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WOLFSPEED, INC.

(WOLF)
  Report
Delayed Nyse  -  04:00 2022-12-02 pm EST
84.29 USD   -2.17%
12/01Transcript : Wolfspeed, Inc. Presents at Credit Suisse 26th Annual Technology Conference, Dec-01-2022 08:55 AM
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11/29Transcript : Wolfspeed, Inc. Presents at 6th Annual Wells Fargo TMT Summit, Nov-29-2022 03:10 PM
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11/22Wolfspeed To Participate in Upcoming Investor Conferences
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WOLFSPEED, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

08/22/2022 | 04:11pm EST

Executive Summary


The following discussion is designed to provide a better understanding of our
audited consolidated financial statements and notes thereto, including a brief
discussion of our business and products, key factors that impacted our
performance and a summary of our operating results. The following discussion
should be read in conjunction with our consolidated financial statements
included in Item 8 of this Annual Report. Historical results and percentage
relationships among any amounts in the financial statements are not necessarily
indicative of trends in operating results for any future periods. Unless
otherwise noted, the following information and discussion relates to our
continuing operations.

Industry Dynamics and Trends

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


•COVID-19 Pandemic. The global health crisis caused by COVID-19 and its
resurgences has impacted and may continue to negatively impact global economic
activity, which, despite progress in vaccination efforts, remains uncertain and
cannot be predicted with confidence. In addition, variants of COVID-19 continue
to emerge. While vaccines have proven effective in preventing serious illnesses
and hospitalizations, there is no assurance that such vaccines will remain
effective against new variants or that the protection conferred by existing
vaccines will not wane over time. Since its beginning in the early months of
2020, the COVID-19 pandemic has affected us in a number of ways including, but
not limited to, the impact on employees becoming ill, quarantined, or otherwise
unable to work or travel due to illness or governmental restriction, the impact
on customers and their related demand and/or purchases, the impact on our
suppliers' and contract manufacturers' ability to fulfill our orders on a timely
basis, and the overall impact of the aforementioned items that could cause
output challenges and increased costs. The full extent to which the COVID-19
pandemic may impact our results of operations or liquidity remains uncertain.
Our operations have experienced, and likely will continue to experience, supply,
labor, demand and output challenges. We continue to monitor the impact that the
COVID-19 pandemic is having on our business, the semiconductor industry, and the
economies in which we operate.

•Overall Demand for Products and Applications Using Our Wolfspeed Materials and
Devices. Our potential for growth depends significantly on the adoption of
Silicon Carbide and GaN materials and device products in the power and RF
markets, the continued use of silicon devices in the RF telecommunications
market and our ability to win new designs for these applications. Demand also
fluctuates based on various market cycles, continuously evolving industry supply
chains, trade and tariff terms, inflationary impacts, as well as evolving
competitive dynamics in each of the respective markets. These uncertainties make
demand difficult to forecast for us and our customers. Lately, we have seen
demand increase across all our product lines, which we believe reflects the
value that the industry places on a transition to Silicon Carbide materials and
devices. Particularly, we have seen significantly higher demand for our power
products as the world has continued to focus on and adopt higher efficiency
energy solutions, including electrical vehicle (EV) and related technologies. We
believe these trends could have a significant positive impact on revenues in
future periods as we increase capacity to meet increased demand.

•Supply Constraints. The semiconductor industry has experienced supply
constraints for certain items. While we have successfully managed through
challenges relating to obtaining certain necessary raw materials and production
and processing equipment thus far, we expect the supply situation for these
items to remain tight for at least the next few quarters. In addition, the
ongoing military conflict between Russia and Ukraine may further exacerbate
supply constraints. The current high demand for our products has also led to
supply constraints for our customers. We are working closely with our customer
base to best match our supply to their demand. We have taken steps to provide
continuity to our customers, to the extent possible, although we expect that
constraints may continue to limit our shipments in the near term.

•Governmental Trade and Regulatory Conditions. Our potential for growth, as with
most multi-national companies, depends on a balanced and stable trade,
political, geopolitical, economic and regulatory environment among the countries
where we do business. Changes in trade policy such as the imposition or
extension of tariffs or export bans to specific customers or countries could
reduce or limit demand for our products in certain markets.

•Intense and Constantly Evolving Competitive Environment. Competition in the
industries we serve is intense. Many companies have made significant investments
in product development, production equipment and production facilities. To
remain competitive, market participants must continuously increase product
performance, reduce costs and develop improved ways to serve their customers. To
address these competitive pressures, we have invested in research and
development activities to support new product development, lower product costs
and deliver higher levels of performance to differentiate our products in the
market. In addition, we invest in systems, people and new processes to
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improve our ability to deliver a better overall experience for our customers.
Market participants often undertake pricing strategies to gain or protect market
share, increase the utilization of their production capacity and open new
applications in the power and RF markets we serve.

•Technological Innovation and Advancement. Innovations and advancements in
materials, power, and RF technologies continue to expand the potential
commercial application for our products. However, new technologies or standards
could emerge or improvements could be made in existing technologies that could
reduce or limit the demand for our products in certain markets.

•Intellectual Property Issues. Market participants rely on patented and
non-patented proprietary information relating to product development,
manufacturing capabilities and other core competencies of their business.
Protection of intellectual property is critical. Therefore, steps such as
additional patent applications, confidentiality and non-disclosure agreements,
as well as other security measures are generally taken. To enforce or protect
intellectual property rights, litigation or threatened litigation is common.

Fiscal 2022 Overview

The following is a summary of our financial results for the year ended June 26, 2022:

•Our year-over-year revenue increased by $220.6 million to $746.2 million.

•Gross margin increased to 33.4% from 31.3%. Gross profit increased to $249.3 million from $164.6 million.


•Operating loss from continuing operations was $247.8 million in fiscal 2022
compared to $313.9 million in fiscal 2021. As discussed further below, operating
loss from continuing operations for fiscal 2021 includes a $73.9 million expense
related to the modification of our long-range plan regarding a building site in
Durham, North Carolina.

•Diluted loss per share from continuing operations was $2.46 in fiscal 2022 compared to $3.04 in fiscal 2021.

•Combined cash, cash equivalents and short-term investments increased to $1,198.8 million at June 26, 2022 from $1,154.6 million at June 27, 2021.

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

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


•Purchases of property and equipment, net were $505.9 million (net of $139.0
million in reimbursements) in fiscal 2022 compared to $559.8 million (net of
$10.7 million in reimbursements) in fiscal 2021.

•Design-ins were $6.4 billion in fiscal 2022 compared to $2.9 billion in fiscal 2021.


Business Outlook

We believe we are uniquely positioned as an innovator in the global
semiconductor industry. The strength of our balance sheet provides us the
ability to invest in our business, as indicated by our new state-of-the-art,
automated 200mm Silicon Carbide device fabrication facility in Marcy, New York,
which started running qualification lots in the fourth quarter of fiscal 2022,
and an expansion of our materials factory at our U.S campus headquarters in
Durham, North Carolina, both of which will increase our production capacity. In
fiscal 2022, we incurred $70.0 million of start-up and pre-production costs
related to the ramping of production at the Marcy, New York facility. In fiscal
2023, we expect approximately $100 million of start-up and underutilization
costs primarily related to ramping of production at the Marcy, New York
facility.

The completion of the LED Business Divestiture on March 1, 2021 represented a
key milestone in our transformation to be a global semiconductor powerhouse
focused on disruptive technology solutions for high-growth applications. This
transaction positioned us with a sharpened strategic focus to lead the
semiconductor industry transition from silicon to Silicon Carbide and further
strengthened our financial position, which we plan to utilize in order to
support continued investments to capitalize on multi-decade growth opportunities
across electrical vehicles (EVs), 5G and industrial applications.

We are focused on investing in our business to expand the scale, further develop
the technologies, and accelerate the growth opportunities of Silicon Carbide
materials, Silicon Carbide power devices and modules, and GaN and silicon RF
devices. We believe these efforts will support our goals of delivering higher
revenue and shareholder returns over time.

In addition, we are focused on improving the number of usable items in a
production cycle (yield) as our manufacturing technologies become more complex.
Despite increased complexities in our manufacturing process, we believe we are
in a position to improve yield levels to support our future growth, particularly
as we transition to our new Silicon Carbide device fabrication facility in
Marcy, New York.
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We believe we have the ability to navigate the current environment while
maintaining our capital expenditure plans to support future growth, including
the completion and build out of our new facility in New York and additional
production capacity in North Carolina. Even so, the short-term impacts from
COVID-19 to our financial position, results of operations and cash flows remain
uncertain.

We continue to closely monitor the ongoing military conflict between Russia and
Ukraine to evaluate our potential exposure to this conflict. We do not have
significant credit, supplier or customer concentrations in Russia, Belarus or
Ukraine at this time. As a result, we do not currently expect any material
impacts to our consolidated financial statements. However, we believe the full
impact of the conflict remains uncertain and we continue to assess if ongoing
developments, such as further sanctions or other increased involvement from
countries where we operate and do business, may cause future material impacts to
our consolidated financial statements.

Change in Estimate


As a result of the LED Business Divestiture and our continued investment in
200mm technology, we evaluated the useful lives applied to certain machinery and
equipment assets by considering industry standards and reviewing the assets'
historical and estimated future use. In the first quarter of fiscal 2022, we
increased the expected useful lives of these assets by two to five years to more
closely reflect the estimated economic lives of those assets. This change in
estimate was applied prospectively effective for the first quarter of fiscal
2022, and resulted in a decrease in depreciation expense of $33.3 million for
the fiscal year ended June 26, 2022. Approximately $10.4 million of the decrease
in year-to-date depreciation expense resulted in a net reduction of inventory as
of June 26, 2022 and the remaining $22.9 million resulted in an improvement in
both loss before income taxes and net loss, of which $19.6 million related to an
improvement in gross profit. This change in estimate resulted in an improvement
in year-to-date basic and diluted loss per share of $0.19 per share.

Design-ins


Design-ins are customer commitments to purchase our product and are one of the
factors we use to forecast long-term demand and future revenue. To meet the
qualification of a design-in, the customer provides us with documentation (e.g.,
a letter of intent, statement of work or developmental contract) that can
include details such as the expected delivery timeline, estimated price,
necessary capacity and required support. A design-in, even with a formal
commitment, does not always convert to future revenue for a variety of reasons,
including, but not limited to, the customer delaying or abandoning the project,
capacity constraints, timeline challenges, and/or technology changes. Therefore
management uses the design-in amount as a guide to forecast future demand but it
should not be taken as an absolute indicator of future revenue.
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Table of Contents

Results of Operations

Selected consolidated statement of operations data for the years ended June 26, 2022, June 27, 2021 and June 28, 2020 is as follows:

                                                                                                               Fiscal Years Ended
                                                          June 26, 2022                                        June 27, 2021                                          June 28, 2020
(in millions of U.S. Dollars, except share
data)                                           Amount                 % of Revenue                  Amount                   % of Revenue                  Amount                   % of Revenue
Revenue, net                                       $746.2                      100.0  %                   $525.6                      100.0  %                   $470.7                      100.0  %
Cost of revenue, net                                496.9                       66.6  %                    361.0                       68.7  %                    312.2                       66.3  %
Gross profit                                        249.3                       33.4  %                    164.6                       31.3  %                    158.5                       33.7  %
Research and development                            196.4                       26.3  %                    177.8                       33.8  %                    152.0                       32.3  %
Sales, general and administrative                   203.5                       27.3  %                    181.6                       34.6  %                    181.7                       38.6  %
Amortization or impairment of
acquisition-related intangibles                      13.6                        1.8  %                     14.5                        2.8  %                     14.5                        3.1  %
Abandonment of long-lived assets                        -                          -  %                     73.9                       14.1  %                        -                          -  %
(Gain) loss on disposal or impairment of
other assets                                         (0.3)                         -  %                      1.6                        0.3  %                      1.5                        0.3  %

Other operating expense                              83.9                       11.2  %                     29.1                        5.5  %                     32.9                        7.0  %
Operating loss                                     (247.8)                     (33.2) %                   (313.9)                     (59.7) %                   (224.1)                     (47.6) %
Non-operating expense (income), net                  38.3                        5.1  %                     26.3                        5.0  %                    (18.5)                      (3.9) %
Loss before income taxes                           (286.1)                     (38.3) %                   (340.2)                     (64.7) %                   (205.6)                     (43.7) %
Income tax expense (benefit)                          9.0                        1.2  %                      1.1                        0.2  %                     (8.0)                      (1.7) %
Net loss from continuing operations                (295.1)                     (39.5) %                   (341.3)                     (64.9) %                   (197.6)                     (42.0) %
Net income (loss) from discontinued
operations                                           94.2                       12.6  %                   (181.2)                     (34.5) %                      7.0                        1.5  %
Net loss                                           (200.9)                     (26.9) %                   (522.5)                     (99.4) %                   (190.6)                     (40.5) %
Net income attributable to noncontrolling
interest                                                -                          -  %                      1.4                        0.3  %                      1.1                        0.2  %
Net loss attributable to controlling
interest                                          ($200.9)                     (26.9) %                  ($523.9)                     (99.7) %                  ($191.7)                     (40.7) %

Basic and diluted loss per share
Continuing operations                              ($2.46)                                                ($3.04)                                       

($1.83)


Net loss attributable to controlling
interest                                           ($1.67)                                                ($4.66)                                                ($1.78)



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Table of Contents

Revenue

Revenue was comprised of the following:

                                                      Fiscal Years Ended                                                               Year-Over-Year Change
(in millions of U.S.
Dollars)                     June 26, 2022                June 27, 2021             June 28, 2020                      2021 to 2022                              2020 to 2021
Revenue                         $746.2                       $525.6                    $470.7                         $220.6              42  %                  $54.9              12  %


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

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

Gross Profit and Gross Margin

Gross profit and gross margin were as follows:

                                                      Fiscal Years Ended                                                             Year-Over-Year Change
(in millions of U.S.
Dollars)                    June 26, 2022             June 27, 2021                June 28, 2020                        2021 to 2022                           2020 to 2021
Gross profit                      $249.3                       $164.6                       $158.5                      $84.7              51  %             $6.1              4  %
Gross margin                          33  %                        31  %                        34  %

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


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

Research and Development

Research and development expenses include costs associated with the development
of new products, enhancements of existing products and general technology
research. These costs consisted primarily of employee salaries and related
compensation costs, occupancy costs, consulting costs and the cost of
development equipment and supplies. Research and development costs also include
developing supporting technologies for expansion of our new Silicon Carbide
device fabrication facility in Marcy, New York.

Research and development expenses were as follows:

                                                    Fiscal Years Ended                                                                Year-Over-Year Change
(in millions of U.S.
Dollars)                  June 26, 2022             June 27, 2021                June 28, 2020                        2021 to 2022                              2020 to 2021
Research and
development                     $196.4                       $177.8                       $152.0                      $18.6              10  %                  $25.8              17  %
Percent of revenue                  26  %                        34  %                        32  %


The increases in research and development expenses were primarily due to our
continued investment in our Silicon Carbide and GaN technologies, including the
development of existing Silicon Carbide materials and fabrication technology for
next generation platforms and expansion of our power and RF product portfolio.

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.
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Sales, General and Administrative


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


                                                            Fiscal Years Ended                                                                Year-Over-Year Change
(in millions of U.S. Dollars)     June 26, 2022             June 27, 2021                June 28, 2020                        2021 to 2022                              2020 to 2021
Sales, general and
administrative                          $203.5                       $181.6                       $181.7                      $21.9              12  %                  ($0.1)             -  %
Percent of revenue                          27  %                        35  %                        39  %


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

Sales, general and administrative expenses stayed fairly steady in fiscal 2021
compared to fiscal 2020. Increased salaries and benefits, including incentive
based stock-based compensation and commissions, were partially offset by
decreased information technology costs and professional and legal fees.
Additionally, further offsetting decreases related to a decrease of travel costs
as a result of travel restrictions related to the COVID-19 pandemic and employee
relocation expenses.

Amortization or Impairment of Acquisition-Related Intangibles


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

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

                                                           Fiscal Years Ended                                                           Year-Over-Year Change
(in millions of U.S. Dollars)     June 26, 2022                June 27, 2021             June 28, 2020                      2021 to 2022                          2020 to 2021
Customer relationships                 $6.1                         $6.1                      $6.1                             $-               -  %             $-              -  %
Developed technology                    5.4                          5.4                       5.4                              -               -  %              -              -  %
Non-compete agreements                  2.1                          3.0                       3.0                           (0.9)            (30) %              -              -  %

Total                                 $13.6                        $14.5                     $14.5                          ($0.9)             (6) %             $-              -  %


Amortization of acquisition-related intangible assets decreased in fiscal 2022
compared to fiscal 2021 due to an intangible asset relating to non-compete
agreements reaching the end of its useful life during fiscal 2022. No other
significant acquisition-related intangible activity or impairments occurred in
the periods reported.

Abandonment of Long-Lived Assets


In the fourth quarter of fiscal 2021, we modified our long-range plan regarding
a portion of our Durham, North Carolina campus originally intended for expanding
our LED production capacity that we had considered using to expand the
manufacturing footprint for our Silicon Carbide materials product line. After we
complete our current ongoing Silicon Carbide materials production capacity
expansion in Durham, we plan on further expansion of our Silicon Carbide
materials production capacity outside of the Durham campus. As a result, we
decided we will no longer complete the construction of certain buildings on the
Durham campus. Accordingly, an expense of $73.9 million was recorded based upon
an updated valuation of the property in connection with the preparation of our
financial statements for the fiscal year ended June 27, 2021.
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(Gain) loss on Disposal or Impairment of Other Assets


We operate a capital-intensive business. As such, we dispose of a certain level
of our equipment in the normal course of business as our production processes
change due to production improvement initiatives or product mix changes. Due to
the risk of technological obsolescence or changes in our production process, we
regularly review our long-lived assets and capitalized patent costs for possible
impairment.

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

                                                           Fiscal Years Ended                                                          Year-Over-Year Change
(in millions of U.S. Dollars)      June 26, 2022               June 27, 2021            June 28, 2020                      2021 to 2022                          2020 to 2021
(Gain) loss on disposal or
impairment of other assets             ($0.3)                       $1.6                     $1.5                         ($1.9)            (119) %            $0.1              7  %


(Gain) loss on disposal or impairment of other assets primarily relate to
proceeds from asset sales offset by write-offs of fixed asset projects, as well
as the write-offs of impaired or abandoned patents. Additionally, the gain on
disposal or impairment of other assets for the fiscal year ended June 26, 2022
includes a $0.7 million net gain related to consideration received from the
early payment of the unsecured promissory note issued by SGH at the closing of
the LED Business Divestiture (the Purchase Price Note), as discussed in Note 3,
"Discontinued Operations," in our consolidated financial statements included in
Item 8 of this Annual Report.

Other Operating Expense

Other operating expense was comprised of the following:


                                                                  Fiscal Years Ended                                                              Year-Over-Year Change
(in millions of U.S. Dollars)             June 26, 2022               June 27, 2021            June 28, 2020                      2021 to 2022                              2020 to 2021
Factory optimization restructuring             $6.1                        $7.6                     $8.5                         ($1.5)             (20) %                 ($0.9)            (11) %
Severance and other restructuring               1.2                         3.4                      0.6                          (2.2)             (65) %                   2.8             467  %
Total restructuring costs                       7.3                        11.0                      9.1                          (3.7)             (34) %                   1.9              21  %
Project, transformation and transaction
costs                                           6.6                         7.3                     12.2                          (0.7)             (10) %                  (4.9)            (40) %
Factory start-up costs                         70.0                         8.0                      9.5                          62.0              775  %                  (1.5)            (16) %

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

Other operating expense                       $83.9                       $29.1                    $32.9                         $54.8              188  %                 ($3.8)            (12) %


Factory optimization restructuring costs relate to facility consolidations as
well as disposals on certain long-lived assets. Severance and other
restructuring costs relate to corporate restructuring plans. See Note 18,
"Restructuring," in our consolidated financial statements included in Item 8 of
this Annual Report for additional information on our restructuring costs.

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

Factory start-up costs are start-up costs incurred as part of our factory optimization efforts to expand our production footprint to support expected growth. Our factory optimization efforts began in fiscal 2019 and ended in fiscal 2022. Additionally, we began incurring start-up costs related to the opening of a new Silicon Carbide device fabrication facility in Marcy, New York in the third quarter of fiscal 2022.


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

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

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Non-Operating Expense (Income), net

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

                                                               Fiscal Years Ended                                                             Year-Over-Year Change
(in millions of U.S. Dollars)          June 26, 2022               June 27, 2021            June 28, 2020                     2021 to 2022                              2020 to 2021
Gain on sale of investments, net           ($0.3)                      ($0.4)                   ($1.5)                         $0.1             (25) %                  $1.1              73  %
Gain on equity investment                      -                        (8.3)                   (14.2)                          8.3             100  %                   5.9              42  %
Loss (gain) on debt extinguishment          24.8                           -                    (11.0)                         24.8             100  %                  11.0             100  %

Gain on arbitration proceedings                -                           -                     (7.9)                            -               -  %                   7.9             100  %
Interest income                            (11.8)                      (10.1)                   (16.3)                         (1.7)            (17) %                   6.2              38  %
Interest expense                            25.1                        45.4                     34.9                         (20.3)            (45) %                  10.5              30  %

Other, net                                   0.5                        (0.3)                    (2.5)                          0.8             267  %                   2.2              88  %
Non-operating expense (income), net        $38.3                       $26.3                   ($18.5)                        $12.0              46  %                 $44.8             242  %


Gain on equity investment. The gain on equity investment for fiscal 2021 and
2020 relates to changes in fair value of our previously held ENNOSTAR Inc.
(ENNOSTAR) investment. In the fourth quarter of fiscal 2021, we liquidated our
common stock ownership interest in ENNOSTAR. We no longer hold any equity
interest in ENNOSTAR.

Loss (gain) on debt extinguishment. In the second quarter of fiscal 2022, all of
our then-outstanding 2023 Notes were converted into shares of our common stock,
which resulted in a loss on extinguishment of $24.8 million. Additionally, in
the fourth quarter of fiscal 2020, we recognized a gain on partial debt
extinguishment as a result of spending $144.3 million to repurchase $150.2
million of the principal amount held on our previously held 2023 Notes. See Note
10, "Long-term Debt," to our consolidated financial statements in Item 8 of this
Annual Report for additional information.

Gain on arbitration proceedings. The gain on arbitration proceedings primarily
relates to an award from an arbitration proceeding in the third quarter of
fiscal 2020 with a former vendor in which we were awarded damages for defective
inventory. Additionally, a small legal settlement was paid in the fourth quarter
of fiscal 2020.

Interest income. The increase in interest income in fiscal 2022 compared to
fiscal 2021 was primarily due to interest income received on our previously held
note receivable from SGH in connection with the LED Business Divestiture,
partially offset by decreased investment returns from our short-term investment
securities. The decrease in interest income in fiscal 2021 compared to fiscal
2020 was primarily due to significant reductions in investment returns on our
short-term investment securities.

Interest expense. The decrease in interest expense in fiscal 2022 compared to
fiscal 2021 was primarily due to capitalizing interest on the 2026 Notes in
connection with the building of our new Silicon Carbide device fabrication
facility in New York, which we began capitalizing in the fourth quarter of
fiscal 2021. The decrease in interest expense resulting from the extinguishment
of the 2023 Notes in the second quarter of fiscal 2022 was mostly offset by an
increase in interest expense from the sale of the 2028 Notes in the third
quarter of fiscal 2022. The increase in interest expense in fiscal 2021 compared
to fiscal 2020 was primarily due to the addition of the 2026 Notes on April 21,
2020, partially offset by a partial extinguishment of our then-outstanding 2023
Notes.

Other, net. Other, net, primarily includes (i) foreign currency (gain) loss, net
resulting from remeasurement adjustments from our international subsidiaries,
(ii) net losses on the Wafer Supply Agreement entered into in fiscal 2021,
pursuant to which we supply CreeLED with certain Silicon Carbide materials and
fabrication services for up to four years, and (iii) a loss related to receiving
an early payment for the Purchase Price Note. See Note 2, "Discontinued
Operations," in our consolidated financial statements included in Item 8 of this
Annual Report for additional information on the Wafer Supply Agreement and the
loss on early payment of the Purchase Price Note.
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Income Tax Expense (Benefit)

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

                                                Fiscal Years Ended                                                    Year-Over-Year Change
(in millions of U.S.
Dollars)                    June 26, 2022         June 27, 2021         June 28, 2020                     2021 to 2022                          2020 to 2021
Income tax expense
(benefit)                          $9.0                  $1.1                  ($8.0)                      7.9              718  %            9.1             114  %
Effective tax rate                   (3) %                  -  %                   4  %


The change in the effective tax rate from 0% in fiscal 2021 to (3)% in fiscal
2022 was primarily due to $7.3 million of income tax expense recognized in the
second quarter of fiscal 2022 related to the restructuring of our Luxembourg
holding company. This restructuring is discussed further in Note 14, "Income
Taxes," to our consolidated financial statements included in Item 8 of this
Annual Report.

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

In general, the variation between our effective income tax rate and the current
U.S. statutory rate of 21.0% is primarily due to: (i) changes in our valuation
allowances against deferred tax assets, (ii) income derived from international
locations with differing tax rates than the U.S., and (iii) tax credits
generated.

Net Loss from Discontinued Operations


As discussed above, we have classified the results of our former LED Products
segment as discontinued operations in our consolidated statements of operations
for all periods presented. We ceased recording depreciation and amortization of
long-lived assets of the LED Business upon classification as discontinued
operations in October 2020.

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

Net income from discontinued operations in fiscal 2022 relates to the receipt of
an unsecured promissory note from CreeLED as additional consideration to satisfy
the earnout obligations pursuant to the Asset Purchase Agreement (the LED
Purchase Agreement), dated October 18, 2020, as amended. The additional
consideration was based upon the revenue and gross profit performance of the LED
Business in the first four full fiscal quarters following the closing.

Net loss from discontinued operations in fiscal 2021 includes a $112.6 million
goodwill impairment, a $19.5 million impairment to assets held for sale
associated with the LED Business Divestiture and a $29.1 million loss on sale.
Additionally, total costs to sell of $27.4 million were recognized throughout
fiscal 2021 and fiscal 2020 and are included in net (loss) income from
discontinued operations for those periods.

Liquidity and Capital Resources

Overview


We require cash to fund our operating expenses and working capital requirements,
including the purchase of goods and services in the ordinary course of business
such as raw materials, supplies and capital equipment, as well as outlays for
research and development, strategic acquisitions and investments. Our principal
sources of liquidity are cash on hand, marketable securities and, as described
further below, availability under our line of credit.

Based on past performance and current expectations, we believe our current
working capital, availability under our line of credit and anticipated cash
flows from operations will be adequate to meet our cash needs for our daily
operations and capital expenditures for at least the next 12 months. With the
strength of our working capital position, we believe that we have the ability to
continue to invest in expansion of our production capacity, further development
of our products and, when necessary or appropriate, make selective acquisitions
or other strategic investments to strengthen our product portfolio or secure key
intellectual properties.
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Sources of Liquidity

The following table sets forth our cash, cash equivalents and short-term investments:


(in millions of U.S. Dollars)                           June 26, 2022              June 27, 2021               Change
Cash and cash equivalents                                   $449.5                     $379.0                    $70.5
Short-term investments                                       749.3                      775.6                    (26.3)
Total cash, cash equivalents and short-term
investments                                               $1,198.8                   $1,154.6                    $44.2


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


In the third quarter of fiscal 2021, we implemented an at-the-market program
(the ATM program) in which we sold 4,222,511 shares of our common stock at a
weighted average price of $118.41 per share for total gross proceeds of
approximately $500.0 million and net proceeds of approximately $489.1 million,
after $10.0 million in commissions to the managers of the program and $0.9
million in other offering costs.

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

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


In the third quarter of fiscal 2022, we issued and sold a total of $750.0
million aggregate principal amount of the 2028 Notes, as discussed in Note 10,
"Long-term Debt," in our consolidated financial statements included in Item 8 of
this Annual Report. The total net proceeds of the 2028 Notes was $732.3 million,
of which we used $108.2 million to fund the cost of entering into capped call
transactions, which are expected generally to reduce the potential dilution to
our common stock upon any conversion of the 2028 Notes and/or offset any
potential cash payments we are required to make in excess of the principal
amount of the converted 2028 Notes, as the case may be, upon conversion of the
2028 Notes. We expect to use the remainder of the net proceeds for general
corporate purposes. In addition, during the third quarter of 2022, we received
an early payment for the Purchase Price Note resulting in receipt of the
principal amount of $125.0 million along with outstanding accrued and unpaid
interest as of the payment date.

We have a $125 million line of credit as discussed in Note 10, "Long-term Debt,"
in our consolidated financial statements included in Item 8 of this Annual
Report, all of which was available for borrowing as of June 26, 2022. The
purpose of this credit facility is to provide short-term flexibility to optimize
returns on our cash and investment portfolio while funding capital expenditures
and other general business needs. On January 25, 2022, we entered into an
amendment to the credit agreement governing the line of credit that extends the
maturity date by three years to January 9, 2026 and adopted secured overnight
financing rate (SOFR) interest rates as the benchmark interest rate under the
credit agreement.

As of June 26, 2022, we had unrealized losses on our short-term investments of
$23.0 million. All of our short-term investments had investment grade ratings,
and any such investments that were in an unrealized loss position at June 26,
2022 were in such position due to interest rate changes, sector credit rating
changes, company-specific rating changes or volatile market conditions related
to the conflict in Ukraine and the ongoing COVID-19 pandemic. 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
June 26, 2022 until the investments fully recover in market value. No allowance
for credit losses was recorded as of June 26, 2022.

From time to time, we evaluate strategic opportunities, including potential
acquisitions, joint ventures, divestitures, spin-offs or investments in
complementary businesses, and we have continued to make such evaluations. For
example, in March 2021 we completed the LED Business Divestiture, which provided
us with (i) $50 million in cash, subject to customary adjustments, (ii) a $125
million unsecured promissory note due in August 2023 (which amount plus accrued
and unpaid interest was prepaid during the third quarter of 2022), and (iii) an
earn-out payment of $101.8 million based on the revenue and gross profit
performance of the LED Business in the first four full fiscal quarters following
the closing, which is payable in the form of an unsecured promissory note due
March 2025. We may also access capital markets through the issuance of debt or
equity, which we may use in connection with the acquisition of complementary
businesses or other significant assets or for other strategic opportunities or
general corporate purposes.
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Expected Uses of Liquidity


For fiscal 2023, we target approximately $550 million of net capital investment,
which is primarily related to capacity and infrastructure projects to support
longer-term growth and strategic priorities. We are exploring additional
expansion options and will update targeted net capital investment if and when
those capacity expansion options are announced. This target is highly dependent
on the timing and overall progress on our new Silicon Carbide fabrication
facility in New York and is net of approximately $275 million of expected
reimbursements from the State of New York Urban Development Corporation under
the GDA during the fiscal year.

We recently opened our new Silicon Carbide device fabrication facility in Marcy,
New York, to expand capacity for production of our Silicon Carbide devices. We
expect to invest approximately $2.0 billion, an increase from our previously
expected $1.0 billion, in construction, equipment and other related costs for
the new facility through fiscal 2024, of which approximately $500 million is
expected to be reimbursed over time by the State of New York through a grant
program administered by the State of New York Urban Development Corporation
(doing business as Empire State Development). The increase is primarily due to
capacity expansions now planned at the site as a result of increased projected
demand. As of June 26, 2022, we have spent approximately $750 million and
received approximately $150 million in reimbursements. Given our current cash
position, we believe we are positioned to adequately fund the remaining
construction of the facility.

In addition to ordinary operating expenses, our estimated future obligations
consist of leases, debt, and interest on long-term debt. For a description of
contractual obligations, including lease and debt obligations, see Note 5,
"Leases," Note 10, "Long-term Debt," and Note 15, "Commitments and
Contingencies," in our consolidated financial statements included in Item 8 of
this Annual Report.

Cash Flows

In summary, our cash flows were as follows (in millions of U.S. Dollars):

                                                                         Fiscal Years Ended                                                 Year-Over-Year Change
                                               June 26, 2022                 June 27, 2021              June 28, 2020            2021 to 2022                 2020 to 2021
Cash used in operating activities                 ($154.2)                      ($125.5)                    ($29.0)               ($28.7)                            ($96.5)
Cash used in investing activities                  (391.0)                       (448.6)                    (486.9)                 57.6                               38.3
Cash provided by financing activities               615.9                         504.1                      464.3                 111.8                               39.8
Effect of foreign exchange changes                   (0.2)                          0.2                       (0.1)                 (0.4)                               0.3
Net increase (decrease) in cash and cash
equivalents                                         $70.5                        ($69.8)                    ($51.7)               $140.3                             ($18.1)

Cash Flows from Operating Activities

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

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

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

Cash Flows from Investing Activities

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

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The decrease in net cash used in investing activities in fiscal 2022 compared to
fiscal 2021 was primarily due to a $128.3 million increase in property and
equipment related reimbursements from the State of New York Urban Development
Corporation under a Grant Disbursement Agreement (the GDA) and a $81.3 million
net increase in proceeds from the LED Business Divestiture. These increases in
proceeds from investing activities were partially offset by a $74.4 million
increase in purchases of property and equipment and a $12.5 million decrease in
net proceeds from short-term investments. Additionally, we received $66.4
million in net proceeds from the liquidation of our ENNOSTAR equity investment
in fiscal 2021.

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

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


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

Cash Flows from Financing Activities


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

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

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

Financial and Market Risks


We are exposed to financial and market risks, including changes in interest
rates, currency exchange rates and commodities risk. We have entered, and may in
the future enter, into foreign currency derivative financial instruments in an
effort to manage or hedge some of our foreign exchange rate risk. We may not be
able to engage in hedging transactions in the future, and even if we do, foreign
currency fluctuations may still have a material adverse effect on our results of
operations and financial performance. All of the potential changes noted below
are based on sensitivity analysis performed on our financial positions at
June 26, 2022 and June 27, 2021. Actual results may differ materially.

Interest Rate Risk


We maintain an investment portfolio principally composed of money market funds,
municipal bonds, corporate bonds, U.S. agency securities, U.S. treasury
securities, commercial paper, certificates of deposit, and variable rate demand
notes. In order to minimize risk, our cash management policy permits us to
acquire investments rated "A" grade or better. As of June 26, 2022 and June 27,
2021, our cash equivalents and short-term investments had a fair value of $993.6
million and $979.8 million, respectively. If interest rates were to
hypothetically increase by 100 basis points, the fair value of our short-term
investments would decrease by $9.9 million at June 26, 2022 and $9.8 million at
June 27, 2021.

Additionally, as part of the completed LED Business Divestiture, we hold a $101.8 million unsecured promissory note due in March 2025, which was received as an earnout payment. The promissory note bears interest at the London Interbank Offered Rate (LIBOR) plus 3%. A hypothetical increase in interest rates by 100 basis points would result in an immaterial impact to interest income as of June 26, 2022.


As of June 26, 2022, we maintain a secured revolving line of credit under which
we can borrow, repay and reborrow loans from time to time prior to its scheduled
maturity date of January 9, 2026. As of June 26, 2022 and June 27, 2021, no
balances were outstanding under the line of credit.
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Currency Rate and Price Risk


All of our operations have a functional currency of the U.S. Dollar. However, we
operate internationally and have transactions denominated in foreign currencies,
and therefore we are exposed to currency exchange rate risks. Fluctuations in
exchange rates may adversely affect our expenses and results of operations as
well as the value of our assets and liabilities.

Commodities


We utilize significant amounts of precious metals, gases and other commodities
in our manufacturing processes. General economic conditions, market specific
changes or other factors outside of our control may affect the pricing of these
commodities. We do not use financial instruments to hedge commodity prices.

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 June 26, 2022, we
did not have any off-balance sheet arrangements, as defined in Item 303(b) of
SEC Regulation S-K.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP.
In the application of U.S. GAAP, we are required to make estimates that affect
the reported amounts of assets, liabilities, revenue and expenses, and related
disclosure of contingent assets and liabilities in our consolidated financial
statements. Changes in the accounting estimates from period to period are
reasonably likely to occur. Accordingly, actual results could differ
significantly from the estimates made by management. To the extent that there
are material differences between these estimates and actual results, our future
financial statement presentation of our financial condition or results of
operations may be affected.

We evaluate our estimates on an ongoing basis, including those related to
revenue recognition, valuation of inventories, tax related contingencies,
valuation of stock-based compensation, valuation of long-lived and intangible
assets, other contingencies and litigation, among others. We base our estimates
on historical experience and on various other assumptions, including expected
trends that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources.

Our significant accounting policies and a description of recent accounting
pronouncements are discussed in Note 2, "Basis of Presentation and Summary of
Significant Accounting Policies," to our consolidated financial statements
included in Item 8 of this Annual Report. We believe that the following are our
most critical accounting estimates, each of which is critical to the portrayal
of our financial condition and results of operations and requires our most
difficult, subjective and complex judgments. Our management has reviewed our
critical accounting estimates and the related disclosures with the Audit
Committee of our Board of Directors.

Revenue Recognition


For the year ended June 26, 2022, approximately a third of our revenue was from
sales to distributors. Distributors stock inventory and sell our products to
their own customer base, which may include: value added resellers; manufacturers
who incorporate our products into their own manufactured goods; or ultimate end
users of our products. We recognize revenue upon shipment of our products to our
distributors. This arrangement is often referred to as a "sell-in" or
"point-of-purchase" model as opposed to a "sell-through" or "point-of-sale"
model, where revenue is deferred and not recognized until the distributor sells
the product through to their customer.

Our distributors may be provided limited rights that allow them to return a
portion of inventory (product exchange rights or stock rotation rights) and
receive credits for changes in selling prices (price protection rights) or
customer pricing arrangements under our "ship and debit" program or other
targeted sales incentives. When determining our net revenue, we make significant
judgments and estimates corresponding with product shipments. We recognize a
reserve for estimated future returns, changes in selling prices, and other
targeted sales incentives when product ships. We also recognize an asset for the
estimated value of product returns that we believe will be returned to inventory
in the future and resold, and these estimates are based upon historical data,
current economic trends, distributor inventory levels and other related factors.
Our financial condition and operating results are dependent upon our ability to
make reliable estimates. Actual results may vary and could have a significant
impact on our operating results.
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Under the ship and debit program, products are sold to distributors at
negotiated prices and the distributors are required to pay for the products
purchased within our standard commercial terms. Subsequent to the initial
product purchase, a distributor may request a price allowance for a particular
part number(s) for certain target customers, prior to the distributor reselling
that particular part to the customer. If we approve an allowance and the
distributor resells the product to the target customer, we credit the
distributor according to the allowance we approved. These credits are applied
against a reserve we establish upon initial shipment of product to the
distributor.

Inventories


Inventories are stated at the lower of cost or net realizable value. We
write-down our inventories for estimated obsolescence equal to the difference
between the cost of the inventory and its estimated market value based upon an
aging analysis of the inventory on hand, specifically known inventory-related
risks (such as technological obsolescence), and assumptions about future demand.
We also analyze sales levels by product type, including historical and estimated
future customer demand for those products to determine if any additional
reserves are appropriate. For example, we adjust for items that are considered
obsolete based upon changes in customer demand, manufacturing process changes or
new product introductions that may eliminate demand for the product. In
addition, our international sales and purchases are subject to numerous United
States and foreign laws and regulations which may limit or restrict our sales
and shipments to foreign customers. Any adjustment to our inventories as a
result of an estimated obsolescence or net realizable condition is reflected as
a component of our cost of revenue. At the point of the loss recognition, a new,
lower-cost basis for that inventory is established, and any subsequent
improvements in facts and circumstances do not result in the restoration or
increase in that newly established lower-cost basis.

In order to determine what costs can be included in the valuation of
inventories, we determine normal capacity for our manufacturing facilities based
on historical patterns. If our estimates regarding customer demand are
inaccurate, or market conditions or technology change in ways that are less
favorable than those projected by management, we may be required to take excess
capacity charges in accordance with U.S. GAAP, which could have an adverse
effect on our operating results.

Deferred Tax Asset Valuation Allowances


In accordance with Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 740, "Income Taxes" (ASC 740), we evaluate all
available evidence, both positive and negative, to determine whether, based on
the weight of that evidence, a deferred tax asset is more likely than not to be
realized. In assessing the adequacy of a recognized valuation allowance, we
consider all available positive and negative evidence to estimate if sufficient
future taxable income of the right character will be generated to utilize the
existing deferred tax assets by jurisdiction. This consideration includes a
variety of factors such as historical and projected future taxable income and
prudent and feasible tax planning strategies. When we establish or increase a
valuation allowance, our income tax expense increases in the period such
determination is made. If we decrease a valuation allowance, our income tax
expense decreases in the period such a determination is made.

Tax Contingencies


We are subject to periodic audits of our income tax returns by federal, state,
local and foreign agencies. These audits typically include questions regarding
our tax filing positions, including the timing and amount of deductions and the
allocation of income among various tax jurisdictions. In accordance with ASC
740, we regularly evaluate the exposures associated with our various tax filing
positions. ASC 740 states that a tax benefit should not be recognized for
financial statement purposes for an uncertain tax filing position where it is
not more likely than not (likelihood of greater than 50%) of being sustained by
the taxing authorities based on the technical merits of the position.

In accordance with the provisions of ASC 740, we establish unrecognized tax
benefits (as a reduction to the deferred tax asset or as an increase to other
liabilities) to reduce some or all of the tax benefit of any of our tax
positions at such time that we determine the position has become uncertain based
upon one of the following: the tax position is not "more likely than not" to be
sustained; the tax position is "more likely than not" to be sustained, but for a
lesser amount; or the tax position is "more likely than not" to be sustained,
but not in the financial period in which the tax position was originally taken.
For purposes of evaluating whether or not a tax position is uncertain, we
presume the tax position will be examined by the relevant taxing authority that
has full knowledge of all relevant information; the technical merits of a tax
position are derived from authorities such as legislation and statutes,
legislative intent, regulations, rulings and case law and their applicability to
the facts and circumstances of the tax position; and each tax position is
evaluated without consideration of the possibility of offset or aggregation with
other tax positions taken. We adjust these unrecognized tax benefits, including
any impact on the related interest and penalties, in light of changing facts and
circumstances, such as the progress of a tax audit.
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A number of years may elapse before a particular matter for which we have
established an unrecognized tax benefit is audited and fully resolved. To the
extent we prevail in matters for which we have established an unrecognized
benefit or are required to pay amounts in excess of what we have recognized, our
effective tax rate in a given financial statement period could be materially
affected. An unfavorable tax settlement might require use of our cash, existing
deferred tax assets, and/or result in an increase in our effective tax rate in
the year of resolution. A favorable tax settlement would be recognized as a
reduction in our effective tax rate in the year of resolution.

Stock-Based Compensation


We account for awards of stock-based compensation under our employee stock-based
compensation plans using the fair value method. Accordingly, we estimate the
grant date fair value of our stock-based awards and amortize this fair value to
compensation expense over the requisite service period or vesting term. We
currently use the Black-Scholes option-pricing model to estimate the fair value
of our Employee Stock Purchase Plan (ESPP) awards. The grant date fair value of
performance stock units that vest upon meeting certain market conditions is
estimated using the Monte Carlo valuation model. The determination of the fair
value of stock-based awards on the date of grant using an option-pricing model
is affected by our then current 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, actual and projected
employee stock option exercise behaviors, 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 our financial
statements. For restricted stock and stock unit awards, grant date fair value is
based upon the market price of our common stock on the date of the grant. This
fair value is then amortized to compensation expense over the requisite service
period or vesting term. As of June 26, 2022, we have $82.3 million of
unrecognized compensation cost related to nonvested awards, which is expected to
be recognized over a weighted average period of 1.85 years.

We estimate expected forfeitures at the time of grant and revise this estimate,
if necessary, in subsequent periods if actual forfeitures differ from initial
estimates. Our determination of an estimated forfeiture rate is primarily based
upon a review of historical experience but may also include consideration of
other facts and circumstances we believe are indicative of future activity. The
assessment of an estimated forfeiture rate will not alter the total compensation
expense to be recognized, only the timing of this recognition as compensation
expense is adjusted to reflect instruments that actually vest.

Long-Lived Assets


We evaluate long-lived assets such as property, equipment and finite-lived
intangible assets, such as patents, for impairment whenever events or
circumstances indicate that the carrying value of the assets recognized in our
financial statements may not be recoverable. Factors that we consider include
whether there has been a significant decrease in the market value of an asset, a
significant change in the way an asset is being used, or a significant change,
delay or departure in our strategy for that asset. Our assessment of the
recoverability of long-lived assets involves significant judgment and
estimation. These assessments reflect our assumptions, which, we believe, are
consistent with the assumptions hypothetical marketplace participants use.
Factors that we must estimate when performing recoverability and impairment
tests include, among others, the economic life of the asset, sales volumes,
prices, cost of capital, tax rates, and capital spending. These factors are
often interdependent and therefore do not change in isolation. If impairment is
indicated, we first determine if the total estimated future cash flows on an
undiscounted basis are less than the carrying amounts of the asset or assets. If
so, an impairment loss is measured and recognized. Our impairment loss
calculations require that we apply judgment in estimating future cash flows and
asset fair values, including estimating useful lives of the assets. To make
these judgments, we may use internal discounted cash flow estimates, quoted
market prices when available and independent appraisals as appropriate to
determine fair value. If actual results are not consistent with our assumptions
and judgments used in estimating future cash flows and asset fair values, we may
be required to recognize additional impairment losses which could be material to
our results of operations. For example, we recognized an impairment to assets
held for sale associated with the LED Business Divestiture of $19.5 million
during the second fiscal quarter of 2021.

After an impairment loss is recognized, a new, lower cost basis for that long-lived asset is established. Subsequent changes in facts and circumstances do not result in the reversal of a previously recognized impairment loss.

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Goodwill


We test goodwill for impairment at least annually as of the first day of the
fiscal fourth quarter, or when indications of potential impairment exist. We
monitor for the existence of potential impairment indicators throughout the
fiscal year. We conduct impairment testing for goodwill at the reporting unit
level. Reporting units, as defined by FASB ASC 350, "Intangibles - Goodwill and
Other," may be operating segments as a whole or an operation one level below an
operating segment, referred to as a component. We have determined that we
operate as one operating and reportable segment.

We may initiate goodwill impairment testing by considering qualitative factors
to determine whether it is more likely than not that a reporting unit's carrying
value is greater than its fair value. Such factors may include the following,
among others: a significant decline in the reporting unit's expected future cash
flows; a sustained, significant decline in our stock price and market
capitalization; a significant adverse change in legal factors or in the business
climate, unanticipated competition; and slower growth rates; as well as changes
in management, key personnel, strategy, and customers. If our qualitative
assessment indicates that goodwill impairment is more likely than not, we
determine the amount by which the reporting unit's carrying value exceeds its
fair value, not to exceed the carrying amount of goodwill.

We compare the fair value of the reporting unit to its carrying value, including
goodwill. We derive a reporting unit's fair value through a combination of the
market approach (a guideline transaction method) and the income approach (a
discounted cash flow analysis). The market and income approaches require
significant judgment, including estimation of future revenues, gross margins,
and operating expenses, which are dependent on internal forecasts, current and
anticipated economic conditions and trends, selection of market multiples
through assessment of the reporting unit's performance relative to peer
competitors, the estimation of the long-term revenue growth rate and discount
rate from the capital asset pricing model and the determination of our weighted
average cost of capital. Changes in these estimates and assumptions could
materially affect the fair value of the goodwill reporting unit, potentially
resulting in a non-cash impairment charge. The fair values are reconciled back
to our consolidated market capitalization.

If the fair value of a reporting unit exceeds its carrying value, then we
conclude that no goodwill impairment has occurred. If the carrying value of the
reporting unit exceeds the fair value, we recognize an impairment loss in an
amount equal to the excess, not to exceed the carrying value of the reporting
unit's goodwill. Once an impairment loss is recognized, the adjusted carrying
value of the goodwill becomes the new accounting basis of the goodwill for the
reporting unit.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

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Item 8. Financial Statements and Supplementary Data

                   Index to Consolidated Financial Statements

  Report of Independent Registered Public Accounting Firm   (PCAOB ID 238)                      45
  Consolidated Balance Sheets as of     June 26, 2022 and     June 27, 2021                     47

Consolidated Statements of Operations for the years ended June 26, 2022, June 27, 2021 and June 28, 2020

                                                              48

Consolidated Statements of Comprehensive Loss for the years ended June 26, 2022,

    June 27, 2021     and     June 28, 2020                                                     49

Consolidated Statements of Cash Flows for the years ended June 26, 2022, June 27, 2021 and June 28, 2020

                                                              50

Consolidated Statements of Shareholders' Equity for the years ended June 26, 2022,

    June 27, 2021     and     June 28, 2020                                                     51
  Notes to Consolidated Financial Statements                                                    52



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            Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Wolfspeed, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting


We have audited the accompanying consolidated balance sheets of Wolfspeed, Inc.
and its subsidiaries (the "Company") as of June 26, 2022 and June 27, 2021, and
the related consolidated statements of operations, of comprehensive loss, of
shareholders' equity and of cash flows for each of the three years in the period
ended June 26, 2022, including the related notes (collectively referred to as
the "consolidated financial statements"). We also have audited the Company's
internal control over financial reporting as of June 26, 2022, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
June 26, 2022 and June 27, 2021, and the results of its operations and its cash
flows for each of the three years in the period ended June 26, 2022 in
conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of June 26, 2022, based
on criteria established in Internal Control - Integrated Framework (2013) issued
by the COSO.

Changes in Accounting Principles

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

Basis for Opinions


The Company's management is responsible for these consolidated financial
statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting, included in Management's Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to express opinions on
the Company's consolidated financial statements and on the Company's internal
control over financial reporting based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.


Our audits of the consolidated financial statements included performing
procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.

Definition and Limitations of Internal Control over Financial Reporting


A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the
                                       45
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company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

Critical Audit Matters


The critical audit matter communicated below is a matter arising from the
current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that (i)
relates to accounts or disclosures that are material to the consolidated
financial statements and (ii) involved our especially challenging, subjective,
or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.

Reserves for distributor programs - Ship and debit


As described in Note 2 to the consolidated financial statements, products are
sold to distributors at negotiated prices and the distributors are required to
pay for the products purchased within the Company's standard commercial terms.
Certain distributors may be provided customer pricing arrangements under the
Company's "ship and debit" program. Distributor sales account for approximately
a third of total net revenue of $746.2 million for the year ended June 26, 2022
and the associated reserves for ship and debit program to distributors make up a
portion of the accrued contract liabilities account balance of $35.9 million.
Under the Company's ship and debit program, subsequent to the initial product
purchase, a distributor may request a price allowance for a particular part
number(s) for certain target customers, prior to the distributor reselling the
particular part to that customer. If the Company approves an allowance and the
distributor resells the product to the target customer, the Company credits the
distributor according to the allowance the Company approved. The credits
associated with this program are applied against the reserve the Company
establishes upon initial shipment of product to the distributor. Upon shipment,
management uses significant judgment in establishing reserves for ship and
debit, which includes developing assumptions related to changes in selling
prices.

The principal considerations for our determination that performing procedures
relating to ship and debit reserves for distributor programs is a critical audit
matter are the significant judgment by management in estimating the reserves for
ship and debit, which in turn led to a high degree of auditor judgment,
subjectivity and effort in performing procedures and evaluating audit evidence
relating to management's assumption related to changes in selling prices.

Addressing the matter involved performing procedures and evaluating audit
evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included testing the effectiveness of
controls relating to the valuation of ship and debit reserve. These procedures
also included, among others, (1) testing management's process for determining
the estimate for ship and debit reserve, (2) evaluating the appropriateness of
management's methodology to calculate the ship and debit reserve, (3) evaluating
the reasonableness of management's significant assumption related to changes in
selling prices, which included the evaluation of management's ability to
estimate the changes in selling prices in comparison to historical selling
prices, (4) testing the completeness and accuracy of data inputs to the ship and
debit reserve calculation, and (5) evaluating the reasonableness of management's
prior period estimates for ship and debit reserve to actual credits granted
during the current period by performing a retrospective comparison subsequent to
year-end.

/s/PricewaterhouseCoopers LLP
Raleigh, North Carolina
August 22, 2022


We have served as the Company's auditor since 2013.

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                                WOLFSPEED, INC.
                          CONSOLIDATED BALANCE SHEETS
                                                                       June 26, 2022              June 27, 2021
in millions of U.S. Dollars, except share data in thousands
Assets
Current assets:
Cash and cash equivalents                                                  $449.5                     $379.0
Short-term investments                                                      749.3                      775.6
Total cash, cash equivalents and short-term investments                   1,198.8                    1,154.6
Accounts receivable, net                                                    150.2                       95.9
Inventories                                                                 227.0                      166.6
Income taxes receivable                                                       1.3                        6.4

Prepaid expenses                                                             32.1                       25.7
Other current assets                                                        151.4                       27.9
Current assets held for sale                                                  1.6                        1.6

Total current assets                                                      1,762.4                    1,478.7
Property and equipment, net                                               1,481.1                    1,292.3
Goodwill                                                                    359.2                      359.2
Intangible assets, net                                                      125.4                      140.5
Long-term receivables                                                       104.7                      138.4

Deferred tax assets                                                           1.0                        1.0
Other assets                                                                 83.7                       35.5
Long-term assets of discontinued operations                                     -                        1.2
Total assets                                                             $3,917.5                   $3,446.8

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses                                      $307.7                     $381.1
Accrued contract liabilities                                                 37.0                       22.9
Income taxes payable                                                         11.6                        0.4
Finance lease liabilities                                                     0.5                        5.2
Other current liabilities                                                    31.7                       38.6
Current liabilities of discontinued operations                                  -                        0.6
Total current liabilities                                                   388.5                      448.8
Long-term liabilities:

Convertible notes, net                                                    1,021.6                      823.9
Deferred tax liabilities                                                      3.2                        2.5
Finance lease liabilities - long-term                                         9.6                       10.0
Other long-term liabilities                                                  55.3                       44.5
Long-term liabilities of discontinued operations                                -                        0.6
Total long-term liabilities                                               1,089.7                      881.5
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $0.01; 3,000 shares authorized at June
26, 2022 and June 27, 2021; none issued and outstanding                         -                          -

Common stock, par value $0.00125; 200,000 shares authorized at June 26, 2022 and June 27, 2021; 123,795 and 115,691 shares issued and outstanding at June 26, 2022 and June 27, 2021, respectively

                  0.2                        0.1
Additional paid-in-capital                                                4,228.4                    3,676.8
Accumulated other comprehensive (loss) income                               (25.3)                       2.7
Accumulated deficit                                                      (1,764.0)                  (1,563.1)
Total shareholders' equity                                                2,439.3                    2,116.5

Total liabilities and shareholders' equity                               $3,917.5                   $3,446.8


The accompanying notes are an integral part of the consolidated financial

                                   statements
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                                WOLFSPEED, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                             Fiscal Years Ended
                                                                  June 26, 2022                  June 27, 2021               June 28, 2020
in millions of U.S. Dollars, except share data
Revenue, net                                                          $746.2                         $525.6                      $470.7
Cost of revenue, net                                                   496.9                          361.0                       312.2
Gross profit                                                           249.3                          164.6                       158.5
Operating expenses:
Research and development                                               196.4                          177.8                       152.0
Sales, general and administrative                                      203.5                          181.6                       181.7

Amortization or impairment of acquisition-related intangibles 13.6

                           14.5                        14.5
Abandonment of long-lived assets                                           -                           73.9                           -
(Gain) loss on disposal or impairment of other assets                   (0.3)                           1.6                         1.5

Other operating expense                                                 83.9                           29.1                        32.9

Operating loss                                                        (247.8)                        (313.9)                     (224.1)
Non-operating expense (income), net                                     38.3                           26.3                       (18.5)
Loss before income taxes                                              (286.1)                        (340.2)                     (205.6)
Income tax expense (benefit)                                             9.0                            1.1                        (8.0)
Net loss from continuing operations                                   (295.1)                        (341.3)                     (197.6)
Net income (loss) from discontinued operations                          94.2                         (181.2)                        7.0
Net loss                                                              (200.9)                        (522.5)                     (190.6)

Net income from discontinued operations attributable to noncontrolling interest

                                                    -                            1.4                         1.1
Net loss attributable to controlling interest                        ($200.9)                       ($523.9)                    ($191.7)

Basic and diluted loss per share
Continuing operations                                                 ($2.46)                        ($3.04)                     ($1.83)

Net loss attributable to controlling interest                         ($1.67)                        ($4.66)                     ($1.78)

Weighted average shares - basic and diluted (in thousands) 120,120

                        112,346                     107,935


The accompanying notes are an integral part of the consolidated financial

                                   statements
                                       48

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                                WOLFSPEED, INC.
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                                                                                             Fiscal Years Ended
                                                                  June 26, 2022                   June 27, 2021               June 28, 2020
in millions of U.S. Dollars
Net loss                                                              ($200.9)                       ($522.5)                    ($190.6)

Other comprehensive income (loss):

Reclassification of currency translation gain to loss on sale of discontinued operations

                                                  -                           (9.5)                          -
Net unrealized (loss) gain on available-for-sale securities             (28.0)                          (3.8)                        6.5

Comprehensive loss                                                     (228.9)                        (535.8)                     (184.1)

Net income from discontinued operations attributable to noncontrolling interest

                                                     -                            1.4                         1.1
Comprehensive loss attributable to controlling interest               ($228.9)                       ($537.2)                    ($185.2)


The accompanying notes are an integral part of the consolidated financial

                                   statements
                                       49

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                                WOLFSPEED, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                               Fiscal Years Ended
in millions of U.S. Dollars                                          June 26, 2022                 June 27, 2021              June 28, 2020
Operating activities:
Net loss                                                                ($200.9)                      ($522.5)                   ($190.6)
Net income (loss) from discontinued operations                             94.2                        (181.2)                       7.0
Net loss from continuing operations                                      (295.1)                       (341.3)                    (197.6)

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

                                             129.8                         120.9                       97.1

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

                                              20.1                          32.8                       26.2
Loss (gain) on extinguishment of debt                                      24.8                             -                      (11.0)
Stock-based compensation                                                   60.9                          53.2                       47.2

Abandonment of long-lived assets                                              -                          73.9                          -

Loss on disposal or impairment of long-lived assets                         1.0                           5.0                        4.5
Amortization of premium/discount on investments                             6.1                           6.9                        1.7
Realized gain on sale of investments                                       (0.3)                         (0.4)                      (1.5)
Gain on equity investment                                                     -                          (8.3)                     (14.2)
Foreign exchange gain on equity investment                                    -                          (2.2)                      (2.2)
Deferred income taxes                                                       0.7                           0.9                       (0.5)
Changes in operating assets and liabilities:
Accounts receivable, net                                                  (54.3)                        (23.5)                      (3.2)
Inventories                                                               (68.8)                        (44.6)                      (8.5)
Prepaid expenses and other assets                                          (0.4)                        (20.0)                      (3.0)
Accounts payable, trade                                                    29.2                          21.7                       (7.2)
Accrued salaries and wages and other liabilities                          (10.5)                         15.3                      (24.9)
Accrued contract liabilities                                                2.6                          (2.8)                       5.5

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

                       (112.5)                     (91.6)

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

                                                       -                         (13.0)                      62.6
Cash used in operating activities                                        (154.2)                       (125.5)                     (29.0)
Investing activities:
Purchases of property and equipment                                      (644.9)                       (570.5)                    (229.9)
Purchases of patent and licensing rights                                   (5.7)                         (5.9)                      (4.4)

Proceeds from sale of property and equipment, including insurance proceeds

                                                          3.1                           2.3                        2.6
Purchases of short-term investments                                      (475.0)                       (475.0)                    (821.4)
Proceeds from maturities of short-term investments                        242.3                         428.3                      460.6
Proceeds from sale of short-term investments                              225.2                          51.7                      118.0

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

                                                       139.0                          10.7                          -

Proceeds from sale of business, net, including receipt of note receivable

                                                                125.0                          43.7                          -
Proceeds from sale of long-term investment                                    -                          66.4                          -

Net cash used in investing activities of continuing operations (391.0)

                       (448.3)                    (474.5)
Net cash used in investing activities of discontinued operations              -                          (0.3)                     (12.4)
Cash used in investing activities                                        (391.0)                       (448.6)                    (486.9)

Financing activities:


Proceeds from long-term debt borrowings                                    20.0                          30.0                          -

Payments on long-term debt borrowings, including finance lease obligations

                                                               (20.5)                        (30.4)                    (145.1)
Proceeds from issuance of common stock                                     22.4                         539.7                       76.4
Tax withholding on vested equity awards                                   (29.1)                        (36.2)                     (16.9)
Proceeds from convertible notes                                           750.0                             -                      575.0
Payments of debt issuance costs                                           (17.7)                            -                      (13.6)
Cash paid for capped call transactions                                   (108.2)                            -                          -
Incentive-related escrow refunds/(deposits)                                   -                           1.5                      (11.5)

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

Cash provided by financing activities                                     615.9                         504.1                      464.3

Effects of foreign exchange changes on cash and cash equivalents (0.2)

                          0.2                       (0.1)
Net change in cash and cash equivalents                                    70.5                         (69.8)                     (51.7)

Cash and cash equivalents, beginning of period                            379.0                         448.8                      500.5
Cash and cash equivalents, end of period                                 $449.5                        $379.0                     $448.8


The accompanying notes are an integral part of the consolidated financial

                                   statements
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                                WOLFSPEED, INC.
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                                                                                                                                                                                           Non-controlling
                                                     Common Stock                                                                                                                                                           Interest from
                                              Number                  Par                                                                                     Accumulated Other               Total Equity -                Discontinued
                                            of Shares                 Value           Additional Paid-in Capital            Accumulated Deficit             Comprehensive Income            Controlled Interest              Operations                Total Equity

Share data in thousands, U.S. Dollar information in millions Balance at June 30, 2019

                     106,570                  $0.1                     $2,874.1                            ($847.5)                             $9.5                       $2,036.2                       $5.0                   $2,041.2
Net (loss) income                                  -                     -                            -                             (191.7)                                -                         (191.7)                       1.1                     (190.6)

Unrealized gain on available-for-sale
securities                                         -                     -                            -                                  -                               6.5                            6.5                          -                        6.5
Comprehensive (loss) income                                                                                                                                                                          (185.2)                       1.1                     (184.1)
Tax withholding on vested equity awards            -                     -                        (16.9)                                 -                                 -                          (16.9)                         -                      (16.9)
Stock-based compensation                           -                     -                         54.9                                  -                                 -                           54.9                          -                       54.9
Exercise of stock options and issuance
of shares                                      2,660                     -                         76.4                                  -                                 -                           76.4                          -                       76.4
Issuance of convertible notes due May 1,
2026                                               -                     -                        145.4                                  -                                 -                          145.4                          -                      145.4
Partial extinguishment of convertible
notes due September 1, 2023                        -                     -                        (27.7)                                 -                                 -                          (27.7)                         -                      (27.7)
Balance at June 28, 2020                     109,230                  $0.1                     $3,106.2                          ($1,039.2)                            $16.0                       $2,083.1                       $6.1                   $2,089.2
Net (loss) income                                  -                     -                            -                             (523.9)                                -                         (523.9)                       1.4                     (522.5)
Reclassification of currency translation
gain to loss on sale of discontinued
operations                                         -                     -                            -                                  -                              (9.5)                          (9.5)                         -                       (9.5)
Unrealized loss on available-for-sale
securities                                         -                     -                            -                                  -                              (3.8)                          (3.8)                         -                       (3.8)
Comprehensive (loss) income                                                                                                                                                                          (537.2)                       1.4                     (535.8)
Tax withholding on vested equity awards            -                     -                        (36.2)                                 -                                 -                          (36.2)                         -                      (36.2)
Stock-based compensation                           -                     -                         67.1                                  -                                 -                           67.1                          -                       67.1
Exercise of stock options and issuance
of shares                                      2,238                     -                         50.6                                  -                                 -                           50.6                          -                       50.6
Issuance of shares under the
at-the-market offering program, net of
issuance costs                                 4,223                     -                        489.1                                  -                                 -                          489.1                          -                      489.1
Reclassification of noncontrolling
interest to loss on sale of discontinued
operations                                         -                     -                            -                                  -                                 -                              -                       (7.5)                      (7.5)
Balance at June 27, 2021                     115,691                  $0.1                     $3,676.8                          ($1,563.1)                             $2.7                       $2,116.5                         $-                   $2,116.5
Net loss                                           -                     -                            -                             (200.9)                                -                         (200.9)                         -                     (200.9)

Unrealized loss on available-for-sale
securities                                         -                     -                            -                                  -                             (28.0)                         (28.0)                         -                      (28.0)
Comprehensive loss                                                                                                                                                                                   (228.9)                         -                     (228.9)
Tax withholding on vested equity awards            -                     -                        (29.1)                                 -                                 -                          (29.1)                         -                      (29.1)
Stock-based compensation                           -                     -                         62.8                                  -                                                             62.8                          -                       62.8
Exercise of stock options and issuance
of shares                                        978                     -                         22.4                                  -                                 -                           22.4                          -                       22.4
Issuance of shares related to the
extinguishment of convertible notes due
September 1, 2023                              7,126                   0.1                        416.1                                  -                                 -                          416.2                          -                      416.2
Issuance of convertible notes due
February 15, 2028                                  -                     -                        187.6                                  -                                 -                          187.6                          -                      187.6
Capped call transactions related to the
issuance of convertible notes due
February 15, 2028                                  -                     -                       (108.2)                                 -                                 -                         (108.2)                         -                     (108.2)
Balance at June 26, 2022                     123,795                  $0.2                     $4,228.4                          ($1,764.0)                           ($25.3)                      $2,439.3                         $-                   $2,439.3

The accompanying notes are an integral part of the consolidated financial

                                  statements.
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                                WOLFSPEED, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


  Note 1                  Business                                                                        53
  Note 2                  Basis of Presentation and Summary of Significant Accounting Policies            54
  Note 3                  Discontinued Operations                                                         62
  Note 4                  Revenue Recognition                                                             64
  Note 5                  Leases                                                                          65
  Note 6                  Financial Statement Details                                                     66
  Note 7                  Investments                                                                     70
  Note 8                  Fair Value of Financial Instruments                                             72
  Note 9                  Goodwill and Intangible Assets                                                  73
  Note 10                 Long-term Debt                                                                  74
  Note 11                 Shareholders' Equity                                                            78
  Note 12                 Loss Per Share                                                                  79
  Note 13                 Stock-Based Compensation                                                        79
  Note 14                 Income Taxes                                                                    83
  Note 15                 Commitments and Contingencies                                                   87
  Note 16                 Concentrations of Credit Risk                                                   88
  Note 17                 Retirement Savings Plan                                                         88
  Note 18                 Restructuring                                                                   88
  Note 19                 Subsequent Events                                                               89



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Note 1 - Business

Overview

Wolfspeed, Inc. (the Company), formerly known as Cree, Inc., is an innovator of
wide bandgap semiconductors, focused on Silicon Carbide and gallium nitride
(GaN) materials and devices for power and radio-frequency (RF) applications. The
Company's product families include Silicon Carbide and GaN materials, power
devices and RF devices targeted for various applications such as electric
vehicles, fast charging, 5G, renewable energy and storage, and aerospace and
defense.

Previously, the Company designed, manufactured and sold specialty lighting-class
light emitting diode (LED) products targeted for use in indoor and outdoor
lighting, electronic signs and signals and video displays. As discussed more
fully below in Note 3, "Discontinued Operations," on March 1, 2021, the Company
completed the sale of certain assets and subsidiaries comprising its former LED
Products segment (the LED Business Divestiture) to SMART Global Holdings, Inc.
(SGH) and its wholly owned newly-created acquisition subsidiary CreeLED, Inc.
(CreeLED and collectively with SGH, SMART).

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

The Company's materials products and power devices are used in electric vehicles, motor drives, power supplies, solar and transportation applications. The Company's materials products and RF devices are used in military communications, radar, satellite and telecommunication applications.


On October 4, 2021, the Company changed its corporate name from Cree, Inc. to
Wolfspeed, Inc. In addition, the Company transferred the listing of its common
stock to the New York Stock Exchange (NYSE) from The Nasdaq Global Select Market
(Nasdaq). The Company ceased trading as a Nasdaq-listed company at the end of
the day on October 1, 2021 and commenced trading as a NYSE-listed company at
market open on October 4, 2021 under the new ticker symbol 'WOLF'.

The majority of the Company's products are manufactured at its production
facilities located in North Carolina, California and Arkansas. The Company also
uses contract manufacturers for certain products and aspects of product
fabrication, assembly and packaging. Additionally, the Company recently opened
its Silicon Carbide device fabrication facility in New York. The Company
operates research and development facilities in North Carolina, California,
Arkansas, Arizona and New York.

Wolfspeed, Inc. is a North Carolina corporation established in 1987, and its headquarters are in Durham, North Carolina.

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Note 2 - Basis of Presentation and Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated.

Fiscal Year


The Company's fiscal year is a 52 or 53-week period ending on the last Sunday in
the month of June. The Company's 2022, 2021 and 2020 fiscal years were 52-week
fiscal years. The Company's 2023 fiscal year will be a 52-week fiscal year. The
next 53-week fiscal year will be for the Company's 2024 fiscal year.

Reclassifications

Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net loss or shareholders' equity.

Use of Estimates


The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America (U.S.
GAAP) requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue and expenses, and the
disclosure of contingent assets and liabilities. The Company evaluates its
estimates on an ongoing basis, including those related to revenue recognition,
valuation of inventories, tax related contingencies, valuation of stock-based
compensation, valuation of long-lived and intangible assets, other contingencies
and litigation, among others. The Company generally bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results could differ materially
from those estimates.

Certain accounting matters that generally require consideration of forecasted
financial information were assessed regarding impacts from the COVID-19 pandemic
as of June 26, 2022 and through the date of this Annual Report using reasonably
available information as of those dates. The accounting matters assessed
included, but were not limited to, allowance for doubtful accounts, the carrying
value of goodwill and other long-lived tangible and intangible assets, the
potential impact to earnings of unrealized losses on investments and valuation
allowances for deferred tax assets. While the assessments resulted in no
material impacts to the consolidated financial statements as of June 26, 2022
and June 27, 2021 and for the years ended June 26, 2022, June 27, 2021 and June
28, 2020, the Company believes the full impact of the pandemic remains uncertain
and will continue to assess if ongoing developments related to the pandemic may
cause future material impacts to its consolidated financial statements.

Change in Estimate


As a result of the LED Business Divestiture and the Company's continued
investment in 200mm technology, the Company evaluated the useful lives applied
to certain machinery and equipment assets by considering industry standards and
reviewing the assets' historical and estimated future use. In the first quarter
of fiscal 2022, the Company increased the expected useful lives of these assets
by two to five years to more closely reflect the estimated economic lives of
those assets. This change in estimate was applied prospectively effective for
the first quarter of fiscal 2022 and resulted in a decrease in depreciation
expense of $33.3 million for the fiscal year ended June 26, 2022. Approximately
$10.4 million of the decrease in year-to-date depreciation expense resulted in a
net reduction of inventory as of June 26, 2022 and the remaining $22.9 million
resulted in an improvement in both loss before income taxes and net loss, of
which $19.6 million related to an improvement in gross profit. This change in
estimate resulted in an improvement in year-to-date basic and diluted loss per
share of $0.19 per share.

Segment Information

The Company operates as a single reporting segment. Accordingly, the Chief Operating Decision Maker (CODM) allocates resources and assesses performance on a consolidated basis. The Company's identified CODM is the Chief Executive Officer.

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Cash and Cash Equivalents


Cash and cash equivalents consist of unrestricted cash accounts and highly
liquid investments with an original maturity of three months or less when
purchased. Cash and cash equivalents are stated at cost, which approximates fair
value. The Company holds cash and cash equivalents at several major financial
institutions, which often exceed insurance limits set by the Federal Deposit
Insurance Corporation (FDIC). The Company has not historically experienced any
losses due to such concentration of credit risk.

Accounts Receivable


For product revenue, the Company typically invoices its customers at the time of
shipment for the sales order value of products shipped. Accounts receivable are
recognized at the invoiced amount and are not subject to any interest or finance
charges. The Company does not have any off-balance sheet credit exposure related
to any of its customers.

Allowance for Doubtful Accounts


On June 29, 2020, the first day of the 2021 fiscal year, the Company adopted
Financial Accounting Standards Board (FASB) Accounting Standard Update (ASU)
2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments (ASU 2016-13) using the modified
retrospective transition method, which replaced the incurred loss impairment
methodology in U.S. GAAP with a methodology that reflects expected credit
losses. Upon adoption, prior period balances were not adjusted and the Company
determined no cumulative-effect adjustment to retained earnings as of June 29,
2020 was required.

Under this new standard, expected credit losses for the Company's receivables
are evaluated on a collective (pool) basis and aggregated on the basis of
similar risk characteristics. These aggregated risk pools are reassessed at each
measurement date. A combination of factors is considered in determining the
appropriate estimate of expected credit losses, including broad-based economic
indicators as well as customers' financial strength, credit standing, payment
history and any historical defaults.

Investments

Investments in certain securities may be classified into three categories:

•Held-to-Maturity - Debt securities that the entity has the positive intent and ability to hold to maturity, which are reported at amortized cost.


•Trading - Debt securities that are bought and held principally for the purpose
of selling in the near term, which are reported at fair value, with unrealized
gains and losses included in earnings.

•Available-for-Sale - Debt securities not classified as either held-to-maturity
or trading securities, which are reported at fair value with unrealized gains or
losses excluded from earnings and reported as a separate component of
shareholders' equity. However, as explained further below, the Company evaluates
each individual security in an unrealized loss position for expected credit
losses and if it is evaluated as having an expected credit loss, unrealized
losses of that security are included in earnings.

The Company reassesses the appropriateness of the classification (i.e., held-to-maturity, trading or available-for-sale) of its investments at the end of each reporting period.


Upon adoption of ASU 2016-13, available-for-sale debt securities in an
unrealized loss position at each measurement date are individually evaluated for
expected credit losses. The Company evaluates whether the unrealized loss is due
to market factors or changes in the investment holdings' credit rating. An
expected credit loss will be recorded when an investment in an unrealized loss
position is determined to have lost value from a decreased credit rating. The
Company does not record an allowance for credit losses on receivables related to
accrued interest. For the fiscal years ended June 26, 2022 and June 27, 2021, no
allowance for credit losses was recorded.

Before the adoption of ASU 2016-13, the Company evaluated investments that
experienced a decline below its original cost to determine whether the decline
is other-than-temporary. Among other things, the Company considered the duration
and extent of the decline and the economic factors that influenced the capital
markets. For the fiscal year ended June 28, 2020, the Company had no
other-than-temporary declines below the cost basis of its investments.

The Company utilizes specific identification in computing realized gains and losses on the sale of investments. Realized gains and losses on the sale of investments are reported in non-operating expense (income), net.

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Investments in marketable securities with maturities beyond one year may be
classified as short-term based on their highly liquid nature and because such
marketable securities represent the investment of cash that is available for
current operations.

Fair Value of Financial Instruments


The Company performs recurring fair value measurements for its cash equivalents
and short-term investments, as discussed further in Note 8, "Fair Value of
Financial Instruments." In addition, cash, accounts and interest receivable,
accounts payable and other liabilities approximate their fair values at June 26,
2022 and June 27, 2021 due to the short-term nature of these instruments.

Inventories


Inventories are stated at the lower of cost or net realizable value, with cost
determined on a first-in, first-out (FIFO) method or an average cost method. The
Company writes down its inventory balances for estimates of excess and obsolete
amounts. These write-downs are recognized as a component of cost of revenue. At
the point of the write-down, a new lower cost basis for that inventory is
established, and any subsequent improvements in facts and circumstances do not
result in the restoration or increase in that newly established lower cost
basis. If that inventory is subsequently sold, the sale is recorded at the
actual selling price and the related cost of revenue is recorded at the new
lower cost basis.

Property and Equipment


Property and equipment are stated at cost and depreciated on a straight-line
basis over the assets' estimated useful lives. Leasehold improvements are
amortized over the lesser of the asset life or the term of the related lease. In
general, the Company's policy for useful lives is as follows:

Furniture and fixtures                                         5 years
Buildings and building improvements                            5 to 40 years
Machinery and equipment                                        3 to 15 years
Vehicles                                                       5 years
Computer hardware/software                                     3 years
Leasehold improvements                                         Shorter of

estimated useful life or lease term



Expenditures for repairs and maintenance are charged to expense as incurred. The
costs for major renewals and improvements are capitalized and depreciated over
their estimated useful lives. The cost and related accumulated depreciation of
the assets are removed from the accounts upon disposition and any resulting gain
or loss is reflected in operating income.

The Company considers a long-lived asset to be abandoned after the Company has
ceased use of such asset and there is no longer intent to use or repurpose the
asset in the future. Abandoned long-lived assets are recorded at their salvage
value, if any.

Government Grant Disbursements


Government grant disbursements are recognized when there is reasonable assurance
that: (1) the Company will comply with the relevant conditions and (2) the grant
disbursement will be received. The Company receives grant disbursements from the
State of New York Development Corporation relating to property, plant and
equipment purchases in connection with its construction of a new Silicon Carbide
device fabrication facility in Marcy, New York. Grant disbursements are recorded
as a reduction to the related asset(s), which then reduces depreciation expense
over the expected useful life of the asset on a straight-line basis.
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Shipping and Handling Costs

Shipping and handling costs are included in cost of revenue, net in the consolidated statements of operations and are recognized as a period expense during the period in which they are incurred.

Goodwill and Intangible Assets


The Company recognizes the assets acquired and liabilities assumed in business
combinations at their respective fair values at the date of acquisition, with
any excess purchase price recognized as goodwill. Valuation of intangible assets
entails significant estimates and assumptions including, but not limited to,
estimating future cash flows from product revenue, developing appropriate
discount rates, continuation of customer relationships and renewal of customer
contracts, and approximating the useful lives of the intangible assets acquired.

Goodwill


The Company recognizes goodwill as an asset representing the future economic
benefits arising from other assets acquired in a business combination that are
not individually identified and separately recognized. The Company tests
goodwill for impairment at least annually as of the first day of its fiscal
fourth quarter, or when indications of potential impairment exist. The Company
monitors for the existence of potential impairment indicators throughout the
fiscal year.

The Company conducts impairment testing for goodwill at the reporting unit
level. Reporting units may be operating segments as a whole, or an operation one
level below an operating segment, referred to as a component. The Company has
determined that it has one reporting unit, Wolfspeed.

The Company may initiate goodwill impairment testing by considering qualitative
factors to determine whether it is more likely than not that a reporting unit's
carrying value is greater than its fair value. Such factors may include the
following, among others: a significant decline in the reporting unit's expected
future cash flows; a sustained, significant decline in the Company's stock price
and market capitalization; a significant adverse change in legal factors or in
the business climate; unanticipated competition; and slower growth rates; as
well as changes in management, key personnel, strategy and customers. If the
Company's qualitative assessment indicates it is more likely than not that the
estimated fair value of a reporting unit exceeds its carrying value, no further
analysis is required and goodwill is not impaired. Otherwise, the Company
performs a quantitative goodwill impairment test to determine if goodwill is
impaired. The quantitative test compares the fair value of a reporting unit with
its carrying amount, including goodwill.

If the fair value of the reporting unit exceeds the carrying value of the net
assets associated with the reporting unit, goodwill is not considered impaired.
If the carrying value of the net assets associated with the reporting unit
exceeds the fair value of the reporting unit, the Company recognizes an
impairment loss in an amount equal to the excess, not to exceed the carrying
value of the reporting unit's goodwill. Once an impairment loss is recognized,
the adjusted carrying value of the goodwill becomes the new accounting basis of
the goodwill for the reporting unit. The Company derives a reporting unit's fair
value through a combination of the market approach (guideline transaction method
and guideline public company method) and the income approach (a discounted cash
flow analysis). The income approach utilizes a discount rate from a capital
asset pricing model. The fair value is reconciled back to the Company's
consolidated market capitalization.

Finite-Lived Intangible Assets


U.S. GAAP requires that intangible assets, other than goodwill and
indefinite-lived intangibles, must be amortized over their useful lives. The
Company is currently amortizing its acquired intangible assets with finite lives
over periods ranging from seven to 15 years.

Patent rights reflect costs incurred by the Company in applying for and
maintaining patents owned by the Company and costs incurred in purchasing
patents and related rights from third parties. Licensing rights reflect costs
incurred by the Company in acquiring licenses under patents owned by others. The
Company amortizes both on a straight-line basis over the expected useful life of
the associated patent rights, which is generally the lesser of 20 years from the
date of the patent application or the license period. Royalties payable under
licenses for patents owned by others are generally expensed as incurred. The
Company reviews its capitalized patent portfolio and recognizes impairment
charges when circumstances warrant, such as when patents have been abandoned or
are no longer being pursued.
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Long-Lived Assets


The Company reviews long-lived assets such as property and equipment for
impairment based on changes in circumstances that indicate their carrying
amounts may not be recoverable. In making these determinations, the Company uses
certain assumptions, including but not limited to: (1) estimations of the fair
market value of the assets and (2) estimations of future cash flows expected to
be generated by these assets, which are based on additional assumptions such as
asset utilization, length of service the asset will be used in the Company's
operations and estimated salvage values.

Contingent Liabilities


The Company recognizes contingent liabilities when it is probable that an asset
has been impaired or a liability has been incurred at the date of the financial
statements and the amount of the loss can be reasonably estimated. Disclosure in
the notes to the financial statements is required for loss contingencies that do
not meet both these conditions if there is a reasonable possibility that a loss
may have been incurred. See Note 15, "Commitments and Contingencies," for a
discussion of loss contingencies in connection with pending and threatened
litigation. The costs of defending legal claims against the Company are expensed
as incurred.

Revenue Recognition

Revenue is recognized when control of a good or service promised in a contract
(i.e., performance obligation) is transferred to a customer. Control is obtained
when a customer has the ability to direct the use of and obtain substantially
all of the remaining benefits from that good or service. Substantially all of
the Company's revenue is derived from product sales. Revenue is recognized at a
point in time based on the Company's evaluation of when the customer obtains
control of the products, and all performance obligations under the terms of the
contract are satisfied. If customer acceptance clauses are present and it cannot
be objectively determined that control has been transferred based on the
contract and shipping terms, revenue is only recorded when customer acceptance
is received and all performance obligations have been satisfied. Sales of
products typically do not include more than one performance obligation.

A portion of the Company's products are sold through distributors. Distributors
stock inventory and sell the Company's products to their own customer base,
which may include: value added resellers; manufacturers who incorporate the
Company's products into their own manufactured goods; or ultimate end users of
the Company's products. The Company recognizes revenue upon shipment of its
products to its distributors. This arrangement is often referred to as a
"sell-in" or "point-of-purchase" model as opposed to a "sell-through" or
"point-of-sale" model, where revenue is deferred and not recognized until the
distributor sells the product through to their customer.

Master supply or distributor agreements are in place with many of the Company's
customers and contain terms and conditions including, but not limited to,
payment, delivery, incentives and warranty. These agreements sometimes require
minimum purchase commitments and/or involve potential penalties to the Company
if a defined supply schedule is not met. If a master supply, distributor or
other similar agreement is not in place with a customer, the Company considers a
purchase order, which is governed by the Company's standard terms and
conditions, to be the contract governing the relationship with that customer.

Pricing terms are negotiated independently on a stand-alone basis. Revenue is
measured based on the amount of net consideration to which the Company expects
to be entitled to receive in exchange for products or services. Variable
consideration is recognized as a reduction of net revenue with a corresponding
reserve at the time of revenue recognition, and consists primarily of sales
incentives, volume discounts, price concessions and return allowances. Variable
consideration is estimated based on contractual terms, historical analysis of
customer purchase volumes, or historical analysis using specific data for the
type of consideration being assessed.

Some of the Company's distributors are provided limited rights that allow them
to return a portion of inventory (product exchange rights or stock rotation
rights) and receive credits for changes in selling prices (price protection
rights) or customer pricing arrangements under the Company's "ship and debit"
program or other targeted sales incentives. These estimates are calculated based
upon historical experience, product shipment analysis, current economic
conditions, on-hand inventory at the distributor, and customer contractual
arrangements. The Company believes that it can reasonably and reliably estimate
the allowance for distributor credits at the time of sale. Accordingly,
estimates for these rights are recognized at the time of sale as a contract
liability and a reduction of product revenue.
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Under the ship and debit program, products are sold to distributors at
negotiated prices and the distributors are required to pay for the products
purchased within the Company's standard commercial terms. Subsequent to the
initial product purchase, a distributor may request a price allowance for a
particular part number(s) for certain target customers, prior to the distributor
reselling the particular part to that customer. If the Company approves an
allowance and the distributor resells the product to the target customer, the
Company credits the distributor according to the allowance the Company approved.
These credits are applied against the reserve that the Company establishes upon
initial shipment of product to the distributor.

The Company also has inventory consignment agreements in which revenue is
recognized at a point in time, when the customer or distributor pulls product
from consignment inventory that the Company stores at designated locations.
Delivery and transfer of control occur at that point, when title and risk of
loss transfers and the customer or distributor becomes obligated to pay for the
products pulled from inventory. Until the products are pulled for use or sale by
the customer or distributor, the Company retains control over the products'
disposition, including the right to pull back or relocate the products.

From time to time, the Company may enter into licensing arrangements related to
its intellectual property. Revenue from licensing arrangements is recognized
when earned and estimable. The timing of revenue recognition is dependent on the
terms of each license agreement. Generally, the Company will recognize
non-refundable upfront licensing fees related to patent licenses immediately
upon receipt of the funds if the Company has no significant future obligations
to perform under the arrangement. However, the Company will defer recognition
for licensing fees where the Company has significant future performance
requirements, the fee is not fixed (such as royalties earned as a percentage of
future revenue), or the fees are otherwise contingent.

Leases


At lease inception, the Company determines an arrangement is a lease if the
contract involves the use of a distinct identified asset, the lessor does not
have substantive substitution rights and the lessee obtains control of the asset
throughout the period by obtaining substantially all of the economic benefit of
the asset and the right to direct the use of the asset. Depending on the terms,
leases are classified as either operating or finance leases, if the Company is
the lessee, or as operating, sales-type or direct financing leases, if the
Company is the lessor. The Company does not have any sales-type or direct
financing leases. Lease agreements frequently include other services such as
maintenance, electricity, security, janitorial and reception services. The
Company accounts for the lease and non-lease components in its arrangements as a
single lease component.

The Company adopted FASB Accounting Standards Codification 842 "Leases" (ASC
842) on July 1, 2019 under the modified retrospective transition approach with
the cumulative effect of application recognized at the effective date, without
adjustment to prior comparative periods. The Company did not have a
cumulative-effect adjustment to retained earnings as a result of the adoption of
the new standard.

Accounting for Leases as a Lessee


Right-of-use assets represent the Company's right to use an underlying asset
during the lease term and lease liabilities represent the Company's obligation
to make lease payments arising from the lease. Assets and liabilities are
recognized based on the present value of lease payments over the lease term.
Most leases include one or more options to renew, with renewal terms that can
extend the lease term from one to five years or more. The exercise of the
renewal option is at the Company's sole discretion and the Company considers
these options in determining the lease term used to establish its right-of-use
assets and lease liabilities. The Company will remeasure its lease liability and
adjust the related right-of-use asset upon the occurrence of the following:
lease modifications not accounted for as a separate contract; a triggering event
that changes the certainty of the lessee exercising an option to renew or
terminate the lease, or purchase the underlying asset; a change to the amount
probable of being owed by the Company under a residual value guarantee; or the
resolution of a contingency upon which the variable lease payments are based
such that those payments become fixed.

Because most of the Company's leases do not provide an implicit rate, the
Company uses its incremental borrowing rate based on the information available
at the lease commencement date in determining the present value of lease
payments. The Company would use the implicit rate when readily determinable.
Operating lease expense is generally recognized on a straight-line basis over
the lease term. Finance lease assets are generally amortized over the term of
the lease. If the finance lease transfers ownership of the underlying asset to
the Company or the Company is reasonably certain it will exercise an option to
purchase the underlying asset, the finance lease assets are amortized on a
straight-line basis over the useful life of the asset. Interest expense on the
finance lease liability is recognized using the effective interest rate method
and is presented within interest expense on the Company's consolidated
statements of operations.

Operating leases with a lease term of 12 months or less are not recorded on the
balance sheet. The Company recognizes lease expense for these leases on a
straight-line basis over the lease term. Variable lease payment amounts that
cannot be determined
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at the commencement of the lease, such as increases in lease payments based on changes in index rates, are not included in the right-of-use assets or liabilities. These variable lease payments are expensed as incurred.

Accounting for Leases as a Lessor


In accordance with FASB ASC 842, "Leases," lease income is recognized on a
straight-line basis over the lease term. Variable lease payments, if any, are
recognized as income in the period received. The underlying asset in an
operating lease is carried at depreciated cost and is included in property and
equipment.

Advertising

The Company expenses the costs of producing advertisements at the time
production occurs and expenses the cost of communicating the advertising in the
period in which the advertising is used. Advertising costs are included in
sales, general and administrative expenses in the consolidated statements of
operations and amounted to approximately $7.5 million, $5.1 million, and $3.8
million for the years ended June 26, 2022, June 27, 2021 and June 28, 2020,
respectively.

Research and Development


Research and development expenses consist primarily of employee salaries and
related compensation costs, occupancy costs, consulting costs and the cost of
development equipment and supplies. Research and development activities are
expensed when incurred.

Loss Per Share


Basic loss per share is computed by dividing net loss attributable to
controlling interest by the weighted average number of shares of common stock
outstanding for the applicable period. Diluted loss per share is determined in
the same manner as basic loss per share except that the number of shares is
increased to assume exercise of potentially dilutive stock options, nonvested
restricted stock and contingently issuable shares using the treasury stock
method, unless the effect of such increases would be anti-dilutive. Under the
treasury stock method, the amount the employee must pay for exercising stock
options, the amount of compensation cost for future service that the Company has
not yet recognized, and the amount of tax benefits that would be recognized in
additional paid-in capital when the award becomes deductible are assumed to be
used to repurchase shares.

Stock-Based Compensation

The Company recognizes compensation expense for all share-based payments granted
based on the fair value of the shares on the date of grant. Compensation expense
is then recognized over the award's vesting period.

Taxes


Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets are recognized for deductible temporary differences, along with net
operating loss carryforwards and credit carryforwards, if it is more likely than
not that the tax benefits will be realized. To the extent a deferred tax asset
cannot be recognized under the preceding criteria, valuation allowances are
established. Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are expected
to be recovered or settled.

Taxes payable which are not based on income are accrued ratably over the period
to which they apply. For example, payroll taxes are accrued each period end
based upon the amount of payroll taxes that are owed as of that date; whereas
taxes such as property taxes and franchise taxes are accrued over the fiscal
year to which they apply if paid at the end of a period, or they are amortized
ratably over the fiscal year if they are paid in advance.

Foreign Currency Translation

The Company does not have operations with a functional currency other than the U.S. Dollar and therefore no foreign currency translation adjustments are recognized in other comprehensive loss in the consolidated statements of comprehensive loss. The Company and its subsidiaries transact business in currencies other than the U.S. Dollar and as such, the Company experiences varying amounts of foreign currency exchange gains and losses.

Joint Venture

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Effective July 17, 2017, the Company entered into a Shareholders Agreement with
San'an Optoelectronics Co., Ltd. (San'an) and Cree Venture LED Company Limited
(Cree Venture LED) pursuant to which the Company and San'an funded their
contributions to Cree Venture LED and agreed upon the management and operation
of Cree Venture LED. The Company contributed $5.1 million of cash for a 51%
ownership interest and San'an contributed $4.9 million of cash for a 49%
ownership interest.

The Company's interest in Cree Venture LED was included in the LED Business Divestiture and its related activity is classified as discontinued operations.

Supplemental Cash Flow Information

Cash paid for interest was $13.1 million, $14.1 million, and $5.9 million for the fiscal years ended June 26, 2022, June 27, 2021 and June 28, 2020, respectively.


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

Recently Adopted Accounting Pronouncements

None.

Recently Issued Accounting Pronouncements Pending Adoption

Convertible Debt Instruments


In August 2020, FASB issued ASU 2020-06, Debt - Debt with Conversion and Other
Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's
Own Equity (Subtopic 815-40). This standard simplifies the accounting for
convertible instruments by eliminating the cash conversion and the beneficial
conversion accounting models. This update also amends the guidance for the
derivatives scope exception for contracts in an entity's own equity. The update
requires an entity to use the if-converted method for all convertible
instruments in the diluted earnings per share calculation. An entity may use
either a modified or full retrospective approach for adoption.

The Company will adopt this standard on June 27, 2022, the first day of its 2023
fiscal year, under the modified retrospective approach. The adoption is expected
to result in (i) a reduction of additional paid in capital by approximately
$330 million for the recombination of the equity conversion component of the
convertible notes outstanding, which was initially separated and recorded in
equity, (ii) an increase in the cumulative convertible note carrying value of
approximately $275 million as a result of removing previously recorded debt
discounts, (iii) a decrease in property, plant and equipment for previously
capitalized interest of approximately $25 million and (iv) a decrease to
beginning accumulated deficit as of June 27, 2022 of approximately $30 million
to recognize the cumulative gain on adoption. The Company does not expect to
recognize a discrete tax impact related to the opening deferred tax balances as
of June 27, 2022 due to a full U.S valuation allowance.

Government Assistance


In November 2021, FASB issued ASU 2021-10, Government Assistance (Topic 832) -
Disclosures by Business Entities about Government Assistance. This standard will
require entities to provide annual disclosures regarding government assistance.
More specifically, the amendments in the standard improve financial reporting by
requiring disclosures that increase the transparency of transactions with a
government accounted for by applying a grant or contribution accounting model by
analogy, including (1) the types of transactions; (2) the accounting for those
transactions; and (3) the effect of those transactions on an entity's financial
statements. An entity can apply the amendments prospectively or retrospectively.
The Company will adopt this standard on June 27, 2022, as required.
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Note 3 - Discontinued Operations


On March 1, 2021, the Company completed the LED Business Divestiture pursuant to
the terms of the Asset Purchase Agreement (the LED Purchase Agreement), dated
October 18, 2020, as amended. Pursuant to the LED Purchase Agreement, (i) the
Company completed the sale to SMART of (a) certain equipment, inventory,
intellectual property rights, contracts, and real estate comprising the
Company's former LED Products segment, (b) all of the issued and outstanding
equity interests of Cree Huizhou Solid State Lighting Company Limited (Cree
Huizhou), a limited liability company organized under the laws of the People's
Republic of China and an indirect wholly owned subsidiary of the Company, and
(c) the Company's ownership interest in Cree Venture LED., the Company's joint
venture with San'an Optoelectronics Co., Ltd. (collectively, the LED Business);
and (ii) SMART assumed certain liabilities related to the LED Business. The
Company retained certain assets used in and pre-closing liabilities associated
with the former LED Products segment.

The purchase price for the LED Business consisted of (i) a payment of
$50 million in cash, subject to customary adjustments, (ii) an unsecured
promissory note issued to the Company by SGH in the amount of $125 million (the
Purchase Price Note), (iii) the potential to receive an earn-out payment between
$2.5 million and $125 million based on the revenue and gross profit performance
of the LED Business in the first four full fiscal quarters following the closing
(the Earnout Period), also payable in the form of a unsecured promissory note of
SGH (the Earnout Note), and (iv) the assumption of certain liabilities. The
Purchase Price Note had a maturity date of August 15, 2023, and as explained
further below, was prepaid by SGH in full pursuant to its terms, along with
outstanding accrued and unpaid interest as of the payment date, in the third
quarter of fiscal 2022. The Earnout Note was issued in the fourth quarter of
2022 and will mature on March 27, 2025. The Earnout Note will accrue interest at
a rate of three-month LIBOR plus 3.0% with interest paid every three months. One
bullet payment of principal and all accrued and unpaid interest will be payable
on the maturity date of the Earnout Note. In fiscal 2021, the Company recognized
a loss on sale of the LED Business of $29.1 million. The cost of selling the LED
Business was $27.4 million, which was recognized throughout fiscal 2020 and
2021.

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

In the third quarter of fiscal 2022, the Company received an early payment for
the Purchase Price Note. The principal amount of $125.0 million was paid in
full, along with outstanding accrued interest as of the payment date (the Early
Payment). In conjunction with the Early Payment, the Company transferred naming
rights and trademarks related to Cree, Inc. and the CREE brand to SMART (the
Trademark Transfer), resulting in a write-off of trademarks of $1.1 million and
recorded within (gain) loss on disposal or impairment of other assets in the
consolidated statements of operations.

Because the Early Payment did not include additional consideration in exchange
for the Trademark Transfer, the Company allocated consideration from the
principal amount to the value of the trademarks transferred to SMART. The
Company allocated $1.8 million of the Early Payment to the value of trademarks
transferred to SMART, resulting in a gain recorded in (gain) loss on disposal or
impairment of other assets in the consolidated statements of operations. The
remaining unallocated portion of the Early Payment of $123.2 million was then
applied to the note receivable balance of $124.4 million at the time of payment,
resulting in a loss of $1.2 million recorded in non-operating expense, net on
the consolidated statements of operations. The net impact to the consolidated
statements of operations from the Early Payment was a loss of $0.5 million.

In the fourth quarter of fiscal 2022, the Company received the Earnout Note with
a principal amount of $101.8 million. As a result, the Company recorded a net
gain of $94.2 million within discontinued operations, net in the consolidated
statements of operations for fiscal year ended June 26, 2022. The gain recorded
is net of $3.9 million in taxes and $1.2 million in transaction fees.
Additionally, the amount is less a previously recorded gain of $2.5 million,
which was recorded in fiscal 2021 as part of the total loss on sale to account
for the minimum amount of the Earnout Note.

In addition to the $94.2 million net gain from discontinued operations recognized in fiscal year ended June 26, 2022 as a result of receiving the Earnout Note, the following table presents the financial results of the LED Business as (loss) income from

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discontinued operations, net of income taxes in the Company's consolidated statements of operations for the fiscal years ended June 27, 2021 and June 28, 2020:


                                                                                         Fiscal Years Ended
(in millions of U.S. Dollars)                                               June 27, 2021                  June 28, 2020
Revenue, net                                                                    $272.8                         $433.2
Cost of revenue, net                                                             213.3                          343.4
Gross profit                                                                      59.5                           89.8
Operating expenses:
Research and development                                                          22.3                           32.2
Sales, general and administrative                                                 29.4                           29.7
Goodwill impairment                                                              112.6                              -
Impairment on assets held for sale                                                19.5                              -
Gain on disposal or impairment of long-lived assets                               (1.6)                          (0.1)
Other operating expense                                                           18.7                           13.3
Operating (loss) income                                                         (141.4)                          14.7
Non-operating income                                                              (0.3)                          (0.5)
(Loss) income before income taxes and loss on sale                              (141.1)                          15.2
Loss on sale                                                                      29.1                              -
(Loss) income before income taxes                                               (170.2)                          15.2
Income tax expense                                                                11.0                            8.2
Net (loss) income                                                               (181.2)                           7.0
Net income attributable to noncontrolling interest                                 1.4                            1.1
Net (loss) income attributable to controlling interest                         ($182.6)                          $5.9


As of September 27, 2020, the Company determined it would more likely than not
sell all or a portion of the assets comprising the LED Products segment below
carrying value. As a result, the Company recorded an impairment to goodwill of
$105.7 million.

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


For the fiscal years ended June 26, 2022, June 27, 2021 and June 28, 2020, the
Company recognized $3.9 million, $11.0 million and $8.2 million, respectively,
of income tax expense related to discontinued operations, which primarily
related to the foreign operations of the LED Business. Income tax expense
related to discontinued operations for the fiscal year ended June 26, 2022 and
June 27, 2021 includes $2.4 million and $4.1 million, respectively, of income
tax expense related to the sale of the issued and outstanding equity interests
of Cree Huizhou in the third quarter of fiscal 2021.

The income tax impact of the U.S. operations of the LED Business for all periods presented were offset with a valuation allowance as described in Note 14, "Income Taxes."


For the fiscal years ended June 26, 2022 and June 27, 2021, the Company
recognized $3.6 million and $1.2 million in administrative fees related to the
LED RELA, respectively, of which $0.3 million are included in accounts
receivable, net in the consolidated balance sheets as of June 26, 2022. Fees
related to the LED RELA were recorded as lease income. See Note 5, "Leases"
below for additional information.

For the fiscal years ended June 26, 2022 and June 27, 2021, the Company
recognized $9.2 million and $4.0 million in administrative fees related to the
LED TSA, respectively, of which $0.6 million are included in accounts
receivable, net in the consolidated balance sheets as of June 26, 2022. Fees
related to the LED TSA were recorded as a reduction in expense within the line
item in the consolidated statements of operations in which costs were incurred.

At the inception of the Wafer Supply Agreement, the Company recorded a supply
agreement liability of $31.0 million, of which $6.4 million was outstanding as
of June 26, 2022. The supply agreement liability is recognized in other current
liabilities on the consolidated balance sheets.
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The Company recognized a net loss of $0.8 million and $0.8 million in
non-operating expense, net for the fiscal years ended June 26, 2022 and June 27,
2021, respectively, related to the Wafer Supply Agreement. A receivable of $2.7
million was included in other assets in the consolidated balance sheets as of
June 26, 2022.

Note 4 - 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 $47.8 million and $45.2 million as of June 26, 2022
and June 27, 2021, respectively. The increase was primarily due to increased
reserves on the Company's "ship and debit" program, partially offset by
decreased customer deposits. Contract liabilities are recorded within accrued
contract liabilities and other long-term liabilities on the consolidated balance
sheets.

Practical Expedients and Exemptions

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.


Incidental contract costs that are not material in context of the delivery of
products are expensed as incurred. Sales commissions are expensed when the
amortization period is less than one year. Contract assets, such as costs to
obtain or fulfill contracts, are an insignificant component of the Company's
revenue recognition process. The majority of the Company's fulfillment costs as
a manufacturer consist of inventory, fixed assets, and intangible assets, all of
which are accounted for under the respective guidance for those asset types.

The Company's accounts receivable balance represents the Company's unconditional
right to receive consideration from its customers with contracts. Payments are
typically due within 30 days of the completion of the performance obligation and
invoicing, and therefore do not contain significant financing components.

Sales tax, value-added tax, and other taxes the Company collects concurrent with
revenue-producing activities are excluded from revenue, and shipping and
handling costs are treated as fulfillment activities and are included in cost of
revenue in the Company's consolidated statements of operations.

For the fiscal years ended June 26, 2022 and June 27, 2021, the Company did not
recognize any material revenue that was included in contract liabilities at the
start of each respective fiscal year.

Geographic Information


The Company conducts business in several geographic areas. Revenue is attributed
to a particular geographic region based on the shipping address for the
products. Disaggregated revenue from external customers by geographic area is as
follows:

                                                                                                For the Years Ended
                                                   June 26, 2022                                   June 27, 2021                                   June 28, 2020
(in millions of U.S. Dollars)            Revenue              % of Revenue               Revenue              % of Revenue               Revenue              % of Revenue
Europe                               $      260.4                      34.9  %       $      188.9                      35.9  %       $      171.4                      36.4  %
China                                       211.2                      28.3  %              100.1                      19.0  %               65.0                      13.8  %
United States                               142.7                      19.1  %              117.3                      22.3  %              106.5                      22.6  %
Japan                                        30.5                       4.1  %               42.5                       8.1  %               52.1                      11.1  %
South Korea                                  22.4                       3.0  %               32.1                       6.1  %               47.7                      10.1  %
Other                                        79.0                      10.6  %               44.7                       8.6  %               28.0                       6.0  %
Total                                $      746.2                                    $      525.6                                    $      470.7


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Note 5 - Leases


The Company primarily leases manufacturing and office space. 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. For details on the Company's lease policies, see
the significant accounting policy disclosures in Note 2, "Basis of Presentation
and Summary of Significant Accounting Policies."

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:                                   June 26, 2022        June 27, 2021
Right-of-use asset (1)                                 $48.5                $12.1

Current lease liability (2)                              4.6                  4.5
Non-current lease liability (3)                         43.6                

7.5

Total operating lease liabilities                       48.2                 12.0

Finance Leases:
Finance lease assets (4)                               $10.3                $15.5

Current portion of finance lease liabilities             0.5                

5.2

Finance lease liabilities, less current portion          9.6                

10.0

Total finance lease liabilities                         10.1                

15.2

(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 $8.1 million, $5.5 million and $5.4 million in fiscal 2022, 2021 and 2020, respectively.

Short-term lease expense was $0.8 million in fiscal 2022. In fiscal 2021 and 2020, short-term lease expense was immaterial.

Finance lease amortization was $1.2 million, $1.0 million and $0.7 million, and interest expense was $0.3 million, $0.3 million and $0.2 million, in fiscal 2022, 2021 and 2020, respectively.

Cash Flows

Cash flow information consisted of the following (1):

                                                                               Fiscal Years Ended
(in millions of U.S. Dollars)                      June 26, 2022                   June 27, 2021                June 28, 2020
Cash used in operating activities:
Cash paid for operating leases                            $8.1                            $5.7                         $5.5
Cash paid for interest portion of financing
leases                                                     0.3                             0.3                          0.1
Cash used in financing activities:
Cash paid for principal portion of finance
leases                                                     0.5                             0.4                          0.8


(1) See Note 6, "Financial Statement Details," for non-cash activities related to leases.

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Lease Liability Maturities

Maturities of operating and finance lease liabilities as of June 26, 2022 were as follows (in millions of U.S. Dollars):

Fiscal Year Ending                        Operating Leases    Finance Leases     Total
June 25, 2023                                   $5.5               $0.7          $6.2
June 30, 2024                                    7.3                0.7           8.0
June 29, 2025                                    7.9                0.7           8.6
June 28, 2026                                    7.8                0.7           8.5
June 27, 2027                                    6.8                0.4           7.2
Thereafter                                      53.8               14.2          68.0
Total lease payments                            89.1               17.4         106.5
Future tenant improvement allowances           (19.0)                 -         (19.0)
Imputed lease interest                         (21.9)              (7.3)        (29.2)
Total lease liabilities                        $48.2              $10.1         $58.3


Supplemental Disclosures
                                                               Operating Leases        Finance Leases
Weighted average remaining lease term (in months) (1)                           134                   562
Weighted average discount rate (2)                                          4.22  %               2.68  %


(1) Weighted average remaining lease term of finance leases without the 49-year
ground lease is 51 months.
(2) Weighted average discount rate of finance leases without the 49-year ground
lease is 3.33%.

Lease Income

As mentioned in Note 3, "Discontinued Operations," on March 1, 2021 and in
connection with the LED Business Divestiture, the Company entered into the LED
RELA pursuant to which the Company leases to CreeLED approximately 58,000 square
feet of the Company's property and certain facilities in Durham, North Carolina
for a total of $3.6 million per year. The lease term is 24 months and expires on
February 28, 2023. Subject to certain provisions in the LED RELA, CreeLED may
terminate its rights or a portion of its rights under the agreement at any time
with sixty days written notice. A notice of thirty days is permitted under
certain circumstances as defined in the agreement. The agreement does not
contain any renewal provisions.

The Company recognized lease income of $3.6 million and $1.2 million for the
fiscal years ended June 26, 2022 and June 27, 2021, respectively. The Company
did not recognize any variable lease income for the fiscal year ended June 28,
2020.

Total future minimum rental income relating to the LED RELA is $2.4 million, all of which is expected to occur in the fiscal year ending June 25, 2023.

Note 6 - Financial Statement Details

Accounts Receivable, net

Accounts receivable, net consisted of the following:

(in millions of U.S. Dollars)      June 26, 2022        June 27, 2021
Billed trade receivables             $148.0                $95.6
Unbilled contract receivables           2.7                  0.6
Royalties                               0.7                  0.5
                                      151.4                 96.7

Allowance for bad debts                (1.2)                (0.8)
Accounts receivable, net             $150.2                $95.9


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


                                                                                    Fiscal Years Ended
(in millions of U.S. Dollars)                           June 26, 2022                   June 27, 2021                June 28, 2020
Balance at beginning of period                                 $0.8                            $0.7                         $0.2
Current period provision change                                 0.4                             0.1                          0.6
Write-offs, net of recoveries                                     -                               -                         (0.1)
Balance at end of period                                       $1.2                            $0.8                         $0.7


Inventories

Inventories consisted of the following:


(in millions of U.S. Dollars)      June 26, 2022        June 27, 2021
Raw material                          $60.2                $43.3
Work-in-progress                      135.9                109.5
Finished goods                         30.9                 13.8
Inventories                          $227.0               $166.6


Other Current Assets

Other current assets consisted of the following:


(in millions of U.S. Dollars)                                    June 26, 2022                June 27, 2021
Reimbursement receivable on long-term incentive agreement             $132.5                         $4.6
Accrued interest receivable                                              5.9                          5.5
Receivable on the Wafer Supply Agreement                                 2.7                          7.0
Inventory related to the Wafer Supply Agreement                          3.9                          3.9
Deferred product costs                                                   2.5                          1.8
Other                                                                    3.9                          5.1
Other current assets                                                  $151.4                        $27.9

Property and Equipment, net

Property and equipment, net consisted of the following:

(in millions of U.S. Dollars)        June 26, 2022        June 27, 2021
Machinery and equipment              $1,167.3               $988.6
Land and buildings                      407.4                383.9
Computer hardware/software               61.9                 51.5
Furniture and fixtures                    8.0                  8.0
Leasehold improvements and other         11.0                  9.6
Vehicles                                  0.6                  0.7
Finance lease assets                     10.3                 15.5
Construction in progress                802.3                767.8
Property and equipment, gross         2,468.8              2,225.6
Accumulated depreciation               (987.7)              (933.3)
Property and equipment, net          $1,481.1             $1,292.3


Depreciation of property and equipment totaled $100.4 million, $100.5 million
and $76.7 million for the years ended June 26, 2022, June 27, 2021 and June 28,
2020, respectively.
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During the years ended June 26, 2022, June 27, 2021 and June 28, 2020, the
Company recognized approximately $1.0 million, $4.3 million and $3.3 million,
respectively, as losses on disposals or impairments of property and equipment of
which $1.3 million, $3.4 million and $3.0 million are related to the Company's
factory optimization plan and are reflected in other operating expense for the
years ended June 26, 2022, June 27, 2021 and June 28, 2020, respectively. The
remaining amount of these charges are reflected in loss on disposal or
impairment of other assets in the consolidated statements of operations.

In the fourth quarter of fiscal 2021, the Company modified its long-range plan
regarding a portion of its Durham, North Carolina campus. As a result, the
Company has decided it will no longer complete the construction of certain
buildings on the Durham campus. The carrying value of the abandoned assets has
been reduced to an estimated salvage value of approximately $20.0 million as of
June 26, 2022 and June 27, 2021.

The majority of the Company's property and equipment, net is in the United
States. As of June 26, 2022 and June 27, 2021, the Company held $58.6 million
and $34.2 million of property and equipment, net outside of the United States,
primarily related to assets held at contract manufacturing space in Malaysia.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:


(in millions of U.S. Dollars)               June 26, 2022        June 27, 

2021

Accounts payable, trade                        $57.8                $44.2
Accrued salaries and wages                      80.6                 69.5
Accrued property and equipment                 132.1                248.3
Accrued expenses                                30.7                 17.4
Other                                            6.5                  1.7
Accounts payable and accrued expenses         $307.7               $381.1


Other Operating Expense

The following table summarizes the components of other operating expense:


                                                                                      Fiscal Years Ended
(in millions of U.S. Dollars)                               June 26, 2022                 June 27, 2021              June 28, 2020
Factory optimization restructuring                                $6.1                          $7.6                       $8.5
Severance and other restructuring                                  1.2                           3.4                        0.6
Total restructuring costs                                          7.3                          11.0                        9.1
Project, transformation and transaction costs                      6.6                           7.3                       12.2
Factory start-up costs                                            70.0                           8.0                        9.5

Non-restructuring related executive severance                        -                           2.8                        2.1

Other operating expense                                          $83.9                         $29.1                      $32.9

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

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Non-Operating Expense (Income), net


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

                                                                                    Fiscal Years Ended
(in millions of U.S. Dollars)                             June 26, 2022                 June 27, 2021              June 28, 2020
Gain on sale of investments, net                               ($0.3)                        ($0.4)                     ($1.5)
Gain on equity investment                                          -                          (8.3)                     (14.2)
Loss (gain) on debt extinguishment                              24.8                             -                      (11.0)

Gain on arbitration proceedings                                    -                             -                       (7.9)
Interest income                                                (11.8)                        (10.1)                     (16.3)
Interest expense                                                25.1                          45.4                       34.9

Other, net                                                       0.5                          (0.3)                      (2.5)
Non-operating expense (income), net                            $38.3                         $26.3                     ($18.5)


Accumulated Other Comprehensive (Loss) Income, net of taxes


Accumulated other comprehensive (loss) income, net of taxes, consisted of $25.3
million of net unrealized losses on available-for-sale securities and $2.7
million of net unrealized gains on available-for-sale securities as of June 26,
2022 and June 27, 2021, 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 Income


The Company reclassified a net gain of $0.3 million, $0.4 million and $1.5
million on available for sale securities out of accumulated other comprehensive
income for the fiscal years ended June 26, 2022, June 27, 2021, and June 28,
2020, respectively. For the fiscal year ended June 28, 2020, an additional net
gain of $0.5 million was reclassified to net (loss) income from discontinued
operations on the consolidated statements of operations. There was no tax impact
on any reclassifications due to a full valuation allowance on U.S. operations.
Amounts were reclassified to non-operating expense (income), net on the
consolidated statements of operations.

Additionally, in fiscal 2021, $9.5 million of currency translation gain related
to the former LED Products segment was reclassified out of accumulated other
comprehensive income and recognized in the consolidated statements of operations
as part of the loss on sale of discontinued operations.

Statements of Cash Flows - non-cash activities

Fiscal Years Ended

                                                          June 26, 2022                 June 27, 2021              June 28, 2020
Lease asset and liability additions (1)                        $39.0                          $7.9                      $28.3
Lease asset and liability modifications, net                     8.6                           1.7                        4.8
Transfer of finance lease liability to accounts
payable and accrued expenses (2)                                   -                           4.2                          -

Receivables for property, plant and equipment related insurance proceeds

                                                 -                           1.9                          -

Settlement of 2023 Notes in shares of common stock (3) 416.1

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

Accrued property and equipment as of the fiscal year end date

                                                       132.1                         248.3                       79.4


(1) $11.0 million of the lease asset and liability additions for the year ended
June 28, 2020 related to the increase of right-of-use assets and matching lease
liabilities as a result of adopting ASC 842.

(2) In the first quarter of fiscal 2021, the Company executed the available bargain purchase option for certain finance leases relating to property and equipment, net, in order to purchase the assets.


(3) As discussed further in Note 10, "Long-term Debt," in the second quarter of
fiscal 2022, all outstanding 0.875% convertible senior notes due September 1,
2023 (the 2023 Notes) were surrendered for conversion, resulting in the
settlement of all outstanding 2023 Notes in shares, with fractional shares paid
in cash.
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Note 7 - Investments


Investments consist of municipal bonds, corporate bonds, U.S. agency securities,
U.S. treasury securities, commercial paper, certificates of deposit, and
variable rate demand notes. All short-term investments are classified as
available-for-sale. The Company did not have any long-term investments as of
June 26, 2022 and June 27, 2021.

Short-term investments as of June 26, 2022 consist of the following:


                                                                                               June 26, 2022
                                                                                                            Gross Unrealized
(in millions of U.S. Dollars)                     Amortized Cost            Gross Unrealized Gains               Losses               Estimated Fair Value
Municipal bonds                                       $166.5                          $0.1                        ($4.4)                     $162.2
Corporate bonds                                        465.8                             -                        (17.8)                      448.0
U.S. agency securities                                   4.0                             -                         (0.1)                        3.9
U.S. treasury securities                                66.5                             -                         (0.7)                       65.8

Variable rate demand notes                              69.4                             -                            -                        69.4

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

The following table presents 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:

                                                                                                        June 26, 2022
                                                Less than 12 Months                                  Greater than 12 Months                                       Total
(in millions of U.S. Dollars)         Fair Value                Unrealized Loss            Fair Value               Unrealized Loss               Fair Value             Unrealized Loss
Municipal bonds                         $150.0                       ($4.4)                    $1.0                            $-                   $151.0                    ($4.4)
Corporate bonds                          431.1                       (17.4)                     8.3                          (0.4)                   439.4                    (17.8)
U.S. agency securities                     3.9                        (0.1)                       -                             -                      3.9                     (0.1)
U.S. treasury securities                  65.8                        (0.7)                       -                             -                     65.8                     (0.7)

Total                                   $650.8                      ($22.6)                    $9.3                         ($0.4)                  $660.1                   ($23.0)
Number of securities with an
unrealized loss                                                        346                                                      5                                               351


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Short-term investments as of June 27, 2021 consist of the following:


                                                                                                June 27, 2021
                                                                                                             Gross Unrealized
(in millions of U.S. Dollars)                      Amortized Cost            Gross Unrealized Gains               Losses               Estimated Fair Value
Municipal bonds                                         139.4                           1.9                            -                       141.3
Corporate bonds                                         456.5                           3.3                         (0.3)                      459.5
U.S. agency securities                                   15.8                             -                            -                        15.8
U.S. treasury securities                                 72.3                           0.3                         (0.1)                       72.5
Certificates of deposit                                  16.5                             -                            -                        16.5

Commercial paper                                         50.0                             -                            -                        50.0
Variable rate demand notes                               20.0                             -                            -                        20.0

Total short-term investments                            770.5                           5.5                         (0.4)                      775.6


The following table presents 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:

                                                                                                          June 27, 2021
                                                  Less than 12 Months                                  Greater than 12 Months                                       Total
(in millions of U.S. Dollars)           Fair Value                Unrealized Loss            Fair Value                  Unrealized Loss            Fair Value             Unrealized Loss
Municipal bonds                            $13.4                          $-                       $-                            $-                    $13.4                       $-
Corporate bonds                            133.8                        (0.3)                       -                             -                    133.8                     (0.3)
U.S. agency securities                      10.7                           -                        -                             -                     10.7                        -
U.S. treasury securities                    47.9                        (0.1)                       -                             -                     47.9                     (0.1)
Certificates of deposit                      0.7                           -                        -                             -                      0.7                        -

Total                                     $206.5                       ($0.4)                      $-                            $-                   $206.5                    ($0.4)
Number of securities with an
unrealized loss                                                          128                                                      -                                               128


Additionally, the Company held cash equivalent securities in unrealized loss
positions as of June 26, 2022 and June 27, 2021. As of June 26, 2022, the
Company held six cash equivalent securities in unrealized loss positions with an
aggregate fair value of $69.0 million and an aggregate unrealized loss of less
than $0.1 million. As of June 27, 2021, the Company held six cash equivalent
securities in unrealized loss positions with an aggregate fair value of $21.4
million and an aggregate unrealized loss of less than $0.1 million. All cash
equivalents in unrealized loss positions as of June 26, 2022 and June 27, 2021
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 $5.9
million and $5.5 million as of June 26, 2022 and June 27, 2021, 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 for the years ended June 26, 2022 and June 27, 2021.

The Company utilizes specific identification in computing realized gains and
losses on the sale of investments. Realized gains and losses are included in
non-operating expense (income), net in the consolidated statements of
operations. Unrealized gains and losses are included as a separate component of
equity, net of tax, unless the Company determines there is an expected credit
loss.

The Company evaluates its investments for expected credit losses. The Company
believes it is able to and intends to hold each of the investments held with an
unrealized loss as of June 26, 2022 until the investments fully recover in
market value. No allowance for credit losses was recorded as of June 26, 2022.
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The contractual maturities of short-term investments at June 26, 2022 were as
follows:

                                                                     After One,                After Five,
(in millions of U.S. Dollars)          Within One Year           Within Five Years           Within Ten Years           After Ten Years               Total
Municipal bonds                              $40.3                      $121.9                         $-                        $-                    $162.2
Corporate bonds                              116.2                       331.8                          -                         -                     448.0
U.S. agency securities                         2.0                         1.9                          -                         -                       3.9
U.S. treasury securities                      34.4                        31.4                          -                         -                      65.8

Variable rate demand notes                       -                           -                       14.7                      54.7                     

69.4


Total short-term investments                $192.9                      $487.0                      $14.7                     $54.7                    $749.3


Note 8 - 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. Since valuations are based on
quoted prices that are readily and regularly available in an active market,
valuation of these products does not entail a significant degree of judgment.

•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 June 26,
2022, 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 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 June 26, 2022. There
were no transfers between Level 1 and Level 2 during the year ended June 26,
2022.
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Financial instruments carried at fair value were as follows:

                                                           June 26, 2022                                                         June 27, 2021
                                   Level 1           Level 2           Level 3           Total           Level 1           Level 2           Level 3           Total
Assets:
Cash equivalents:
Money market funds                $ 115.9          $      -          $      -          $ 115.9          $  96.9          $      -          $      -          $  96.9
Municipal bonds                         -                 -                 -                -                -              16.0                 -             16.0

U.S. agency securities                  -                 -                 -                -                -               6.0                 -              6.0
U.S. treasury securities             69.0                 -                 -             69.0                -                 -                 -                -

Commercial paper                        -              59.4                 -             59.4                -              62.4                 -             62.4
Variable rate demand notes              -                 -                 -                -                -              22.9                 -             22.9

Total cash equivalents              184.9              59.4                 -            244.3             96.9             107.3                 -            204.2
Short-term investments:
Municipal bonds                         -             162.2                 -            162.2                -             141.3                 -            141.3
Corporate bonds                         -             448.0                 -            448.0                -             459.5                 -            459.5
U.S. agency securities                  -               3.9                 -              3.9                -              15.8                 -             15.8
U.S. treasury securities             65.8                 -                 -             65.8             72.5                 -                 -             72.5
Certificates of deposit                 -                 -                 -                -                -              16.5                 -             16.5

Commercial paper                        -                 -                 -                -                -              50.0                 -             50.0
Variable rate demand notes              -              69.4                 -             69.4                -              20.0                 -             20.0

Total short-term investments         65.8             683.5                 -            749.3             72.5             703.1                 -            775.6

Total assets                       $250.7            $742.9                $-           $993.6           $169.4            $810.4                $-           $979.8


Note 9 - Goodwill and Intangible Assets

Goodwill

There were no changes to goodwill during the fiscal year ended June 26, 2022.


As of the first day of its fourth quarter of fiscal 2022, the Company performed
a qualitative impairment test on the goodwill balance and concluded there was no
impairment.
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Intangible Assets

Intangible assets, net included the following:


                                                          June 26, 2022                                                           June 27, 2021
(in millions of U.S. Dollars)      Gross           Accumulated Amortization             Net                Gross           Accumulated Amortization             Net
Intangible assets:
Customer relationships             $96.8                    ($31.2)                      $65.6             $96.8                    ($25.1)                      $71.7
Developed technology                68.0                     (33.6)                       34.4              68.0                     (28.2)                       39.8
Non-compete agreements              12.2                     (12.2)                          -              12.2                     (10.1)                        2.1

Acquisition related intangible
assets                             177.0                     (77.0)                      100.0             177.0                     (63.4)                      113.6
Patent and licensing rights         65.5                     (40.1)                       25.4              67.1                     (40.2)                       26.9
Total intangible assets            242.5                    (117.1)                      125.4             244.1                    (103.6)                      140.5


Total amortization of acquisition-related intangibles assets was $13.6 million,
$14.5 million and $14.5 million and total amortization of patents and licensing
rights was $5.4 million, $5.9 million and $5.9 million for the years ended
June 26, 2022, June 27, 2021 and June 28, 2020, respectively.

The Company invested $5.7 million, $5.9 million and $4.4 million for the years
ended June 26, 2022, June 27, 2021 and June 28, 2020, respectively, for patent
and licensing rights. For the fiscal years ended June 26, 2022, June 27, 2021
and June 28, 2020, the Company recognized $1.8 million, $0.7 million and $1.2
million, respectively, in impairment charges related to its patent portfolio.

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

(in millions of U.S. Dollars)
                                                         Acquisition Related
Fiscal Year Ending                                           Intangibles                Patents                Total
June 25, 2023                                                     $11.0                   $4.5                  $15.5
June 30, 2024                                                      10.4                    3.8                   14.2
June 29, 2025                                                      10.4                    2.9                   13.3
June 28, 2026                                                       9.3                    2.1                   11.4
June 27, 2027                                                       9.3                    1.7                   11.0
Thereafter                                                         49.6                   10.4                   60.0
Total future amortization expense                                $100.0                  $25.4                 $125.4



Note 10 - Long-term Debt

Revolving Line of Credit

As of June 26, 2022, the Company had a $125.0 million secured revolving line of
credit (the Credit Agreement) under which the Company can borrow, repay and
reborrow loans from time to time prior to its scheduled maturity date of
January 9, 2026. The Credit Agreement requires the Company to maintain a ratio
of certain cash equivalents and marketable securities to outstanding loans and
letter of credit obligations greater than 1.25:1, with no other financial
covenants.

The Company classifies balances outstanding under the Credit Agreement as
long-term debt in the consolidated balance sheets. As of June 26, 2022, the
Company had no outstanding borrowings under the Credit Agreement, $125.0 million
in available commitments under the Credit Agreement and $125.0 million available
for borrowing. For the fiscal year ended June 26, 2022, the average interest
rate was 0.04%, related to a ten-day draw of $20.0 million on the line of credit
in the first quarter of fiscal 2022. As of June 26, 2022, the unused line fee on
available borrowings is 25 basis points.

On January 25, 2022, the Company entered into an amendment to the Credit
Agreement that extended the maturity date by three years to January 9, 2026 and
adopted secured overnight financing rate (SOFR) interest rates as the benchmark
interest rate.
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2023 Convertible Notes


On August 24, 2018, the Company sold $500.0 million aggregate principal amount
of the 2023 Notes to qualified institutional buyers pursuant to Rule 144A under
the Securities Act of 1933, as amended (the Securities Act), and an additional
$75.0 million aggregate principal amount of such notes pursuant to the exercise
in full of the over-allotment options of the underwriters. The total net
proceeds from the 2023 Notes offering was approximately $562.1 million. As
discussed further below, the Company repurchased approximately $150.2 million
aggregate principal amount of the 2023 Notes using a portion of net proceeds
from the sale of the 2026 Notes (as defined and explained below) in April 2020.

On December 8, 2021 (the Redemption Notice Date), the Company issued a notice
(the Redemption Notice) to holders of the 2023 Notes calling all outstanding
2023 Notes for redemption. The Redemption Notice designated December 23, 2021 as
the redemption date (the Redemption Date). On the Redemption Date, the
Redemption Price (as defined below) would have become due and payable on each of
the 2023 Notes to be redeemed, and interest thereon would cease to accrue.
However, any 2023 Notes called for redemption would not be redeemed if such
notes were converted before the Redemption Date. The Redemption Price for the
2023 Notes called for redemption was an amount in cash equal to the principal
amount of such notes plus accrued and unpaid interest on such notes to, but
excluding, the Redemption Date, which equated to a Redemption Price of
$1,002.72222 per $1,000 principal amount of 2023 Notes (the Redemption Price).

As of the Redemption Notice Date, the conversion rate of the 2023 Notes was
16.6745 shares of the Company's common stock per $1,000 principal amount of such
notes. However, in accordance with the Indenture, dated as of August 24, 2018,
between the Company and U.S. Bank National Association, as trustee, which
governed the terms of the 2023 Notes, the conversion rate for 2023 Notes that
were converted after the Redemption Notice Date was increased to 16.7769 shares
of the Company's common stock per $1,000 principal amount of such notes. Before
the Redemption Date, all outstanding 2023 Notes were surrendered for conversion,
resulting in the settlement of all outstanding 2023 Notes in approximately
7.1 million shares of the Company's common stock, with cash in lieu of any
fractional shares. The fair value of shares issued upon conversion of all
outstanding 2023 Notes was $788.0 million. The amount of cash paid for
fractional shares was immaterial.

2026 Convertible Notes


On April 21, 2020, the Company sold $500.0 million aggregate principal amount of
1.75% convertible senior notes due May 1, 2026 to qualified institutional buyers
pursuant to Rule 144A under the Securities Act and an additional $75.0 million
aggregate principal amount of such notes pursuant to the exercise in full of the
over-allotment options of the underwriters (the 2026 Notes). The total net
proceeds from the 2026 Notes offering was approximately $561.4 million.

The conversion rate will initially be 21.1346 shares of common stock per one
thousand dollars in principal amount of 2026 Notes (equivalent to an initial
conversion price of approximately $47.32 per share of common stock). The
conversion rate will be subject to adjustment for some events, but will not be
adjusted for any accrued and unpaid interest. In addition, following certain
corporate events that occur prior to the maturity date, or following the
Company's issuance of a notice of redemption, the Company will increase the
conversion rate for a holder who elects to convert its 2026 Notes in connection
with such a corporate event, or who elects to convert any 2026 Notes called for
redemption during the related redemption period in certain circumstances. The
Company may not redeem the 2026 Notes prior to May 1, 2023. The Company may
redeem for cash all or any portion of the 2026 Notes, at its option, on a
redemption date occurring on or after May 1, 2023 and on or before the 40th
scheduled trading day immediately before the maturity date, if the last reported
sales price of its common stock has been at least 130% of the conversion price
then in effect for at least 20 trading days (whether or not consecutive),
including the trading day immediately preceding the date on which the Company
provides a notice of redemption, during any 30 consecutive trading day period
ending on, and including, the trading day immediately preceding the date on
which the Company provides notice of redemption. The redemption price will be
100% of the principal amount of the 2026 Notes to be redeemed, plus accrued and
unpaid interest to, but excluding, the redemption date. If the Company undergoes
certain fundamental changes related to the Company's common stock, holders may
require the Company to repurchase for cash all or any portions of their 2026
Notes at a fundamental change repurchase price equal to 100% of the principal
amount of the 2026 Notes to be repurchased, plus accrued and unpaid interest to,
but excluding, the fundamental change repurchase date.
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Holders may convert their 2026 Notes at their option at any time prior to the
close of business on the business day immediately preceding November 3, 2025
only under the following circumstances: (1) during any calendar quarter
commencing after the calendar quarter ended June 30, 2020 (and only during such
calendar quarter), if the last reported sale price of the common stock for at
least 20 trading days (whether or not consecutive) during a period of 30
consecutive trading days ending on, and including, the last trading day of the
immediately preceding calendar quarter is greater than or equal to 130% of the
conversion price on each applicable trading day; (2) during the five business
day period after any ten consecutive trading day period in which the trading
price per $1.0 thousand principal amount of 2026 Notes for each trading day of
the measurement period was less than 98% of the product of the last reported
sale price of its common stock and the conversion rate on each such trading day;
(3) if the Company calls such 2026 Notes for redemption, at any time prior to
the close of business on the second business day immediately preceding the
redemption date; or (4) upon the occurrence of specified corporate events. On or
after November 3, 2025 until the close of business on the second scheduled
trading day immediately preceding the maturity date, holders may convert their
2026 Notes at any time, regardless of the foregoing circumstances. Upon
conversion, the Company will pay or deliver cash, shares of its common stock, or
a combination of cash and shares of its common stock, at the Company's election.

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

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.

The conversion rate will initially be 7.8602 shares of common stock per one
thousand dollars in principal amount of 2028 Notes (equivalent to an initial
conversion price of approximately $127.22 per share of common stock). The
conversion rate will be subject to adjustment for some events, but will not be
adjusted for any accrued and unpaid interest. In addition, following certain
corporate events that occur prior to the maturity date, or following the
Company's issuance of a notice of redemption, the Company will increase the
conversion rate for a holder who elects to convert its 2028 Notes in connection
with such a corporate event, or who elects to convert any 2028 Notes called for
redemption during the related redemption period in certain circumstances. The
Company may not redeem the 2028 Notes prior to February 18, 2025. The Company
may redeem for cash all or any portion of the 2028 Notes, at its option, on a
redemption date occurring on or after February 18, 2025 and on or before the
40th scheduled trading day immediately before the maturity date, if the last
reported sales price of its common stock has been at least 130% of the
conversion price then in effect for at least 20 trading days (whether or not
consecutive), including the trading day immediately preceding the date on which
the Company provides a notice of redemption, during any 30 consecutive trading
day period ending on, and including, the trading day immediately preceding the
date on which the Company provides notice of redemption. The redemption price
will be 100% of the principal amount of the 2028 Notes to be redeemed, plus
accrued and unpaid interest to, but excluding, the redemption date. If the
Company undergoes certain fundamental changes related to the Company's common
stock, holders may require the Company to repurchase for cash all or any
portions of their 2028 Notes at a fundamental change repurchase price equal to
100% of the principal amount of the 2028 Notes to be repurchased, plus accrued
and unpaid interest to, but excluding, the fundamental change repurchase date.

Holders may convert their 2028 Notes at their option at any time prior to the
close of business on the business day immediately preceding August 16, 2027 only
under the following circumstances: (1) during any calendar quarter commencing
after the calendar quarter ending March 31, 2022 (and only during such calendar
quarter), if the last reported sale price of the common stock for at least 20
trading days (whether or not consecutive) during a period of 30 consecutive
trading days ending on, and including, the last trading day of the immediately
preceding calendar quarter is greater than or equal to 130% of the conversion
price on each applicable trading day; (2) during the five business day period
after any ten consecutive trading day period in which the trading price per $1.0
thousand principal amount of 2028 Notes for each trading day of the measurement
period was less than 98% of the product of the last reported sale price of its
common stock and the conversion rate on each such trading day; (3) if the
Company calls such 2028 Notes for redemption, at any time prior to the close of
business on the second business day immediately preceding the redemption date;
or (4) upon the occurrence of specified corporate events. On or after August 16,
2027 until the close of business on the second scheduled trading day immediately
preceding the maturity date, holders may convert their 2028 Notes at any time,
regardless of the foregoing circumstances. Upon conversion, the Company will pay
or deliver cash, shares of its common stock, or a combination of cash and shares
of its common stock, at the Company's election.
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Capped Call Transactions


On January 31, 2022, in connection with the pricing of the 2028 Notes, the
Company entered into privately negotiated capped call transactions with certain
of the initial purchasers or affiliates thereof (the Capped Call
Counterparties). In connection with the exercise by the initial purchasers of
their option to purchase additional notes, the Company entered into additional
privately negotiated capped call transactions (such transactions, collectively,
the Capped Call Transactions) with each of the Capped Call Counterparties. The
Capped Call Transactions initially cover, subject to customary anti-dilution
adjustments, the aggregate number of shares of the Company's common stock that
initially underlie the 2028 Notes. The Capped Call Transactions are expected
generally to reduce the potential dilutive effect on the common stock upon any
conversion of the 2028 Notes and/or offset any potential cash payments the
Company is required to make in excess of the principal amount of converted 2028
Notes, as the case may be, with such reduction and/or offset subject to a cap
which initially is $212.04 per share, representing a premium of 125% over the
last reported sale price per share of the Company's common stock on January 31,
2022, subject to certain adjustments under the terms of the Capped Call
Transactions.

The Capped Call Transactions are separate transactions entered into by the
Company with each of the Capped Call Counterparties, are not part of the terms
of the 2028 Notes, and do not affect any holder's rights under the 2028 Notes.
Holders of the 2028 Notes do not have any rights with respect to the Capped Call
Transactions.

Accounting for 2023 Notes, 2026 Notes and 2028 Notes (collectively, the Notes)


In accounting for the issuance of the 2023 Notes, 2026 Notes and 2028 Notes, the
Company separated the Notes into liability and equity components. The carrying
amount of the equity component representing the conversion option was $110.6
million, $145.4 million and $187.6 million for the 2023, 2026 and 2028 Notes,
respectively. The amounts were determined by deducting the fair value of the
liability component from the par value of each of the Notes. Due to the partial
extinguishment of the 2023 Notes in connection with the issuance of the 2026
Notes, the equity component of the 2023 Notes was reduced by $27.7 million in
the fourth quarter of fiscal 2020.

As a result of the full conversion of all outstanding 2023 Notes, the Company
remeasured the outstanding liability for the 2023 Notes using a market rate for
debt without a conversion option (the Market Rate) as of the Redemption Notice
Date. The Company performed a present value calculation using the Market Rate
and determined the fair value of the debt as of the Redemption Notice Date was
$416.1 million, $24.7 million higher than the carrying value of the 2023 Notes
as of the Redemption Notice Date. As a result, the Company recorded a loss on
extinguishment of $24.8 million, which included a $0.1 million loss on
extinguishment expense related to third party fees. Additionally, the equity
component of the 2023 Notes was reduced to zero.

The equity components of the 2026 and 2028 Notes are not remeasured as long as
they continue to meet the conditions for equity classification. The excess of
the principal amount of the liability component over its carrying amount (the
debt discount), along with related issuance fees, are amortized to interest
expense over the term of the 2026 and 2028 Notes at an effective annual interest
rate of 7.45% and 5.59%, respectively.

The 2026 and 2028 Notes are equal in right of payment to any of the Company's
unsecured indebtedness; senior in right of payment to the Company's existing and
future indebtedness that is expressly subordinated in right of payment to the
2026 and 2028 Notes; effectively subordinated in right of payment of any of the
Company's secured indebtedness to the extent of the value of the assets securing
such indebtedness; and structurally subordinated to all indebtedness and other
liabilities (including trade payables) of the Company's subsidiaries.

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


(in millions of U.S. Dollars)               June 26, 2022        June 27, 

2021

Principal                                   $1,325.0               $999.8
Unamortized discount and issuance costs       (303.4)              (175.9)
Net carrying amount                         $1,021.6               $823.9


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The net carrying amount of the equity component of the Notes is as follows: (in millions of U.S. Dollars)

                        June 26, 2022        June 27, 2021
Discount related to value of conversion option         $341.1               

$262.3

Partial extinguishment of 2023 Notes                        -                (27.7)
Debt issuance costs                                      (8.1)                (6.3)
Net carrying amount                                    $333.0               $228.3

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


                                                                               Fiscal Years Ended
(in millions of U.S. Dollars)                     June 26, 2022                    June 27, 2021                 June 28, 2020
Interest expense, net of capitalized
interest                                                 $2.6                            $10.4                           6.8
Amortization of discount and issuance costs,
net of capitalized interest                              20.1                             32.8                          26.2
Total interest expense, net                             $22.7                            $43.2                          33.0


The Company capitalizes interest related to the Notes in connection with the
building of its new Silicon Carbide device fabrication facility in New York. For
the fiscal year ended June 26, 2022, the Company capitalized $9.9 million of
interest expense and $23.2 million of amortization of discount and issuance
costs. For the fiscal year ended June 27, 2021, the Company capitalized $3.3
million of interest expense and $7.3 million of amortization of discount and
issuance costs. No interest was capitalized for the fiscal year ended June 28,
2020.

The last reported sale price of the Company's common stock was greater than or
equal to 130% of the applicable conversion price for the 2026 Notes for at least
20 trading days in the 30 consecutive trading days ended on June 30, 2022. As a
result, the 2026 Notes are convertible at the option of the holders during the
calendar quarter ended September 30, 2022.

As of June 26, 2022, the if-converted values of the 2026 Notes exceeded the principal amounts by $292.7 million.

The estimated fair value of the Notes is $1.5 billion, as determined by a Level 2 valuation as of June 26, 2022.

Note 11 - Shareholders' Equity

At June 26, 2022, the Company had reserved a total of approximately 36.6 million shares of its common stock for future issuance as follows (in thousands):


                                                                                        Number of
                                                                                         Shares
For exercise of outstanding common stock options                                              69
For vesting of outstanding stock units                                                     1,894

For future equity awards under 2013 Long-Term Incentive Compensation Plan

                5,009

For future issuance under the Non-Employee Director Stock Compensation and Deferral Program

                                                                                       44

For future issuance to employees under the 2020 Employee Stock Purchase Plan

               5,531
For future issuance upon conversion of the 2026 Notes                                     16,102
For future issuance upon conversion of the 2028 Notes                                      7,958
Total common shares reserved                                                              36,607


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Note 12 - Loss Per Share

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


                                                                                    Fiscal Years Ended
(in millions of U.S. Dollars, except share data)               June 26, 2022           June 27, 2021           June 28, 2020
Net loss from continuing operations                          $       

(295.1) $ (341.3) $ (197.6)


Net income (loss) from discontinued operations                         94.2                  (181.2)                    7.0

Net income from discontinued operations attributable to noncontrolling interest

                                                   -                     1.4                     1.1

Net income (loss) from discontinued operations attributable to controlling interest

                                                94.2                  (182.6)                    5.9

Weighted average number of common shares - basic and diluted (in thousands)

                                                      120,120                 112,346                 107,935

(Loss) earnings per share - basic and diluted:
Continuing operations                                        $        

(2.46) $ (3.04) $ (1.83) Discontinued operations attributable to controlling interest $ 0.78

$ (1.63) $ 0.05

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 from continuing operations.


For the fiscal years ended June 26, 2022, June 27, 2021 and June 28, 2020, 2.5
million, 3.4 million and 5.4 million, respectively, of dilutive shares 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 convertible notes under certain conditions as described in Note 10, "Long-term Debt."

Note 13 - Stock-Based Compensation

Overview of Employee Stock-Based Compensation Plans


The Company currently has one equity-based compensation plan, the 2013 Long-Term
Incentive Compensation Plan (2013 LTIP), from which stock-based compensation
awards can be granted to employees and directors. At June 26, 2022, there were
15.9 million shares authorized for issuance under the plan and 5.0 million
shares remaining for future grants. The 2013 LTIP provides for awards in the
form of incentive stock options, non-qualified stock options, stock appreciation
rights, restricted stock, restricted stock units, performance shares,
performance units and other awards.

The Company's stock-based awards can be either service-based or
performance-based. Performance-based conditions may be tied to future financial
and/or operating performance of the Company, external based market metrics or
internal performance metrics.

The Company also has an Employee Stock Purchase Plan (ESPP) that provides
employees with the opportunity to purchase common stock at a discount. At
June 26, 2022, there were 6.0 million shares authorized for issuance under the
ESPP, as amended, with 5.5 million shares remaining for future issuance. The
ESPP limits employee contributions to 15% of each employee's compensation (as
defined in the plan) and allows employees to purchase shares at a 15% discount
to the fair market value of common stock on the purchase date two times per
year. The ESPP 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.
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Stock Option Awards

The following table summarizes option activity as of June 26, 2022 and changes during the fiscal year then ended (shares in thousands):


                                                                                                                             Total Intrinsic
                                                                                                Weighted Average                Value (in
                                                                   Weighted Average           Remaining Contractual         millions of U.S.
                                       Number of Shares             Exercise Price                    Term                      Dollars)
Outstanding at June 27, 2021                   142                        $27.37
Granted                                          -                             -
Exercised                                      (73)                        29.46
Forfeited or expired                             -                             -
Outstanding at June 26, 2022                    69                         25.12                                 0.96               $3.2

Vested and expected to vest at June
26, 2022                                        69                         25.12                                 0.96               $3.2
Exercisable at June 26, 2022                    69                         25.12                                 0.96               $3.2


The total intrinsic value in the table above represents the total pretax
intrinsic value, which is the total difference between the closing price of the
Company's common stock on June 24, 2022 (the last trading day of fiscal 2022) of
$71.40 and the exercise price for in-the-money options that would have been
received by the holders if all instruments had been exercised on June 26, 2022.
As of June 26, 2022, there was no unrecognized compensation cost related to
nonvested stock options.

The following table summarizes information about stock options outstanding and exercisable at June 26, 2022 (shares in thousands):

                                                               Options Outstanding                                             Options Exercisable
                                                             Weighted Average
                                                           Remaining Contractual          Weighted Average                                   Weighted Average
Range of Exercise Price                 Number                 Life (Years)                Exercise Price             Number                  Exercise Price
$0.01 to $25.00                            48                                1.2                 $24.32                  48                        $24.32
$25.01 to $35.00                           21                                0.5                  26.92                  21                         26.92

Total                                      69                                                                            69


Total intrinsic value of options exercised for the fiscal years ended June 26,
2022, June 27, 2021 and June 28, 2020 was $5.6 million, $30.8 million and $22.8
million, respectively.

Restricted Stock Units

A summary of nonvested restricted stock units (RSUs) outstanding as of June 26,
2022 and changes during the year then ended is as follows (shares in thousands):

                                                                                             Weighted Average
                                                             Number of RSUs               Grant-Date Fair Value
Nonvested at June 27, 2021                                         2,168                             $57.38
Granted                                                              710                              96.96
Vested                                                              (916)                             49.12
Forfeited                                                            (68)                             72.63
Nonvested at June 26, 2022                                         1,894                             $75.67


The aggregate fair value of awards vested in fiscal years ended June 26, 2022,
June 27, 2021 and June 28, 2020, based on the market price of the Company's
common stock on the vesting date, was $82.9 million, $110.6 million and $49.8
million, respectively.
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As of June 26, 2022, there was $82.3 million of unrecognized compensation cost
related to nonvested awards, which is expected to be recognized over a weighted
average period of 1.85 years.

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.

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.

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

                                                                                    Fiscal Years Ended
(in millions of U.S. Dollars)                             June 26, 2022                 June 27, 2021              June 28, 2020
Cost of revenue, net                                           $16.0                         $14.4                      $10.0
Research and development                                         9.9                           8.7                        8.0
Sales, general and administrative                               35.0                          30.1                       30.8
Total stock-based compensation expense                         $60.9                         $53.2                      $48.8


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.


The Black-Scholes and Monte Carlo option pricing models require the input of
highly subjective assumptions. The assumptions listed below 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 above.

The range of assumptions used to value stock issued under the ESPP were as
follows:

                                                 Fiscal Years Ended
                            June 26, 2022              June 27, 2021        June 28, 2020
Risk-free interest rate        0.03 - 2.10%               0.03 - 0.17%         0.12 - 2.67%
Expected life, in years           0.5 - 1.0                  0.5 - 1.0            0.5 - 1.0
Volatility                     60.6 - 69.4%               52.4 - 82.6%         34.5 - 82.6%
Dividend yield                     -                          -                    -


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


                                                                                       Fiscal Years Ended
                                                             June 26, 2022                 June 27, 2021              June 28, 2020
Risk-free interest rate                                                  0.35%                  0.11 - 1.66%               0.28 - 1.66%
Expected life, in years                                                    3.0                           3.0                        3.0
Average volatility of peer companies                                     65.0%                  48.9 - 60.5%               48.9 - 55.2%
Average correlation coefficient of peer companies                         0.47                   0.36 - 0.51                0.36 - 0.45
Dividend yield                                                        -                             -                          -

There was only one grant for performance-based awards with market conditions for the fiscal year ended June 26, 2022 and therefore no range is shown.

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

Risk-Free Interest Rate

The Company estimates the risk-free interest rate using the U.S. Treasury bill rate with a remaining term equal to the expected life of the award.

Expected Life


The expected life represents the period the awards are expected to be
outstanding. In determining the appropriate expected life of its stock options,
the Company segregates its grantees into categories based upon employee levels
that are expected to be indicative of similar option-related behavior. The
expected useful lives for each of these categories are then estimated giving
consideration to (1) the weighted average vesting periods, (2) the contractual
lives of the stock options, (3) the relationship between the exercise price and
the fair market value of the Company's common stock, (4) expected employee
turnover, (5) the expected future volatility of the Company's common stock, and
(6) past and expected exercise behavior, among other factors.

Expected Volatility


The Company estimates expected volatility for the options and ESPP awards giving
consideration to the expected life of the respective award, the Company's
current expected growth rate, implied volatility in traded options for its
common stock, and the historical volatility of its common stock. For purposes of
estimating volatility for use in the Monte Carlo model for the market-based
awards, the Company utilizes historical volatilities of the Company and the
members of the defined peer group.

Expected Dividend Yield


The Company estimates the expected dividend yield by giving consideration to its
current dividend policies as well as those anticipated in the future considering
the Company's current plans and projections. The Company has not historically
issued dividends.

Correlation Coefficient

The correlation coefficients are calculated based upon the price data used to
calculate the historical volatilities and are used to model the way in which
each entity tends to move in relation to its peers.
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Note 14 - Income Taxes

The following were the components of loss before income taxes:

                                                                                     Fiscal Years Ended
(in millions of U.S. Dollars)                              June 26, 2022                 June 27, 2021              June 28, 2020
Domestic                                                      ($289.1)                      ($348.7)                   ($210.3)
Foreign                                                           3.0                           8.5                        4.7
Loss before income taxes                                      ($286.1)                      ($340.2)                   ($205.6)

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

                                                                                     Fiscal Years Ended
(in millions of U.S. Dollars)                              June 26, 2022                 June 27, 2021              June 28, 2020
Current:
Federal                                                          $0.3                          $0.1                      ($7.3)
Foreign                                                           8.0                           0.1                        0.2
State                                                             0.1                           0.2                        0.1
Total current                                                     8.4                           0.4                       (7.0)
Deferred:
Federal                                                           0.7                           0.7                        1.8
Foreign                                                          (0.1)                            -                       (2.8)
State                                                               -                             -                          -
Total deferred                                                    0.6                           0.7                       (1.0)
Income tax expense (benefit)                                     $9.0                          $1.1                      ($8.0)


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Actual income tax expense (benefit) differed from the amount computed by applying each period's U.S. federal statutory tax rate to pre-tax earnings as a result of the following:


                                                                                                   Fiscal Years Ended
(in millions of U.S. Dollars)             June 26, 2022            % of Loss             June 27, 2021             % of Loss             June 28, 2020             % of Loss
Federal income tax provision at
statutory rate                                 ($60.1)                     21  %           ($71.4)                         21  %           ($43.2)                         21  %
(Decrease) increase in income tax
expense resulting from:
State tax provision, net of federal
benefit                                          (2.5)                      1  %             (1.9)                          1  %             (1.9)                          1  %

Tax exempt interest                              (0.2)                      -  %             (0.1)                          -  %             (0.5)                          -  %

(Decrease) increase in tax reserve               (0.2)                      -  %                -                           -  %             (0.3)                          -  %

Research and development credits                 (5.4)                      2  %             (4.3)                          1  %             (3.3)                          2  %
Foreign tax credit                               (0.3)                      -  %             (0.4)                          -  %             (0.3)                          -  %
Increase (decrease) in valuation
allowance                                       (51.6)                     18  %             75.0                         (22) %             50.3                         (25) %
Extinguishment of convertible notes              (4.5)                      2  %                -                           -  %             (6.0)                          3  %
Stock-based compensation                         (3.3)                      1  %             (2.8)                          1  %              2.1                          (1) %
Statutory rate differences                          -                       -  %              1.1                           -  %              1.2                          (1) %
Foreign earnings taxed in U.S.                    6.8                      (2) %              2.7                          (1) %              0.3                           -  %

Other foreign adjustments                           -                       -  %             (0.1)                          -  %              0.3                           -  %
Net operating loss carryback                        -                       -  %                -                           -  %             (7.2)                          4  %
Provision to return adjustments                   0.3                       -  %             (0.2)                          -  %             (1.3)                          1  %

Impact of rate changes                            0.5                       -  %              2.7                          (1) %              0.8                           -  %
Expiration of state credits                       0.1                       -  %              0.7                           -  %              0.9                           -  %
Corporate restructuring adjustment              129.1                     (45) %                -                           -  %                -                           -  %
Other                                             0.3                       -  %              0.1                           -  %              0.1                           -  %
Income tax expense (benefit)                     $9.0                      (3) %             $1.1                           -  %            ($8.0)                          4  %


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


(in millions of U.S. Dollars)                                        June 26, 2022               June 27, 2021
Deferred tax assets:
Compensation                                                              $11.8                       $10.4
Inventories                                                                22.5                        13.6
Sales return reserve and allowance for bad debts                            5.0                         2.3

Federal and state net operating loss carryforwards                        321.0                       360.6
Federal credits                                                            48.2                        42.1
State credits                                                               1.2                         1.2
48C investment tax credits                                                 35.7                        36.6
Investments                                                                 5.3                         0.3
Stock-based compensation                                                    7.2                         6.1
Deferred revenue                                                           18.9                        26.3
Lease liabilities                                                          12.6                         6.2
Other                                                                       4.7                         4.5
Total gross deferred assets                                               494.1                       510.2
Less valuation allowance                                                 (339.2)                     (414.4)
Deferred tax assets, net                                                  154.9                        95.8

Deferred tax liabilities:
Property and equipment                                                    (75.1)                      (36.9)
Intangible assets                                                         (19.1)                      (16.6)
Investments                                                                   -                        (1.1)
Prepaid taxes and other                                                    (0.6)                       (0.7)
Foreign earnings recapture                                                 (4.3)                          -
Taxes on unremitted foreign earnings                                       (7.4)                       (1.5)
Lease assets                                                              (12.6)                       (6.1)
Convertible notes                                                         (38.0)                      (34.4)

Total gross deferred liability                                           (157.1)                      (97.3)
Deferred tax liability, net                                               ($2.2)                      ($1.5)


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The components giving rise to the net deferred tax assets (liabilities) have been included in the consolidated balance sheets as follows:

                                       Balance at June 26, 2022
(in millions of U.S. Dollars)     Assets                 Liabilities
U.S. federal income taxes           $-                         ($3.2)
Foreign income taxes               1.0                             -
Total                             $1.0                         ($3.2)


                                       Balance at June 27, 2021
(in millions of U.S. Dollars)     Assets                 Liabilities
U.S. federal income taxes           $-                         ($2.5)
Foreign income taxes               1.0                             -
Total                             $1.0                         ($2.5)


The Company weighs all available evidence, both positive and negative, to
estimate if sufficient future taxable income will be generated to utilize the
existing deferred tax assets by jurisdiction. The Company has concluded that it
is necessary to recognize a full valuation allowance against its U.S. deferred
tax assets as of June 26, 2022. As of June 27, 2021, the U.S. valuation
allowance was $292.6 million. For the fiscal year ended June 26, 2022, the
Company increased the U.S. valuation allowance by $46.6 million primarily due to
an increase in deferred tax assets related to the current year domestic loss and
tax credits generated offset by the current year increase in the domestic
deferred tax liability on property and equipment, net.

As of June 27, 2021, the Luxembourg valuation allowance was $121.8 million. As a
result of the LED Business Divestiture and the liquidation of the Company's
common stock ownership interest in ENNOSTAR, the Company began reviewing its
legal entity structure, including its Luxembourg holding company, during the
fourth quarter of fiscal 2021. In the second quarter of fiscal 2022, the Company
concluded its due diligence and commenced a plan to restructure its Luxembourg
holding company, resulting in the recognition of $7.3 million of income tax
expense. The $7.3 million of income tax expense represents the net effect of
$129.1 million of income tax expense generated from taxable income as a result
of the restructuring plan offset by a full release of the valuation allowance
against the Company's Luxembourg net operating loss deferred tax assets, which
totaled $121.8 million. As of June 26, 2022, the Company does not have a
valuation allowance against Luxembourg deferred tax assets.

As of June 26, 2022, the Company had approximately $2.4 million of foreign net
operating loss carryovers, of which less than $0.1 million are offset by a
valuation allowance. Of the Company's foreign net operating loss carryovers,
$2.4 million have no carry forward limitation. As of June 26, 2022, the Company
had approximately $1.5 billion of federal net operating loss carryovers and
$313.4 million of state net operating loss carryovers which are fully offset by
a valuation allowance. Additionally, the Company had $83.9 million of federal
and $1.2 million of state income tax credit carryforwards which are fully offset
by a valuation allowance. The federal and state net operating loss carryovers
will begin to expire in fiscal 2038 and fiscal 2023, respectively. The federal
and state income tax credit carryforwards will begin to expire in fiscal 2031
and fiscal 2023, respectively.

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 27, 2021, the Company's liability for unrecognized tax benefits was
$7.4 million. During the fiscal year ended June 26, 2022, the Company recognized
a $0.2 million decrease to the liability for unrecognized tax benefits due to
statute expiration. As a result, the total liability for unrecognized tax
benefits as of June 26, 2022 was $7.2 million. If any portion of this $7.2
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 $0.4 million of gross unrecognized tax benefits will
change in the next 12 months as a result of statute requirements or settlement
with tax authorities.
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The following is a tabular reconciliation of the Company's change in uncertain
tax positions:

                                                                                  Fiscal Years Ended
(in millions of U.S. Dollars)                           June 26, 2022                 June 27, 2021              June 28, 2020
Balance at beginning of period                                $7.4                          $7.4                       $8.2
Decrease related to current year change in law                   -                             -                          -
Increases related to prior year tax positions                    -                             -                          -
Decreases related to prior year tax positions                    -                             -                          -
Settlements with tax authorities                                 -                             -                       (0.1)
Expiration of statute of limitations for assessment
of taxes                                                      (0.2)                            -                       (0.7)
Balance at end of period                                      $7.2                          $7.4                       $7.4


The Company's policy is to include interest and penalties related to
unrecognized tax benefits within the income tax expense (benefit) line item in
the consolidated statements of operations. Interest and penalties relating to
unrecognized tax benefits recognized in the consolidated statements of
operations totaled less than $0.1 million for the fiscal years ended June 26,
2022, June 27, 2021, and June 28, 2020. The Company accrued less than $0.1
million for interest and penalties relating to unrecognized tax benefits in the
consolidated balance sheets as of June 26, 2022 and June 27, 2021.

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 2017. For U.S. state tax returns, the Company is
generally no longer subject to tax examinations for fiscal years prior to 2018.
For foreign purposes, the Company is generally no longer subject to examination
for tax periods prior to 2012. Certain carryforward tax attributes generated in
prior years remain subject to examination, adjustment and recapture.

The Company provides for income taxes on the earnings of foreign subsidiaries
unless the subsidiaries' earnings are considered indefinitely reinvested outside
the United States. As of June 26, 2022, the Company has approximately
$206.3 million of undistributed earnings for certain non-U.S. subsidiaries. The
Company has determined that $190.3 million of the $206.3 million of
undistributed foreign earnings are expected to be repatriated in the foreseeable
future. The Company expects to incur $7.4 million of foreign income taxes upon
repatriation of the $190.3 million foreign earnings. As of June 26, 2022, the
Company has not provided income taxes on the remaining undistributed foreign
earnings of $16.0 million as the Company continues to maintain its intention to
reinvest these earnings in foreign operations indefinitely. If, at a later date,
these earnings were repatriated to the United States, the Company would be
required to pay approximately $0.3 million in taxes on these amounts.

Note 15 - Commitments and Contingencies

Litigation


The Company is currently a party to various legal proceedings. 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.

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.
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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 June 26, 2022, the annual cost of satisfying the objectives of the GDA and
the SUNY Agreement, excluding the direct and indirect costs associated with
employment, varies from $2.7 million to $5.2 million per year through fiscal
2031.

As of June 26, 2022, the Company has reduced property and equipment, net by
$285.1 million as a result of GDA reimbursements, of which $149.7 million has
been received in cash and an additional $132.5 million and $2.9 million are
recorded as receivables in other current assets and other assets, respectively,
in the consolidated balance sheets. The Company started receiving cash
reimbursements in the fourth quarter of fiscal 2021.

Note 16 - Concentrations of Risk


Financial instruments, which may subject the Company to a concentration of risk,
consist principally of short-term investments, cash equivalents, accounts
receivable and long-term receivables. Short-term investments consist primarily
of municipal bonds, corporate bonds, U.S. agency securities, U.S. treasury
securities, commercial paper, certificates of deposit, and variable rate demand
notes at interest rates that vary by security. The Company's cash equivalents
consist primarily of money market funds. Certain bank deposits may at times be
in excess of the FDIC insurance limits.

The Company sells its products on account to manufacturers, distributors and others worldwide and generally requires no collateral.


For the fiscal year ended June 26, 2022, two customers represented 20% and 18%
of revenue, respectively. For the fiscal year ended June 27, 2021, three
customers represented 18%, 13% and 10% of revenue, respectively. For the fiscal
year ended June 28, 2020, two customers represented 19% and 14% of revenue,
respectively. No other customers individually accounted for more than 10% of
revenue for the fiscal years ended June 26, 2022, June 27, 2021 and June 28,
2020.

Three customers accounted for 18%, 16% and 14% of the accounts receivable
balance as of June 26, 2022, respectively. Two customers accounted for 16% and
16% of the accounts receivable balance as of June 27, 2021, respectively. No
other customers accounted for more than 10% of the accounts receivable balance
as of June 26, 2022 and June 27, 2021.

Note 17 - Retirement Savings Plan


The Company sponsors one employee benefit plan (the 401(k) Plan) pursuant to
Section 401(k) of the Internal Revenue Code. All U.S. employees are eligible to
participate under the 401(k) Plan on the first day of a new fiscal month after
the date of hire. Under the 401(k) Plan, there is no fixed dollar amount of
retirement benefits; rather, the Company matches a defined percentage of
employee deferrals, and employees vest in these matching funds over time.
Employees choose their investment elections from a list of available investment
options. During the fiscal years ended June 26, 2022, June 27, 2021 and June 28,
2020, the Company contributed approximately $10.3 million, $8.0 million and $7.7
million to the 401(k) Plan, respectively. The Pension Benefit Guaranty
Corporation does not insure the 401(k) Plan.

Note 18 - Restructuring


The Company has approved various operational plans that include restructuring
costs. All restructuring costs are recorded in other operating expense on the
consolidated statement of operations.

Corporate Restructuring


In July 2019, the Company realigned its sales resources as part of the Company's
transition to a more focused semiconductor company. As a result, the Company
recorded $0.6 million in contract termination costs during the fiscal year ended
June 28, 2020. The plan has concluded and all expenses have been paid as of June
27, 2021.

In September 2020, the Company realigned certain resources to further focus on
areas vital to the Company's growth while driving efficiencies. As a result, the
Company recorded $2.8 million in severance-related costs for the fiscal year
ended June 27, 2021. The plan has concluded and all expenses have been paid as
of June 27, 2021.
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In February 2021, the Company realigned the structure of its Asia sales
presence. As a result, the Company recorded $0.6 million in severance related
costs for the fiscal year ended June 27, 2021. The plan has concluded and all
expenses have been paid as of June 27, 2021.

In January 2022, the Company commenced a plan to open a global IT shared services hub in Belfast, Northern Ireland in partnership with the Northern Ireland government. As a result, the Company recorded $1.2 million in severance-related costs for the fiscal year ended June 26, 2022, all of which is accrued for as of June 26, 2022.

Factory Optimization Restructuring


In May 2019, the Company started a significant, multi-year factory optimization
plan anchored by a state-of-the-art, automated 200mm capable Silicon Carbide and
GaN fabrication facility and a large materials factory at its U.S. campus
headquarters in Durham, North Carolina. As part of the plan, the Company has
incurred restructuring charges associated with the movement of equipment as well
as disposals on certain long-lived assets.

In September 2019, the Company announced its intent to build a new Silicon Carbide device fabrication facility in Marcy, New York to complement the expansion of the Company's Silicon Carbide materials production capacity at its U.S. campus headquarters in Durham, North Carolina.


The factory optimization restructuring plan concluded in fiscal 2022. For the
fiscal years ended June 26, 2022, June 27, 2021 and June 28, 2020, the Company
expensed $4.8 million, $5.2 million and $9.0 million, respectively, of
restructuring charges associated with the movement of equipment related to the
factory optimization plan, of which $0.2 million was accrued for as of June 26,
2022. Additionally, the Company expensed $1.3 million and $3.4 million of
restructuring charges associated with disposals of certain long-lived assets for
the fiscal years ended June 26, 2022 and June 27, 2021, respectively. The
Company incurred less expense in connection with the plan than previously
projected due to strategic changes in the Company's capacity expansion plans at
its Durham and RTP facilities.

Note 19 - Subsequent Events


In July 2022, the Company received an arbitration award in relation to a former
customer failing to fulfill contractual obligations to purchase a certain amount
of product over a period of time. In August 2022, the Company received payment
for the arbitration award in the amount of $49.0 million, net of estimated
attorneys' fees and other costs, and will recognize a corresponding gain from
arbitration in the first quarter of fiscal 2023.
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