What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-02 compared with 2024-02-01 · 103 added, 104 removed, 232 unchanged (47% of the section changed)

14 unchanged sentences

(Wolfspeed, we, our, or us) is an innovator of wide bandgap semiconductors, focused on silicon carbide materials and devices for power applications.

Our product families include power devices and silicon carbide and GaN materials.

Our product families include power devices and silicon carbide and gallium nitride (GaN) materials.

Our products are targeted for various applications such as electric vehicles, fast charging and renewable energy and storage.

2 unchanged sentences

During and prior to fiscal 2024, we designed, manufactured and sold radio-frequency (RF) devices.

As discussed more fully above in Note 2, “Discontinued Operations,” to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report, we completed the sale of certain assets comprising our former RF product line (the RF Business Divestiture).

The RF Business Divestiture represents a strategic shift that will have a major effect on our operations and financial results.

The RF Business Divestiture represented a strategic shift that had a major effect on our operations and financial results.

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

11 unchanged sentences

The semiconductor industry has experienced supply constraints for certain items.

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

We have successfully managed through challenges relating to obtaining certain necessary production and processing equipment thus far and have continued to see supply availabilities and lead times stabilize across many direct materials.

In addition, although we have not experienced significant impacts to date, the ongoing military conflict between Russia and Ukraine and the ongoing conflicts in the Middle East may further exacerbate global supply constraints.

1 unchanged sentence

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

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

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

3 unchanged sentences

Recently, we and other semiconductor companies have been experiencing softening demand for power products in industrial and energy applications.

Conversely, we are experiencing significantly higher demand for our power products designed for electrical vehicle applications.

Conversely, we continue to experience high demand for our power products designed for electrical vehicle applications.

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

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

In the near term, however, we expect to face production capacity constraints while we continue to work to bring additional capacity online.

• Intense and Constantly Evolving Competitive Environment.

7 unchanged sentences

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

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

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

• Technological Innovation and Advancement.

6 unchanged sentences

To enforce or protect intellectual property rights, litigation or threatened litigation is common.

Overview of the six months ended December 31, 2023

The following is a summary of our continuing operations financial results as of and for the six months ended December 31, 2023 compared to the six months ended December 25, 2022, unless otherwise stated.

Overview of the nine months ended March 31, 2024

The following is a summary of our continuing operations financial results as of and for the nine months ended March 31, 2024 compared to the nine months ended March 26, 2023, unless otherwise stated.

• Our year-over-year revenue increased $50.7 million to $606.5 million.

1 unchanged sentence

Gross profit decreased to $75.0 million from $184.2 million.

Gross margin and gross profit for the six months ended December 31, 2023 include the impacts of $70.0 million of underutilization costs primarily in connection with the start of production at our silicon carbide device fabrication facility in New York (the Mohawk Valley Fab), which began revenue production in late fiscal 2023.

Costs related to the Mohawk Valley Fab for the six months ended December 25, 2022 were classified as operating expenses within factory start-up costs.

Gross margin and gross profit for the nine months ended March 31, 2024 include the impacts of $100.4 million of underutilization costs primarily in connection with the start of production at our silicon carbide device fabrication

facility in New York (the Mohawk Valley Fab), which began revenue production in late fiscal 2023.

Costs related to the Mohawk Valley Fab for the nine months ended March 26, 2023 were classified as operating expenses within factory start-up costs.

• Operating loss was $299.4 million compared to $222.2 million.

• Diluted loss per share was $3.18 compared to $1.36.

• Combined cash, cash equivalents and short-term investments was $2,635.7 million at December 31, 2023 and $2,954.9 million at June 25, 2023.

• Long-term debt, net was $5,167.6 million at December 31, 2023 and $4,175.1 million at June 25, 2023.

• Combined cash, cash equivalents and short-term investments was $2,550.9 million at March 31, 2024 and $2,954.9 million at June 25, 2023.

• Long-term debt, net was $5,664.3 million at March 31, 2024 and $4,175.1 million at June 25, 2023.

• Cash used in operating activities was $431.8 million compared to $63.5 million.

5 unchanged sentences

The strength of our balance sheet provides us the ability to invest in our business and increase production capacity, as indicated by the Mohawk Valley Fab, our new state-of-the-art, automated 200mm silicon carbide device fabrication facility, where we started revenue production in late fiscal 2023.

In addition, an expansion of our materials factory in Durham, North Carolina, the construction of a new materials manufacturing facility in Siler City, North Carolina, the purchase of an epitaxy facility in Farmers Branch, Texas and our plan to construct a new silicon carbide device fabrication facility in Saarland, Germany are all expected to increase our production capacity.

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

In addition, an expansion of our materials factory in Durham, North Carolina, the construction of a new materials manufacturing facility in Siler City, North Carolina, the renovation of an epitaxy facility in Farmers Branch, Texas, and our plan to construct a new silicon carbide device fabrication facility in Saarland, Germany are all expected to increase our production capacity.

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

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

14 unchanged sentences

Occasionally, we have a 53-week fiscal year, and in those instances, one quarter within the fiscal year is comprised of 14 weeks instead of 13 weeks.

Fiscal 2024 is a 53-week fiscal year, and the second quarter of fiscal 2024 is a 14-week fiscal quarter.

Fiscal 2023 was a 52-week fiscal year, and the second quarter of fiscal 2023 was a 13-week quarter.

Fiscal 2024 is a 53-week fiscal year, and the second quarter of fiscal 2024 was a 14-week fiscal quarter.

Fiscal 2023 was a 52-week fiscal year.

Results of Operations

Selected consolidated statements of operations data for the three and six months ended December 31, 2023 and December 25, 2022 were as follows:

Three months ended Six months ended

December 31, 2023 December 25, 2022 December 31, 2023 December 25, 2022

Selected consolidated statements of operations data for the three and nine months ended March 31, 2024 and March 26, 2023 were as follows:

Three months ended Nine months ended

March 31, 2024 March 26, 2023 March 31, 2024 March 26, 2023

(in millions of U.S.

20 unchanged sentences

Revenue was as follows:

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 31, 2023 December 25, 2022 Change December 31, 2023 December 25, 2022 Change

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Power Products $102.1 $101.6 $0.5 — % $311.0 $302.1 $8.9 3 %

1 unchanged sentence

Revenue $200.7 $192.6 $8.1 4 % $606.5 $555.8 $50.7 9 %

Revenue for the three and six months ended December 31, 2023 compared to the three and six months ended December 25, 2022 increased primarily due to growth in our materials product line, where we improved output to meet strong demand.

Additionally, our power product line revenue increased primarily in connection with the addition of revenue from our Mohawk Valley Fab in fiscal 2024, partially offset by the impact of softening demand in industrial applications in China.

Revenue for the three and nine months ended March 31, 2024 compared to the three and nine months ended March 26, 2023 increased primarily due to growth in our materials product line, where we improved output to meet strong demand.

Gross Profit and Gross Margin

Gross profit and gross margin were as follows:

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 31, 2023 December 25, 2022 Change December 31, 2023 December 25, 2022 Change

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Gross profit $22.5 $59.8 ($37.3) (62) % $75.0 $184.2 ($109.2) (59) %

Gross margin 11.2 % 31.0 % 12.4 % 33.1 %

The decrease in gross profit and gross margin for both periods presented was primarily due to underutilization costs incurred within cost of revenue in connection with the start of production at our Mohawk Valley Fab, which began revenue production in late fiscal 2023.

Underutilization costs were $35.6 million and $70.0 million for the three and six months ended December 31, 2023, respectively.

Costs relating to the Mohawk Valley Fab for the three and six months ended December 25, 2022 were expensed within factory start-up costs.

In addition, gross profit and gross margin for the six months ended December 31, 2023 were adversely impacted by product mix.

The decrease in gross profit and gross margin for both periods presented was partially offset by impacts from increased revenues in both product lines.

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

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

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

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

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

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

We expect gross profit and gross margin to continue to be significantly impacted in future periods from these underutilization costs in connection with our new facility construction and expansion projects, the costs of which have solely been expensed as factory start-up costs prior to fiscal 2024.

The decrease in gross profit and gross margin for both periods presented as compared to the prior year periods was primarily due to underutilization costs incurred within cost of revenue in connection with the start of production at our Mohawk Valley Fab, which began revenue production in late fiscal 2023.

Underutilization costs were $30.4 million and $100.4 million for the three and nine months ended March 31, 2024, respectively.

Costs relating to the Mohawk Valley Fab for the three and nine months ended March 26, 2023 were expensed within factory start-up costs.

In addition, gross profit and gross margin for the nine months ended March 31, 2024 were impacted by a less favorable product mix, partially offset by an increase in revenue in both product lines.

Research and Development

2 unchanged sentences

Research and development costs also include developing supporting technologies for the expansion of the Mohawk Valley Fab.

Our research and development expenses vary significantly from year to year based on a number of factors, including the timing of new product introductions and the number and nature of our ongoing research and development activities.

Research and development expenses were as follows:

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 31, 2023 December 25, 2022 Change December 31, 2023 December 25, 2022 Change

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Research and development $52.5 $42.4 $10.1 24 % $141.9 $122.1 $19.8 16 %

1 unchanged sentence

The increase in research and development expenses was primarily due to our continued investment in our technologies, including the development of existing silicon carbide materials and fabrication technology for next generation platforms and expansion of our device product portfolio.

Sales, General and Administrative

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

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

marketing and advertising expenses;

facilities and insurance costs;

and travel and other costs.

Sales, general and administrative (SG&A) expenses are comprised of costs primarily associated with our sales and marketing personnel and our executive and administrative personnel (for example, finance, human resources, information technology and legal) and substantially consist of salaries and related compensation costs, consulting and other professional services (such as litigation and other outside legal counsel fees, audit and other compliance costs), marketing and advertising expenses, facilities and insurance costs, and travel costs.

SG&A expenses were as follows:

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 31, 2023 December 25, 2022 Change December 31, 2023 December 25, 2022 Change

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Sales, general and administrative $55.8 $55.1 $0.7 1 % $184.8 $155.5 $29.3 19 %

Percent of revenue 28 % 29 % 30 % 28 %

The increase in SG&A expenses for both periods presented was primarily due to increased salaries and benefits, including stock-based compensation, in connection with increased sales and marketing headcount, as well as increases in professional services, sponsorship costs and IT expenses.

The increase in SG&A expenses for both periods presented was primarily due to increased salaries and benefits, including stock-based compensation, as well as increases in professional services, sponsorship costs, and travel expenses.

Factory Start-up Costs

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 31, 2023 December 25, 2022 Change December 31, 2023 December 25, 2022 Change

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Factory start-up costs $14.4 $44.6 ($30.2) (68) % $33.3 $120.6 ($87.3) (72) %

1 unchanged sentence

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

The decrease in factory start-up costs was due to the start of revenue generating production at our Mohawk Valley Fab in the fourth quarter of fiscal 2023.

The majority of start-up costs for the three and six months ended December 31, 2022 related to the construction of this facility.

For the three and six months ended December 31, 2023, the costs relating to this facility were expensed as part of cost of production.

Start-up costs for the three and six months ended December 31, 2023 primarily relate to costs incurred in connection with the construction of our new materials manufacturing facility in Siler City, North Carolina and various materials expansion activities at our Durham, North Carolina locations.

Start-up costs for the three and nine months ended March 31, 2024 primarily relate to costs incurred in connection with the construction of our new materials manufacturing facility in Siler City, North Carolina and various materials expansion activities at our Durham, North Carolina locations.

The decrease in factory start-up costs as compared to the prior year periods is due to the start of revenue generating production at our Mohawk Valley Fab in the fourth quarter of fiscal 2023 and the associated transition of factory operating expenses to cost of production.

The majority of start-up costs for the three and nine months ended March 26, 2023 related to the construction of this facility.

Amortization or Impairment of Acquisition-Related Intangibles

1 unchanged sentence

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

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 31, 2023 December 25, 2022 Change December 31, 2023 December 25, 2022 Change

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Amortization of acquisition-related intangibles $0.3 $0.2 $0.1 50 % $0.9 $1.3 ($0.4) (31) %

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

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

Loss on Disposal or Impairment of Other Assets

2 unchanged sentences

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

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

Three months ended Six months ended

Loss on disposal or impairment of other assets was as follows:

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 31, 2023 December 25, 2022 Change December 31, 2023 December 25, 2022 Change

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Loss on disposal or impairment of other assets $0.6 $1.7 ($1.1) (65) % $1.0 $1.9 ($0.9) (47) %

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

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

Other Operating Expense

Other operating expense was as follows:

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 31, 2023 December 25, 2022 Change December 31, 2023 December 25, 2022 Change

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Project, transformation and transaction costs $ 5.3 $ 0.9 $ 4.4 489 % $ 12.5 $ 2.9 $ 9.6 331 %

2 unchanged sentences

Other operating expense $5.3 $1.5 $3.8 253 % $12.5 $5.0 $7.5 150 %

Other operating expense increased in both periods presented primarily due to increased professional service fees, which are associated with completed and potential strategic transactions, including divestitures, as well as work related to obtaining government incentives both in the United States and Europe, partially offset by decreases in personnel related severance and restructuring costs.

Non-Operating Expense (Income), net

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

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 31, 2023 December 25, 2022 Change December 31, 2023 December 25, 2022 Change

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Interest income ($30.1) ($22.2) ($7.9) (36) % ($108.9) ($38.1) ($70.8) (186) %

Interest expense, net of capitalized interest 59.5 14.1 45.4 322 % 185.5 26.7 158.8 595 %

Gain on arbitration proceedings — (0.9) 0.9 (100) % — (50.3) 50.3 (100) %

Loss (gain) on legal proceedings 7.7 — 7.7 100 % 7.7 (50.3) 58.0 115 %

Loss on Wafer Supply Agreement 6.9 4.8 2.1 44 % 20.4 7.3 13.1 179 %

Gain on equity investment (1.9) — (1.9) (100) % (7.3) — (7.3) (100) %

Other, net 0.5 1.1 (0.6) (55) % 1.0 0.6 0.4 67 %

Other expense, net 0.3 0.4 (0.1) (25) % 1.3 1.0 0.3 30 %

Non-operating expense (income), net $42.4 ($2.9) $45.3 1,562 % $98.7 ($53.4) $152.1 285 %

Interest income.

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

Our short-term investment balances increased significantly from the net proceeds we received from the sale of our 1.875% convertible senior notes due December 1, 2029 (the 2029 Notes) and senior secured notes due 2030 (the 2030 Senior Notes), as well as from the receipt of the initial deposits from an Unsecured Customer Refundable Deposit Agreement (the CRD Agreement) with a customer, pursuant to which we received an initial deposit of $1 billion in the first quarter of fiscal 2024.

The increase in interest income in both periods was primarily driven by increased short-term investment balances.

Our average short-term investment balances increased significantly from the net proceeds we received from the sale of our senior secured notes due 2030 (the 2030 Senior Notes) in the fourth quarter of fiscal 2023, as well as from the receipts of deposits from an Unsecured Customer Refundable Deposit Agreement (the CRD Agreement) with a customer, pursuant to which we received an initial deposit of $1 billion in the first quarter of fiscal 2024 and an additional deposit of $500 million in the third quarter of fiscal 2024.

Interest expense, net of capitalized interest .

The increase in interest expense was primarily due to interest from our 2030 Senior Notes and initial deposit under the CRD Agreement, which were not outstanding as of December 31, 2022, and interest from our 2029 Notes, which were issued near the end of the second quarter of fiscal 2023.

Gain on arbitration proceedings .

In the first quarter of fiscal 2023, we received an arbitration award in relation to a former customer failing to fulfill contractual obligations to purchase a certain amount of product over a period of time.

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

The gain recognized is net of legal fees incurred.

The increase in interest expense was primarily due to interest from our 2030 Senior Notes and deposits under the CRD Agreement, which were not outstanding as of March 26, 2023.

Loss (gain) on legal proceedings .

In the third quarter of fiscal 2024, we accrued a liability for payment of customs duties totaling approximately $7.7 million for alleged undervalued duties related to transactions by our former Lighting Products business unit from 2012 to 2017.

In fiscal 2023, we received an arbitration award in relation to a former customer failing to fulfill contractual obligations to purchase a certain amount of product over a period of time.

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

Loss on Wafer Supply Agreement.

2 unchanged sentences

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

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

We recognized a supply agreement liability in connection with this agreement, which fully amortized in the second quarter of fiscal 2023.

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

1 unchanged sentence

In connection with the completed RF Business Divestiture, we received shares of MACOM common stock as a portion of the overall consideration received for the sale.

The closing price of MACOM's common stock increased from $85.41 at December 1, 2023, the last trading day before the closing date of the RF Business Divestiture, to $92.95 at December 29, 2023, the last trading day of the current fiscal quarter.

The gain on equity investment for the three and nine months ended March 31, 2024 was due to MACOM's share price increasing from $85.41 at December 1, 2023, the last trading day before the closing date of the RF Business Divestiture, to $92.95 at December 29, 2023, the last trading day of the second fiscal quarter, and to $95.64 at March 28, 2024, the last trading day of the third fiscal quarter.

Income Tax Expense

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

Three months ended Six months ended

Three months ended Nine months ended

(in millions of U.S.

Dollars) December 31, 2023 December 25, 2022 Change December 31, 2023 December 25, 2022 Change

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Income tax expense $0.1 $0.3 ($0.2) (67) % $0.6 $0.5 $0.1 20 %

Effective tax rate — % — % — % — %

The change in our effective tax rate for the three and six months ended December 31, 2023 compared to the three and six months ended December 25, 2022 was immaterial.

The change in our effective tax rate for the three and nine months ended March 31, 2024 compared to the three and nine months ended March 26, 2023 was immaterial.

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

10 unchanged sentences

(in millions of U.S.

Dollars) December 31, 2023 June 25, 2023 Change

Dollars) March 31, 2024 June 25, 2023 Change

Cash and cash equivalents $1,142.4 $1,757.0 ($614.6)

1 unchanged sentence

Total cash, cash equivalents and short-term investments $2,550.9 $2,954.9 ($404.0)

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

In the first quarter of fiscal 2023, we received an early payment on an unsecured promissory note in the amount of $101.8 million issued to us in connection with the sale of certain assets and subsidiaries comprising our former LED business unit to SMART on March 1, 2021.

In the second quarter of fiscal 2023, we issued and sold a total of $1,750.0 million aggregate principal amount of 2029 Notes, as discussed in Note 9, “Long-term Debt,” in our consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

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

In the second quarter of fiscal 2023, we issued and sold a total of $1,750.0 million aggregate principal amount of our 1.875% convertible senior notes due December 1, 2029 (the 2029 Notes), as discussed in Note 9, “Long-term Debt,” in our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

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

In the fourth quarter of fiscal 2023, we sold $1,250 million aggregate principal amount of 2030 Senior Notes, as discussed in Note 9, "Long-term Debt," in our consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

In the fourth quarter of fiscal 2023, we sold $1,250 million aggregate principal amount of 2030 Senior Notes, as discussed in Note 9, "Long-term Debt," in our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

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

In the first quarter of fiscal 2024, we entered into the CRD Agreement with a customer, pursuant to which the customer will provide us up to $2 billion in unsecured deposits.

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

In the second quarter of fiscal 2024, we completed the sale of our RF product line and received approximately $75 million in cash, subject to a customary purchase price adjustment.

As of December 31, 2023, we had unrealized losses on our short-term investments of $12.3 million.

All of our short-term investments had investment grade ratings, and any such investments that were in an unrealized loss position at December 31, 2023 were in such position due to interest rate changes, sector credit rating changes or company-specific rating changes.

In the first quarter of fiscal 2024, we entered into the CRD Agreement with a customer, pursuant to which the customer will provide us up to $2 billion in unsecured deposits, subject to certain conditions.

Under the CRD Agreement, we received an initial deposit of $1 billion in the first quarter of fiscal 2024 with the option to receive additional deposits up to $1 billion at our request, subject to certain conditions during the 2024 calendar year.

We received a second deposit of $500 million in the third quarter of fiscal 2024.

In the second quarter of fiscal 2024, we completed the sale of our RF product line and received approximately $75 million in cash.

As of March 31, 2024, we had unrealized losses on our short-term investments of $10.9 million.

All of our short-term investments had investment grade ratings, and any such investments that were in an unrealized loss position at March 31, 2024 were in such position due to interest rate changes, sector credit rating changes or company-specific rating changes.

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

We believe we are able to and we intend to hold each of the investments held with an unrealized loss as of December 31, 2023 until the investments fully recover in market value.

No allowance for credit losses was recorded as of December 31, 2023.

We believe we are able and intend to hold each of the investments held with an unrealized loss as of March 31, 2024 until the investments fully recover in market value.

No allowance for credit losses was recorded as of March 31, 2024.

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

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

We may also access capital

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

Expected Uses of Liquidity

1 unchanged sentence

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

As of December 31, 2023, we have spent approximately $1.0 billion and received $384.0 million in reimbursements.

As of March 31, 2024, we have spent approximately $1.1 billion and received $425.4 million in reimbursements.

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

1 unchanged sentence

CHIPS and Science Act of 2022 (the CHIPS Act).

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

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

We also announced in February 2023 the intention to build a highly automated, cutting-edge wafer fabrication facility in Saarland, Germany.

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

The timing and amount of these estimated CHIPS Act incentives is uncertain and could happen, if at all, in fiscal 2025 or beyond.

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

We announced in February 2023 the intention to build a highly automated, cutting-edge wafer fabrication facility in Saarland, Germany.

We are continuing to work with the European Union, German and Saarland governments on the incentive package for this facility.

The timing and amount of these incentives are uncertain and could happen, if at all, in fiscal 2025 or beyond.

We will not commence construction of this facility until we have finalized these incentives and we expect the vast majority of investment to occur after fiscal 2024.

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

This target is highly dependent on the timing and overall progress on our Mohawk Valley Fab and the construction of our new materials manufacturing facility in Siler City, North Carolina.

Our target net capital investment figure is net of approximately $150 million of expected reimbursements from the GDA during the fiscal year, inclusive of $79.2 million received in the first and second quarters of fiscal 2024.

Our target net capital investment figure is net of approximately $144 million of expected reimbursements from the GDA during the fiscal year, inclusive of $120.7 million received in the first three quarters of fiscal 2024.

Our target net capital investment figure is also net $57.5 million for a Land Acquisition Business Investment Grant from the State of North Carolina, which was received in the third quarter of fiscal 2024.

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

1 unchanged sentence

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

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

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

In summary, our cash flows were as follows:

Six months ended

December 31, 2023 December 25, 2022 Change

Nine months ended

March 31, 2024 March 26, 2023 Change

Net cash used in operating activities of continuing operations ($431.8) ($63.5) ($368.3) (580) %

5 unchanged sentences

Cash Flows from Operating Activities

Net cash used in operating activities of continuing operations increased primarily due to an increased net loss and decreased working capital as a result of inventory growth, increased spending on customer deposits and timing of payables.

Net cash used in operating activities of continuing operations increased primarily due to an increased net loss and decreased working capital as a result of inventory growth, increased payments for supplier deposits and timing of payables.

Cash Flows from Investing Activities

2 unchanged sentences

This was partially offset by a decrease in net purchases of short-term investments of $508.5 million.

In addition, the six months ended December 31, 2023 included $75.6 million in net cash received in connection with the completed RF Business Divestiture and the six months ended December 25, 2022 included a $101.8 million earnout payment related to the divestiture of our former LED Products segment.

In addition, the nine months ended March 31, 2024 included $75.6 million in net cash received in connection with the completed RF Business Divestiture and the nine months ended March 26, 2023 included a $101.8 million earnout payment related to the divestiture of our former LED Products segment.

Cash Flows from Financing Activities

For the six months ended December 31, 2023, cash provided by financing activities primarily consisted of $954.0 million in net deposits from the CRD Agreement and $10.9 million of proceeds from the issuance of common stock, partially offset by $16.7 million in tax withholdings on vested equity awards.

For the six months ended December 25, 2022, cash provided by financing activities primarily consisted of $1,718.6 million in net proceeds from the issuance of the 2029 Notes and $11.2 million of proceeds from the issuance of common stock, partially offset by $273.9 million in cash paid for capped call transactions in connection with the 2029 Notes and $17.3 million in tax withholdings on vested equity awards.

For the nine months ended March 31, 2024, cash provided by financing activities primarily consisted of $1,454.0 million in net deposits from the CRD Agreement and $10.9 million of proceeds from the issuance of common stock, partially offset by $17.5 million in tax withholdings on vested equity awards.

For the nine months ended March 26, 2023, cash provided by financing activities primarily consisted of $1,718.6 million in net proceeds from the issuance of the 2029 Notes and $11.4 million of proceeds from the issuance of common stock, partially offset by $273.9 million in cash paid for capped call transactions in connection with the 2029 Notes and $17.7 million in tax withholdings on vested equity awards.

Off-Balance Sheet Arrangements

As of March 31, 2024, we did not have any off-balance sheet arrangements.

We do not use off-balance sheet arrangements with unconsolidated entities or related parties, nor do we use any other forms of off-balance sheet arrangements.

Accordingly, our liquidity and capital resources are not subject to off-balance sheet risks from unconsolidated entities.

As of December 31, 2023, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

4 unchanged sentences

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 2. Management’s Discussion and Analysis