redeem for cash all or any portion of the 2026 Notes, at its option, on a redemption date occurring on or after May 1, 2023 and on or before the 40 th scheduled trading day immediately before the maturity date, if the last reported sales price of its common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides a notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption.

The redemption price will be 100 % of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

If the Company undergoes certain fundamental changes related to the Company's common stock, holders may require the Company to repurchase for cash all or any portions of their 2026 Notes at a fundamental repurchase price equal to 100 % of the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Holders may convert their 2026 Notes at their option at any time prior to the close of business on the business day immediately preceding November 3, 2025 only under the following circumstances:

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

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

(3) if the Company calls such 2026 Notes for redemption, at any time prior to the close of business on the second business day immediately preceding the redemption date;

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

On or after November 3, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2026 Notes at any time, regardless of the foregoing circumstances.

Upon conversion, the Company will pay or deliver cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company's election.

The Company used approximately $ 144.3 million of the net proceeds from the sale of the 2026 Notes in April 2020 to repurchase approximately $ 150.2 million aggregate principal amount of the 2023 Notes, including approximately $ 0.2 million of accrued interest on such notes, in privately negotiated transactions.

The Company used approximately $ 144.3 million of the net proceeds from the sale of the 2026 Notes in April 2020 to repurchase approximately $ 150.2 million aggregate principal amount of the then outstanding 0.875 % convertible senior notes due September 1, 2023, including approximately $ 0.2 million of accrued interest on such notes, in privately negotiated transactions.

2028 Convertible Notes

2 unchanged sentences

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

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

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 2028 Notes in connection with such a corporate event, or who elects to convert any 2028 Notes called for redemption during the related redemption period in certain circumstances.

The Company may not redeem the 2028 Notes prior to February 18, 2025.

The Company may redeem for cash all or any portion of the 2028 Notes, at its option, on a redemption date occurring on or after February 18, 2025 and on or before the 40 th scheduled trading day immediately before the maturity date, if the last reported sales price of its common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides a notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption.

The redemption price will be 100 % of the principal amount of the 2028 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

If the Company undergoes certain fundamental changes related to the Company's common stock, holders may require the Company to repurchase for cash all or any portions of their 2028 Notes at a fundamental repurchase price equal to 100 % of the principal amount of the 2028 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

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

(1) during any calendar quarter commencing after the calendar quarter ending March 31, 2022 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

(2) during the five business day period after any ten consecutive trading day period in which the trading price per $1.0 thousand principal amount of 2028 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of its common stock and the conversion rate on each such trading day;

(3) if the Company calls such 2028 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 August 16, 2027 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2028 Notes at any time, regardless of the foregoing circumstances.

Upon conversion, the Company will pay or deliver cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company's election.

Capped Call Transactions in relation to the 2028 Notes

2 unchanged sentences

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 Notes 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 our 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 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.

4 unchanged sentences

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 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

5 unchanged sentences

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

Accounting for 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.

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

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

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

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 in relation to the 2029 Notes were accounted for as a reduction of the principal balance and will be amortized over the term of the 2029 Notes.

The 2026 Notes, 2028 Notes and 2029 Notes (the Outstanding 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 Outstanding Notes;

Accounting for the 2026 Notes, 2028 Notes and 2029 Notes

Debt issuance costs for the 2026 Notes, 2028 Notes and 2029 Notes are amortized to interest expense over their respective terms at an effective annual interest rate of 2.2 %, 0.6 % and 2.1 %, respectively.

The 2026 Notes, 2028 Notes and 2029 Notes (the Outstanding Convertible 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 Outstanding Convertible 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 Outstanding Notes is as follows:

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

(in millions of U.S.

Dollars) March 26, 2023 June 26, 2022

Dollars) September 24, 2023 June 25, 2023

Principal $ 3,075.0 $ 3,075.0

1 unchanged sentence

Net carrying amount $ 3,027.9 $ 3,025.6

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

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 September 30, 2023.

As a result, none of the Outstanding Convertible Notes are convertible at the option of the holders through December 31, 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 September 24, 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 (the 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 %.

CRD Agreement Deposits

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.

Debt issuance costs for the CRD Agreement related to both the initial deposit received and the potential additional deposits.

A portion of the debt issuance costs were accounted for on a pro rata basis as a reduction of the principal balance for the initial deposit and will be amortized over the term of the deposit at an effective interest rate of 6.3 %.

The remaining debt issuance costs of approximately $ 22.8 million were recorded as a prepaid expense and will be recorded as a reduction of the principal balance, on a pro rata basis, if additional deposits are drawn under the CRD Agreement.

The net carrying amount of the liability component of the 2030 Senior Notes and the deposits under the CRD Agreement is as follows:

(in millions of U.S.

Dollars) March 26, 2023 (1)

June 26, 2022

Discount related to value of conversion option $ — $ 341.1

Debt issuance costs — ( 8.1 )

Dollars) September 24, 2023 June 25, 2023

Principal $ 2,250.0 $ 1,250.0

Unamortized discount and issuance costs ( 118.5 ) ( 100.5 )

Net carrying amount $ 2,131.5 $ 1,149.5

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

Three months ended Nine months ended

Interest Expense

The interest expense, net recognized related to the Corporate Debt Holdings and the deposits under the CRD Agreement is as follows:

Three months ended

(in millions of U.S.

Dollars) March 26, 2023 March 27, 2022 March 26, 2023 March 27, 2022

Dollars) September 24, 2023 September 25, 2022

Interest expense, net of capitalized interest $ 53.7 $ 3.0

2 unchanged sentences

The Company capitalizes interest in connection with ongoing capacity expansions.

For both the three and nine months ended March 26, 2023, the Company capitalized $ 0.2 million of interest expense and less than $ 0.1 million of amortization of issuance costs.

For the three and nine months ended March 27, 2022, the Company capitalized $ 2.4 million and $ 7.3 million of interest expense, respectively, and $ 5.9 million and $ 17.1 million of amortization of discount and issuance costs, respectively.

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 March 31, 2023.

As a result, the 2026 Notes are convertible at the option of the holders through June 30, 2023.

As of March 26, 2023, the if-converted value of the 2026 Notes exceeded their respective principal amounts by $ 169.9 million.

The estimated fair value of the Outstanding Notes is $ 3.0 billion as of March 26, 2023, as determined by a Level 2 valuation.

For the three months ended September 24, 2023, the Company capitalized $ 2.3 million of interest expense and $ 0.3 million of amortization of issuance costs.

The Company did not capitalize interest expense for the three months ended September 25, 2022.

Note 10 – Loss Per Share

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

Three months ended Nine months ended

Three months ended

(in millions of U.S.

Dollars, except share data) March 26, 2023 March 27, 2022 March 26, 2023 March 27, 2022

Net loss ($ 99.5 ) ($ 66.5 ) ($ 216.6 ) ($ 233.3 )

Dollars, except share data) September 24, 2023 September 25, 2022

Net loss from continuing operations ($ 123.6 ) ($ 14.1 )

Net loss from discontinued operations ($ 272.1 ) ($ 12.1 )

Weighted average shares - basic and diluted (in thousands) 125,105 124,035

Loss per share - basic and diluted:

Continuing operations ($ 0.99 ) ($ 0.11 )

Discontinued operations ($ 2.17 ) ($ 0.10 )

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

For both the three and nine months ended March 26, 2023, 2.9 million of weighted average shares were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive.

For the three and nine months ended March 27, 2022, 2.3 million and 2.4 million, respectively, of weighted average shares were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive.

In addition, future earnings per share of the Company are also subject to dilution from conversion of the 2026 Notes, 2028 Notes and 2029 Notes under certain conditions as described in Note 9, “Long-term Debt.”

For the three months ended September 24, 2023 and September 25, 2022, 3.3 million and 2.6 million of weighted average shares, respectively, were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive.

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

Note 11 – Stock-Based Compensation

Overview of Employee Stock-Based Compensation Plans

The Company currently has one equity-based compensation plan, the 2013 Long-Term Incentive Compensation Plan (2013 LTIP), from which stock-based compensation awards can be granted to its employees and directors.

During the three months ended September 24, 2023 and September 25, 2022, the Company had one equity-based compensation plan, the 2013 Long-Term Incentive Compensation Plan (2013 LTIP), from which stock-based compensation awards can be granted to employees and directors.

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.

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.

At the end of each six-month period in April and October, participants purchase the Company’s common stock through the ESPP at a 15 % discount to the fair market value of the common stock on the first day of the twelve-month participation period or the purchase date, whichever is lower.

At the end of each six-month period in April and October, participants may purchase the Company’s common stock through the ESPP at a 15 % discount to the fair market value of the common stock on the first day of the twelve-month participation period or the purchase date, whichever is lower.

The plan also provides for an automatic reset feature to start participants on a new twelve-month participation period if the fair market value of common stock declines during the first six-month purchase period.

Stock Option Awards

A summary of stock option awards outstanding as of March 26, 2023 and changes during the nine months then ended is as follows:

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

Outstanding at June 26, 2022 69 $ 25.12

Granted — $ —

Exercised ( 36 ) $ 25.54

Forfeited or expired ( 2 ) $ 27.09

Outstanding at March 26, 2023 31 $ 24.52

Restricted Stock Units

A summary of nonvested restricted stock unit awards (RSUs) outstanding as of March 26, 2023 and changes during the nine months then ended is as follows:

A summary of nonvested restricted stock unit awards (RSUs) outstanding as of September 24, 2023 and changes during the three months then ended is as follows:

(unit awards in thousands) Number of RSUs Weighted Average Grant-Date Fair Value

3 unchanged sentences

Forfeited ( 121 ) $ 86.53

Nonvested at March 26, 2023 2,411 $ 84.57

Nonvested at September 24, 2023 3,155 $ 77.72

Stock-Based Compensation Valuation and Expense

15 unchanged sentences

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

Three months ended Nine months ended

Three months ended

(in millions of U.S.

Dollars) March 26, 2023 March 27, 2022 March 26, 2023 March 27, 2022

Dollars) September 24, 2023 September 25, 2022

Cost of revenue, net $ 6.0 $ 5.8

9 unchanged sentences

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

As of March 26, 2023, the Company has concluded that it is necessary to recognize a full valuation allowance against its U.S.

As of September 24, 2023, the Company has concluded that it is necessary to recognize a full valuation allowance against its U.S.

deferred tax assets.

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

The first step is to evaluate the tax position for recognition by determining if the available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.

The second step is to measure the tax benefit as the largest amount that is cumulatively more than 50% likely to be realized upon ultimate settlement.

As of June 25, 2023, the Company's liability for unrecognized tax benefits was $ 9.8 million.

During the nine months ended March 26, 2023, the Company recognized a $ 0.2 million decrease to the liability for unrecognized tax benefits due to statute expiration.

As a result, the total liability for unrecognized tax benefits as of March 26, 2023 was $ 7.0 million.

During the three months ended September 24, 2023, the Company recognized a $ 1.3 million decrease to the liability for unrecognized tax benefits due to statute expiration and a $ 0.3 million increase to the liability for unrecognized tax benefits due to an increase in generated research and development credits.

As a result, the total liability for unrecognized tax benefits as of September 24, 2023 was $ 8.8 million.

If any portion of this $ 8.8 million is recognized, the Company will then include that portion in the computation of its effective tax rate.

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Patent & Trademark Office.

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

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

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

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Additionally, the Company has agreed, under a separate agreement (the SUNY Agreement), to sponsor the creation of two endowed faculty chairs and fund a scholarship program at SUNY Polytechnic Institute.

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 March 26, 2023, the Company has reduced property and equipment, net by a total of $ 370.3 million as a result of GDA reimbursements, of which $ 280.7 million has been received in cash and an additional $ 89.6 million in receivables are recorded in other current assets and in other assets in the consolidated balance sheet.

As of September 24, 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 September 24, 2023, the Company has reduced property and equipment, net by a total of $ 446.9 million as a result of GDA reimbursements, of which $ 344.8 million has been received in cash and an additional $ 102.1 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.

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 three and nine months ended March 26, 2023, the Company purchased $ 3.5 million of product under this agreement.

As of March 26, 2023, minimum future product purchases for fiscal years 2024, 2025, 2026, 2027 and 2028 are $ 9.9 million, $ 26.8 million, $ 36.0 million, $ 50.1 million and $ 73.7 million, respectively.

During the three months ended September 24, 2023, the Company purchased $ 6.3 million of product under this agreement.

As of September 24, 2023, minimum future product purchases have been satisfied for fiscal 2024, and minimum future product purchases for fiscal years 2025, 2026, 2027 and 2028 are $ 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 the third quarter of fiscal 2023 in connection with the agreement, which is recognized in prepaid expenses on the consolidated balance sheet.

As of September 24, 2023, the Company has paid $ 13.0 million in connection with the agreement, which is recognized in prepaid expenses on the consolidated balance sheet.

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

What changed 10-Q

Item 1. Financial Statements