WOLFSPEED, INC. 10-Q

Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets as of September 24, 2023 and June 2 5 , 2023 4 Consolidated Statements of Operations for the three months ended September 2 4 , 2023 and September 2 5 , 2022 5 Consolidated Statements of Comprehensive Loss for the three months ended September 2 4 , 2023 and Se ptember 2 5 , 2022 6 Consolidated Statements of Shareholders' Equity for the three months ended September 2 4 , 2023 and September 2 5 , 2022 7 Consolidated Statements of Cash Flows for the three months ended September 2 4 , 2023 and Se ptember 2 5 , 2022 9 Notes to Unaudited Consolidated Financial Statements 10 3 Table of Contents WOLFSPEED, INC. UNAUDITED CONSOLIDATED BALANCE SHEETS in millions of U.S. Dollars, except share data in thousands September 24, 2023 June 25, 2023 Assets Current assets: Cash and cash equivalents $ 1,762.0 $ 1,757.0 Short-term investments 1,585.6 1,197.9 Total cash, cash equivalents and short-term investments 3,347.6 2,954.9 Accounts receivable, net 154.2 154.8 Inventories 340.9 288.8 Income taxes receivable 0.4 0.8 Prepaid expenses 69.2 36.8 Other current assets 153.7 131.5 Current assets held for sale from discontinued operations 13.7 38.9 Total current assets 4,079.7 3,606.5 Property and equipment, net 2,453.3 2,164.3 Goodwill 359.2 359.2 Intangible assets, net 24.7 24.6 Long-term receivables 2.6 2.6 Deferred tax assets 1.2 1.2 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 Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued expenses $ 548.9 $ 534.5 Accrued contract liabilities 44.8 39.0 Income taxes payable 9.8 9.6 Finance lease liabilities 0.4 0.4 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 Deferred tax liabilities 4.2 3.9 Finance lease liabilities - long-term 9.1 9.2 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 Commitments and contingencies Shareholders’ equity: Preferred stock, par value $ 0.01 ; 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 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 0.2 0.2 Additional paid-in-capital 3,728.6 3,711.0 Accumulated other comprehensive loss ( 23.2 ) ( 25.1 ) Accumulated deficit ( 2,459.9 ) ( 2,064.2 ) Total shareholders’ equity 1,245.7 1,621.9 Total liabilities and shareholders’ equity $ 7,312.8 $ 6,586.7 The accompanying notes are an integral part of the consolidated financial statements 4 Table of Contents WOLFSPEED, INC. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended in millions of U.S. Dollars, except share data September 24, 2023 September 25, 2022 Revenue, net $ 197.4 $ 189.4 Cost of revenue, net 172.7 121.7 Gross profit 24.7 67.7 Operating expenses: Research and development 44.1 40.3 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 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 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 The accompanying notes are an integral part of the consolidated financial statements 5 Table of Contents WOLFSPEED, INC. UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Three months ended (in millions of U.S. Dollars) September 24, 2023 September 25, 2022 Net loss ($ 395.7 ) ($ 26.2 ) Other comprehensive income (loss): Net unrealized gain (loss) on available-for-sale securities 1.9 ( 7.0 ) Comprehensive loss ( 393.8 ) ( 33.2 ) The accompanying notes are an integral part of the consolidated financial statements 6 Table of Contents WOLFSPEED, INC. UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Shareholders' Equity (in millions of U.S. Dollars, except share data in thousands) Number of Shares Par Value Balance at June 25, 2023 124,794 $ 0.2 $ 3,711.0 ($ 2,064.2 ) ($ 25.1 ) $ 1,621.9 Net loss — — — ( 395.7 ) — ( 395.7 ) Unrealized gain on available-for-sale securities — — — — 1.9 1.9 Tax withholding on vested equity awards — — ( 15.0 ) — — ( 15.0 ) Stock-based compensation 506 — 32.1 — — 32.1 Exercise of stock options and issuance of shares 21 — 0.5 — — 0.5 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 7 Table of Contents WOLFSPEED, INC. UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Shareholders' Equity (in millions of U.S. Dollars, except share data in thousands) Number of Shares Par Value Balance at June 26, 2022 123,795 $ 0.2 $ 4,228.4 ($ 1,764.0 ) ($ 25.3 ) $ 2,439.3 Net loss — — — ( 26.2 ) — ( 26.2 ) Unrealized loss on available-for-sale securities — — — — ( 7.0 ) ( 7.0 ) Tax withholding on vested equity awards — — ( 16.9 ) — — ( 16.9 ) Stock-based compensation 395 — 23.2 — — 23.2 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 The accompanying notes are an integral part of the consolidated financial statements 8 Table of Contents WOLFSPEED, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended (in millions of U.S. 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: Depreciation and amortization 40.1 33.5 Amortization of debt issuance costs and discount, net of non-cash capitalized interest 7.2 1.3 Stock-based compensation 19.7 19.8 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 Deferred income taxes 0.3 0.2 Changes in operating assets and liabilities: Accounts receivable, net 0.6 ( 8.2 ) Inventories ( 50.0 ) ( 13.5 ) Prepaid expenses and other assets ( 34.7 ) 0.6 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 ) Investing activities: Purchases of property and equipment ( 442.0 ) ( 107.7 ) Purchases of patent and licensing rights ( 1.3 ) ( 1.1 ) Proceeds from sale of property and equipment — 1.6 Purchases of short-term investments ( 775.3 ) ( 28.9 ) Proceeds from maturities of short-term investments 370.0 68.8 Proceeds from sale of short-term investments 24.8 25.4 Reimbursement of property and equipment purchases from long-term incentive agreement 39.6 46.7 Proceeds from sale of business resulting from the receipt of transaction related note receivable — 101.8 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 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 ) 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 (used in) financing activities 938.4 ( 17.6 ) Effects of foreign exchange changes on cash and cash equivalents ( 0.1 ) ( 0.4 ) Net change in cash and cash equivalents 5.0 72.1 Cash and cash equivalents, beginning of period 1,757.0 449.5 Cash and cash equivalents, end of period $ 1,762.0 $ 521.6 The accompanying notes are an integral part of the consolidated financial statements 9 Table of Contents WOLFSPEED, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1 Basis of Presentation and New Accounting Standards 11 Note 2 Discontinued Operations 12 Note 3 Revenue Recognition 14 Note 4 Leases 15 Note 5 Financial Statement Details 17 Note 6 Investments 20 Note 7 Fair Value of Financial Instruments 22 Note 8 Goodwill and Intangible Assets 23 Note 9 Long-term Debt 24 Note 10 Loss Per Share 27 Note 11 Stock-Based Compensation 28 Note 12 Income Taxes 29 Note 13 Commitments and Contingencies 30 10 Table of Contents Note 1 – Basis of Presentation and New Accounting Standards Overview Wolfspeed, Inc. (the Company) is an innovator of wide bandgap semiconductors, focused on silicon carbide and gallium nitride (GaN) materials and devices for power and radio-frequency (RF) applications. The Company’s product families include silicon carbide and GaN materials, power devices and RF devices targeted for various applications such as electric vehicles, fast charging, 5G, renewable energy and storage, and aerospace and defense. 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. is a North Carolina corporation established in 1987, and its headquarters are in Durham, North Carolina. Basis of Presentation 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 September 24, 2023, and for all periods presented, have been made. All material intercompany accounts and transactions have been eliminated. The consolidated balance sheet at June 25, 2023 has been derived from the audited financial statements as of that date. Certain prior period amounts in the accompanying consolidated financial statements and notes have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net loss or shareholders’ equity. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. 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 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 None. Accounting Pronouncements Pending Adoption None. 11 Table of Contents Note 2 – Discontinued Operations 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. 12 Table of Contents 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) 13.7 163.9 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) 89.1 13.9 (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. 13 Table of Contents 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. 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 The Company follows a five-step approach for recognizing revenue, consisting of the following: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. Contract liabilities primarily include various rights of return and customer deposits, as well as a reserve on the Company's "ship and debit" program. 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 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 14 Table of Contents 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 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 Europe $ 75.3 38.1 % $ 70.5 37.2 % 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 % Total $ 197.4 $ 189.4 Note 4 – Leases The Company primarily leases manufacturing and office spaces. The Company also has a number of bulk gas leases. Lease agreements frequently include renewal provisions and require the Company to pay real estate taxes, insurance and maintenance costs. Variable costs include lease payments that were volume or usage-driven in accordance with the use of the underlying asset, as well as non-lease components incurred with respect to actual terms rather than contractually fixed amounts. The Company's finance lease obligations primarily relate to contract manufacturing space in Malaysia and a 49-year ground lease on the Company's silicon carbide device fabrication facility in New York. Balance Sheet Lease assets and liabilities and the corresponding balance sheet classifications are as follows (in millions of U.S. Dollars): Operating Leases: September 24, 2023 June 25, 2023 Right-of-use asset (1) $ 98.9 $ 98.0 Current lease liability (2) 6.6 6.4 Non-current lease liability (3) 113.9 112.0 Total operating lease liabilities $ 120.5 $ 118.4 Finance Leases: Finance lease assets (4) $ 9.4 $ 9.5 Current portion of finance lease liabilities 0.4 0.4 Finance lease liabilities, less current portion 9.1 9.2 Total finance lease liabilities $ 9.5 $ 9.6 (1) Within other assets on the consolidated balance sheets. (2) Within other current liabilities on the consolidated balance sheets. (3) Within other long-term liabilities on the consolidated balance sheets. (4) Within property and equipment, net on the consolidated balance sheets. Statement of Operations Operating lease expense was $ 3.3 million and $ 1.8 million for the three months ended September 24, 2023 and September 25, 2022, respectively. 15 Table of Contents 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 Flows Cash flow information consisted of the following (1) : Three months ended (in millions of U.S. 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 for tenant allowance on operating lease 0.4 — Cash paid for interest portion of financing leases ( 0.1 ) ( 0.1 ) Cash used in financing activities: Cash paid for principal portion of finance leases ( 0.1 ) ( 0.2 ) (1) See Note 5, "Financial Statement Details," for non-cash activities related to leases. Lease Liability Maturities Maturities of operating and finance lease liabilities as of September 24, 2023 were as follows (in millions of U.S. Dollars): Fiscal Year Ending Operating Leases Finance Leases Total June 30, 2024 (remainder of fiscal 2024) $ 12.5 $ 0.5 $ 13.0 June 29, 2025 11.2 0.7 11.9 June 28, 2026 14.0 0.7 14.7 June 27, 2027 11.9 0.4 12.3 June 25, 2028 11.5 0.2 11.7 Thereafter 104.4 14.0 118.4 Total lease payments 165.5 16.5 182.0 Future tenant improvement allowances ( 4.7 ) — ( 4.7 ) Imputed lease interest ( 40.3 ) ( 7.0 ) ( 47.3 ) Total lease liabilities $ 120.5 $ 9.5 $ 130.0 Supplemental Disclosures Operating Leases Finance Leases Weighted average remaining lease term (in months) (1) 154 475 Weighted average discount rate (2) 4.35 % 2.67 % (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 %. Lease Income 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. 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. 16 Table of Contents Note 5 – Financial Statement Details Accounts Receivable, net Accounts receivable, net consisted of the following: (in millions of U.S. Dollars) September 24, 2023 June 25, 2023 Billed trade receivables $ 150.6 $ 152.1 Unbilled contract receivables 3.1 2.3 Royalties 1.2 1.1 154.9 155.5 Allowance for bad debts ( 0.7 ) ( 0.7 ) Accounts receivable, net $ 154.2 $ 154.8 Inventories Inventories consisted of the following: (in millions of U.S. Dollars) September 24, 2023 June 25, 2023 Raw material $ 105.2 $ 90.7 Work-in-progress 218.9 183.2 Finished goods 16.8 14.9 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 Other current assets consisted of the following: (in millions of U.S. 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 Other receivables 11.0 2.2 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 Other current assets $ 153.7 $ 131.5 17 Table of Contents Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consisted of the following: (in millions of U.S. Dollars) September 24, 2023 June 25, 2023 Accounts payable, trade $ 64.9 $ 44.9 Accrued salaries and wages 89.6 63.9 Accrued property and equipment 340.2 328.4 Accrued expenses 54.2 97.3 Accounts payable and accrued expenses $ 548.9 $ 534.5 Other Operating Expense Other operating expense consisted of the following: Three months ended (in millions of U.S. Dollars) September 24, 2023 September 25, 2022 Project, transformation and transaction costs $ 2.6 $ 0.9 Executive severance costs — 1.0 Other operating expense $ 2.6 $ 1.9 Accumulated Other Comprehensive Loss, net of taxes 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 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. 18 Table of Contents 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) September 24, 2023 September 25, 2022 Interest income ( 40.6 ) ( 4.3 ) Interest expense, net of capitalized interest 61.7 4.8 Gain on arbitration proceedings (1) — ( 49.4 ) Loss (gain) on Wafer Supply Agreement 6.9 ( 0.1 ) Other, net 0.5 ( 0.5 ) 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. The arbitration award is recognized as non-operating income, net of legal fees incurred. Statements of Cash Flows - non-cash activities Three months ended (in millions of U.S. Dollars) September 24, 2023 September 25, 2022 Lease asset and liability additions $ 1.0 $ 0.4 Lease asset and liability modifications, net 1.8 — 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 Accrued property and equipment as of September 24, 2023 and September 25, 2022 was $ 340.2 million and $ 146.3 million, respectively. 19 Table of Contents Note 6 – Investments Short-term investments consisted of the following (in millions of U.S. Dollars): September 24, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Credit Loss Allowance Estimated Fair Value U.S. treasury securities $ 691.6 $ — ($ 1.3 ) $ — $ 690.3 Corporate bonds 483.8 — ( 15.0 ) — 468.8 Municipal bonds 146.0 — ( 4.3 ) — 141.7 Commercial paper 127.9 — — — 127.9 U.S. agency securities 72.8 — ( 0.2 ) — 72.6 Certificates of deposit 57.1 — — — 57.1 Variable rate demand notes 27.2 — — — 27.2 Total short-term investments $ 1,606.4 $ — ($ 20.8 ) $ — $ 1,585.6 June 25, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Credit Loss Allowance Estimated Fair Value Corporate bonds $ 512.3 $ — ($ 16.7 ) $ — $ 495.6 U.S. treasury securities 261.8 — ( 1.4 ) — 260.4 Municipal bonds 179.7 — ( 4.4 ) — 175.3 Certificates of deposit 112.3 — — — 112.3 U.S. 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 September 24, 2023 and June 25, 2023. 20 Table of Contents 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. Dollars): September 24, 2023 Less than 12 Months Greater than 12 Months Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. 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 ) U.S. 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 ) Number of securities with an unrealized loss 119 209 328 June 25, 2023 Less than 12 Months Greater than 12 Months Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Corporate bonds $ 151.5 ($ 0.5 ) $ 324.1 ($ 16.2 ) $ 475.6 ($ 16.7 ) U.S. 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 ) U.S. 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 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 $ 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 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. Realized gains and losses are included in non-operating (income) expense, net in the consolidated statements of operations. Unrealized gains and losses are included as a separate component of equity, net of tax, unless the Company determines there is an expected credit loss. 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 September 24, 2023 until the investments fully recover in market value. No allowance for credit losses was recorded as of September 24, 2023. 21 Table of Contents 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 U.S. treasury securities $ 591.4 $ 98.9 $ — $ — $ 690.3 Corporate bonds 218.1 250.7 — — 468.8 Municipal bonds 58.1 81.2 — 2.4 141.7 Commercial paper 127.9 — — — 127.9 U.S. agency securities 72.6 — — — 72.6 Certificates of deposit 57.1 — — — 57.1 Variable rate demand notes — — 9.7 17.5 27.2 Total short-term investments $ 1,125.2 $ 430.8 $ 9.7 $ 19.9 $ 1,585.6 Note 7 – Fair Value of Financial Instruments Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches, including quoted market prices and discounted cash flows. U.S. GAAP also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability. The fair value hierarchy is categorized into three levels based on the reliability of inputs as follows: • Level 1 - Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Because valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. • Level 2 - Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. • Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The financial assets for which the Company performs recurring fair value remeasurements are cash equivalents and short-term investments. 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 September 24, 2023 and June 25, 2023. 22 Table of Contents The following table sets forth financial instruments carried at fair value within the U.S. GAAP hierarchy: September 24, 2023 June 25, 2023 (in millions of U.S. Dollars) Level 1 Level 2 Total Level 1 Level 2 Total Cash equivalents: Money market funds $ 388.0 $ — $ 388.0 $ 230.4 $ — $ 230.4 U.S. treasury securities 107.5 — 107.5 20.7 — 20.7 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: U.S. treasury securities 690.3 — 690.3 260.4 — 260.4 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 U.S. 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 Total short-term investments 690.3 895.3 1,585.6 260.4 937.5 1,197.9 Total cash equivalents and short-term investments $ 1,185.8 $ 906.6 $ 2,092.4 $ 511.5 $ 944.5 $ 1,456.0 Note 8 – Goodwill and Intangible Assets Goodwill 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: September 24, 2023 June 25, 2023 (in millions of U.S. Dollars) Gross Accumulated Amortization Net Gross Accumulated Amortization Net 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 (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. 23 Table of Contents Total future amortization expense of intangible assets is estimated to be as follows: (in millions of U.S. Dollars) Fiscal Year Ending Acquisition Related Intangibles Patents Total June 30, 2024 (remainder of fiscal 2024) $ 0.9 $ 3.0 $ 3.9 June 29, 2025 1.1 3.1 4.2 June 28, 2026 — 2.3 2.3 June 27, 2027 — 1.9 1.9 June 25, 2028 — 1.6 1.6 Thereafter — 10.8 10.8 Total future amortization expense $ 2.0 $ 22.7 $ 24.7 Note 9 – Long-term Debt 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 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 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 On February 3, 2022, the Company sold $ 650.0 million aggregate principal amount of 0.25 % convertible senior notes due February 15, 2028 to qualified institutional buyers pursuant to Rule 144A under the Securities Act and an additional $ 100.0 million aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment options of the underwriters (the 2028 Notes). The total net proceeds from the 2028 Notes offering was approximately $ 732.3 million. The Company used approximately $ 108.2 million of the net proceeds from the 2028 Notes to fund the cost of entering into capped call transactions, as described below. Capped Call Transactions in relation to the 2028 Notes On January 31, 2022, in connection with the pricing of the 2028 Notes, the Company entered into privately negotiated capped call transactions with certain of the initial purchasers or affiliates thereof (the 2028 Notes Capped Call Counterparties). In connection with the exercise by the initial purchasers of their option to purchase additional notes, the Company entered into additional privately negotiated capped call transactions (such transactions, collectively, the 2028 Notes Capped Call Transactions) with each of the 2028 Notes Capped Call Counterparties. The 2028 Notes Capped Call Transactions initially cover, subject to customary anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that initially underlie the 2028 Notes. The 2028 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. Holders of the 2028 Notes do not have any rights with respect to the 2028 Notes Capped Call Transactions. 24 Table of Contents 2029 Convertible Notes On November 21, 2022, the Company sold $ 1,525.0 million aggregate principal amount of 1.875 % convertible senior notes due December 1, 2029 to qualified institutional buyers pursuant to Rule 144A under the Securities Act and an additional $ 225.0 million aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment options of the underwriters (the 2029 Notes). The total net proceeds from the 2029 Notes offering was approximately $ 1,718.6 million. The Company used approximately $ 273.9 million of the net proceeds from the 2029 Notes to fund the cost of entering into capped call transactions, as described below. Capped Call Transactions in relation to the 2029 Notes On November 16, 2022, in connection with the pricing of the 2029 Notes, the Company entered into privately negotiated capped call transactions with certain of the initial purchasers or their affiliates and another financial institution (the 2029 Notes Capped Call Counterparties). In connection with the exercise by the initial purchasers of their option to purchase additional notes, the Company entered into additional privately negotiated capped call transactions (such transactions, collectively, the 2029 Notes Capped Call Transactions) with each of the 2029 Notes Capped Call Counterparties. The 2029 Notes Capped Call Transactions initially cover, subject to customary anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that initially underlie the 2029 Notes. The 2029 Notes Capped Call Transactions are expected generally to reduce the potential dilutive effect on the common stock upon any conversion of 2029 Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted 2029 Notes, as the case may be, with such reduction and/or offset subject to a cap which initially is $ 202.538 per share, representing a premium of 130 % over the last reported sale price per share of our common stock on November 16, 2022, subject to certain adjustments under the terms of the 2029 Notes Capped Call Transactions. The 2029 Notes Capped Call Transactions are separate transactions entered into by the Company with each of the 2029 Notes Capped Call Counterparties, are not part of the terms of the 2029 Notes, and do not affect any holder’s rights under the 2029 Notes. Holders of the 2029 Notes do not have any rights with respect to the 2029 Notes Capped Call Transactions. Accounting for the 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 Convertible Notes is as follows: (in millions of U.S. Dollars) September 24, 2023 June 25, 2023 Principal $ 3,075.0 $ 3,075.0 Unamortized discount and issuance costs ( 47.1 ) ( 49.4 ) Net carrying amount $ 3,027.9 $ 3,025.6 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 25 Table of Contents 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. 26 Table of Contents 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) 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 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) September 24, 2023 September 25, 2022 Interest expense, net of capitalized interest $ 53.7 $ 3.0 Amortization of discount and debt issuance costs, net of capitalized interest 7.2 1.3 Total interest expense, net $ 60.9 $ 4.3 The Company capitalizes interest in connection with ongoing capacity expansions. 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 (in millions of U.S. 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. 27 Table of Contents 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 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 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, 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 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. Restricted Stock Units 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 Nonvested at June 25, 2023 2,340 $ 85.32 Granted 1,683 $ 68.29 Vested ( 747 ) $ 78.80 Forfeited ( 121 ) $ 86.53 Nonvested at September 24, 2023 3,155 $ 77.72 Stock-Based Compensation Valuation and Expense The Company accounts for its employee stock-based compensation plans using the fair value method. The fair value method requires the Company to estimate the grant-date fair value of its stock-based awards and amortize this fair value to compensation expense over the requisite service period or vesting term. The Company uses the Black-Scholes option-pricing model to estimate the fair value of the Company’s ESPP awards. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include the expected stock price volatility over the term of the awards, the risk-free interest rate and expected dividends. Due to the inherent limitations of option-valuation models, future events that are unpredictable and the estimation process utilized in determining the valuation of the stock-based awards, the ultimate value realized by award holders may vary significantly from the amounts expensed in the Company’s financial statements. For service-based RSUs and performance-based RSUs with internal metrics, the grant-date fair value is based upon the market price of the Company’s common stock on the date of the grant. For performance-based RSUs, the Company reassesses the probability of the achievement of the performance condition at each reporting period and adjusts the compensation expense for subsequent changes in the estimate or actual outcome. This fair value is then amortized to compensation expense over the requisite service period or vesting term. 28 Table of Contents For performance-based awards with market conditions, the Company estimates the grant date fair value using the Monte Carlo valuation model and expenses the awards over the vesting period regardless of whether the market condition is ultimately satisfied. Stock-based compensation expense is recognized net of estimated forfeitures such that expense is recognized only for those stock-based awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. The Black-Scholes and Monte Carlo option pricing models require the input of highly subjective assumptions. These assumptions represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if other assumptions had been used, recorded share-based compensation expense could have been materially different from that depicted below. Total stock-based compensation expense was classified in the consolidated statements of operations as follows: Three months ended (in millions of U.S. Dollars) September 24, 2023 September 25, 2022 Cost of revenue, net $ 6.0 $ 5.8 Research and development 2.7 2.4 Sales, general and administrative 11.0 11.6 Total stock-based compensation expense $ 19.7 $ 19.8 Stock-based compensation expense may differ from the impact of stock-based compensation to additional paid in capital due to manufacturing related stock-based compensation capitalized within inventory. Note 12 – Income Taxes In general, the variation between the Company's effective income tax rate and the U.S. statutory rate of 21% is primarily due to: (i) changes in the Company’s valuation allowances against deferred tax assets in the U.S., (ii) projected income for the full year derived from international locations with differing tax rates than the U.S. and (iii) projected tax credits generated. 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 September 24, 2023, the Company has concluded that it is necessary to recognize a full valuation allowance against its U.S. deferred tax assets. U.S. 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 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 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. Although the ultimate timing of the resolution and/or closure of audits is highly uncertain, the Company believes it is reasonably possible that $ 0.8 million of gross unrecognized tax benefits will change in the next 12 months as a result of statutory requirements or settlement with tax authorities. The Company files U.S. federal, U.S. state and foreign tax returns. For U.S. federal purposes, the Company is generally no longer subject to tax examinations for fiscal years prior to 2018. For U.S. state tax returns, the Company is generally no longer subject to tax examinations for fiscal years prior to 2019. For foreign purposes, the Company is generally no longer subject to examination for tax periods prior to 2013. Certain carryforward tax attributes generated in prior years remain subject to examination, adjustment and recapture. 29 Table of Contents Note 13 – Commitments and Contingencies Litigation The Company is currently a party to various legal proceedings, including the case described below. While management presently believes that the ultimate outcome of such proceedings, individually and in the aggregate, will not materially harm the Company’s financial position, cash flows, or overall trends in results of operations, legal proceedings are subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages or, in matters for which injunctive relief or other conduct remedies may be sought, an injunction prohibiting the Company from selling one or more products at all or in particular ways. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on the Company’s business, results of operations, financial position and overall trends. The outcomes in these matters are not reasonably estimable. In October 2021, The Trustees of Purdue University (Purdue) filed a complaint against the Company in the U.S. District Court for the Middle District of North Carolina, alleging infringement of U.S. Patent Nos. 7,498,633 (the '633 Patent), entitled "High-voltage power semiconductor device," and 8,035,112 (the '112 Patent), entitled "SIC power DMOSFET with self-aligned source contact." In the complaint, Purdue also alleges willful infringement, and seeks unspecified monetary damages and attorneys’ fees. In August 2022, Purdue voluntarily withdrew all allegations as to the '112 Patent after having disclaimed all rights to that patent. The Company denies Purdue’s remaining allegations and has developed numerous defenses, including non-infringement, multiple invalidity grounds, and unenforceability due to inequitable conduct before the U.S. Patent & Trademark Office. The litigation with Purdue is in the middle of fact discovery, and trial is currently scheduled to begin in 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. Grant Disbursement Agreement (GDA) with the State of New York The Company currently has a GDA with the State of New York Urban Development Corporation (doing business as Empire State Development). The GDA provides a potential total grant amount of $ 500.0 million to partially and fully reimburse the Company for certain property, plant and equipment costs related to the Company's construction of its silicon carbide device fabrication facility in Marcy, New York. The GDA was signed in the fourth quarter of fiscal 2020 and requires the Company to satisfy a number of objectives for the Company to receive reimbursements through the span of the 13-year agreement. These objectives include maintaining a certain level of local employment, investing a certain amount in locally administered research and development activities and the payment of an annual commitment fee for the first six years . 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. 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 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. 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. 30 Table of Contents