North Carolina

56-1572719

(State or other jurisdiction of incorporation or

organization)

(I.R.S. Employer Identification No.)

4600 Silicon Drive

~~Durham, North Carolina~~

~~27703~~

Durham

North Carolina

27703

(Address of principal executive offices)

(Zip Code)

(919) 407-5300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading ~~symbol(s)~~Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00125 par value	CREE	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ~~[ X ]~~☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ~~[ X ]~~☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer ~~[X]~~	☒	Accelerated filer ~~[ ]~~	☐

Non-accelerated filer ~~[ ]~~	☐	Smaller reporting company ~~[ ]~~	☐

		Emerging growth company ~~[ ]~~	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities ~~Act~~. ~~[ ]~~Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ~~[ ] No[ X]~~☐ No ☒

The number of shares outstanding of the registrant’s common stock, par value ~~$0.00125~~$0.00125 per share, as of April ~~26, 2019,~~24, 2020, was ~~105,248,244.~~108,160,061.

Table of Contents

CREE, INC.

FORM 10-Q

For the Quarterly Period Ended March ~~31, 2019~~29, 2020

~~INDEX~~

Table of Contents


Part I. Financial Information
			Item 1. Financial Statements (Unaudited)	3


~~Description~~			~~Page No.~~

~~PART I - FINANCIAL INFORMATION~~

~~Item 1.~~			~~Financial Statements~~	3

	~~Unaudited Consolidated Balance Sheets as of March 31, 2019 and June 24, 2018~~	4

	~~Unaudited Consolidated Statements of (Loss) Income for the three and nine months ended March 31, 2019 and March 25, 2018~~	5

	~~Unaudited Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended March 31, 2019 and March 25, 2018~~	6

	~~Unaudited Consolidated Statement of Shareholders' Equity for the three and nine months ended March 31, 2019 and March 25, 2018~~	7

	~~Unaudited Consolidated Statements of Cash Flows for the nine months ended March 31, 2019 and March 25, 2018~~	8

	~~Notes to Unaudited Consolidated Financial Statements~~	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3132

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4.	Controls and Procedures	44
Part II. Other Information
~~PART II – OTHER INFORMATION~~

Item 1.	Legal Proceedings	4445

Item 1A.	Risk Factors	4546

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59

Item 3.	Defaults Upon Senior Securities	59

Item 4.	Mine Safety Disclosures	59

Item 5.	Other Information	59

Item 6.	Exhibits	60

~~SIGNATURE~~		61

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)


Consolidated Balance Sheets as of March 29, 2020 and June 30, 2019			4
Consolidated Statements of Operations for the three and nine months ended March 29, 2020 and March 31, 2019			5
Consolidated Statements of Comprehensive Loss for the three and nine months ended March 29, 2020 and March 31, 2019			6
Consolidated Statement s of Shareholders' Equity for the nine months ended March 29, 2020 and March 31, 2019			7
Consolidated Statements of Cash Flows for the nine months ended March 29, 2020 and March 31, 2019			9
Notes to Unaudited Consolidated Financial Statements			10

~~CREE, INC.~~

~~UNAUDITED CONSOLIDATED BALANCE SHEETS~~

March 31,
2019 June 24,
2018
(In thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents
$456,157

$118,924
Short-term investments 333,111
268,161
Total cash, cash equivalents and short-term investments 789,268
387,085
Accounts receivable, net 150,390
86,398
Income tax receivable 489
2,256
Inventories 172,793
151,636
Prepaid expenses 19,201
24,521
Other current assets 25,916
12,921
Current assets held for sale (Note 2) 340,782
225,544
Total current assets 1,498,839
890,361
Property and equipment, net 607,659
589,073
Goodwill 530,004
530,004
Intangible assets, net 203,016
215,815
Other long-term investments 44,122
57,501
Deferred income taxes 9,958
5,766
Other assets 5,559
11,604
Long-term assets held for sale (Note 2) —
337,692
Total assets
$2,899,157

$2,637,816
LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable, trade
$111,203

$105,354
Accrued salaries and wages 63,361
41,877
Income taxes payable 1,701
—
Accrued contract liabilities (Note 3) 47,328
—
Other current liabilities 20,472
19,280
Current liabilities held for sale (Note 2) 90,355
82,053
Total current liabilities 334,420
248,564
Long-term liabilities:

Long-term debt —
292,000
Convertible notes, net 463,491
—
Deferred income taxes 5,878
3,148
Other long-term liabilities 29,453
518
Long-term liabilities held for sale (Note 2) —
21,505
Total long-term liabilities 498,822
317,171
Commitments and contingencies (Note 13)

Shareholders’ equity:

Preferred stock, par value $0.01; 3,000 shares authorized at March 31, 2019 and June 24, 2018; none issued and outstanding —
—
Common stock, par value $0.00125; 200,000 shares authorized at March 31, 2019 and June 24, 2018; 104,515 issued and outstanding at March 31, 2019 and 101,488 shares issued and outstanding at June 24, 2018 131
127
Additional paid-in-capital 2,772,042
2,549,123
Accumulated other comprehensive income, net of taxes 2,554
596
Accumulated deficit (713,780 ) (482,710 )
Total shareholders’ equity 2,060,947
2,067,136
Non-controlling interest 4,968
4,945
Total liabilities and equity
$2,899,157

$2,637,816

~~The accompanying notes are an integral part~~

Table of ~~the consolidated financial statements.~~Contents

CREE, INC.

UNAUDITED CONSOLIDATED ~~STATEMENTS OF (LOSS) INCOME~~BALANCE SHEETS

Three Months Ended Nine Months Ended
March 31,
2019 March 25,
2018 March 31,
2019 March 25,
2018
(In thousands, except per share amounts)
Revenue, net
$274,050

$225,200

$828,729

$659,128
Cost of revenue, net 173,596
150,337
526,444
445,198
Gross profit 100,454
74,863
302,285
213,930
Operating expenses:
Research and development 40,722
31,144
117,235
95,184
Sales, general and administrative 61,626
46,631
157,937
128,743
Amortization or impairment of acquisition-related intangibles 3,906
1,516
11,717
3,224
Loss on disposal and impairment of other assets 5,286
1,112
5,708
6,940
Total operating expenses 111,540
80,403
292,597
234,091
Operating (loss) income (11,086 ) (5,540 ) 9,688
(20,161 )
Non-operating (expense) income, net (8,440 ) (10,000 ) (23,695 ) 14,942
Loss before income taxes (19,526 ) (15,540 ) (14,007 ) (5,219 )
Income tax expense (benefit) 2,785
(5,377 ) 9,252
(17,633 )
(Loss) Income from continuing operations (22,311 )
(10,163 )
(23,259 )
12,414
Loss from discontinued operations, net of tax (205,420 )
(230,370 )
(218,085 )
(259,067 )
Net loss (227,731 )
(240,533 )
(241,344 )
(246,653 )
Net income attributable to non-controlling interest 121

44

23

59
Net loss attributable to controlling interest
($227,852 )

($240,577 )

($241,367 )

($246,712 )

(Loss) Earnings per share - basic
Continuing operations
($0.22 )

($0.10 )

($0.23 )

$0.13
Discontinued operations (1.98 )
(2.30 )
(2.12 )
(2.62 )
Loss per share - basic
($2.20 )

($2.40 )

($2.35 )

($2.49 )

(Loss) Earnings per share - diluted
Continuing operations
($0.22 )

($0.10 )

($0.23 )

$0.12
Discontinued operations (1.98 )
(2.30 )
(2.12 )
(2.57 )
Loss per share - diluted
($2.20 )

($2.40 )

($2.35 )

($2.45 )

Weighted average shares used in per share calculation:
Basic 103,659
100,140
102,807
99,046
Diluted 103,659
100,140
102,807
100,672


(in millions of U.S. Dollars, except share data)	March 29, 2020	June 30, 2019
Assets
Current assets:
Cash and cash equivalents	$323.0	$500.5
Short-term investments	529.9	550.9
Total cash, cash equivalents and short-term investments	852.9	1,051.4
Accounts receivable, net	161.0	128.9
Inventories	170.1	187.4
Income taxes receivable	6.1	0.2

Prepaid expenses	27.7	23.3
Other current assets	12.2	19.7
Current assets held for sale	0.2	1.9

Total current assets	1,230.2	1,412.8
Property and equipment, net	737.6	625.2
Goodwill	530.0	530.0
Intangible assets, net	183.6	197.9
Other long-term investments	31.5	39.5
Deferred tax assets	6.7	5.6

Other assets	18.3	5.9
Total assets	$2,737.9	$2,816.9

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$184.8	$200.9
Accrued contract liabilities	45.1	45.8
Income taxes payable	1.2	3.0
Finance lease liabilities	0.6	—
Other current liabilities	19.7	18.5

Total current liabilities	251.4	268.2
Long-term liabilities:

Convertible notes, net	486.3	469.1
Deferred tax liabilities	2.3	2.0
Finance lease liabilities - long-term	2.2	—
Other long-term liabilities	50.7	36.4
Total long-term liabilities	541.5	507.5
Commitments and contingencies
Shareholders’ equity:
Preferred stock, par value $0.01; 3,000 shares authorized at March 29, 2020 and June 30, 2019; NaN issued and outstanding	—	—
Common stock, par value $0.00125; 200,000 shares authorized at March 29, 2020 and June 30, 2019; 108,153 and 106,570 shares issued and outstanding at March 29, 2020 and June 30, 2019, respectively	0.1	0.1
Additional paid-in-capital	2,931.3	2,874.1
Accumulated other comprehensive income	7.8	9.5
Accumulated deficit	(999.7)	(847.5)
Total shareholders’ equity	1,939.5	2,036.2
Non-controlling interest	5.5	5.0
Total equity	1,945.0	2,041.2
Total liabilities and shareholders’ equity	$2,737.9	$2,816.9

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

Table of Contents

CREE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE (LOSS) INCOME~~OPERATIONS

Three Months Ended Nine Months Ended
March 31,
2019 March 25,
2018 March 31,
2019 March 25,
2018
(In thousands)
Net loss
($227,731 )
($240,533 )
($241,344 )
($246,653 )
Other comprehensive income (loss)
Currency translation (loss) gain (250 ) 788
(784 ) 2,006
Net unrealized gain (loss) on available-for-sale securities, net of tax benefit of $0 and $0, respectively 1,948
(2,269 ) 2,742
(5,969 )
Other comprehensive income (loss) 1,698
(1,481 ) 1,958
(3,963 )
Comprehensive loss (226,033 ) (242,014 ) (239,386 ) (250,616 )
Net income attributable to non-controlling interest 121
44
23
59
Comprehensive loss attributable to controlling interest
($226,154 )
($242,058 )
($239,409 )
($250,675 )


	Three months ended			Nine months ended
	March 29, 2020	March 31, 2019	March 29, 2020	March 31, 2019
(in millions of U.S. Dollars, except share data)
Revenue, net	$215.5	$274.0	$698.2	$828.7
Cost of revenue, net	154.1	173.5	500.7	526.4
Gross profit	61.4	100.5	197.5	302.3
Operating expenses:
Research and development	46.7	40.7	137.7	117.2
Sales, general and administrative	49.7	50.6	160.1	143.7
Amortization or impairment of acquisition-related intangibles	3.7	3.9	10.9	11.7
Loss on disposal or impairment of other assets	0.3	5.3	2.1	5.7


Other operating expense	10.8	11.1	31.8	14.3

Operating (loss) income	(49.8)	(11.1)	(145.1)	9.7
Non-operating expense, net	14.5	8.4	7.8	23.7
Loss before income taxes	(64.3)	(19.5)	(152.9)	(14.0)
Income tax (benefit) expense	(2.9)	2.8	(1.2)	9.3
Net loss from continuing operations	(61.4)	(22.3)	(151.7)	(23.3)
Net loss from discontinued operations	—	(205.4)	—	(218.0)
Net loss	(61.4)	(227.7)	(151.7)	(241.3)
Net income attributable to noncontrolling interest	0.2	0.1	0.5	0.1
Net loss attributable to controlling interest	($61.6)	($227.8)	($152.2)	($241.4)

Basic and diluted loss per share
Continuing operations attributable to controlling interest	($0.57)	($0.22)	($1.41)	($0.23)

Net loss attributable to controlling interest	($0.57)	($2.20)	($1.41)	($2.35)






Weighted average shares - basic and diluted (in thousands)	108,115	103,659	107,718	102,807

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

Table of Contents

CREE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF ~~SHAREHOLDERS' EQUITY~~COMPREHENSIVE LOSS

Common Stock
Additional
Paid-in
Capital
Accumulated Deficit
Accumulated
Other
Comprehensive
Income

Total
Shareholders’
Equity
Non-controlling Interest Total Equity

Number
of Shares
Par Value
(In thousands)
Balance at June 24, 2018 101,488

$127

$2,549,123

($482,710 )
$596

$2,067,136

$4,945

$2,072,081
Net loss —
—
—
(11,067 ) —
(11,067 ) (67 ) (11,134 )
Currency translation gain, net of tax benefit of $0 —
—
—
—
343
343
—
343
Unrealized loss on available-for-sale securities, net of tax expense of $0 —
—
—
—
(275 ) (275 ) —
(275 )
Comprehensive loss (10,999 ) (67 ) (11,066 )
Income tax expense from stock option exercises —
—
(10,828 ) —
—
(10,828 ) —
(10,828 )
Stock-based compensation —
—
12,117
—
—
12,117
—
12,117
Exercise of stock options and issuance of shares 1,032
1
15,503
—
—
15,504
—
15,504
Adoption of ASC 606 —
—
—
10,299
—
10,299
—
10,299
Convertible note issuance —
—
110,591
—
—
110,591
—
110,591
Balance at September 23, 2018 102,520

$128

$2,676,506

($483,478 )
$664

$2,193,820

$4,878

$2,198,698
Net loss —
—
—
(2,450 ) —
(2,450 ) (31 ) (2,481 )
Currency translation loss, net of tax benefit of $0 —
—
—
—
(877 ) (877 ) —
(877 )
Unrealized gain on available-for-sale securities, net of tax expense of $0 —
—
—
—
1,069
1,069
—
1,069
Comprehensive loss —
—
—
—
—
(2,258 ) (31 ) (2,289 )
Income tax benefit from stock option exercises —
—
9,278
—
—
9,278
—
9,278
Stock-based compensation —
—
13,635
—
—
13,635
—
13,635
Exercise of stock options and issuance of shares 553
1
4,182
—
—
4,183
—
4,183
Balance at December 30, 2018 103,073

$129

$2,703,601

($485,928 )
$856

$2,218,658

$4,847

$2,223,505
Net (loss) income —
—
—
(227,852 ) —
(227,852 ) 121
(227,731 )
Currency translation loss, net of tax benefit of $0 —
—
—
—
(250 ) (250 ) —
(250 )
Unrealized gain on available-for-sale securities, net of tax expense of $0 —
—
—
—
1,948
1,948
—
1,948
Comprehensive (loss) income —
—
—
—
—
(226,154 ) 121
(226,033 )
Income tax expense from stock option exercises —
—
(469 ) —
—
(469 ) —
(469 )
Stock-based compensation —
—
15,647
—
—
15,647
—
15,647
Exercise of stock options and issuance of shares 1,442
2
53,263
—
—
53,265
—
53,265
Balance at March 31, 2019 104,515

$131

$2,772,042

($713,780 )
$2,554

$2,060,947

$4,968

$2,065,915


	Three months ended			Nine months ended
(in millions of U.S. Dollars)	March 29, 2020	March 31, 2019	March 29, 2020	March 31, 2019
Net loss	($61.4)	($227.7)	($151.7)	($241.3)
Other comprehensive loss:
Currency translation loss	—	(0.3)	—	(0.8)
Net unrealized (loss) gain on available-for-sale securities	(1.9)	2.0	(1.7)	2.8

Comprehensive loss	(63.3)	(226.0)	(153.4)	(239.3)
Net income attributable to non-controlling interest	0.2	0.1	0.5	0.1
Comprehensive loss attributable to controlling interest	($63.5)	($226.1)	($153.9)	($239.4)

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

Table of Contents

CREE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Common Stock
Additional
Paid-in
Capital
Accumulated Deficit
Accumulated
Other
Comprehensive
Income

Total
Shareholders’
Equity
Non-controlling Interest Total Equity

Number
of Shares
Par Value
(In thousands)
Balance at June 25, 2017 97,674

$121

$2,419,517

($202,742 )
$5,909

$2,222,805
—

$2,222,805
Net loss —
—
—
(19,857 ) —
(19,857 ) (16 ) (19,873 )
Currency translation gain, net of tax benefit of $0 —
—
—
—
1,642
1,642
—
1,642
Unrealized loss on available-for-sale securities, net of tax expense of $0 —
—
—
—
(39 ) (39 ) —
(39 )
Comprehensive loss (18,254 ) (16 ) (18,270 )
Income tax expense from stock option exercises —
—
(3,798 ) —
—
(3,798 ) —
(3,798 )
Stock-based compensation —
—
10,226
—
—
10,226
—
10,226
Exercise of stock options and issuance of shares 371
—
118
—
—
118
—
118
Contributions from non-controlling interests —
—
—
—
—
—
—
4,900
4,900
Balance at September 24, 2017 98,045

$121

$2,426,063

($222,599 )
$7,512

$2,211,097

$4,884

$2,215,981
Net income —
—
—
13,721
13,721
31
13,752
Currency translation loss, net of tax benefit of $0 —
—
—
—
(424 ) (424 ) —
(424 )
Unrealized loss on available-for-sale securities, net of tax expense of $0 —
—
—
—
(3,660 ) (3,660 ) —
(3,660 )
Comprehensive income —
—
—
—
—
9,637
31
9,668
Income tax expense from stock option exercises —
—
(849 ) —
—
(849 ) —
(849 )
Stock-based compensation —
—
11,780
—
—
11,780
—
11,780
Exercise of stock options and issuance of shares 1,843
2
46,430
—
—
46,432
—
46,432
Balance at December 24, 2017 99,888

$123

$2,483,424

($208,878 )
$3,428

$2,278,097

$4,915

$2,283,012
Net (loss) income —
—
—
(240,577 ) —
(240,577 ) 44
(240,533 )
Currency translation gain, net of tax benefit of $0 —
—
—
—
788
788
—
788
Unrealized loss on available-for-sale securities, net of tax expense of $0 —
—
—
—
(2,269 ) (2,269 ) —
(2,269 )
Comprehensive (loss) income —
—
—
—
—
(242,058 ) 44
(242,014 )
Income tax (expense) benefit from stock option exercises —
—
(1,291 ) —
—
(1,291 ) —
(1,291 )
Stock-based compensation —
—
11,471
—
—
11,471
—
11,471
Exercise of stock options and issuance of shares 599
1
15,692
—
—
15,693
—
15,693
Balance at March 25, 2018 100,487

$124

$2,509,296

($449,455 )
$1,947

$2,061,912

$4,959

$2,066,871


	Common Stock			Additional Paid-in Capital	Accumulated Deficit	Accumulated Other Comprehensive Income	Total Equity - Controlled Interest	Non-controlling Interest	Total Equity
(in millions of U.S Dollars, except share data)	Number of Shares	Par Value
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	—	—	—	(37.8)	—	(37.8)	—	(37.8)

Unrealized gain on available-for-sale securities	—	—	—	—	0.5	0.5	—	0.5
Comprehensive loss						(37.3)	—	(37.3)
Tax withholding on vested equity awards	—	—	(14.3)	—	—	(14.3)	—	(14.3)

Stock-based compensation	—	—	17.4	—	—	17.4	—	17.4
Exercise of stock options and issuance of shares	1,127	—	18.6	—	—	18.6	—	18.6



Balance at September 29, 2019	107,697	$0.1	$2,895.8	($885.3)	$10.0	$2,020.6	$5.0	$2,025.6
Net (loss) income	—	—	—	(52.8)	—	(52.8)	0.3	(52.5)

Unrealized loss on available-for-sale securities	—	—	—	—	(0.3)	(0.3)	—	(0.3)
Comprehensive (loss) income						(53.1)	0.3	(52.8)
Tax withholding on vested equity awards	—	—	(0.4)	—	—	(0.4)	—	(0.4)

Stock-based compensation	—	—	13.4	—	—	13.4	—	13.4
Exercise of stock options and issuance of shares	334	—	10.7	—	—	10.7	—	10.7



Balance at December 29, 2019	108,031	$0.1	$2,919.5	($938.1)	$9.7	$1,991.2	$5.3	$1,996.5
Net (loss) income	—	—	—	(61.6)	—	(61.6)	0.2	(61.4)

Unrealized loss on available-for-sale securities	—	—	—	—	(1.9)	(1.9)	—	(1.9)
Comprehensive (loss) income						(63.5)	0.2	(63.3)
Tax withholding on vested equity awards	—	—	(1.5)	—	—	(1.5)	—	(1.5)

Stock-based compensation	—	—	11.6	—	—	11.6	—	11.6
Exercise of stock options and issuance of shares	122	—	1.7	—	—	1.7	—	1.7



Balance at March 29, 2020	108,153	$0.1	$2,931.3	($999.7)	$7.8	$1,939.5	$5.5	$1,945.0

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

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CREE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~SHAREHOLDERS' EQUITY

Nine Months Ended
March 31,
2019 March 25,
2018
(In thousands)
Cash flows from operating activities:
Net loss
($241,344 )
($246,653 )
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 116,256
113,244
Amortization of debt issuance costs and discount 12,687
—
Stock-based compensation 40,497
33,319
Impairment charges 197,580
247,455
Loss on disposal or impairment of long-lived assets 2,842
8,803
Amortization of premium/discount on investments 2,113
3,943
Loss (gain) on equity investment 12,443
(7,510 )
Foreign exchange loss (gain) on equity investment 936
(2,543 )
Deferred income taxes (1,655 ) (49,875 )
Changes in operating assets and liabilities:
Accounts receivable, net (56,339 ) 5,728
Inventories (19,237 ) (4,640 )
Prepaid expenses and other assets 3,517
2,041
Accounts payable, trade 6,590
15,328
Accrued salaries and wages and other liabilities 110,083
6,783
Net cash provided by operating activities 186,969
125,423
Cash flows from investing activities:
Purchases of property and equipment (106,522 ) (128,433 )
Purchases of patent and licensing rights (9,148 ) (7,913 )
Proceeds from sale of property and equipment 286
538
Purchases of short-term investments (251,676 ) (174,623 )
Proceeds from maturities of short-term investments 146,368
166,771
Proceeds from sale of short-term investments 28,185
176,981
Purchase of acquired business, net of cash acquired —
(427,120 )
Net cash used in investing activities (192,507 ) (393,799 )
Cash flows from financing activities:
Proceeds from issuing shares to non-controlling interest —
4,900
Payment of acquisition-related contingent consideration —
(1,850 )
Proceeds from long-term debt borrowings 95,000
555,000
Payments on long-term debt borrowings (387,000 ) (384,000 )
Proceeds from convertible notes 575,000
—
Payments of debt issuance costs (12,938 ) —
Net proceeds from issuance of common stock 72,948
62,240
Net cash provided by financing activities 343,010
236,290
Effects of foreign exchange changes on cash and cash equivalents (239 ) 715
Net increase (decrease) in cash and cash equivalents 337,233
(31,371 )
Cash and cash equivalents:
Beginning of period 118,924
132,597
End of period
$456,157

$101,226
Supplemental disclosure of cash flow information:
Significant non-cash transactions:
Accrued property and equipment
$15,247

$19,275


	Common Stock			Additional Paid-in Capital	Accumulated Deficit	Accumulated Other Comprehensive Income	Total Equity - Controlled Interest	Non-controlling Interest	Total Equity
(in millions of U.S. Dollars, except share data)	Number of Shares	Par Value
Balance at June 24, 2018	101,488	$0.1	$2,549.1	($482.7)	$0.6	$2,067.1	$5.0	$2,072.1
Net loss	—	—	—	(11.1)	—	(11.1)	—	(11.1)
Currency translation gain	—	—	—	—	0.3	0.3	—	0.3
Unrealized loss on available-for-sale securities	—	—	—	—	(0.3)	(0.3)	—	(0.3)
Comprehensive loss						(11.1)	—	(11.1)
Tax withholding on vested equity awards	—	—	(10.8)	—	—	(10.8)	—	(10.8)

Stock-based compensation	—	—	12.1	—	—	12.1	—	12.1
Exercise of stock options and issuance of shares	1,032	—	15.5	—	—	15.5	—	15.5
Convertible note issuance	—	—	110.6	—	—	110.6	—	110.6
Adoption of ASC 606	—	—	—	10.3	—	10.3	—	10.3

Balance at September 23, 2018	102,520	$0.1	$2,676.5	($483.5)	$0.6	$2,193.7	$5.0	$2,198.7
Net loss	—	—	—	(2.5)	—	(2.5)	—	(2.5)
Currency translation loss	—	—	—	—	(0.9)	(0.9)	—	(0.9)
Unrealized gain on available-for-sale securities	—	—	—	—	1.1	1.1	—	1.1
Comprehensive loss						(2.3)	—	(2.3)
Tax withholding on vested equity awards	—	—	(1.1)	—	—	(1.1)	—	(1.1)
Repurchased shares	—	—	—	—	—	—	—	—
Stock-based compensation	—	—	13.6	—	—	13.6	—	13.6
Exercise of stock options and issuance of shares	553	—	14.6	—	—	14.6	—	14.6



Balance at December 30, 2018	103,073	$0.1	$2,703.6	($486.0)	$0.8	$2,218.5	$5.0	$2,223.5
Net (loss) income	—	—	—	(227.8)	—	(227.8)	0.1	(227.7)
Currency translation loss	—	—	—	—	(0.3)	(0.3)	—	(0.3)
Unrealized gain on available-for-sale securities	—	—	—	—	2.0	2.0	—	2.0
Comprehensive loss						(226.1)	0.1	(226.0)
Tax withholding on vested equity awards	—	—	(0.5)	—	—	(0.5)	—	(0.5)

Stock-based compensation	—	—	15.6	—	—	15.6	—	15.6
Exercise of stock options and issuance of shares	1,442	—	53.3	—	—	53.3	—	53.3



Balance at March 31, 2019	104,515	$0.1	$2,772.0	($713.8)	$2.5	$2,060.8	$5.1	$2,065.9

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

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CREE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine months ended
(in millions of U.S. Dollars)	March 29, 2020	March 31, 2019
Operating activities:
Net loss from continuing operations	($151.7)	($23.3)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	90.9	93.1
Amortization of debt issuance costs and discount	17.2	12.7
Stock-based compensation	41.3	34.5




Loss on disposal or impairment of long-lived assets	2.1	5.7
Amortization of premium/discount on investments	0.5	2.0
Realized (gain) loss on sale of investments	(1.3)	0.1
Loss on equity investment	9.2	12.4
Foreign exchange (gain) loss on equity investment	(1.2)	0.9
Deferred income taxes	(0.8)	(1.7)
Changes in operating assets and liabilities:
Accounts receivable, net	(31.9)	(63.6)
Inventories	18.4	(20.2)
Prepaid expenses and other assets	1.9	(4.6)
Accounts payable, trade	(19.2)	18.4
Accrued salaries and wages and other liabilities	(20.6)	81.4
Accrued contract liabilities	5.7	31.9
Net cash (used in) provided by operating activities of continuing operations	(39.5)	179.7
Net cash provided by operating activities of discontinued operations	—	9.3
Cash (used in) provided by operating activities	(39.5)	189.0
Investing activities:
Purchases of property and equipment	(168.9)	(93.3)
Purchases of patent and licensing rights	(5.2)	(7.0)
Proceeds from sale of property and equipment	1.8	0.3
Purchases of short-term investments	(425.2)	(251.7)
Proceeds from maturities of short-term investments	342.5	146.4
Proceeds from sale of short-term investments	102.8	28.2



Net cash used in investing activities of continuing operations	(152.2)	(177.1)
Net cash used in investing activities of discontinued operations	—	(15.4)
Cash used in investing activities	(152.2)	(192.5)
Financing activities:


Proceeds from long-term debt borrowings	—	95.0
Payments on long-term debt borrowings, including finance lease obligations	(0.4)	(387.0)
Proceeds from convertible notes	—	575.0
Payments of debt issuance costs	—	(12.9)
Proceeds from issuance of common stock	31.0	83.3
Tax withholding on vested equity awards	(16.2)	(12.4)


Net cash provided by financing activities of continuing operations	14.4	341.0
Net cash provided by financing activities of discontinued operations	—	—
Cash provided by financing activities	14.4	341.0
Effects of foreign exchange changes on cash and cash equivalents	(0.2)	(0.2)
Net change in cash and cash equivalents	(177.5)	337.3
Cash and cash equivalents, beginning of period	500.5	118.9
Cash and cash equivalents, end of period	$323.0	$456.2

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

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CREE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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Note 1 – Basis of Presentation and New Accounting Standards

Overview

Cree, Inc. (the Company) is an innovator of wide bandgap ~~semiconductor~~semiconductors, focused on silicon carbide and gallium nitride materials, products for power and radio-frequency (RF) applications and specialty lighting-class light emitting diode (LED) products. The Company's silicon carbide and gallium nitride (GaN) materials and products are targeted for applications such as transportation, power supplies, inverters, wireless systems, and the Company's LEDs are targeted for indoor and outdoor lighting, electronic signs and signals and video displays.

The ~~Company's~~ Company operates in 2 reportable segments:

•Wolfspeed ~~segment's products consist~~, which consists of silicon carbide ~~(SiC)~~ and ~~gallium nitride (GaN)~~GaN materials, power devices and RF devices based on ~~silicon (Si) and~~ wide bandgap semiconductor ~~materials.~~materials and silicon. The Company's materials products and power devices are used in ~~solar,~~ electric vehicles, motor drives, power supplies, solar and transportation applications. The Company's materials products and RF devices are used in military communications, radar, satellite and telecommunication applications.

~~The Company's~~ •LED Products ~~segment's products consist~~, which consists of LED chips and LED components. The Company's LED products enable its customers to develop and market LED-based products for lighting, video screens, automotive and specialty lighting applications.

~~In addition,~~Previously, the Company ~~designs, manufactures~~designed, manufactured and ~~sells~~sold LED lighting fixtures and lamps for the commercial, industrial and consumer markets. The Company ~~refers~~referred to these product lines as the Lighting Products business unit. As discussed in Note 2, “Discontinued Operations,” on ~~March 14,~~May 13, 2019, the Company ~~executed a definitive agreement to sell~~sold its Lighting Products business unit to IDEAL Industries, ~~Inc~~Inc. (IDEAL). As a result, the Company has classified the results of the Lighting Products business unit, which previously was identified as the Lighting Products segment, as discontinued operations in its consolidated statements of (loss) income for all periods presented. Additionally, the related assets and liabilities associated with the discontinued operations are classified as held for sale in the consolidated balance sheets. Unless otherwise noted, discussion within these notes to the consolidated financial statements relates to the Company's continuing operations.

The majority of the Company's products are manufactured at its production facilities located in North Carolina, California, Arkansas ~~Wisconsin~~ and China. The Company also uses contract manufacturers for certain products and aspects of product fabrication, assembly and packaging. The Company operates research and development facilities in North Carolina, Arizona, Arkansas, California and China (including Hong Kong).

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

~~The Company's two reportable segments are:~~

~~Wolfspeed~~

~~LED Products~~

~~For financial results by reportable segment, please refer to Note 14, "Reportable Segments."~~

Basis of Presentation

The consolidated financial statements presented herein have been prepared by the Company and have not been audited. In the opinion of management, all normal and recurring adjustments necessary to fairly state the consolidated financial position, results of operations, comprehensive ~~(loss) income,~~loss, shareholders' equity and cash flows at March ~~31, 2019,~~29, 2020, and for all periods presented, have been made. All material intercompany accounts and transactions have been eliminated. The consolidated balance sheet at June ~~24, 2018~~30, 2019 has been derived from the audited financial statements as of that date.

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June ~~24, 2018~~30, 2019 (fiscal ~~2018)~~2019). The results of operations for the three and nine months ended March ~~31, 2019~~29, 2020 are not necessarily indicative of the operating results that may be attained for the entire fiscal year ending June ~~30, 2019~~28, 2020 (fiscal ~~2019)~~2020). Additionally, the impact of the COVID-19 pandemic to the results of operations is uncertain. Historical periods presented include reclassifications to reflect discontinued operations (see Note 2)2, "Discontinued Operations").

The preparation of consolidated financial statements in conformity with 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. Actual amounts 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 outbreak as of March 29, 2020 and through the date of this Quarterly 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, valuation allowances for tax assets and the ability to estimate an annual effective tax rate. While the assessments resulted in no material impacts to the consolidated financial statements as of and for the quarter

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ended March 29, 2020, the Company believes the full impact of the outbreak remains uncertain and will continue to assess if ongoing developments related to the outbreak may cause future material impacts to our consolidated financial statements.

The Company ~~has identified an error pertaining to the amounts presented as currency translation loss~~revised net cash provided by operating activities and ~~unrealized gain on available-for-sale securities in the previously reported Consolidated Statements of Comprehensive Loss~~net cash provided by financing activities for the ~~three and~~ nine months ended March ~~25, 2018. As a result,~~31, 2019 to correct the presentation of tax withholding for stock option exercises. The Company ~~has revised the amounts for the three and nine months ended March 25, 2018 to reflect a currency translation gain of $0.8~~increased net cash provided by operating activities by $12.4 million and ~~$2.0 million, and~~decreased net ~~unrealized loss on available-for-sale securities of $2.3 million and $6.0 million, net of tax benefit, respectively.~~cash provided by financing activities by the same amount. The Company concluded ~~that these errors were~~this error was not material individually or in the aggregate to any of the periods impacted.

Certain prior period amounts related to the Lighting Products business unit in the accompanying statements of cash flows have been reclassified to conform to the current year presentation. These reclassifications pertain to the presentation of discontinued operations within operating, investing and financing activities. This reclassification did not impact cash provided by (used in) operating, investing, or financing activities.

Recently ~~Issued~~Adopted Accounting Pronouncements ~~Adopted~~

~~Nonemployee Stock Compensation~~Leases

In June 2018, the FASB issued ASU 2018-07: Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The ASU applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The Company early adopted this standard in the second quarter of fiscal 2019. There was no material impact upon adoption of this standard.

~~Fair Value Measurement Disclosure~~

In August 2018, the FASB issued ASU 2018-13: Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The ASU modifies the disclosure requirements required for fair value measurements. The Company early adopted this standard in the first quarter of fiscal 2019.

~~Cloud Computing Arrangements~~

In August 2018, the FASB issued ASU 2018-15: Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The ASU allows companies to capitalize implementation costs incurred in a hosting arrangement that is a service contract over the term of the hosting arrangement, including periods covered by renewal options that are reasonably certain to be exercised. The Company early adopted this standard in the first quarter of fiscal 2019. There was no significant impact on the financial statements.

~~Revenue from Contracts with Customers~~

~~In May 2014,~~February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09: Revenue from Contracts with Customers (Topic 606). The FASB has subsequently issued multiple ASUs that amend and clarify the guidance in Topic 606. The ASU establishes a principles-based approach for accounting for revenue arising from contracts with customers and supersedes existing revenue recognition guidance. The ASU provides that an entity should apply a five-step approach for recognizing revenue, including (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. Also, the entity must provide various disclosures concerning the nature, amount and timing of revenue and cash flows arising from contracts with customers. The Company ado~~pted this standard on June 25, 2018. The cumulative effect of this adjustment recorded to beginning retained earnings as of June 25,~~ 2018 was $10.3 million, and the Company did not recognize a discrete tax impact related to the opening deferred tax balance as of June 25, 2018 due to the full U.S. valuation allowance. The Company recognized a loss of revenue of approximately $1.6 million for the nine months ended March 31, 2019, and expects the ongoing effect to be immaterial to the consolidated financial statements. See Note 3, "Revenue Recognition," for discussion of the impacted financial statement line items.

~~Goodwill Impairment Testing~~

In January 2017, the FASB issued ASU No. 2017-04: Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU simplifies the manner in which an entity is required to test for goodwill impairment by eliminating Step 2 from the goodwill impairment test. Additionally, the ASU removes the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to continue to perform Step 1 of the goodwill impairment test. The Company early adopted this standard in the third quarter of fiscal 2018.

~~Recently Issued Accounting Pronouncements Pending Adoption~~

~~Leases~~

~~In February 2016, the FASB issued ASU No.~~ 2016-02: Leases (Topic 842) (ASC 842), and ASU 2018-10: Codification Improvements to ~~Topic~~ASC 842, Leases. ~~The FASB has subsequently issued multiple ASUs, which amend and clarify the guidance in Topic 842.~~ These ASUs require that a lessee recognize in its statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease ~~term.~~term and requires enhanced disclosures about an entity’s leasing arrangements. The ~~asset will be based~~Company adopted this standard on July 1, 2019, under the ~~liability, subject~~modified retrospective transition approach with the cumulative effect of application recognized at the effective date, without adjustment to ~~adjustment, such as~~prior comparative periods. The Company elected to utilize the transition package of practical expedients that allows the Company to not reassess (1) whether any expired or existing contracts are leases, or contain leases, (2) the lease classification for any expired or existing leases, and (3) initial direct ~~costs. For~~costs for any existing leases. Further, the Company elected the practical expedient to not separate lease and non-lease components for all leases and account for the combined lease and non-lease components as a single lease component. The Company also made an accounting policy election to exclude leases with aan initial term of 12 months or less from the consolidated balance sheets.

The adoption of the new standard resulted in the recognition of $12.2 million of lease liabilities with corresponding right-of-use assets of $12.3 million as of July 1, 2019. As required, the right-of-use assets include the effect of reclassifying certain balances including deferred and prepaid rent, a ~~lessee~~portion of facilities-related restructuring accrual reserves, and a favorable lease intangible asset previously recognized in connection with an acquisition. The Company did not have a cumulative-effect adjustment to retained earnings as a result of the adoption of the new standard. The standard did not materially impact the Company's results from operations and had no impact on cash flows. See Note 4, "Leases," for additional disclosures, as required by the new standard.

The reported results as of and for the three and nine months ended March 29, 2020 reflect the application of the new accounting guidance, while the reported results for prior periods have not been adjusted and continue to be reported in accordance with the Company's historical accounting under ASC 840, Leases.

Accounting Pronouncements Pending Adoption

Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU introduces a new accounting model known as Current Expected Credit Losses (“CECL”). CECL requires earlier recognition of credit losses, while also providing additional transparency about credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses for receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. This model replaces the multiple existing impairment models in current GAAP, which generally require that a loss be incurred before it is recognized. The new standard will also apply to receivables arising from revenue transactions such as contract assets and accounts receivables. There are other provisions within the standard affecting how impairments of other financial assets may be recorded and presented, as well as expanded disclosures. The Company will adopt this standard on June 29, 2020 and is currently evaluating the impact on its consolidated financial statements.

Income Taxes

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In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The ASU also improves consistent application and simplifies other areas of Topic 740 by clarifying and amending existing guidance. Early adoption is permitted, ~~to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. For income statement purposes, leases are still required to be classified~~provided that the Company reflects any adjustments as ~~either operating or finance. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. The effective date will be the first quarter~~ of the ~~Company's fiscal year ending~~beginning of the annual period that includes the interim period for which such early adoption occurs. Additionally, the Company must adopt all the amendments in the same period if early adoption is elected. The Company will adopt this standard on or before June 28, ~~2020, using the modified retrospective method. The Company is currently analyzing the~~2021 and does not expect this standard to have a material impact ~~of this new pronouncement.~~on its consolidated financial statements.

Note 2 – Discontinued Operations

On ~~March 14,~~May 13, 2019, the Company ~~entered into a Purchase Agreement (the Purchase Agreement) with IDEAL. The transaction, is targeted to close by~~completed the ~~end~~sale of ~~Cree's fiscal year 2019, subject to customary closing conditions and governmental approvals.~~

~~Pursuant to the Purchase Agreement, the Company will sell to IDEAL, and IDEAL will purchase from the Company,~~(a) certain manufacturing facilities and equipment, inventory, intellectual property rights, contracts, and real estate of the Company ~~comprising~~used by the ~~Company’s~~Company's Lighting Products business unit, which includes ~~the~~ LED lighting fixtures, lamps and corporate lighting solutions ~~business~~ for commercial, industrial and consumer applications, and (b) all of the issued and outstanding equity interests of E-conolight LLC (E-conolight), Cree Canada Corp. and Cree Europe S.r.l., each a wholly owned subsidiary of the Company (collectively, the Lighting Products ~~business),~~business unit) to IDEAL, ~~will also assume~~pursuant to the Purchase Agreement, dated March 14, 2019, as amended, between the Company and IDEAL (the Purchase Agreement). The Company retained certain liabilities ~~related to~~associated with the Lighting Products ~~business.~~business unit arising prior to the closing of the sale. The Lighting Products business unit represented ~~all of~~ the Lighting Products segment disclosed in ~~our~~the Company's historical financial statements.

The aggregate ~~consideration paid for~~net proceeds from the sale of the Lighting Products business ~~will consist of $225~~unit was $219.0 million in cash, which is subject to certain ~~adjustments, and~~adjustments. Additionally, the Company is entitled to an earnout payment subject to the future performance of the Lighting Products ~~business.~~business unit. In connection with the transaction, the Company and IDEAL ~~will also enter~~entered into certain ancillary and related agreements, including (i) an Intellectual Property Assignment and License Agreement, which ~~will assign~~assigned to IDEAL certain intellectual property owned by the Company and ~~license~~licensed to IDEAL certain additional intellectual property owned by the Company; (ii) a Transition Services Agreement (the TSA), which is designed to ensure a smooth transition of the Lighting Products business unit to IDEAL; (iii) an LED Supply Agreement (the LED Supply Agreement), pursuant to which the Company will supply IDEAL with certain LED chip and component products for three years; and (iv) a Real Estate License Agreement, which will allow IDEAL to use certain premises owned by the Company to conduct certain operations of the Lighting Products business unit after closing. The Company recognized a loss on the sale of $66.2 million.

The Company has classified the results of the Lighting Products business unit as discontinued operations, in the Company’s consolidated statements of (loss) income for all periods presented. The Company ceased recording depreciation and amortization of long-lived assets of the Lighting Products business upon classification as discontinued operations in March 2019. Additionally, the related assets and liabilities associated with the discontinued operations are classified as held for sale in the consolidated balance sheets. The assets and liabilities held for sale as of March 31, 2019 are classified as current in the consolidated balance sheet as the Company expects the transaction to close and proceeds to be collected within one year.

~~The following table presents the financial~~ results of ~~the Lighting Products business unit as loss from discontinued operations, net of income taxes in the Company's consolidated statements of (loss) income (in thousands):~~

Three Months Ended Nine Months Ended
March 31, 2019 March 25, 2018 March 31, 2019 March 25, 2018
Revenue, net
$109,386

$130,759

$376,008

$425,100
Cost of revenue, net 82,490
106,564
287,553
347,037
Gross profit 26,896
24,195
88,455
78,063
Total operating expenses 231,937
286,717
306,350
366,375
Non-operating income 197
348
497
1,068
Loss from discontinued operations before income taxes (204,844 ) (262,174 ) (217,398 ) (287,244 )
Income tax expense (benefit) 576
(31,804 ) 687
(28,177 )
Loss from discontinued operations, net of income taxes
($205,420 )
($230,370 )
($218,085 )
($259,067 )

~~Additionally, the Company recorded a $197.6 million impairment charge on assets held for sale,~~ which ~~includes goodwill of $90 million,~~ for the three and nine months ended March 31, 2019 ~~and a $247.5 million goodwill impairment charge~~are as follows:


	Three months ended	Nine months ended
(in millions of U.S. Dollars)	March 31, 2019	March 31, 2019
Revenue, net	$109.4	$376.0
Cost of revenue, net	82.5	287.5
Gross profit	26.9	88.5
Operating expenses:
Research and development	8.8	27.4
Sales, general and administrative	21.2	68.2
Amortization or impairment of acquisition-related intangibles	2.0	9.1
Goodwill impairment charges	197.6	197.6
Loss on disposal or impairment of long-lived assets	1.8	2.1
Other operating expense	0.5	1.9
Operating loss	(205.0)	(217.8)
Non-operating income	(0.2)	(0.5)


Loss before income taxes	(204.8)	(217.3)
Income tax expense	0.6	0.7
Net loss	($205.4)	($218.0)

The Company did not have any discontinued operations activity for the three and nine months ended March ~~25, 2018.~~

29, 2020.

The ~~following table presents~~Company recognized $2.5 million and $8.1 million in administrative fees for the ~~assets~~three and ~~liabilities related~~nine months ended March 29, 2020 relating to the ~~Lighting Products business unit held for sale (in thousands):~~

March 31, 2019 June 24, 2018
Assets Held for Sale
Accounts receivable, net
$59,929

$67,477
Prepaid and other current assets 7,264
11,059
Income tax receivable 494
449
Inventories 143,104
144,379
Property and equipment, net 71,226
72,246
Deferred tax assets 538
685
Intangible assets, net 133,358
174,239
Goodwill —
90,326
Other long term assets 203
196
Valuation allowance on disposal group (75,334 )
—
Total Assets Held for Sale*
$340,782

$561,056

Liabilities Held for Sale
Accounts payable
$34,201

$45,953
Accrued salaries and wages 18,661
11,581
Other accrued liabilities 21,122
24,248
Income tax payable —
271
Other long term liabilities 16,371
21,505
Total Liabilities Held for Sale*
$90,355

$103,558

*AmountsTSA, of which $1.7 million are included in ~~the June 24, 2018 column are classified as current and long-term~~accounts receivable, net in the consolidated balance ~~sheet.~~sheets as of

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March 29, 2020. These fees were recorded as a reduction of sales, general and administrative expense in the consolidated statements of operations.

The ~~following table presents~~Company recognized $3.2 million and $9.7 million in revenue for the ~~cash flow~~three and nine months ended March 29, 2020 related to the LED Supply Agreement, of which $0.8 million was included in accounts receivable, net in the ~~Lighting Products business unit (in thousands):~~consolidated balance sheets as of March 29, 2020. Additionally, the Company recorded a contract liability of $10.5 million relating to the LED Supply Agreement as of March 29, 2020. The contract liability is recognized in contract liabilities and other long-term liabilities on the consolidated balance sheets.

Nine Months Ended
March 31, 2019 March 25, 2018
Net cash provided by discontinued operating activities
$9,294

$49,047
Net cash used in discontinued investing activities (15,356 )
(12,577 )

Note 3 – Revenue Recognition

Effective June 25, 2018, the Company adopted ASC Topic 606: “Revenue from Contracts with Customers," and all related accounting standard updates, using the modified retrospective method applied to contracts not completed as of June 25, 2018. Results for all reporting periods subsequent to adoption are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported inIn accordance with ~~the Company's historic revenue recognition policy under~~ ASC ~~Topic 605: “Revenue Recognition."~~

~~The~~606, the Company follows a five-step approach defined by the new standard 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.

Master supply or distributor agreements are in place with the majority of the Company's customers and contain terms and conditions including, but not limited to payment, delivery, incentives and warranty. These agreements typically do not require minimum purchase commitments. In the case an agreement is not present, the Company considers a purchase order, which is governed by the Company’s standard terms and conditions, to be a contract.

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.

Pricing terms are negotiated independently on a stand-alone basis. Revenue is measured based on the amount of net consideration the Company expects to be entitled to 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 or rebates, 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. The Company offers product warranties and establishes liabilities for estimated warranty costs based upon historical experience and specific warranty provisions. Warranty liability estimates are included in cost of revenue in the Company’s Consolidated Statements of (Loss) Income, and further detail is presented in Note 13, "Commitments and Contingencies."

Contract liabilities primarily include various rights of return and customer deposits, as well as deferred revenue, price protection guarantees ~~customer deposits~~ and ~~various rights of return.~~the Company's liability under the LED Supply Agreement. Contract liabilities were ~~$74.6~~$86.1 million as of March 29, 2020 and ~~$47.1~~$80.4 million ~~for the periods ended March 31, 2019 and~~as of June ~~24, 2018, respectively, and~~30, 2019. The increase was primarily due to increased net customer deposits. Contract liabilities are recorded within accrued contract liabilities and other long-term liabilities on the balance sheet. ~~These items~~Before the adoption of ASC 606, liabilities relating to various rights of return were ~~previously presented~~recorded as a ~~reduction of~~deduction to accounts receivable on the consolidated balance sheet. The adjustments do not impact net cash used in operating activities; however, they do impact the changes in operating assets and liabilities for the related accounts within the disclosure of operating activities on the statement of cash flowsreceivable.

~~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 due within 12 months of 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 (Loss) Income.

~~Opening Balance Adjustments~~

~~The following table summarizes the impacts of adopting the new revenue standard on the Company's unaudited consolidated balance sheet (in thousands):~~

Balance as of June 24, 2018 Adjustments Opening Balance as of June 25, 2018
Assets:
Accounts Receivable
$86,398

$43,355

$129,753
Liabilities:
Accrued Contract Liabilities —
(42,675 ) (42,675 )
Stockholders' Equity:
Accumulated Deficit (482,710 ) 10,299
(472,411 )

~~Revenue Disaggregation~~

~~The following table presents disaggregated~~Disaggregated revenue by geography ~~(in thousands):~~

Three Months Ended Nine Months Ended
March 31, 2019 March 25, 2018 March 31, 2019 March 25, 2018
United States
$67,643

$53,796

$194,463

$161,446
China 83,448
86,700
289,957
279,017
Europe 63,238
46,788
197,168
112,656
Other 59,721
37,916
147,141
106,009
Total Revenue
$274,050

$225,200

$828,729

$659,128

is presented in Note ~~4 – Acquisition~~

~~Infineon Technologies AG Radio Frequency Power Business~~

On14, "Reportable Segments". For the three and nine months ended March ~~6, 2018,~~29, 2020, the Company ~~acquired certain assets~~recognized revenue of ~~the Infineon Technologies AG (Infineon) Radio Frequency Power Business (RF Power), pursuant to an asset purchase agreement with Infineon~~$1.1 million and $3.3 million that was included in ~~exchange for a base purchase price~~contract liabilities as of $429 million, subject to certain adjustments. As part of the agreement, the Company paid $427 million of cash on the purchase date and agreed to purchase certain additional non-U.S. property and equipmentJune 30, 2019. The amount recognized primarily related to the ~~RF Power business from Infineon for approximately $2 million, which~~recognition of contingent liabilities related to the LED Supply Agreement and deferred revenue. Revenue recognized related to performance obligations that were satisfied or partially satisfied in previous periods was ~~completed during the fourth quarter of fiscal 2018. The acquisition allows the Company to expand its product portfolio into the wireless market.~~

The acquisition of the RF Power business from Infineon was accounted for as a business combination. The assets, liabilities and operating results of the RF Power business have been included in the Company's consolidated financial statements from the date of acquisition. Additionally, the RF Power business's results from operations are reported as part of the Company's Wolfspeed segment. The results of the RF Power business are reflected in the Company's Consolidated Statements of (Loss) Incomenot material for the three and nine months ended March ~~31, 2019.~~29, 2020.

Note 4 – Leases

The Company primarily leases manufacturing, office and warehousing space. Lease agreements frequently include renewal provisions and require the Company to pay real estate taxes, insurance and maintenance costs. Variable costs include lease payments that were volume or usage-driven in accordance with the use of the underlying asset, as well as non-lease components incurred with respect to actual terms rather than contractually fixed amounts.

The Company's finance lease obligations primarily relate to Wolfspeed manufacturing space in Malaysia.

Accounting Policy

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 Company 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.

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 1 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 ~~price has been allocated~~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 ~~acquired~~are amortized on a straight-line basis over the shorter of the useful life of the asset or the lease term. 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.

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The Company has agreements with lease and non-lease components, which are accounted for as a single lease component. 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 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.

Balance Sheet

Lease assets and liabilities ~~assumed based on their estimated fair values~~as of March 29, 2020, and the corresponding balance sheet classifications, are as follows (in ~~thousands)~~millions of U.S. Dollars):



~~Assets:~~Operating Leases:
~~Inventories~~ Right-of-use asset ⁽¹⁾		$~~22,500~~12.9
~~Property and equipment~~	~~11,722~~
~~Other assets~~ Current lease liability ⁽²⁾	~~433~~	4.4
~~Intangible assets~~ Non-current lease liability ⁽³⁾	~~149,000~~	8.1
~~Goodwill~~Total operating lease liabilities	~~248,957~~	12.5
~~Total Assets~~	~~432,612~~
~~Liabilities assumed:~~Finance Leases:
~~Accounts payable~~ Finance lease assets ⁽⁴⁾	~~(39~~	)3.5
~~Accrued expenses and liabilities~~	~~(3,411~~	)
~~Total~~Current portion of finance lease liabilities ~~assumed~~	~~(3,450~~	)0.6
~~Net assets acquired~~Finance lease liabilities, less current portion		~~$429,162~~2.2
Total finance lease liabilities		2.8

~~The amortization periods for intangible~~⁽¹⁾ Within other assets ~~acquired are as follows (in thousands, except for years):~~on the consolidated balance sheets.

⁽²⁾ Within other current liabilities on the consolidated balance sheets.

Asset Amount Estimated Life in Years
Lease agreement
$1,000
10
Customer relationships 92,000
15
Developed technology 44,000
14
Non-compete agreements 12,000
4
Total identifiable intangible assets
$149,000

⁽³⁾ Within other long-term liabilities on the consolidated balance sheets.

The weighted average amortization periods for intangibles was 13.8 years. Goodwill largely consists of manufacturing and other synergies of the combined companies, and the value of the assembled workforce. For tax purposes, in accordance with Internal Revenue Code Section 197, $245 million of goodwill will be amortized over 15 years.

The Company incurred approximately $3.8 million of total transaction costs related to the acquisition, of which approximately $0.1 million were recognized in the first and second quarters of fiscal 2019 in accordance with U.S. GAAP.

~~Supplemental Pro Forma Financial Information~~

The following unaudited pro forma consolidated financial information reflects the results of continuing operations of the Company as if the RF Power transaction had occurred at the beginning of the fiscal year prior to the fiscal year of acquisition, after giving effect to certain purchase accounting adjustments (in thousands, except per share amounts):

Three Months Ended Nine Months Ended
March 25, 2018 March 25, 2018
Revenue $240,180 $724,547
Net (loss) income (14,485 ) 3,802
(Loss) earnings per share, basic
($0.14 )
$0.04
(Loss) earnings per share, diluted
($0.14 )
$0.04

These amounts have been calculated after applying the Company's accounting policies and adjusting the results of the RF Power business to give effect to events and transactions that are directly attributable to the RF Power business transactions, including the elimination of sales by the Company to the RF Power business prior to acquisition, additional depreciation and amortization that would have been charged assuming the fair value adjustments primarily to⁽⁴⁾ Within property and equipment, net on the consolidated balance sheets.

Statement of Operations

Operating lease expense was $1.5 million and ~~intangible assets had been applied at the beginning of fiscal 2017, together with the consequential tax effects. Excluded from the pro forma net income and the earnings per share amounts~~$4.5 million for ~~the~~ three ~~months~~ and nine months ended March ~~25, 2018 are one-time acquisition costs~~29, 2020. Short-term lease expense, variable lease expense and ~~foreign currency gains attributable to~~lease income were immaterial for the ~~RF Power business of~~three and nine months ended March 29, 2020.

Finance lease amortization was $0.2 million and interest expense was less than $0.1 ~~million. This supplemental pro forma~~million for the three and nine months ended March 29, 2020.

Cash Flows

Cash flow information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been made at the beginning of fiscal 2017, nor is it indicative of any future results.

~~Arkansas Power Electronics International, Inc.~~

On July 8, 2015, the Company closed on the acquisition of Arkansas Power Electronics International, Inc. (APEI), a global leader in power modules and power electronics applications, pursuant to a merger agreement with APEI and certain shareholders of APEI, whereby the Company acquired allconsisted of the ~~outstanding share capital~~following:


			Nine months ended
(in millions of U.S. Dollars)			March 29, 2020
Cash used in operating activities:
Cash paid for operating leases			$4.8
Cash paid for interest portion of financing leases ⁽¹⁾			—
Cash used in financing activities:
Cash paid for principal portion of finance leases			0.4
Non-cash operating activities:
Operating lease additions due to adoption of ASC 842			12.2
Operating lease additions and modifications, net			4.7
Finance lease additions			3.3

⁽¹⁾ Less than $0.1 million for the nine months ended March 29, 2020.

Table of ~~APEI~~Contents

Lease Liability Maturities

Maturities of operating and finance lease liabilities as of March 29, 2020 were as follows (in millions of U.S. Dollars):


Fiscal Year Ending	Operating Leases	Finance Leases	Total
June 28, 2020 (remainder of fiscal 2020)	$1.6	$0.4	$2.0
June 27, 2021	4.4	0.4	4.8
June 26, 2022	3.4	0.4	3.8
June 25, 2023	1.8	0.4	2.2
June 30, 2024	0.9	0.4	1.3
Thereafter	1.2	1.1	2.3
Total lease payments	13.3	3.1	16.4
Imputed lease interest	(0.8)	(0.3)	(1.1)
Total lease liabilities	$12.5	$2.8	$15.3

Supplemental Disclosures


	Operating Leases		Finance Leases
Weighted average remaining lease term (in months)	43		80
Weighted average discount rate	3.59	%	3.40	%

As previously disclosed in exchange for a base purchase price of $13.8 million, subject to certain adjustments. In addition, if certain goals were achieved over the subsequent two years, additional cash payments totaling up to $4.6 million were to be made to the former APEI shareholders. Payments totaling $2.7 million were made to the former APEI shareholders in July 2016 based on achievement of the first-year goals. The final payment of $1.9 million was made in July 2017 based on achievement of the second-year goals. In connection with this acquisition, APEI became a wholly owned subsidiary of the Company, renamed Cree Fayetteville, Inc. (Cree Fayetteville). Cree Fayetteville is not considered a significant subsidiary of the Company and its results from operations are reported as part of the Company's ~~Wolfspeed segment.~~Annual Report on Form 10-K for the year ended June 30, 2019 and under the previous lease accounting standard ASC 840, the aggregate future non-cancelable minimum rental payments on its operating leases as of June 30, 2019, were as follows:


Fiscal Years Ending			(in millions of U.S. Dollars)
June 28, 2020			$4.1
June 27, 2021			2.3
June 26, 2022			1.2
June 25, 2023			0.7
June 30, 2024			—
Thereafter			—
Total future minimum rental payments			$8.3

Note 5 – Financial Statement Details

Accounts Receivable, net

~~The following table summarizes the components of accounts~~Accounts receivable, net ~~(in thousands):~~consisted of the following:


(in millions of U.S. Dollars)							(in millions of U.S. Dollars)	March 29, 2020	June 30, 2019
Billed trade receivables							Billed trade receivables	$156.7	$125.8
Unbilled contract receivables							Unbilled contract receivables	1.0	0.7
Royalties							Royalties	3.7	2.8
								161.4	129.3

	March 31, 2019			June 24, 2018
Billed trade receivables		$146,883			$128,858
Unbilled contract receivables	4,023			966
	150,906			129,824
Allowance for sales returns, discounts and other incentives	—			(42,675		)
Allowance for bad debts	(516		)	(751		)	Allowance for bad debts	(0.4)	(0.4)
Accounts receivable, net		$150,390			$86,398		Accounts receivable, net	$161.0	$128.9

Inventories

~~The following table summarizes~~

Table of Contents

Inventories consisted of the ~~components~~following:


(in millions of U.S. Dollars)	March 29, 2020	June 30, 2019
Raw material	$45.0	$42.4
Work-in-progress	92.0	101.1
Finished goods	33.1	43.9
Inventories	$170.1	$187.4

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of ~~inventories (in thousands):~~the following:

March 31, 2019 June 24, 2018
Raw material
$37,580

$35,092
Work-in-progress 95,882
86,193
Finished goods 39,331
30,351
Inventories
$172,793

$151,636


(in millions of U.S. Dollars)	March 29, 2020	June 30, 2019
Accounts payable, trade	$90.8	$90.7
Accrued salaries and wages	59.1	70.9
Accrued expenses	31.2	34.0
Other	3.7	5.3
Accounts payable and accrued expenses	$184.8	$200.9

Other ~~Current Liabilities~~Operating Expense

~~The following table summarizes~~Other operating expense consisted of the ~~components of other current liabilities (in thousands):~~following:

March 31, 2019 June 24, 2018
Accrued taxes
$4,943

$6,414
Accrued professional fees 12,419
4,901
Accrued warranty 1,241
1,399
Accrued other 1,869
6,566
Other current liabilities
$20,472

$19,280


	Three months ended			Nine months ended
(in millions of U.S. Dollars)	March 29, 2020	March 31, 2019	March 29, 2020	March 31, 2019
Factory optimization restructuring	$1.1	$—	$3.5	$—

Severance and other restructuring	—	—	0.8	2.6
Total restructuring costs	1.1	—	4.3	2.6
Project, transformation and transaction costs	7.0	10.1	20.4	10.7
Factory optimization start-up costs	2.1	—	5.0	—

Non-restructuring related executive severance	0.6	1.0	2.1	1.0

Other operating expense	$10.8	$11.1	$31.8	$14.3

Accumulated Other Comprehensive Income, net of taxes

~~The following table summarizes the components of accumulated~~Accumulated other comprehensive income, net of taxes, ~~(in thousands):~~consisted of the following:


(in millions of U.S. Dollars)	March 29, 2020	June 30, 2019
Currency translation gain	$9.5	$9.5
Net unrealized loss on available-for-sale securities	(1.7)	—
Accumulated other comprehensive income, net of taxes	$7.8	$9.5

Reclassifications Out of Accumulated Other Comprehensive Income

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March 31, 2019 June 24, 2018
Currency translation gain
$4,292

$5,075
Net unrealized loss on available-for-sale securities (1,738 ) (4,479 )
Accumulated other comprehensive income, net of taxes
$2,554

$596
The Company reclassified a net gain of $1.2 million and $1.3 million out of accumulated other comprehensive income for the three and nine months ended March 29, 2020 and reclassified a net loss of $0.0 million and $0.1 million out of accumulated other comprehensive income for the three and nine months ended March 31, 2019. Amounts were reclassified to non-operating expense, net on the consolidated statements of operations.

Non-Operating ~~(Expense) Income,~~Expense, net

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

Three Months Ended Nine Months Ended
March 31, 2019 March 25, 2018 March 31, 2019 March 25, 2018
Foreign currency (loss) gain, net
($613 )
$3,530

($1,107 )
$4,386
Loss on sale of investments, net (25 ) (133 ) (132 ) (85 )
(Loss) gain on equity investment, net (3,898 ) (13,968 ) (12,457 ) 7,510
Interest (expense) income, net (3,731 ) 739
(9,763 ) 3,354
Other, net (173 ) (168 ) (236 ) (223 )
Non-operating (expense) income, net
($8,440 )
($10,000 )
($23,695 )
$14,942


	Three months ended			Nine months ended
(in millions of U.S. Dollars)	March 29, 2020	March 31, 2019	March 29, 2020	March 31, 2019
Foreign currency loss (gain), net	$0.3	$0.5	($0.8)	$1.1
(Gain) loss on sale of investments, net	(1.2)	—	(1.3)	0.1
Gain on arbitration proceeding	(8.0)	—	(8.0)	—
Loss on equity investment, net	19.1	3.8	9.2	12.4
Interest expense	7.5	7.4	22.6	18.8
Interest income	(3.1)	(3.6)	(13.5)	(9.0)
Other, net	(0.1)	0.3	(0.4)	0.3
Non-operating expense, net	$14.5	$8.4	$7.8	$23.7

The change in ~~(loss) gain~~loss on equity investment, net is due to the ~~decrease~~increase in the Lextar Electronics Corporation (Lextar) stock price. The gain on arbitration proceeding is due to an award from an arbitration proceeding related to defective inventory.

~~Reclassifications Out~~Statements of ~~Accumulated Other Comprehensive Income,~~Cash Flows - non-cash activities


	Nine months ended
Non-cash operating activities	March 29, 2020	March 31, 2019
Lease asset and liability additions ⁽¹⁾	$15.8	$—
Lease asset and liability modifications, net	4.4	—

⁽¹⁾ $12.2 million relates to the increase of ~~taxes~~right-of-use assets and matching lease liabilities as a result of adopting ASC 842. See Note 4, "Leases", for further information.

~~The following table summarizes the amounts reclassified out~~Accrued property and equipment as of ~~accumulated other comprehensive income, net of taxes (in thousands):~~March 29, 2020 and March 31, 2019 was $6.8 million and $15.2 million, respectively.

Accumulated Other Comprehensive Income Component Amount Reclassified Out of Accumulated Other Comprehensive Loss Affected Line Item in the Consolidated Statements of (Loss) Income
Three Months Ended Nine Months Ended
March 31, 2019 March 25, 2018 March 31, 2019 March 25, 2018
Net unrealized loss on available-for-sale securities, net of taxes
($25 )
($133 )
($132 )
($85 ) Non-operating (expense) income, net
Less income tax effect —
—
—
—
Income tax expense (benefit)
Total reclassifications
($25 )
($133 )
($132 )
($85 )

Note 6 – Investments

Investments consist of municipal bonds, corporate bonds, U.S. agency securities, U.S. treasury securities, variable rate demand notes, commercial paper and certificates of deposit. All short-term investments are classified as available-for-sale. Other long-term investments consist of the Company's ownership interest in Lextar.

Table of Contents

~~The following tables summarize short-term~~Short-term investments ~~(in thousands):~~as of March 29, 2020 and June 30, 2019 consisted of the following:


	March 29, 2020
	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value
Municipal bonds	$74.3	$0.7	($0.2)	$74.8
Corporate bonds	315.3	0.9	(2.2)	314.0
U.S. agency securities	21.5	0.1	—	21.6
U.S. treasury securities	68.8	0.8	—	69.6
Non-U.S. certificates of deposit	31.8	0.7	—	32.5
U.S. certificates of deposit	5.2	—	—	5.2

Variable rate demand note	2.5	—	—	2.5
Commercial paper	9.7	—	—	9.7
Total short-term investments	$529.1	$3.2	($2.4)	$529.9

	June 30, 2019
	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value
Municipal bonds	$78.2	$0.4	($0.1)	$78.5
Corporate bonds	256.0	1.0	—	257.0
U.S. agency securities	25.6	—	—	25.6
U.S. treasury securities	92.4	0.1	—	92.5
Non-U.S. certificates of deposit	49.1	1.1	—	50.2
U.S. certificates of deposit	22.4	—	—	22.4
Variable rate demand note	16.9	—	—	16.9
Commercial paper	7.8	—	—	7.8

Total short-term investments	$548.4	$2.6	($0.1)	$550.9

March 31, 2019
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Municipal bonds
$96,029

$170

($297 )
$95,902
Corporate bonds 151,244
337
(274 ) 151,307
U.S. agency securities 4,689
1
(1 ) 4,689
U.S. Treasury securities 28,972
7
(18 ) 28,961
Non-U.S. certificates of deposit 50,277
782
—
51,059
U.S. certificates of deposit —
—
—
—
Commercial paper 1,193
—
—
1,193
Total short-term investments
$332,404

$1,297

($590 )
$333,111

June 24, 2018
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Municipal bonds
$110,198

$17

($939 )
$109,276
Corporate bonds 77,871
36
(1,150 ) 76,757
U.S. agency securities 3,922
—
(38 ) 3,884
U.S. Treasury securities —
—
—
—
Non-U.S. certificates of deposit 77,744
—
—
77,744
U.S. certificates of deposit 500
—
—
500
Commercial paper —
—
—
—
Total short-term investments
$270,235

$53

($2,127 )
$268,161

Table of Contents

The following tables present the gross unrealized losses and estimated fair value of the ~~Company's~~Company’s short-term investments, aggregated by investment type and the length of time that individual securities have been in a continuous unrealized loss ~~position (in thousands, except numbers of securities):~~position:


	March 31, 2019																March 29, 2020
	Less than 12 Months					Greater than 12 Months					Total						Less than 12 Months			Greater than 12 Months			Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss				Fair Value	Unrealized Loss	Fair Value	Unrealized Loss	Fair Value	Unrealized Loss
Municipal bonds		$2,406		$—			$68,677		($297	)		$71,083		($297	)	Municipal bonds	$20.6	($0.2)	$—	$—	$20.6	($0.2)
Corporate bonds	31,144		(17		)	32,930		(257		)	64,074		(274		)	Corporate bonds	213.0	(2.2)	—	—	213.0	(2.2)
U.S. agency securities	5,788		(1		)	—		—			5,788		(1		)	U.S. agency securities	2.0	—	—	—	2.0	—
U.S. Treasury securities	10,110		(2		)	3,907		(16		)	14,017		(18		)

Total		$49,448		($20	)		$105,514		($570	)		$154,962		($590	)	Total	$235.6	($2.4)	$—	$—	$235.6	($2.4)
Number of securities with an unrealized loss			54					85					139			Number of securities with an unrealized loss		263		—		263

	June 24, 2018																June 30, 2019
	Less than 12 Months					Greater than 12 Months					Total						Less than 12 Months			Greater than 12 Months			Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss				Fair Value	Unrealized Loss	Fair Value	Unrealized Loss	Fair Value	Unrealized Loss
Municipal bonds		$97,470		($861	)		$3,642		($78	)		$101,112		($939	)	Municipal bonds	$4.3	$—	$29.8	($0.1)	$34.1	($0.1)
Corporate bonds	61,453		(1,088		)	1,486		(62		)	62,939		(1,150		)	Corporate bonds	41.8	—	14.7	—	56.5	—
U.S. agency securities	3,884		(38		)	—		—			3,884		(38		)	U.S. agency securities	7.7	—	—	—	7.7	—
U.S. Treasury securities	—		—			—		—			—		—
U.S. treasury securities																U.S. treasury securities	2.0	—	3.9	—	5.9	—

Total		$162,807		($1,987	)		$5,128		($140	)		$167,935		($2,127	)	Total	$55.8	$—	$48.4	($0.1)	$104.2	($0.1)
Number of securities with an unrealized loss			151					6					157			Number of securities with an unrealized loss		46		47		93

The Company utilizes specific identification in computing realized gains and losses on the sale of investments. Realized gains of $1.2 million and $1.3 million for the three and nine month periods ended March 29, 2020 and realized losses ~~from~~of $0.0 million and $0.1 million for the ~~sale of investments~~three and nine month periods ended March 31, 2019 are included in non-operating ~~(expense) income, net~~expense in the consolidated statements of ~~(loss) income and unrealized~~operations. Unrealized gains and losses are included as a separate component of equity, net of tax, unless the loss is determined to be other-than-temporary.

The Company evaluates its investments for possible impairment or a decline in fair value below cost basis that is deemed to be other-than-temporary on a periodic basis. It considers such factors as the length of time and extent to which the fair value has been below the cost basis, the financial condition of the investee, and its ability and intent to hold the investment for a period of time that may be sufficient for an anticipated full recovery in market value. ~~Accordingly,~~The Company's unrealized losses as of March 29, 2020 are impacted significantly from negative market conditions surrounding the COVID-19 outbreak. Given the speed and frequency of continuously evolving developments with respect to this outbreak, the Company's believes the full extent of the outbreak is uncertain as of March 29, 2020. Due to the short-term nature of these losses and the Company's ability to satisfy current obligations using cash already on hand, which will allow the Company ~~considered declines~~to hold on to the investment for a period of time that may be sufficient for an anticipated full recovery in market value, the Company does not consider the decline in its investments to be ~~temporary in nature, and did not consider its securities to be~~ impaired as of March ~~31, 2019~~ or ~~June 24, 2018~~.29, 2020. The Company will continue to assess if ongoing developments related to the outbreak may cause these unrealized losses to become other-than-temporary.

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The contractual maturities of short-term investments as of March ~~31, 2019~~29, 2020 were as ~~follows (in thousands):~~follows:


	Within One Year	After One, Within Five Years	After Five, Within Ten Years	After Ten Years	Total
Municipal bonds	$15.8	$59.0	$—	$—	$74.8
Corporate bonds	158.7	155.3	—	—	314.0
U.S. agency securities	10.5	11.1	—	—	21.6
U.S. treasury securities	48.6	21.0	—	—	69.6
Non-U.S. certificates of deposit	31.5	1.0	—	—	32.5
U.S. certificates of deposit	5.2	—	—	—	5.2

Variable rate demand note	—	—	—	2.5	2.5
Commercial paper	9.7	—	—	—	9.7
Total short-term investments	$280.0	$247.4	$—	$2.5	$529.9

Within One Year After One, Within Five Years After Five, Within Ten Years
After Ten
Years
Total
Municipal bonds
$37,749

$58,153

$—

$—

$95,902
Corporate bonds 61,245
90,062
—
—
151,307
U.S. agency securities 3,988
701
—
—
4,689
U.S. Treasury securities 28,961
—
—
—
28,961
Non-U.S. certificates of deposit 51,059
—
—
—
51,059
Commercial paper 1,193
—
—
—
1,193
Total short-term investments
$184,195

$148,916

$—

$—

$333,111

Note 7 – Fair Value of Financial Instruments

Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches, including quoted market prices and discounted cash flows. U.S. GAAP also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability. The fair value hierarchy is categorized into three levels based on the reliability of inputs as follows:

•Level 1 - Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. 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, short-term investments and long-term investments. As of March ~~31,~~29, 2020 and June 30, 2019,, financial assets utilizing Level 1 inputs included money market funds and U.S. treasury ~~securities, and financial~~securities. Financial assets utilizing Level 2 inputs included municipal bonds, corporate bonds, ~~U.S. agency securities, U.S. treasury securities,~~ certificates of deposit, commercial paper, U.S. agency securities, variable rate demand notes and common stock of non-U.S. corporations. 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~~service’s consensus price, which is a weighted average price based on multiple sources. These sources determine prices utilizing market income models which factor in, where applicable, transactions of similar assets in active markets, transactions of identical assets in infrequent markets, interest rates, bond or credit default swap spreads and volatility. The Company did not have any financial assets requiring the use of Level 3 inputs as of March ~~31, 2019~~.29, 2020 and June 30, 2019.

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The following table sets forth financial instruments carried at fair value within the U.S. GAAP ~~hierarchy (in thousands):~~hierarchy:


	March 29, 2020							June 30, 2019
(in millions of U.S. Dollars)	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Assets:
Cash equivalents:
Money market funds	$68.2	$—	$—	$68.2	$95.0	$—	$—	$95.0

Corporate bonds	—	—	—	—	—	15.0	—	15.0
U.S. agency securities	—	11.6	—	11.6	—	18.8	—	18.8
U.S. treasury securities	—	—	—	—	2.5	—	—	2.5

Non-U.S. certificates of deposit	—	43.2	—	43.2	—	105.8	—	105.8
Commercial paper	—	—	—	—	—	1.0	—	1.0


Total cash equivalents	68.2	54.8	—	123.0	97.5	140.6	—	238.1
Short-term investments:
Municipal bonds	—	74.8	—	74.8	—	78.5	—	78.5
Corporate bonds	—	314.0	—	314.0	—	257.0	—	257.0
U.S. agency securities	—	21.6	—	21.6	—	25.6	—	25.6
U.S. treasury securities	69.6	—	—	69.6	92.5	—	—	92.5
U.S. certificates of deposit	—	5.2	—	5.2	—	22.4	—	22.4
Non-U.S. certificates of deposit	—	32.5	—	32.5	—	50.2	—	50.2
Commercial paper	—	9.7	—	9.7	—	7.8	—	7.8
Variable rate demand note	—	2.5	—	2.5	—	16.9	—	16.9

Total short-term investments	69.6	460.3	—	529.9	92.5	458.4	—	550.9
Other long-term investments:
Common stock of non-U.S. corporations	—	31.5	—	31.5	—	39.5	—	39.5

Total assets	$137.8	$546.6	$—	$684.4	$190.0	$638.5	$—	$828.5

Table of ~~the Tax Cuts and Jobs Act of 2017 (the Tax Legislation) during the three and nine months ended March 25, 2018.~~Contents

~~Discontinued Operations~~

As discussed above, we have classified the results of the Lighting Products business as discontinued operations in our consolidated statements of (loss) income for all periods presented. We ceased recording depreciation and amortization of long-lived assets of the Lighting Products business upon classification as discontinued operations in March 2019.

~~Loss from discontinued operations, net of tax, was $205.4 million and $218.1 million for the three and nine months ended March 31, 2019, respectively.~~ ~~Loss from discontinued operations, net of tax, was$230.4 million~~ ~~and $259.1 million for the three and nine months ended March 25, 2018.~~

Additionally, we recorded a $197.6 million impairment charge on assets held for sale for the three and nine months ended March 31, 2019 and a $247.5 million goodwill impairment charge for the three and nine months ended March 25, 2018.

Liquidity and Capital Resources

Overview

We require cash to fund our operating expenses and working capital requirements, including outlays for research and development, capital expenditures, strategic acquisitions and investments. Our principal sources of liquidity are cash on hand, marketable securities, cash generated from operations ~~proceeds from issuances of debt and equity securities~~ and availability under our line of credit. Our ability to generate cash from operations has been one of our fundamental strengths and has provided us with substantial flexibility in meeting our operating, financing and investing needs. We have a ~~$500~~$125 million line of credit as discussed in Note 9, “Long-term Debt,” in our consolidated financial statements included in Part I, Item 1 of this Quarterly Report. The purpose of this facility is to provide ~~short-term~~short term flexibility to optimize returns on our cash and investment portfolio while funding share repurchases, capital expenditures and other general business needs. Additionally, on April 21, 2020 we issued and sold a total of $575.0 million aggregate principal amount of 1.75% convertible senior notes (the 2026 Notes), as discussed in Note 16, "Subsequent Events," in our consolidated financial statements included in Part I, Item 1 of this Quarterly Report. The total net proceeds of the 2026 Notes was $561.4 million, of which we used $144.3 million to repurchase $150.2 million aggregate principal amount of our 2023 Notes. We expect to use the remainder of the net proceeds for general corporate purchases.

Based on past performance and current expectations, we believe our current working capital, availability under our line of credit ~~proceeds from the Note offering completed in August 2018~~ 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 our strong working capital position, we believe that we have the ability to continue to invest in further development of our products and, when necessary or appropriate, make selective acquisitions or other strategic investments to strengthen our product portfolio, secure key intellectual properties and/or expand our production capacity.

From time to time, we evaluate strategic opportunities, including potential acquisitions, joint ventures, divestitures, spin-offs or investments in complementary businesses, and we ~~anticipate continuing~~continue to make such evaluations. We may also access capital markets through the issuance of debt or additional shares of common stock in connection with the acquisition of complementary businesses or other significant assets or for other strategic opportunities.

The full extent to which COVID-19 may impact our results of operations or liquidity is uncertain. Currently, the local governments in the locations in which we operate have designated our Company as an essential business, but our operations have, 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 and LED industries, and the economies in which we operate. We anticipate our future results of operations, including the results for fiscal 2021, will be materially impacted by COVID-19, but at this time do expect the impact from the COVID-19 outbreak will have a material effect on our liquidity or financial position. However, given the speed and frequency of continuously evolving developments with respect to this pandemic, we cannot reasonably estimate the magnitude of the impact to our results of operations, and, if the outbreak continues on its current trajectory, such impacts could grow and become material to our liquidity or financial position. To the extent our customers and suppliers continue to be materially and adversely impacted by COVID-19, this could reduce the availability, or result in delays, of materials or supplies to or from us, which in turn could materially interrupt our business operations.

Liquidity

Our liquidity and capital resources ~~are~~ primarily ~~generated by~~depend on our cash flows from operations and our working capital. 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.

The following table presents the components of our cash conversion cycle:


	Three months ended
	March 29, 2020	June 30, 2019	Change
Days of sales outstanding ^(a)	53	34	19
Days of supply in inventory ^(b)	99	104	(5)
Days in accounts payable ^(c)	(73)	(72)	(1)
Cash conversion cycle	79	66	13

a)Days of sales outstanding (DSO) measures the average collection period of our receivables. DSO is based on the ending net trade receivables less receivable related accrued contract liabilities and the revenue, net for the quarter then ended. DSO is calculated by dividing ending accounts receivable, less receivable related accrued contract liabilities, by the average net revenue per day for the respective 90-day period.

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Three Months Ended
March 31,
2019 June 24,
2018 Change
Days of sales outstanding^(a)
34 29 5
Days of supply in inventory^(b)
90 76 14
Days in accounts payable^(c)
(58) (54) (4 )
Cash conversion cycle 66 51 15
b)Days of supply in inventory (DSI) measures the average number of days from procurement to sale of our product. DSI is based on ending inventory and cost of revenue, net for the quarter then ended. DSI is calculated by dividing ending inventory by average cost of revenue, net per day for the respective 90-day period.

Days of sales outstanding (DSO) measures the average collection period of our receivables. DSO is based on the ending net trade receivables, accrued contract liabilities (excluding deferred revenue) and the revenue, net for the quarter then ended. DSO is calculated by dividing ending accounts receivable, net of applicable allowances and contract liabilities (excluding deferred revenue), by the average net revenue per day for the respective 90 day period.


b)	Days of supply in inventory (DSI) measures the average number of days from procurement to sale of our product. DSI is based on ending inventory and cost of revenue, net for the quarter then ended. DSI is calculated by dividing ending inventory by average cost of revenue, net per day for the respective 90 day period.


c)	Days in accounts payable (DPO) measures the average number of days our payables remain outstanding before payment. DPO is based on ending accounts payable and cost of revenue, net for the quarter then ended. DPO is calculated by dividing ending accounts payable by the average cost of revenue, net per day for the respective 90 day period.

c)Days in accounts payable (DPO) measures the average number of days our payables remain outstanding before payment. DPO is based on ending accounts payable and cost of revenue, net for the quarter then ended. DPO is calculated by dividing ending accounts payable and accrued expenses (less accrued salaries and wages) by the average cost of revenue, net per day for the respective 90-day period.

The increase in our cash conversion cycle was primarily driven by an increase in days of ~~supply in inventory.~~sales outstanding related to short-term shipping delays at the end of the quarter as a result of the COVID-19 outbreak.

As of March ~~31, 2019,~~29, 2020, we had unrealized losses on our investments of ~~$0.6~~$2.4 million. All of our investments had investment grade ratings, and any such investments that were in an unrealized loss position at March ~~31, 2019~~29, 2020 were in such position due to interest

rate changes, sector credit rating changes, or company-specific rating ~~changes. As we~~changes or negative market conditions surrounding the COVID-19 outbreak. We intend and believe that we have the ability to hold such investments for a period of time that will be sufficient for anticipated recovery in market value, and we currently expect to receive the full principal or recover our cost basis in these securities. The declines in value of the securities in our portfolio are considered to be temporary in nature and, accordingly, we do not believe these securities are impaired as of March ~~31, 2019.~~29, 2020. We will continue to assess if ongoing developments related to the outbreak may cause these unrealized losses to become other than temporary.

Cash Flows

In summary, our cash flows were as ~~follows (in thousands, except percentages):~~follows:

Nine Months Ended
March 31, 2019 March 25, 2018 Change
Net cash provided by operating activities
$186,969

$125,423

$61,546
49 %
Net cash used in investing activities (192,507 ) (393,799 ) 201,292
51 %
Net cash provided by financing activities 343,010
236,290
106,720
45 %
Effects of foreign exchange changes on cash and cash equivalents (239 ) 715
(954 ) (133 )%
Net increase (decrease) in cash and cash equivalents
$337,233

($31,371 )
$368,604
(1,175 )%

~~The following is a discussion of our primary sources and uses of cash in our operating, investing and financing activities.~~


	Nine months ended
	March 29, 2020	March 31, 2019	Change
Cash (used in) provided by operating activities	($39.5)	$189.0	($228.5)	(121)	%
Cash used in investing activities	(152.2)	(192.5)	40.3	21	%
Cash provided by financing activities	14.4	341.0	(326.6)	(96)	%
Effect of foreign exchange changes	(0.2)	(0.2)	—	—	%
Net change in cash and cash equivalents	($177.5)	$337.3	($514.8)	(153)	%

Cash Flows from Operating Activities

Net cash used in operating activities decreased primarily due to lower net earnings and a decrease in overall working capital mainly driven by decreases in inventory and payables, as well as significant cash inflows from customer reserve deposits in the prior year. Total cash provided by operating activities ~~increased to $187.0 million~~ for the nine months ended March 31, 2019 ~~from $125.4~~includes $9.3 million ~~for the nine months ended March 25, 2018. This increase was primarily due to timing~~ of ~~managed working capital and higher customer deposits.~~cash provided by operating activities of discontinued operations.

Cash Flows from Investing Activities

Our investing activities primarily relate to ~~transactions within our~~ short-term ~~investments,~~investment transactions, purchases of property and equipment and payments for patents and licensing ~~rights and other strategic initiatives. Net cash used in investing activities was $192.5 million and $393.8 million for the nine months ended March 31, 2019 and March 25, 2018, respectively.~~rights. Cash used in investing activities decreased in the nine months ended March ~~31, 2019~~29, 2020 compared to the nine months ended March ~~25, 2018~~31, 2019 primarily due to $97.2 million less net purchases of short-term investments offset by an increase in property and equipment purchases of $75.6 million. Total cash used in investing activities for the ~~purchase~~nine months ended March 31, 2019 includes $15.4 million of ~~the Infineon RF Power Business~~cash used in ~~2018.~~investing activities of discontinued operations.

For fiscal ~~2019,~~2020, we target approximately ~~$175~~$240.0 million of capital investment, which is primarily related to infrastructure projects to support our ~~longer-term~~longer term growth and strategic priorities.

Cash Flows from Financing Activities

~~Net cash provided by financing activities was $343.0 million and $236.3 million for~~For the nine months ended March ~~31, 2019 and March 25, 2018, respectively.~~ 29, 2020, our financing activities primarily consisted of net proceeds of $14.8 million from issuances of common stock pursuant to the exercise of employee stock options.

For the nine months ended March 31, 2019, our financing activities primarily consisted of proceeds of ~~$575~~$575.0 million from the issuance of the 2023 Notes and net proceeds of ~~$73~~$70.9 million from ~~net~~ issuances of common stock pursuant to the exercise of employee stock options, ~~including the excess tax benefit from those exercises,~~ partially offset by the net repayment on our line of credit of ~~$292 million. For the nine months ended March 25, 2018, our financing activities primarily consisted of a net borrowing on our line of credit of $171.0~~$292.0 million and ~~proceeds~~the payment of ~~$62.2~~debt issuance costs of $12.9 million from ~~net issuances~~the issuance of ~~common stock pursuant to~~ the ~~exercise~~2023 Notes.

Table of ~~employee stock options, including the excess tax benefit from those exercises.~~Contents

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 March ~~31, 2019,~~29, 2020, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

We have entered into operating leases primarily for certain of our U.S. and international facilities in the normal course of business. Please refer to Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended ~~June 24, 2018, in the section entitled “Contractual Obligations” for the future minimum lease payments due under our operating leases as of~~ ~~June 24, 2018~~. There have been no significant changes to the contractual obligations discussed therein, except for the issuance of the Notes as discussed in Note 9, "Long-term Debt," in our consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

Critical Accounting Policies and Estimates

~~For~~Leases (new for fiscal 2020 due to ASC 842 Adoption)

At lease inception, we determine 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 we obtain 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.

Right-of-use assets represent our right to use an underlying asset during the lease term and lease liabilities represent our 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 our sole discretion and we consider these options in determining the lease term used to establish our right-of-use assets and lease liabilities. We will remeasure our 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 us 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 our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information ~~about~~available at the lease commencement date in determining the present value of lease payments. We 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 amortized on a straight-line basis over the shorter of the useful life of the asset or the lease term. Interest expense on the finance lease liability is recognized using the effective interest rate method and is presented within interest expense on our ~~revenue recognition policy, see Note 3, "Revenue Recognition", to our unaudited~~ consolidated ~~financial~~ statements of operations.

We have agreements with lease and non-lease components, which are accounted for as a single lease component. Leases with a lease term of 12 months or less are not recorded on the balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as increases in ~~Part I, Item 1 of this Quarterly Report.~~ 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.

For information about our other critical accounting policies and estimates, see the “Critical Accounting Policies and Estimates” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended June ~~24, 2018.~~30, 2019.

Recent Accounting Pronouncements

For a description of recent accounting pronouncements, including the expected dates of adoption and the estimated effects, if any, on our consolidated financial statements, see Note 1, “Basis of Presentation and New Accounting Standards,” to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about our market risks, see “Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended June ~~24, 2018.~~30, 2019. There have been no material changes to the amounts presented therein.

Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Form 10-Q, our disclosure controls and procedures are effective in that they provide reasonable assurances that the information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the SEC’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

We routinely review our internal control over financial reporting and from time to time make changes intended to enhance the effectiveness of our internal control over financial reporting. We will continue to evaluate the effectiveness of our disclosure controls and procedures and internal control over financial reporting on an ongoing basis and will take action as appropriate. There have been no changes to our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the third quarter of fiscal ~~2019~~2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this item is set forth under Note 13, “Commitments and Contingencies,” to our unaudited financial statements in Part I, Item 1 of this Quarterly Report and is incorporated herein by reference.

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Item 1A. Risk Factors

Described below are various risks and uncertainties that may affect our business. The descriptions below include any material changes to and supersede the description of the risk factors affecting our business previously disclosed in "Part I, Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended June ~~24, 2018.~~30, 2019. If any of the risks described below actually occurs, our business, financial condition or results of operations could be materially and adversely affected.

Our financial condition and results of operations for fiscal 2020 and future periods may be adversely affected by the recent COVID-19 outbreak or other outbreak of infectious disease or similar public health threat.

The novel strain of coronavirus (COVID-19) continues to spread globally and has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns. These measures have impacted and may continue to impact our workforce and operations, the operations of our customers, and those of our respective vendors and suppliers. We have significant manufacturing operations in the U.S. and China, and each of these countries has been affected by the outbreak and taken measures to try to contain it. We have experienced some limited disruptions in supply from some of our suppliers, although the disruptions to date have not yet been material. There is considerable uncertainty regarding such measures and potential future measures, and restrictions on our access to our manufacturing facilities or on our support operations or workforce, or similar limitations for our vendors and suppliers, and restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures, could limit our capacity to meet customer demand and have a material adverse effect on our financial condition and results of operations.

The outbreak has significantly increased economic and demand uncertainty. These uncertainties also make it more difficult for us to assess the quality of our product order backlog and to estimate future financial results. It is likely that the current outbreak or continued spread of COVID-19 will cause an economic slowdown, and it is likely that it will lead to a global recession, which could have a material adverse effect on demand for our products and on our financial condition and results of operations.

The spread of COVID-19 has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events, and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, and suppliers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed. In addition, in light of concerns about the spread of COVID-19, our workforce has been operating at reduced levels at our manufacturing facilities, which could have an adverse impact on our ability to timely meet future customer orders.

The duration of the business disruption and related financial impact cannot be reasonably estimated at this time but may materially affect our ability to obtain raw materials, manage customer credit risk, manufacture products or deliver inventory in a timely manner, and impair our ability to meet customer demand for products, result in lost sales, additional costs, or penalties, or damage our reputation. The extent to which COVID-19 or any other health epidemic will further impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.

Our operating results are substantially dependent on the acceptance of new products.

Our future success may depend on our ability to deliver new, higher performing and/or lower cost solutions for existing and new markets and for customers to accept those solutions. ~~We must introduce new products in a timely and cost-effective manner, and we must secure volume purchase orders for those products from our customers.~~ The development of new products is a highly complex process, and we have in some instances experienced delays in completing the development, introduction and qualification of new products which has impacted our results in the past. Our research and development efforts are aimed at solving increasingly complex problems, and we do not expect that all our projects will be successful. The successful development, introduction and acceptance of new products depend on a number of factors, including the following:

•our ability to introduce new products in a timely and cost-effective manner;

•our ability to secure volume purchase orders related to new products;

•qualification and acceptance of our new product and systems designs, specifically entering into automotive applications which require even more stringent levels of qualification and standards;

•achievement of technology breakthroughs required to make commercially viable products;

•the accuracy of our predictions for market requirements;

•our ability to predict, influence and/or react to evolving standards;

~~qualification and acceptance of our new product and systems designs;~~

•acceptance of new technology in certain markets;

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•our ability to protect intellectual property developed in new products;

•the availability of qualified research and development personnel;

•our timely completion of product designs and development;

•our ability to develop repeatable processes to manufacture new products in sufficient quantities, with the desired specifications and at competitive costs;

•our ability to effectively transfer increasingly complex products and technology from development to manufacturing;

•our customers’ ability to develop competitive products incorporating our products; and

•market acceptance of our products and our customers’ products.

If any of these or other similar factors becomes problematic, we may not be able to deliver and introduce new products in a timely or cost-effective manner.

We face significant challenges managing our growth strategy.

Our potential for growth depends significantly on the adoption of our products within the markets we serve and for other applications, and our ability to affect this rate of adoption. In order to manage our growth and business strategy effectively relative to the uncertain pace of adoption, we must continue to:

•maintain, expand, construct and purchase adequate manufacturing facilities and equipment, as well as secure sufficient third-party manufacturing resources, to meet customer ~~demand;~~demand, including specifically the expansion of our silicon carbide capacity with the construction of a state-of-the-art, automated 200mm capable silicon carbide and GaN fabrication facility and a large materials factory;

•manage an increasingly complex supply chain that has the ability to supply an increasing number of raw materials, subsystems and finished products with the required specifications and quality, and deliver on time to our manufacturing facilities, our third-party manufacturing facilities, or our logistics operations;

•expand the capability of our information systems to support a more complex business;

•expand research and development, sales and marketing, technical support, distribution capabilities, manufacturing planning and administrative functions;

•safeguard confidential information and protect our intellectual property;

•manage organizational complexity and communication;

•expand the skills and capabilities of our current management team;

•add experienced senior level managers and executives;

•attract and retain qualified employees; and

~~adequately~~•execute, maintain and adjust the operational and financial controls that support our business.

While we intend to continue to focus on managing our costs and expenses, we expect to invest to support our growth and may have additional unexpected costs. Such investments take time to become fully operational, and we may not be able to expand quickly enough to exploit targeted market opportunities. For example, we continue ~~to transition~~converting the majority of our Wolfspeed power production from 100mm to 150mm substrates. If we are unable to ~~make~~complete this transition in a timely or cost-effective manner, our results could be negatively impacted. In connection with our efforts to cost-effectively manage our growth, we have increasingly relied on contractors for production capacity, logistics support and certain administrative functions including hosting of certain information technology software applications. If our contract manufacturers, original design manufacturers (ODMs) or other service providers do not perform effectively, we may not be able to achieve the expected cost savings and may incur additional costs to correct errors or fulfill customer demand. Depending on the function involved, such errors may also lead to business disruption, processing inefficiencies, the loss of or damage to intellectual property through security breach, or an impact on employee morale. Our operations may also be negatively impacted if any of these contract manufacturers, ODMs or other service providers do not have the financial capability to meet our growing needs.

There are also inherent execution risks in starting up a new factory or expanding production capacity, whether one of our own factories or that of our contract manufacturers or ODMs, or moving production to different contract manufacturers or ODMs, that could increase costs and reduce our operating ~~results,~~results. In September 2019, we announced the intent to build the new fabrication facility in Marcy, New York to complement the factory expansion underway at our U.S. campus headquarters in Durham, North Carolina. The establishment and operation of a new manufacturing facility or expansion of an existing facility involves significant risks and challenges, including, but not limited to, the following:

•design and construction delays and cost ~~overruns,~~ overruns;

•issues in installing and qualifying new equipment and ramping production;

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•poor production process yields and reduced quality ~~control.~~control; and

•insufficient personnel with requisite expertise and experience to operate a fabrication facility.

We are also increasingly dependent on information technology to enable us to improve the effectiveness of our operations and to maintain financial accuracy and efficiency. Allocation and effective management of the resources necessary to successfully implement, integrate, train personnel and sustain our ITinformation technology platforms will remain critical to ensure that we are not subject to transaction errors, processing inefficiencies, loss of customers, business disruptions or loss of or damage to intellectual property through a security breach in the near term. Additionally, we face these same risks if we fail to allocate and effectively manage the resources necessary to build, implement, upgrade, integrate and sustain appropriate technology infrastructure over the longer term.

If we fail to evaluate and execute strategic opportunities successfully, our business may suffer.

From time to time, including the present, we evaluate strategic opportunities available to us for product, technology or business transactions, such as business acquisitions, investments, joint ventures, divestitures, or spin-offs. For example, ~~during~~in the ~~first~~third quarter of fiscal 2018, ~~we formed Cree Venture LED, a joint venture between San'an and us to produce and supply to customers high-performance mid-power LED components,~~ we acquired the Infineon RF Power business ~~in the third quarter of fiscal 2018,~~ and in the ~~third~~fourth quarter of fiscal 2019, we ~~entered into a definitive agreement to sell~~completed the sale of our Lighting Products business unit to ~~IDEAL Industries, Inc. (IDEAL). When~~IDEAL. If we choose to enter into such transactions, we face certain risks including:

•the failure of an acquired business, investee or joint venture to meet our performance and financial expectations;

•identification of additional liabilities relating to an acquired business;

•loss of existing customers of our current and acquired businesses due to concerns that new product lines may be in competition with the customers’ existing product lines or due to regulatory actions taken by governmental agencies;

•that we are not able to enter into acceptable contractual arrangements with the significant customers of an acquired business;

•difficulty integrating an acquired business's operations, personnel and financial and operating systems into our current business;

•that we are not able to develop and expand customer bases and accurately anticipate demand from end customers, which can result in increased inventory and reduced orders as we experience wide fluctuations in supply and demand;

•diversion of management attention;

•difficulty separating the operations, personnel and financial and operating systems of a spin-off or divestiture from our current business;

•the possibility we are unable to complete athe transaction and expend substantial resources without achieving the desired benefit;

•the inability to obtain required regulatory agency ~~approval;~~approvals;

•reliance on a transaction counterparty for transition services for an extended period of time, which may result in additional expenses and delay anthe integration of the acquired business and realization of the desired benefit of the transaction;

•uncertainty of the financial markets or circumstances that cause conditions that are less favorable and/or different than expected; and

•expenses incurred to complete a transaction may be significantly higher than anticipated.

We may not be able to adequately address these risks or any other problems that arise from our prior or future acquisitions, investments, joint ventures, divestitures or spin-offs. Any failure to successfully evaluate strategic opportunities and address risks or other problems that arise related to any such business transaction could adversely affect our business, results of operations or financial condition.

~~We are subject to a number of risks associated with the proposed sale of the Lighting Products business unit, and these risks could adversely impact our operations, financial condition and business.~~

On March 14, 2019, we executed a Purchase Agreement (the Purchase Agreement) with IDEAL to sell the Lighting Products business unit. We are subject to a number of risks associated with this transaction, including risks associated with:

~~the failure to satisfy, on a timely basis or at all, the closing conditions set forth in the Purchase Agreement;~~

the separation of the Lighting Products business unit, and related information technology, from the businesses we are retaining and the operation of our retained businesses without the Lighting Products business unit;

issues, delays or complications in completing required carve-out activities to allow the Lighting Products business unit to operate on a stand-alone basis after the closing, including incurring unanticipated costs to complete such activities;

~~unfavorable reaction to the sale by customers, competitors, suppliers and employees;~~

the disruption to and uncertainty in our business and our relationships with our customers, including attempts by our customers to terminate or renegotiate their relationships with us or decisions by our customers to defer or delay purchases from us;

~~difficulties in hiring, retaining and motivating key personnel during this process or as a result of uncertainties generated by this process or any developments or actions relating to it;~~

~~the diversion of our management’s attention away from the operation of the businesses we are retaining;~~

~~our incurrence of significant transaction costs in connection with the transaction, regardless of whether it is completed;~~

the restrictions on and obligations with respect to our business set forth in the Purchase Agreement and, following closing, the transition services agreement and the LED supply agreement, in each case between us and IDEAL;

~~the need to provide transition services in connection with the transaction, which may result in the diversion of resources and focus;~~

issues, delays, complications and/or additional costs associated with the transition of the operations, systems, technology infrastructure and data, third-party contracts, and personnel of the Lighting Products business and provision of transition services, each, as applicable, within the term of the transition services agreement;

~~any required payments of indemnification obligations under the Purchase Agreement for retained liabilities and breaches of representations, warranties or covenants;~~

fluctuations in our market value, including the depreciation in our market value if the transaction is not completed or the failure of the transaction, even if completed, to increase our market value; and

failure to realize the full purchase price anticipated under the Purchase Agreement, including the ability of the Lighting Products business unit to generate adjusted EBITDA in the third year post-closing sufficient to result in payment of the targeted earn-out or any earn-out payment.

As a result of these risks, we may be unable to complete the transaction or realize the anticipated benefits of the transaction, including the total amount of cash we expect to realize. Our failure to complete the transaction or realize the anticipated benefits of the transaction would adversely impact our operations, financial condition and business and could limit our ability to pursue strategic transactions.

Global economic conditions could materially adversely impact demand for our products and services.

Our operations and performance depend significantly on worldwide economic conditions. Uncertainty about global economic conditions could result in customers postponing purchases of our products and services in response to tighter credit, unemployment, negative financial news and/or declines in income or asset values and other macroeconomic factors, which could have a material negative effect on demand for our products and services and, accordingly, on our business, results of operations or financial condition. For example, any economic and political uncertainty caused by the United States tariffs imposed on goods from China, among other potential countries, and any corresponding tariffs or currency devaluations from China or such other countries in response, has, and may in the future, negatively impact demand and/or increase the cost for our products.

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Additionally, our international sales are subject to variability as our selling prices become less competitive in countries with currencies that are declining in value against the U.S. Dollar and more competitive in countries with currencies that are increasing in value against the U.S. Dollar. In addition, our international purchases can become more expensive if the U.S. Dollar weakens against the foreign currencies in which we are billed.

Our results of operations, financial condition and business could be harmed if we are unable to balance customer demand and capacity.

As customer demand for our products changes, we must be able to adjust our production capacity to meet demand. We are continually taking steps to address our manufacturing capacity needs for our products. If we are not able to increase or decrease our production capacity at our targeted rate or if there are unforeseen costs associated with adjusting our capacity levels, we may not be able to achieve our financial ~~targets. For example, parts of~~targets when our ~~Wolfspeed business~~factories are ~~currently experiencing demand in excess of our production capacity, which is resulting in extended manufacturing lead times to customers as we manage our constrained capacity.~~underutilized. We have been making significant investments to expand our materials, power and RF device capacity and continue to do so, these investments take time to be delivered, installed and become fully qualified. As a result, we may be unable to build or qualify ~~such~~ new capacity on a timely basis to meet customer demand and customers may fulfill their orders with one of our competitors instead. In addition, as we introduce new products and change product generations, we must balance the production and inventory of prior generation products with the production and inventory of new generation products, whether manufactured by us or our contract manufacturers, to maintain a product mix that will satisfy customer demand and mitigate the risk of incurring cost write-downs on the previous generation products, related raw materials and tooling.

Due to the proportionately high fixed cost nature of our business (such as facility costs), if demand does not materialize at the rate forecasted, we may not be able to scale back our manufacturing expenses or overhead costs to correspond to the demand. This could result in lower margins and adversely impact our business and results of operations. Additionally, if product demand decreases or we fail to forecast demand accurately, our results may be adversely impacted due to higher costs resulting from lower factory utilization, causing higher fixed costs per unit produced. Further, we may be required to recognize impairments on our long-lived assets or recognize excess inventory write-off charges, or excess capacity charges, which would have a negative impact on our results of operations.

In addition, our efforts to improve quoted delivery lead-time performance may result in corresponding reductions in order backlog. A decline in backlog levels could result in more variability and less predictability in our quarter-to-quarter net revenue and operating results.

Variations in our production could impact our ability to reduce costs and could cause our margins to decline and our operating results to suffer.

All of our products are manufactured using technologies that are highly complex. The number of usable items, or yield, from our production processes may fluctuate as a result of many factors, including but not limited to the following:

•variability in our process repeatability and control;

•contamination of the manufacturing environment;

•equipment failure, power outages, fires, flooding, information or other system failures or variations in the manufacturing process;

•lack of consistency and adequate quality and quantity of piece parts, other raw materials and other bill of materials items;

•inventory shrinkage or human errors;

•defects in production processes (including system assembly) either within our facilities or at our suppliers; and

•any transitions or changes in our production process, planned or unplanned.

In the past, we have experienced difficulties in achieving acceptable yields on certain products, which has adversely affected our operating results. We may experience similar problems in the future, and we cannot predict when they may occur or their severity.

In some instances, we may offer products for future delivery at prices based on planned yield improvements or increased cost efficiencies from other production advances. Failure to achieve these planned improvements or advances could have a significant impact on our margins and operating results.

In addition, our ability to convert volume manufacturing to larger diameter substrates can be an important factor in providing a more cost-effective manufacturing process. We continue converting the majority of our Wolfspeed power production from 100mm to 150mm substrates. If we are unable to make this transition in a timely or cost-effective manner, our results could be negatively impacted.

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We are subject to risks related to international sales and purchases.

We expect that revenue from international sales will continue to represent a significant portion of our total revenue. As such, a significant slowdown or instability in relevant foreign economies or lower investments in new infrastructure, could have a negative impact on our sales. We also purchase a portion of the materials included in our products from overseas sources.

Our international sales and purchases are subject to numerous U.S. and foreign laws and regulations, including, without limitation, tariffs, trade sanctions, trade barriers, trade embargoes, regulations relating to import-export control, technology transfer

restrictions, the International Traffic in Arms Regulation promulgated under the Arms Export Control Act, the Foreign Corrupt Practices Act and the anti-boycott provisions of the U.S. Export Administration Act. For example, on May 15, 2019, the Bureau of Industry and Security (BIS) of the U.S. ~~Government's April 2018 export ban~~Department of Commerce added Huawei Technologies Co., Ltd. and 68 of its affiliates (collectively, “Huawei”) to the “Entity List” maintained by the U.S. Department of Commerce, which imposes limitations on ~~Chinese technology company ZTE (subsequently lifted in July 2018)~~the supply of certain U.S. items and product support to Huawei. To comply with the Entity List restrictions, we suspended shipments of all products to Huawei and cannot predict when we will be able to resume such shipments, which has reduced our revenue and profit in at least the near ~~term.~~term and increased our inventories of product intended for Huawei. If the U.S. Government ~~reinstates~~maintains the ~~ban,~~restrictions on Huawei or imposes restrictions on sales to other foreign customers, as it ~~would~~did in October 2019 with the addition of 28 new companies to the Entity List, it will reduce company revenue and profit related to ~~that customer~~those customers at least in the short term and could have a potential longer-term impact. In the second quarter of fiscal 2020, we recorded an $8.3 million reserve on inventory manufactured for Huawei. Additionally, like many global manufacturers, we ~~are addressing and dealing with~~continue to address the short-term and potential long-term impact of the United States tariffs imposed on Chinese goods and corresponding Chinese tariffs in response. If we fail to comply with these laws and regulations, we could be liable for administrative, civil or criminal liabilities, and, in the extreme case, we could be suspended or debarred from government contracts or have our export privileges suspended, which could have a material adverse effect on our business.

International sales and purchases are also subject to a variety of other risks, including risks arising from currency fluctuations, collection issues and taxes. We have entered into 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.

~~The markets in which we operate are highly competitive and have evolving technical requirements.~~

The markets for our products are highly competitive. In the semiconductor market, we compete with companies that have greater market share, name recognition and/or technical resources than we do. Competitors continue to offer new products with aggressive pricing, additional features and improved performance. In the lighting market, we compete with companies that manufacture and sell traditional and LED lighting products, many of which have larger and more established sales channels. Competitive pricing pressures remain a challenge and continue to accelerate the rate of decline in our sales prices, particularly in our LED Products segment. Aggressive pricing actions by our competitors in our businesses could reduce margins if we are not able to reduce costs at an equal or greater rate than the sales price decline.

As competition increases, we need to continue to develop new products that meet or exceed the needs of our customers. Therefore, our ability to continually produce more efficient and lower cost power, RF, and LED products that meet the evolving needs of our customers will be critical to our success. Competitors may also try to align with some of our strategic customers. This could lead to lower prices for our products, reduced demand for our products and a corresponding reduction in our ability to recover development, engineering and manufacturing costs. Any of these developments could have an adverse effect on our business, results of operations or financial condition.

We will continue to face increased competition in the future across our businesses. If the investment in capacity exceeds the growth in demand, for example as exists in the current LED market, that market is likely to become more competitive with additional pricing pressures. Additionally, new technologies could emerge or improvements could be made in existing technologies that may also reduce the demand for LEDs in certain markets. There are also technologies, such as organic LEDs (OLEDs), which could potentially reduce LED demand, thereby impacting the overall LED market.

~~We operate in industries that are subject to significant fluctuation in supply and demand and ultimately pricing that affects our revenue and profitability.~~

The industries we serve are in different stages of adoption and are characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving standards, short product life-cycles in the case of the LED industry and fluctuations in product supply and demand. The power, RF, and LED industries have experienced significant fluctuations, often in connection with, or in anticipation of, product cycles and changes in general economic conditions. The semiconductor industry is characterized by rapid technological change, high capital expenditures, short product life cycles and continuous advancements in process technologies and manufacturing facilities. As the markets for our products mature, additional fluctuations may result from variability and consolidations within the industry’s customer base. These fluctuations have been characterized by lower product demand, production overcapacity, higher inventory levels and increased pricing pressure. These fluctuations have also been characterized by higher demand for key components and equipment used in, or in the manufacture of, our products resulting in longer lead times, supply delays and production disruptions. We have experienced these conditions in our business and may experience such conditions in the future, which could have a material negative impact on our business, results of operations or financial condition.

In addition, as we diversify our product offerings and as pricing differences in the average selling prices among our product lines widen, a change in the mix of sales among our product lines may increase volatility in our revenue and gross margin from period to period.

Our operations in foreign countries expose us to certain risks inherent in doing business internationally, which may adversely affect our business, results of operations or financial condition.

We have revenue, operations, manufacturing facilities and contract manufacturing arrangements in foreign countries that expose us to certain risks. For example, fluctuations in exchange rates may affect our revenue, expenses and results of operations as well as the value of our assets and liabilities as reflected in our financial statements. We are also subject to other types of risks, including the following:

•protection of intellectual property and trade secrets;

•tariffs, customs, trade sanctions, trade embargoes and other barriers to importing/exporting materials and products in a cost-effective and timely manner, or changes in applicable tariffs or custom rules;

•the burden of complying with and changes in U.S. or international taxation policies;

•timing and availability of export licenses;

•rising labor costs;

•disruptions in or inadequate infrastructure of the countries where we operate;

•the impact of public health epidemics on employees and the global economy, such as COVID-19;

•difficulties in collecting accounts receivable;

•difficulties in staffing and managing international operations; and

•the burden of complying with foreign and international laws and treaties.

For example, the United States tariffs imposed on Chinese goods, among other potential countries and any corresponding tariffs from China or such other countries in response has, and may in the future, negatively impact demand and/or increase the costs for our products. In some instances, we have received and may continue to receive incentives from foreign governments to encourage our investment in certain countries, regions or areas outside of the United States. In particular, we have received and may continue to receive such incentives in connection with our operations in Asia, as Asian national and local governments seek to encourage the development of the technology industry. Government incentives may include tax rebates, reduced tax rates, favorable lending policies and other measures, some or all of which may be available to us due to our foreign operations. Any of these incentives could be reduced or eliminated by governmental authorities at any time or as a result of our inability to

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maintain minimum operations necessary to earn the incentives. Any reduction or elimination of incentives currently provided for our operations could adversely affect our business and results of operations. These same governments also may provide increased incentives to or require production processes that favor local companies, which could further negatively impact our business and results of operations.

Changes in regulatory, geopolitical, social, economic, or monetary policies and other factors, if any, may have a material adverse effect on our business in the future, or may require us to exit a particular market or significantly modify our current business practices. Abrupt political change, terrorist activity and armed conflict pose a risk of general economic disruption in affected countries, which could also result in an adverse effect on our business and results of operations.

IfWe operate in industries that are subject to significant fluctuation in supply and demand and ultimately pricing that affects our revenue and profitability.

The industries we serve are in different stages of adoption and are characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving standards, short product life-cycles in the case of the LED industry and fluctuations in product supply and demand. The power, RF, and LED industries have experienced, and may in the future experience significant fluctuations, often in connection with, or in anticipation of, product cycles and changes in general economic conditions. The semiconductor industry is characterized by rapid technological change, high capital expenditures, short product life cycles and continuous advancements in process technologies and manufacturing facilities. As the markets for our products ~~fail to perform~~mature, additional fluctuations may result from variability and consolidations within the industry’s customer base. These fluctuations have been characterized by lower product demand, production overcapacity, higher inventory levels and increased pricing pressure as currently seen in the LED market. These fluctuations have also been characterized by higher demand for key components and equipment used in, or ~~fail to meet customer requirements or expectations, we could incur significant additional costs, including costs associated with~~in the ~~recall of those items.~~

~~The~~ manufacture of, our products involves highly complex processes. Our customers specify quality, performance and reliability standards that we must meet. If our products do not meet these standards, we may be required to replace or rework the products. In some cases, our products may contain undetected defects or flaws that only become evident after shipment and installation. For example, during the second quarter of fiscal 2018 we determined that the quality of several of our commercial lighting products was possibly impacted by certain quality issues that could lower those products' reliability. Therefore, we increased our product warranty reserves for potential future warranty claims. Even if our products meet standard specifications, our customers may attempt to use our products in applications for which they were not designed or in products that were not designed or manufactured properly, resulting in ~~product failures~~longer lead times, supply delays and ~~creating customer satisfaction issues.~~

production disruptions. We have experienced ~~product quality, performance or reliability problems from time to time~~these conditions in our business and ~~defects or failures~~ may ~~occur~~experience such conditions in the ~~future. If failures~~future, which could have a material negative impact on our business, results of operations or ~~defects occur, they could result~~financial condition.

In addition, as we diversify our product offerings and as pricing differences in ~~significant losses or~~the average selling prices among our product ~~recalls due to:~~

~~costs associated with~~lines widen, a change in the ~~removal, collection and destruction~~mix of ~~the product;~~

~~payments made to replace product;~~

~~costs associated with repairing the product;~~

~~the write-down or destruction of existing inventory;~~

~~insurance recoveries that fail to cover the full costs associated with~~sales among our product ~~recalls;~~

~~lost sales due to the unavailability of product for a period of time;~~

~~delays, cancellations or rescheduling of orders for our products; or~~

~~increased product returns.~~

~~A significant product recall could also result in adverse publicity, damage to our reputation and a loss of customer or consumer confidence~~lines may increase volatility in our ~~products. We also may be the target of product liability lawsuits or regulatory proceedings by the Consumer Product Safety Commission (CPSC)~~revenue and ~~could suffer losses~~gross margin from ~~a significant product liability judgment or adverse CPSC finding against us if the use of our products at issue is determined~~period to ~~have caused injury or contained a substantial product hazard.~~

We provide warranty periods ranging from 90 days to 10 years on our products. Although we believe our reserves are appropriate, we are making projections about the future reliability of new products and technologies, and we may experience increased variability in warranty claims. Increased warranty claims could result in significant losses due to a rise in warranty expense and costs associated with customer support.period.

If we are unable to effectively develop, manage and expand our sales channels for our products, our operating results may suffer.

We sell a substantial portion of our products to distributors. We rely on distributors to develop and expand their customer base as well as anticipate demand from their customers. If they are not successful, our growth and profitability may be adversely impacted. Distributors must balance the need to have enough products in stock in order to meet their customers’ needs against their internal target inventory levels and the risk of potential inventory obsolescence. The risks of inventory obsolescence are especially relevant to technological products. The distributors’ internal target inventory levels vary depending on market cycles and a number of factors within each distributor over which we have very little, if any, control. Distributors also have the ability to shift business to different manufacturers within their product portfolio based on a number of factors, including new product availability and performance. Similarly, we have the ability to add, consolidate, or remove distributors.

We typically recognize revenue on products sold to distributors when the item is shipped and title passes to the distributor (sell-in method). Certain distributors have limited rights to return inventory under stock rotation programs and have limited price protection rights for which we make estimates. We evaluate inventory levels in the distribution channel, current economic trends and other related factors in order to account for these factors in our judgments and estimates. As inventory levels and product return trends change or we make changes to our distributor roster, we may have to revise our estimates and incur additional costs, and our gross margins and operating results could be adversely impacted.

Additionally, our ~~sales agents~~distributors have in the past and may in the future choose to drop our product lines from their portfolio to avoid losing access to our competitors’ products, resulting in a disruption in the project pipeline and lower than targeted sales for our products. Our ~~sales agents~~distributors have the ability to shift business to different suppliers within their product portfolio based on a number of factors, including customer service and new product availability. ~~We sell a portion of our lighting products through retailers who may alter their promotional pricing or inventory strategies, which could impact our targeted sales of these products.~~ If we are unable to effectively penetrate these channels or develop alternate channels to ensure our products are reaching the intended customer base, our financial results may be adversely impacted. In addition, if we successfully penetrate or develop these channels, we cannot guarantee that customers will accept our products or that we will be able to manufacture and deliver them in the timeline established by our customers.

~~Variations in~~

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We may be subject to confidential information theft or misuse, which could harm our ~~production could impact~~business and results of operations.

We face attempts by others to gain unauthorized access to our ~~ability~~information technology systems on which we maintain proprietary and other confidential information. Our security measures may be breached as the result of industrial or other espionage actions of outside parties, employees, employee error, malfeasance or otherwise, and as a result, an unauthorized party may obtain access to ~~reduce costs~~our systems. The risk of a security breach or disruption, particularly through cyber-attacks, or cyber intrusion, including by computer hackers, foreign governments, and ~~could cause~~cyber terrorists, has generally increased as cyber-attacks have become more prevalent and harder to detect and fight against. Additionally, outside parties may attempt to access our ~~margins~~confidential information through other means, for example by fraudulently inducing our employees to ~~decline~~disclose confidential information. We actively seek to prevent, detect and ~~our operating results~~investigate any unauthorized access, which sometimes occurs. We might be unaware of any such access or unable to ~~suffer.~~

~~All~~determine its magnitude and effects. The theft and/or unauthorized use or publication of our ~~products are manufactured using technologies that are highly complex. The number of usable items, or yield, from our production processes may fluctuate~~trade secrets and other confidential business information as a result of ~~many factors, including but not limited~~such an incident could adversely affect our competitive position and the value of our investment in research and development could be reduced. Our business could be subject to ~~the following:~~

~~variability in our process repeatability~~significant disruption and ~~control;~~

~~contamination of the manufacturing environment;~~

~~equipment failure, power outages, fires, flooding, information~~we could suffer monetary or other ~~system failures~~losses.

Our disclosure controls and procedures address cybersecurity and include elements intended to ensure that there is an analysis of potential disclosure obligations arising from security breaches. In addition, we are subject to data privacy, protection and security laws and regulations, including the European General Data Protection Act (GDPR) that governs personal information of European persons, which became effective on May 25, 2018. We also maintain compliance programs to address the potential applicability of restrictions against trading while in possession of material, nonpublic information generally and in connection with a cyber-security breach. However, a breakdown in existing controls and procedures around our cyber-security environment may prevent us from detecting, reporting or ~~variations~~responding to cyber incidents in ~~the manufacturing~~a timely manner and could have a material adverse effect on our financial position and value of our stock.

There are limitations on our ability to protect our intellectual property.

~~process;~~

~~lack of consistency~~Our intellectual property position is based in part on patents owned by us and ~~adequate quality and quantity of piece parts, other raw materials and other bill of materials items;~~

~~inventory shrinkage or human errors;~~

~~defects in production processes (including system assembly) either within our facilities or at our suppliers; and~~

~~any transitions or changes in our production process, planned or unplanned.~~

~~In the past, we have experienced difficulties in achieving acceptable yields on certain products, which has adversely affected our operating results.~~patents licensed to us. We ~~may experience similar problems~~intend to continue to file patent applications in the future, where appropriate, and to pursue such applications with U.S. and certain foreign patent authorities.

Our existing patents are subject to expiration and re-examination and we cannot ~~predict when they may occur~~be sure that additional patents will be issued on any new applications around the covered technology or ~~their severity.~~that our existing or future patents will not be successfully contested by third parties. Also, since issuance of a valid patent does not prevent other companies from using alternative, non-infringing technology, we cannot be sure that any of our patents, or patents issued to others and licensed to us, will provide significant commercial protection, especially as new competitors enter the market.

~~In some instances, we may offer~~We periodically discover products ~~for future delivery at prices based on planned yield improvements~~that are counterfeit reproductions of our products or ~~increased cost efficiencies from other production advances. Failure to achieve these planned improvements or advances could have a significant impact~~that otherwise infringe on our intellectual property rights. The actions we take to establish and protect trademarks, patents and other intellectual property rights may not be adequate to prevent imitation of our products by others, and therefore, may adversely affect our sales and our brand and result in the shift of customer preference away from our products. Further, the actions we take to establish and protect trademarks, patents and other intellectual property rights could result in significant legal expense and divert the efforts of our technical personnel and management, even if the litigation or other action results in a determination favorable to us.

We also rely on trade secrets and other non-patented proprietary information relating to our product development and manufacturing activities. We try to protect this information through appropriate efforts to maintain its secrecy, including requiring employees and third parties to sign confidentiality agreements. We cannot be sure that these efforts will be successful or that the confidentiality agreements will not be breached. We also cannot be sure that we would have adequate remedies for any breach of such agreements or other misappropriation of our trade secrets, or that our trade secrets and proprietary know-how will not otherwise become known or be independently discovered by others.

The markets in which we operate are highly competitive and have evolving technical requirements.

The markets for our products are highly competitive. In the semiconductor market, we compete with companies that have greater market share, name recognition, distribution and sales channels, and/or technical resources than we do. Competitors continue to offer new products with aggressive pricing, additional features and improved performance. Competitive pricing pressures remain a challenge and continue to accelerate the rate of decline in our sales prices, particularly in our LED Products segment. Aggressive pricing actions by our competitors in our businesses could reduce margins ~~and operating results.~~if we are not able to reduce costs at an equal or greater rate than the sales price decline.

~~In addition,~~

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As competition increases, we need to continue to develop new products that meet or exceed the needs of our customers. Therefore, our ability to ~~convert volume~~continually produce more efficient and lower cost power, RF, and LED products that meet the evolving needs of our customers will be critical to our success. Competitors may also try to align with some of our strategic customers. This could lead to lower prices for our products, reduced demand for our products and a corresponding reduction in our ability to recover development, engineering and manufacturing ~~to larger diameter substrates can be~~costs. Any of these developments could have an ~~important factor in providing a more cost-effective manufacturing process.~~ adverse effect on our business, results of operations or financial condition.

We will continue to ~~transition~~face increased competition in the future across our ~~Wolfspeed power production~~businesses. If the investment in capacity exceeds the growth in demand, such as exists in the current LED market, the LED market is likely to become more competitive with additional pricing pressures. Additionally, new technologies could emerge or improvements could be made in existing technologies that may also reduce the demand for LEDs in certain markets.

We depend on a limited number of customers, including distributors, for a substantial portion of our revenue, and the loss of, or a significant reduction in purchases by, one or more of these customers could adversely affect our operating results.

We receive a significant amount of our revenue from ~~100mm~~a limited number of customers, including distributors, one of which represented 19% of our consolidated revenue in fiscal 2019. Many of our customer orders are made on a purchase order basis, which does not generally require any long-term customer commitments. Therefore, these customers may alter their purchasing behavior with little or no notice to ~~150mm substrates.~~us for various reasons, including developing, or, in the case of our distributors, their customers developing, their own product solutions; choosing to purchase or distribute product from our competitors; incorrectly forecasting end market demand for their products; or experiencing a reduction in their market share in the markets for which they purchase our products. If our customers alter their purchasing behavior, if our customers’ purchasing behavior does not match our expectations or if we ~~are unable to make this transition in a timely or cost-effective manner,~~encounter any problems collecting amounts due from them, our financial condition and results of operations could be negatively impacted.

We rely on a number of key sole source and limited source suppliers and are subject to high price volatility on certain commodity inputs, variations in parts quality, and raw material consistency and availability.

We depend on a number of sole source and limited source suppliers for certain raw materials, components, services and equipment used in manufacturing our products, including key materials and equipment used in critical stages of our manufacturing processes. Although alternative sources generally exist for these items, qualification of many of these alternative sources could take up to six months or longer. Where possible, we attempt to identify and qualify alternative sources for our sole and limited source suppliers.

We generally purchase these sole or limited source items with purchase orders, and we have limited guaranteed supply arrangements with such suppliers. Some of our sources can have variations in attributes and availability which can affect our ability to produce products in sufficient volume or quality. We do not control the time and resources that these suppliers devote to our business, and we cannot be sure that these suppliers will perform their obligations to us. Additionally, general shortages in the marketplace of certain raw materials or key components may adversely impact our business. In the past, we have experienced decreases in our production yields when suppliers have varied from previously agreed upon specifications or made other modifications we do not specify, which impacted our cost of revenue.

Additionally, the inability of our suppliers to access capital efficiently could cause disruptions in their businesses, thereby negatively impacting ours. This risk may increase if an economic downturn negatively affects key suppliers or a significant number of our other suppliers. Any delay in product delivery or other interruption or variation in supply from these suppliers could prevent us from meeting commercial demand for our products. If we were to lose key suppliers, if our key suppliers were unable to support our demand for any reason or if we were unable to identify and qualify alternative suppliers, our manufacturing operations could be interrupted or hampered significantly.

We rely on arrangements with independent shipping companies for the delivery of our products from vendors and to customers both in the United States and abroad. The failure or inability of these shipping companies to deliver products or the unavailability of shipping or port services, even temporarily, could have a material adverse effect on our business. We may also be adversely affected by an increase in freight surcharges due to rising fuel costs and added security.

The risks mentioned above, including our sole source or limited source suppliers' ability to produce products and adequately access capital, and our ability to arrange effective shipping arrangements, may further increase due to the COVID-19 pandemic.

In our fabrication process, we consume a number of precious metals and other commodities, which are subject to high price volatility. Our operating margins could be significantly affected if we are not able to pass along price increases to our customers. In addition, production could be disrupted by the unavailability of the resources used in production such as water,

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silicon, electricity and gases. Future environmental regulations could restrict supply or increase the cost of certain of those materials.

~~We depend~~Our revenue is highly dependent on our customers’ ability to produce, market and sell more integrated products.

Our revenue in our Wolfspeed and LED Products segments depends on getting our products designed into a ~~limited~~larger number of our customers’ products and in turn, our customers’ ability to produce, market and sell their products. For example, we have current and prospective customers ~~including distributors~~that create, or plan to create, power, and ~~retailers,~~RF products or systems using our substrates, die, components or modules. Even if our customers are able to develop and produce products or systems that incorporate our substrates, die, components or modules, there can be no assurance that our customers will be successful in marketing and selling these products or systems in the marketplace.

In order to compete, we must attract, motivate and retain key employees, and our failure to do so could harm our results of operations.

Hiring and retaining qualified executives, scientists, engineers, technical staff, sales personnel and production personnel is critical to our business, and competition for experienced employees in our industry can be intense. As a global company, this issue is not limited to the United States, but includes our other locations such as Europe and Asia. For example, there is substantial ~~portion of~~competition for qualified and capable personnel, particularly experienced engineers and technical personnel, which may make it difficult for us to recruit and retain qualified employees. If we are unable to staff sufficient and adequate personnel at our facilities, we may experience lower revenue ~~and the loss of,~~ or ~~a significant reduction in purchases by, one or more of these customers could~~increased manufacturing costs, which would adversely affect our ~~operating results.~~results of operations.

~~We receive a significant amount~~To help attract, motivate and retain key employees, we use benefits such as stock-based compensation awards. If the value of such awards does not appreciate, as measured by the performance of the price of our revenue from a limited number of customers, including distributors and retailers, one of which represented 13% of our consolidated revenue in fiscal 2018. Most of our customer orders are made on a purchase order basis, which does not generally require any long-term customer commitments. Therefore, these customers may alter their purchasing behavior with littlecommon stock or no notice to us for various reasons, including developing, or, in the case of our distributors, their customers developing, their own product solutions; choosing to purchase or distribute product from our competitors; incorrectly forecasting end market demand for their products; or experiencing a reduction in their market share in the markets for which they purchase our products. In the case of retailers, these customers may alter their promotional pricing; increase promotion of competitors' products over our products; or reduce their inventory levels; all of which could negatively impact our financial condition and results of operations. If our customers alter their purchasing behavior, if our ~~customers’ purchasing behavior does not match~~stock-based compensation otherwise ceases to be viewed as a valuable benefit, our ~~expectations or if we encounter any problems collecting amounts due from them, our financial condition~~ability to attract, retain and ~~results of operations~~motivate employees could be ~~negatively impacted.~~

~~We may be subject to confidential information theft or misuse,~~weakened, which could harm our business and results of operations.

We face attempts by others to gain unauthorized access to our information technology systems on which we maintain proprietary and other confidential information. Our security measures may be breached as the result of industrial or other espionage actions of outside parties, employees, employee error, malfeasance or otherwise, and as a result, an unauthorized party may obtain access to our systems. The risk of a security breach or disruption, particularly through cyber-attacks, or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as cyber-attacks have become more prevalent and harder to detect and fight against. Additionally, outside parties may attempt to access our confidential information through other means, for example by fraudulently inducing our employees to disclose confidential information. We actively seek to prevent, detect and investigate any unauthorized access, which sometimes occurs. We might be unaware of any such access or unable to determine its magnitude and effects. The theft and/or unauthorized use or publication of our trade secrets and other confidential business information as a result of such an incident could adversely affect our competitive position and the value of our investment in research and development could be reduced. Our business could be subject to significant disruption and we could suffer monetary or other losses.

Our disclosure controls and procedures address cybersecurity and include elements intended to ensure that there is an analysis of potential disclosure obligations arising from security breaches. In addition, we are subject to data privacy, protection and security laws and regulations, including the European General Data Protection Act (GDPR) that governs personal information of European persons, which became effective on May 25, 2018. We also maintain compliance programs to address the potential applicability of restrictions against trading while in possession of material, nonpublic information generally and in connection with a cyber-security breach. However, a breakdown in existing controls and procedures around our cyber-security environment may prevent us from detecting, reporting or responding to cyber incidents in a timely manner and could have a material adverse effect on our financial position and value of our stock.

Our results may be negatively impacted if customers do not maintain their favorable perception of our brands and products.

Maintaining and continually enhancing the value of our brands is critical to the success of our business. Brand value is based in large part on customer perceptions. Success in promoting and enhancing brand value depends in large part on our ability to provide high-quality products. Brand value could diminish significantly due to a number of factors, including adverse publicity about our products (whether valid or not), a failure to maintain the quality of our products (whether perceived or real), the failure of our products or Cree to deliver consistently positive consumer experiences, the products becoming unavailable to consumers or consumer perception that we have acted in an irresponsible manner. Damage to our brand, reputation or loss of customer confidence in our brand or products could result in decreased demand for our products and have a negative impact on our business, results of operations or financial condition.

~~Our revenue is highly dependent on our customers’ ability to produce, market and sell more integrated products.~~

~~Our revenue in our Wolfspeed and LED Products segments depends on getting~~If our products ~~designed into a larger number~~fail to perform or fail to meet customer requirements or expectations, we could incur significant additional costs, including costs associated with the recall of those items.

The manufacture of our ~~customers’~~ products involves highly complex processes. Our customers specify quality, performance and ~~in turn,~~reliability standards that we must meet. If our ~~customers’ ability~~products do not meet these standards, we may be required to ~~produce, market~~replace or rework the products. In some cases, our products may contain undetected defects or flaws that only become evident after shipment and ~~sell their products. For example, we have current and prospective customers that create, or plan to create, power, RF and lighting products or systems using our substrates, die, components or modules.~~installation. Even if our ~~customers are able to develop and produce~~ products or systems that incorporate our substrates, die, components or modules, there can be no assurance that our customers will be successful in marketing and selling these products or systems in the marketplace.

~~As a result of our continued expansion into new markets, we may compete with existing customers who may reduce their orders.~~

Through acquisitions and organic growth, we continue to expand into new markets and new market segments. Many of our existing customers who purchase our Wolfspeed substrate materials or LED products develop and manufacture products using those wafers, die and components that are offered into the same lighting, power and RF markets. As a result, some of our current customers perceive us as a competitor in these market segments. In response,meet standard specifications, our customers may ~~reduce~~attempt to use our products in applications for which they were not designed or ~~discontinue their~~in products that were not designed or manufactured properly, resulting in product failures and creating customer satisfaction issues.

We have experienced product quality, performance or reliability problems from time to time and defects or failures may occur in the future. If failures or defects occur, they could result in significant losses or product recalls due to:

•costs associated with the removal, collection and destruction of the product;

•payments made to replace product;

•costs associated with repairing the product;

•the write-down or destruction of existing inventory;

•insurance recoveries that fail to cover the full costs associated with product recalls;

•lost sales due to the unavailability of product for a period of time;

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•delays, cancellations or rescheduling of orders for our ~~Wolfspeed substrate materials~~products; or ~~LED~~

•increased product returns.

A significant product recall could also result in adverse publicity, damage to our reputation and a loss of customer or consumer confidence in our products. ~~This reduction~~We also may be the target of product liability lawsuits or regulatory proceedings by the Consumer Product Safety Commission (CPSC) and could suffer losses from a significant product liability judgment or adverse CPSC finding against us if the use of our products at issue is determined to have caused injury or contained a substantial product hazard.

We provide warranty periods ranging from 90 days to 5.5 years on our products. Although we believe our reserves are appropriate, we are making projections about the future reliability of new products and technologies, and we may experience increased variability in ~~or discontinuation of orders~~warranty claims. Increased warranty claims could ~~occur faster than our sales growth~~result in ~~these new markets, which could adversely affect our business, results of operations or financial condition.~~significant losses due to a rise in warranty expense and costs associated with customer support.

Litigation could adversely affect our operating results and financial condition.

We are often involved in litigation, primarily patent litigation. Defending against existing and potential litigation will likely require significant attention and resources and, regardless of the outcome, result in significant legal expenses, which could adversely affect our results unless covered by insurance or recovered from third parties. If our defenses are ultimately unsuccessful or if we are unable to achieve a favorable resolution, we could be liable for damage awards that could materially affect our results of operations and financial condition.

Where necessary, we may initiate litigation to enforce our patent or other intellectual property rights, which could adversely impact our relationship with certain customers. Any such litigation may require us to spend a substantial amount of time and money and could distract management from our day-to-day operations. Moreover, there is no assurance that we will be successful in any such litigation.

Our business may be impaired by claims that we, or our customers, infringe the intellectual property rights of others.

Vigorous protection and pursuit of intellectual property rights characterize our industry. These traits have resulted in significant and often protracted and expensive litigation. Litigation to determine the validity of patents or claims by third parties of infringement of patents or other intellectual property rights could result in significant legal expense and divert the efforts of our technical personnel and management, even if the litigation results in a determination favorable to us. In the event of an adverse result in such litigation, we could be required to:

•pay substantial damages;

•indemnify our customers;

•stop the manufacture, use and sale of products found to be infringing;

•incur asset impairment charges;

•discontinue the use of processes found to be infringing;

•expend significant resources to develop non-infringing products or processes; or

•obtain a license to use third party technology.

There can be no assurance that third parties will not attempt to assert infringement claims against us, or our customers, with respect to our products. In addition, our customers may face infringement claims directed to the customer’s products that incorporate our products, and an adverse result could impair the customer’s demand for our products. We have also promised certain of our customers that we will indemnify them in the event they are sued by our competitors for infringement claims directed to the products we supply. Under these indemnification obligations, we may be responsible for future payments to resolve infringement claims against them.

From time to time, we receive correspondence asserting that our products or processes are or may be infringing patents or other intellectual property rights of others. If we believe the assertions may have merit or in other appropriate circumstances, we may take steps to seek to obtain a license or to avoid the infringement. We cannot predict, however, whether a license will be available; that we would find the terms of any license offered acceptable; or that we would be able to develop an alternative solution. Failure to obtain a necessary license or develop an alternative solution could cause us to incur substantial liabilities and costs and to suspend the manufacture of affected products.

~~There~~We are ~~limitations~~subject to a number of risks associated with the sale of the Lighting Products business unit, and these risks could adversely impact our operations, financial condition and business.

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On May 13, 2019, we closed the sale of our former Lighting Products business unit to IDEAL. We are subject to a number of risks associated with this transaction, including risks associated with:

•the restrictions on and obligations with respect to our remaining businesses following closing set forth in the transition services agreement and the LED supply agreement, in each case between us and IDEAL, including the need to provide transition services in connection with the transaction, which may result in the diversion of resources and focus from our remaining businesses;

•issues, delays, complications and/or additional costs associated with the transition of the operations, systems, technology infrastructure and data, third-party contracts, and personnel of the Lighting Products business unit and provision of transition services, each, as applicable, within the term of the transition services agreement;

•any required payments of indemnification obligations under the Purchase Agreement for retained liabilities and breaches of representations, warranties or covenants; and

•our failure to realize the full purchase price anticipated under the Purchase Agreement, including the ability of the Lighting Products business unit to generate adjusted EBITDA in the third year post-closing sufficient to result in payment of the targeted earnout or any earnout payment.

As a result of these risks, we may be unable to realize the anticipated benefits of the transaction, including the total amount of cash we expect to realize. Our failure to realize the anticipated benefits of the transaction would adversely impact our operations, financial condition and business and could limit our ability to ~~protect~~pursue additional strategic transactions.

As a result of our ~~intellectual property.~~continued expansion into new markets, we may compete with existing customers who may reduce their orders.

~~Our intellectual property position is based in part on patents owned by us~~Through acquisitions and ~~patents licensed to us. We intend to~~organic growth, we continue to ~~file patent applications in the future, where appropriate,~~expand into new markets and ~~to pursue such applications with U.S. and certain foreign patent authorities.~~

~~Our existing patents are subject to expiration and re-examination and we cannot be sure that additional patents will be issued on any~~ new ~~applications around the covered technology or that~~market segments. Many of our existing ~~or future patents will not be successfully contested by third parties. Also, since issuance of~~customers who purchase our Wolfspeed substrate materials develop and manufacture products using those wafers, die and components that are offered into the same power and RF markets. As a ~~valid patent does not prevent other companies from using alternative, non-infringing technology, we cannot be sure that any~~result, some of our ~~patents,~~current customers perceive us as a competitor in these market segments. In response, our customers may reduce or ~~patents issued to others and licensed to us, will provide significant commercial protection, especially as~~discontinue their orders for our Wolfspeed substrate materials. This reduction in or discontinuation of orders could occur faster than our sales growth in these new ~~competitors enter the market.~~

We periodically discover products that are counterfeit reproductions of our products or that otherwise infringe on our intellectual property rights. The actions we take to establish and protect trademarks, patents and other intellectual property rights may not be adequate to prevent imitation of our products by others, and therefore, maymarkets, which could adversely affect our sales and our brand and result in the shift of customer preference away from our products. Further, the actions we take to establish and protect trademarks, patents and other intellectual property rights could result in significant legal expense and divert the efforts of our technical personnel and management, even if the litigation or other action results in a determination favorable to us.

~~In order to compete, we must attract, motivate and retain key employees, and our failure to do so could harm our~~business, results of ~~operations.~~

Hiring and retaining qualified executives, scientists, engineers, technical staff, sales personnel and production personnel is critical to our business, and competition for experienced employees in our industry can be intense. As a global company, this issue is not limited to the United States, but includes our other locations such as Europe and China. For example, there is substantial competition for qualified and capable personnel, particularly experienced engineers and technical personnel, which may make it difficult for us to recruit and retain qualified employees. If we are unable to staff sufficient and adequate personnel at our facilities, we may experience lower revenueoperations or ~~increased manufacturing costs, which would adversely affect our results of operations.~~

To help attract, motivate and retain key employees, we use benefits such as stock-based compensation awards. If the value of such awards does not appreciate, as measured by the performance of the price of our common stock or if our stock-based compensation otherwise ceases to be viewed as a valuable benefit, our ability to attract, retain and motivate employees could be weakened, which could harm our business and results of operations.financial condition.

The adoption of or changes in government and/or industry policies, standards or regulations relating to the efficiency, performance, use or other aspects of our products could impact the demand for our products.

The adoption of or changes in government and/or industry policies, standards or regulations relating to the efficiency, performance or other aspects of our products may impact the demand for our products. Demand for our products may also be impacted by changes in government and/or industry policies, standards or regulations that discourage the use of certain traditional lighting technologies. For example, efforts to change, eliminate or reduce ~~Energy Star~~® industry or ~~other~~regulatorystandards could negatively impact our Wolfspeed power and LED businesses. These constraints may be eliminated or delayed by legislative action, which could have a negative impact on demand for our products. Our ability and the ability of our competitors to meet these new requirements could impact competitive dynamics in the market.

~~If governments, their agencies~~We may be required to recognize a significant charge to earnings if our goodwill or ~~utilities reduce their demand~~other intangible assets become impaired.

Goodwill is reviewed for impairment annually and when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We assess the recoverability of the unamortized balance of our ~~products~~finite-lived intangible assets when indicators of potential impairment are present. Factors that may indicate that the carrying value of our goodwill or ~~discontinue~~other intangible assets may not be recoverable include a decline in our stock price and market capitalization and slower growth rates in our industry. The recognition of a significant charge to earnings in our consolidated financial statements resulting from any impairment of our goodwill or ~~curtail their funding, our business may suffer.~~

~~Changes in governmental budget priorities~~other intangible assets could adversely ~~affect~~impact our ~~business and~~ results of operations. U.S. and foreign government agencies have purchased products directly from us and products from our customers, and U.S. government agencies have historically funded a portion of our research and development activities. When the government changes budget priorities, such as in times of war or financial crisis, or reallocates its research and development spending to areas unrelated to our business, our research and development funding and our product sales to government entities and government-funded customers are at risk. For example, demand and payment for our products and our customers’ products may be affected by government shutdowns, public sector budgetary cycles, funding authorizations or utility rebates. Funding reductions or delays could negatively impact demand for our products. If government or utility funding is discontinued or significantly reduced, our business and results of operations could be adversely affected.

We are exposed to fluctuations in the market value of our investment portfolio and in interest rates, and therefore, impairment of our investments or lower investment income could harm our earnings.

We are exposed to market value and inherent interest rate risk related to our investment portfolio. We have historically invested portions of our available cash in fixed interest rate securities such as high-grade corporate debt, commercial paper, municipal bonds, certificates of deposit, government securities and other fixed interest rate investments. The primary objective of our cash investment policy is preservation of principal. However, these investments are generally not Federal Deposit Insurance Corporation insured and may lose value and/or become illiquid regardless of their credit rating.

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From time to time, we have also made investments in public and private companies that engage in complementary businesses. For example, during fiscal 2015 we made an investment in Lextar, ~~Electronics Corporation (Lextar),~~ a publicly traded company based in Taiwan. An investment in another company is subject to the risks inherent in the business of that company and to trends affecting the equity markets as a whole. Investments in publicly held companies are subject to market risks and, like our investment in Lextar, may not be liquidated easily. As a result, we may not be able to reduce the size of our position or liquidate our investments when we deem appropriate to limit our downside risk. Should the value of any such investments we hold decline, the related write-down in value could have a material adverse effect on our financial condition and results of operations. For example, the value of our Lextar investment declined from the date of our investment in December 2014 through the end of the third quarter of fiscal ~~2019~~2020 with variability between quarters, and may continue to decline in the future. As required by Rule 3-09 of Regulation S-X, we filed Lextar’s financial statements, prepared by Lextar and audited by its independent public accounting firm, as of and for the years ended December 31, 2015 and 2014 as an exhibit to our Annual Report on Form 10-K for the fiscal year ended June 24, 2018.

~~We may be required to recognize a significant charge to earnings if our goodwill or other intangible assets become impaired.~~

Goodwill and purchased intangible assets with indefinite lives are not amortized, but are reviewed for impairment annually and more frequently when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We assess the recoverability of the unamortized balance of our finite-lived intangible assets when indicators of potential impairment are present. Factors that may indicate that the carrying value of our goodwill or other intangible assets may not be recoverable include a decline in our stock price and market capitalization and slower growth rates in our industry. The recognition of a significant charge to earnings in our consolidated financial statements resulting from any impairment of our goodwill or other intangible assets could adversely impact our results of operations.

We closely monitor the performance of our reporting units and perform ongoing assessments of potential impairment indicators related to our finite-lived and indefinite-lived intangible assets. Based on the proposed sale of the Lighting Products business unit, we performed an impairment test in connection with the preparation of our financial statements for the period ended March 31, 2019. From this testing, we concluded that we had an impairment of our Lighting Products business unit assets as of March 31, 2019. As a result, we recorded a $199.2 million impairment charge during the fiscal quarter ending March 31, 2019.

Our business may be adversely affected by uncertainties in the global financial markets and our or our customers’ or suppliers’ ability to access the capital markets.

Global financial markets continue to reflect uncertainty. Given these uncertainties, there could be future disruptions in the global economy, financial markets and consumer confidence. If economic conditions deteriorate unexpectedly, our business and results of operations could be materially and adversely affected. For example, our customers, including our distributors and their customers, may experience difficulty obtaining the working capital and other financing necessary to support historical or projected purchasing patterns, which could negatively affect our results of operations.

Although we believe we have adequate liquidity and capital resources to fund our operations internally and under our existing line of credit, our inability to access the capital markets on favorable terms in the future, or at all, may adversely affect our financial performance. The inability to obtain adequate financing from debt or capital sources in the future could force us to self-fund strategic initiatives or even forego certain opportunities, which in turn could potentially harm our performance.

Changes in our effective tax rate may affect our results.

Our future effective tax rates may be affected by a number of factors including:

•the jurisdiction in which profits are determined to be earned and taxed;

•changes in tax laws or interpretation of such tax laws and changes in generally accepted accounting principles, for example interpretations and U.S. regulations issued as a result of the significant changes to the U.S. tax law included within the Tax ~~Legislation;~~Cuts and Jobs Act of 2017 ("TCJA") and the Coronavirus Aid, Relief and Economic Security Act of 2020 ("CARES Act");

•the resolution of issues arising from tax audits with various authorities;

•changes in the valuation of our deferred tax assets and liabilities;

•adjustments to estimated taxes upon finalization of various tax returns;

•increases in expenses not deductible for tax purposes, including impairment of goodwill in connection with acquisitions;

•changes in available tax credits;

•the recognition and measurement of uncertain tax positions;

•variations in realized tax deductions for certain stock-based compensation awards (such as non-qualified stock options and restricted stock) from those originally anticipated; and

•the repatriation of non-U.S. earnings for which we have not previously provided for taxes or any changes in legislation that may result in these earnings being taxed, regardless of our decision regarding repatriation of ~~funds, for~~funds. For example, the ~~Tax Legislation, enacted in the second quarter of fiscal 2018,~~TCJA included a one-time tax on deemed repatriated earnings of non-U.S. subsidiaries.

Any significant increase or decrease in our future effective tax rates could impact net (loss) income for future periods. In addition, the determination of our income tax provision requires complex estimations, significant judgments and significant knowledge and experience concerning the applicable tax laws. To the extent our income tax liability materially differs from our income tax provisions due to factors, including the above, which were not anticipated at the time we estimated our tax provision, our net (loss) income or cash flows could be affected.

Failure to comply with applicable environmental laws and regulations worldwide could harm our business and results of operations.

The manufacturing, assembling and testing of our products require the use of hazardous materials that are subject to a broad array of environmental, health and safety laws and regulations. Our failure to comply with any of these applicable laws or regulations could result in:

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•regulatory penalties, fines, legal liabilities and the forfeiture of certain tax benefits;

•suspension of production;

•alteration of our fabrication, assembly and test processes; and

•curtailment of our operations or sales.

In addition, our failure to manage the use, transportation, emission, discharge, storage, recycling or disposal of hazardous materials could subject us to increased costs or future liabilities. Existing and future environmental laws and regulations could also require us to acquire pollution abatement or remediation equipment, modify our product designs or incur other expenses, such as permit costs, associated with such laws and regulations. Many new materials that we are evaluating for use in our operations may be subject to regulation under existing or future environmental laws and regulations that may restrict our use of one or more of such materials in our manufacturing, assembly and test processes or products. Any of these restrictions could harm our business and results of operations by increasing our expenses or requiring us to alter our manufacturing processes.

Our results could vary as a result of the methods, estimates and judgments that we use in applying our accounting policies, including changes in the accounting standards to be applied.

The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on our results (see “Critical Accounting Policies and Estimates” in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended June ~~24, 2018)~~30, 2019). Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that lead us to change our methods, estimates and judgments. Changes in those methods, estimates and judgments could significantly affect our results of operations or financial condition.

Likewise, our results may be impacted due to changes in the accounting standards to be applied, such as the increased use of fair value measurement standards and changes in revenue recognition requirements.

Catastrophic events may disrupt our business.

A disruption or failure of our systems or operations in the event of a natural disaster, health pandemic, such as an influenza outbreak within our workforce, or man-made catastrophic event could cause delays in completing sales, continuing production or performing other critical functions of our business, particularly if a catastrophic event occurred at our primary manufacturing locations or our subcontractors' locations. Any of these events could severely affect our ability to conduct normal business operations and, as a result, our operating results could be adversely affected. There may also be secondary impacts that are unforeseeable as well, such as impacts to our customers, which could cause delays in new orders, delays in completing sales or even order cancellations.

Our stock price may be volatile.

Historically, our common stock has experienced substantial price volatility, particularly as a result of significant fluctuations in our revenue, earnings and margins over the past few years, and variations between our actual financial results and the published expectations of analysts. For example, the closing price per share of our common stock on the Nasdaq Global Select Market ranged from a low of ~~$33.72~~$29.15 to a high of ~~$59.44~~$68.50 during the 12twelve months ended March ~~31, 2019.~~29, 2020. If our future operating results or margins are below the expectations of stock market analysts or our investors, our stock price ~~may~~will likely decline.

Speculation and opinions in the press or investment community about our strategic position, financial condition, results of operations or significant transactions can also cause changes in our stock price. In particular, speculation on our go-forward strategy, competition in some of the markets we address such as electric vehicles and LED lighting, the ramp up of our Wolfspeed business, ~~the sale of our Lighting Products business~~ and the ~~potential~~effect of tariffs or ~~perceived potential impact of tariffs~~COVID-19 on our business, may have a dramatic effect on our stock price.

We have outstanding debt which could materially restrict our business and adversely affect our financial condition, liquidity and results of operations.

~~Our~~As of March 29, 2020, our indebtedness ~~currently consists~~consisted of ~~the~~$575.0 million aggregate principal amount of our 2023 Notes and potential borrowings from our revolving line of credit. Additionally, we issued and sold an additional $575.0 million aggregate principal amount of convertible senior notes on April 21, 2020 (the 2026 Notes and collectively with the 2023 Notes, the Notes) and, using the net proceeds of the 2026 Notes offering, repurchased $150.2 million of aggregate principal amount of the 2023 Notes. Our ability to pay interest and repay the principal for any outstanding indebtedness under our line of credit orand the Notes is dependent upon our ability to manage our business operations and generate sufficient cash flows to service such debt. There can be no assurance that we will be able to manage any of these risks successfully.

~~Our~~

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The level of our outstanding debt may adversely affect our operating results and financial condition by, among other things:

•increasing our vulnerability to downturns in our business, to competitive pressures and to adverse general economic and industry conditions;

•requiring the dedication of an increased portion of our expected cash flows from operations to service our indebtedness, thereby reducing the amount of expected cash flow available for other purposes, including capital expenditures, research and development and stock repurchases;

•limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

•placing us at a competitive disadvantage compared to our peers that may have less indebtedness than we have by limiting our ability to borrow additional funds needed to operate and grow our business; and

•increasing our interest expense if interest rates increase.

Our line of credit requires us to maintain compliance with ~~certain financial ratios.~~an asset coverage ratio. In addition, our line of credit contains certain restrictions that could limit our ability to, among other things: incur additional indebtedness, dispose of assets, create liens on assets, make acquisitions or engage in mergers or consolidations, and engage in certain transactions with our subsidiaries and affiliates. The ~~Indenture~~Indentures governing the Notes ~~requires~~require us to repurchase the Notes upon certain fundamental changes relating to our common stock, and also prohibits our consolidation, merger, or sale of all or substantially all of our assets except with or to a successor entity assuming our obligations under the ~~Indenture.~~Indentures. The restrictions imposed by our line of credit and by the ~~Indenture~~Indentures governing our Notes could limit our ability to plan for or react to changing business conditions, or could otherwise restrict our business activities and plans.

Our ability to comply with our loan covenants and the provisions of the ~~Indenture~~Indentures governing our Notes may also be affected by events beyond our control and if any of these restrictions or terms is breached, it could lead to an event of default under our line of credit or the Notes. A default, if not cured or waived, may permit acceleration of our indebtedness. In addition, our lenders could terminate their commitments to make further extensions of credit under our line of credit. If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds to pay the accelerated indebtedness or that we will have the ability to refinance accelerated indebtedness on terms favorable to us or at all.

Regulations related to conflict-free minerals may force us to incur additional expenses.

The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of minerals originating from the conflict zones of the Democratic Republic of Congo (DRC) and adjoining countries. As a result, in August 2012 the SEC established new annual disclosure and reporting requirements for those companies who may use “conflict” minerals mined from the DRC and adjoining countries in their products. Our most recent disclosure regarding our due diligence was filed in May ~~2018~~2019 for calendar year ~~2017.~~2018. These requirements could affect the sourcing and availability of certain minerals used in the manufacture of our products. As a result, we may not be able to obtain the relevant minerals at competitive prices and there will likely be additional costs associated with complying with the due diligence procedures as required by the SEC. In addition, because our supply chain is complex, we may face reputational challenges with our customers and other stakeholders if we are unable to sufficiently verify the origins of all minerals used in our products through the due diligence procedures, and we may incur additional costs as a result of changes to product, processes or sources of supply as a consequence of these requirements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

The following exhibits are being filed herewith and are numbered in accordance with Item 601 of Regulation S-K:

Incorporated by Reference

Exhibit No.

Description

Filed Herewith

Form

Exhibit

Filing Date

4.1

Indenture, dated as of April 21, 2020, between the Company and U.S. Bank National Association

8-K

4.1

4/21/2020

4.2

Form of 1.75% Convertible Senior Note due 2026 (included in Exhibit 4.1)

8-K

4.2

4/21/2020

10.1

Fifth Amendment to the Credit Agreement, dated as of March 27, 2020, by and among Cree, Inc., Wells Fargo Bank, National Association, as administrative agent, and the other lenders party thereto

31.1

Certification by Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

The following materials from Cree, Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2020 formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Loss; (iv) Consolidated Statement of Shareholders' Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements

104

The cover page from the Cree Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2020 formatted in Inline XBRL (included in Exhibit 101)



~~Exhibit No.~~			~~Description~~
2.1*			~~Purchase Agreement, dated March 14, 2019, by and between Cree, Inc. and IDEAL Industries, Inc.~~
~~10.1~~			Credit Agreement Consent, dated as of March 14, 2019, by and between Cree, Inc., Wells Fargo Bank, National Association, as administrative agent and lender, E-conolight LLC, a domestic subsidiary of the Company, as guarantor, and the other lenders party to the Credit Agreement
~~31.1~~			~~Certification by Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~
~~31.2~~			~~Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~
~~32.1~~			~~Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
~~32.2~~			~~Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
~~101~~			The following materials from Cree, Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2019 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of (Loss) Income; (iii) Consolidated Statements of Comprehensive (Loss) Income; (iv) Consolidated Statement of Shareholders' Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements

* PortionsTable of ~~this exhibit have been omitted pursuant to Rule 601(b)(2) of Regulation S-K. The omitted information is not material and would likely cause competitive harm to the registrant if publicly disclosed.~~Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		CREE, INC.

April 30, 2020

		~~CREE, INC.~~

~~May 2, 2019~~

	/s/ Neill P. Reynolds
		Neill P. Reynolds
		Executive Vice President and Chief Financial Officer
		(Authorized Officer and Principal Financial and Chief Accounting Officer)



	March 31, 2019			June 24, 2018
	(In thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents		$456,157			$118,924
Short-term investments	333,111			268,161
Total cash, cash equivalents and short-term investments	789,268			387,085
Accounts receivable, net	150,390			86,398
Income tax receivable	489			2,256
Inventories	172,793			151,636
Prepaid expenses	19,201			24,521
Other current assets	25,916			12,921
Current assets held for sale (Note 2)	340,782			225,544
Total current assets	1,498,839			890,361
Property and equipment, net	607,659			589,073
Goodwill	530,004			530,004
Intangible assets, net	203,016			215,815
Other long-term investments	44,122			57,501
Deferred income taxes	9,958			5,766
Other assets	5,559			11,604
Long-term assets held for sale (Note 2)	—			337,692
Total assets		$2,899,157			$2,637,816
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade		$111,203			$105,354
Accrued salaries and wages	63,361			41,877
Income taxes payable	1,701			—
Accrued contract liabilities (Note 3)	47,328			—
Other current liabilities	20,472			19,280
Current liabilities held for sale (Note 2)	90,355			82,053
Total current liabilities	334,420			248,564
Long-term liabilities:
Long-term debt	—			292,000
Convertible notes, net	463,491			—
Deferred income taxes	5,878			3,148
Other long-term liabilities	29,453			518
Long-term liabilities held for sale (Note 2)	—			21,505
Total long-term liabilities	498,822			317,171
Commitments and contingencies (Note 13)
Shareholders’ equity:
Preferred stock, par value $0.01; 3,000 shares authorized at March 31, 2019 and June 24, 2018; none issued and outstanding	—			—
Common stock, par value $0.00125; 200,000 shares authorized at March 31, 2019 and June 24, 2018; 104,515 issued and outstanding at March 31, 2019 and 101,488 shares issued and outstanding at June 24, 2018	131			127
Additional paid-in-capital	2,772,042			2,549,123
Accumulated other comprehensive income, net of taxes	2,554			596
Accumulated deficit	(713,780		)	(482,710		)
Total shareholders’ equity	2,060,947			2,067,136
Non-controlling interest	4,968			4,945
Total liabilities and equity		$2,899,157			$2,637,816



	Common Stock			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Total Shareholders’ Equity			Non-controlling Interest			Total Equity
	Number of Shares	Par Value		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Total Shareholders’ Equity			Non-controlling Interest			Total Equity
	(In thousands)
Balance at June 24, 2018	101,488		$127		$2,549,123			($482,710	)		$596			$2,067,136			$4,945			$2,072,081
Net loss	—	—		—			(11,067		)	—			(11,067		)	(67		)	(11,134		)
Currency translation gain, net of tax benefit of $0	—	—		—			—			343			343			—			343
Unrealized loss on available-for-sale securities, net of tax expense of $0	—	—		—			—			(275		)	(275		)	—			(275		)
Comprehensive loss													(10,999		)	(67		)	(11,066		)
Income tax expense from stock option exercises	—	—		(10,828		)	—			—			(10,828		)	—			(10,828		)
Stock-based compensation	—	—		12,117			—			—			12,117			—			12,117
Exercise of stock options and issuance of shares	1,032	1		15,503			—			—			15,504			—			15,504
Adoption of ASC 606	—	—		—			10,299			—			10,299			—			10,299
Convertible note issuance	—	—		110,591			—			—			110,591			—			110,591
Balance at September 23, 2018	102,520		$128		$2,676,506			($483,478	)		$664			$2,193,820			$4,878			$2,198,698
Net loss	—	—		—			(2,450		)	—			(2,450		)	(31		)	(2,481		)
Currency translation loss, net of tax benefit of $0	—	—		—			—			(877		)	(877		)	—			(877		)
Unrealized gain on available-for-sale securities, net of tax expense of $0	—	—		—			—			1,069			1,069			—			1,069
Comprehensive loss	—	—		—			—			—			(2,258		)	(31		)	(2,289		)
Income tax benefit from stock option exercises	—	—		9,278			—			—			9,278			—			9,278
Stock-based compensation	—	—		13,635			—			—			13,635			—			13,635
Exercise of stock options and issuance of shares	553	1		4,182			—			—			4,183			—			4,183
Balance at December 30, 2018	103,073		$129		$2,703,601			($485,928	)		$856			$2,218,658			$4,847			$2,223,505
Net (loss) income	—	—		—			(227,852		)	—			(227,852		)	121			(227,731		)
Currency translation loss, net of tax benefit of $0	—	—		—			—			(250		)	(250		)	—			(250		)
Unrealized gain on available-for-sale securities, net of tax expense of $0	—	—		—			—			1,948			1,948			—			1,948
Comprehensive (loss) income	—	—		—			—			—			(226,154		)	121			(226,033		)
Income tax expense from stock option exercises	—	—		(469		)	—			—			(469		)	—			(469		)
Stock-based compensation	—	—		15,647			—			—			15,647			—			15,647
Exercise of stock options and issuance of shares	1,442	2		53,263			—			—			53,265			—			53,265
Balance at March 31, 2019	104,515		$131		$2,772,042			($713,780	)		$2,554			$2,060,947			$4,968			$2,065,915



	Nine Months Ended
	March 31, 2019			March 25, 2018
	(In thousands)
Cash flows from operating activities:
Net loss		($241,344	)		($246,653	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	116,256			113,244
Amortization of debt issuance costs and discount	12,687			—
Stock-based compensation	40,497			33,319
Impairment charges	197,580			247,455
Loss on disposal or impairment of long-lived assets	2,842			8,803
Amortization of premium/discount on investments	2,113			3,943
Loss (gain) on equity investment	12,443			(7,510		)
Foreign exchange loss (gain) on equity investment	936			(2,543		)
Deferred income taxes	(1,655		)	(49,875		)
Changes in operating assets and liabilities:
Accounts receivable, net	(56,339		)	5,728
Inventories	(19,237		)	(4,640		)
Prepaid expenses and other assets	3,517			2,041
Accounts payable, trade	6,590			15,328
Accrued salaries and wages and other liabilities	110,083			6,783
Net cash provided by operating activities	186,969			125,423
Cash flows from investing activities:
Purchases of property and equipment	(106,522		)	(128,433		)
Purchases of patent and licensing rights	(9,148		)	(7,913		)
Proceeds from sale of property and equipment	286			538
Purchases of short-term investments	(251,676		)	(174,623		)
Proceeds from maturities of short-term investments	146,368			166,771
Proceeds from sale of short-term investments	28,185			176,981
Purchase of acquired business, net of cash acquired	—			(427,120		)
Net cash used in investing activities	(192,507		)	(393,799		)
Cash flows from financing activities:
Proceeds from issuing shares to non-controlling interest	—			4,900
Payment of acquisition-related contingent consideration	—			(1,850		)
Proceeds from long-term debt borrowings	95,000			555,000
Payments on long-term debt borrowings	(387,000		)	(384,000		)
Proceeds from convertible notes	575,000			—
Payments of debt issuance costs	(12,938		)	—
Net proceeds from issuance of common stock	72,948			62,240
Net cash provided by financing activities	343,010			236,290
Effects of foreign exchange changes on cash and cash equivalents	(239		)	715
Net increase (decrease) in cash and cash equivalents	337,233			(31,371		)
Cash and cash equivalents:
Beginning of period	118,924			132,597
End of period		$456,157			$101,226
Supplemental disclosure of cash flow information:
Significant non-cash transactions:
Accrued property and equipment		$15,247			$19,275


Note 1	Basis of Presentation and New Accounting Standards	11
Note 2	Discontinued Operations	13
Note 3	Revenue Recognition	14
Note 4	Leases	14
Note 5	Financial Statement Details	16
Note 6	Investments	18
Note 7	Fair Value of Financial Instruments	21
Note 8	Goodwill and Intangible Assets	22
Note 9	Long-term Debt	23
Note 10	Loss Per Share	25
Note 11	Stock-Based Compensation	25
Note 12	Income Taxes	27
Note 13	Commitments and Contingencies	28
Note 14	Reportable Segments	28
Note 15	Restructuring	31
Note 16	Subsequent Events	31



	March 31, 2019			June 24, 2018
Assets Held for Sale
Accounts receivable, net		$59,929			$67,477
Prepaid and other current assets	7,264			11,059
Income tax receivable	494			449
Inventories	143,104			144,379
Property and equipment, net	71,226			72,246
Deferred tax assets	538			685
Intangible assets, net	133,358			174,239
Goodwill	—			90,326
Other long term assets	203			196
Valuation allowance on disposal group	(75,334		)	—
Total Assets Held for Sale*		$340,782			$561,056

Liabilities Held for Sale
Accounts payable		$34,201			$45,953
Accrued salaries and wages	18,661			11,581
Other accrued liabilities	21,122			24,248
Income tax payable	—			271
Other long term liabilities	16,371			21,505
Total Liabilities Held for Sale*		$90,355			$103,558



	Nine Months Ended
	March 31, 2019			March 25, 2018
Net cash provided by discontinued operating activities		$9,294			$49,047
Net cash used in discontinued investing activities	(15,356		)	(12,577		)



	Balance as of June 24, 2018			Adjustments			Opening Balance as of June 25, 2018
Assets:
Accounts Receivable		$86,398			$43,355			$129,753
Liabilities:
Accrued Contract Liabilities	—			(42,675		)	(42,675		)
Stockholders' Equity:
Accumulated Deficit	(482,710		)	10,299			(472,411		)



	Asset Amount		Estimated Life in Years
Lease agreement		$1,000	10
Customer relationships	92,000		15
Developed technology	44,000		14
Non-compete agreements	12,000		4
Total identifiable intangible assets		$149,000



	March 31, 2019		June 24, 2018
Accrued taxes		$4,943		$6,414
Accrued professional fees	12,419		4,901
Accrued warranty	1,241		1,399
Accrued other	1,869		6,566
Other current liabilities		$20,472		$19,280



Accumulated Other Comprehensive Income Component	Amount Reclassified Out of Accumulated Other Comprehensive Loss												Affected Line Item in the Consolidated Statements of (Loss) Income
	Three Months Ended						Nine Months Ended
	March 31, 2019			March 25, 2018			March 31, 2019			March 25, 2018
Net unrealized loss on available-for-sale securities, net of taxes		($25	)		($133	)		($132	)		($85	)	Non-operating (expense) income, net
Less income tax effect	—			—			—			—			Income tax expense (benefit)
Total reclassifications		($25	)		($133	)		($132	)		($85	)


(in millions of U.S. Dollars) Fiscal Year Ending	Acquisition Related Intangibles	Patents	Total
June 28, 2020 (remainder of fiscal 2020)	$3.6	$2.2	$5.8
June 27, 2021	14.5	8.3	22.8
June 26, 2022	13.5	7.5	21.0
June 25, 2023	11.0	6.5	17.5
June 30, 2024	10.4	5.6	16.0
Thereafter	78.7	21.8	100.5
Total future amortization expense	$131.7	$51.9	$183.6



~~Fiscal Year Ending~~
~~June 30, 2019 (remainder of fiscal 2019)~~		~~$5,816~~
~~June 28, 2020~~	~~21,662~~
~~June 27, 2021~~	~~21,022~~
~~June 26, 2022~~	~~19,428~~
~~June 25, 2023~~	~~16,135~~
~~Thereafter~~	~~118,953~~
~~Total future amortization expense~~		~~$203,016~~



	~~March 31, 2019~~			~~June 24, 2018~~
~~Principal~~		~~$575,000~~			$—
~~Unamortized discount and issuance costs~~	~~(111,509~~		)	—
~~Net carrying amount~~		~~$463,491~~			$—



	~~March 31, 2019~~			~~June 24, 2018~~
~~Discount related to value of conversion option~~		~~$113,271~~			$—
~~Debt issuance costs~~	~~(2,680~~		)	—
~~Net carrying amount~~		~~$110,591~~			$—


	Number of Shares		Weighted Average Exercise Price
Outstanding at June 24, 2018	6,287			$39.58
(shares in thousands)					(shares in thousands)	Number of Shares	Weighted Average Exercise Price
Outstanding at June 30, 2019					Outstanding at June 30, 2019	2,418	$39.81
Granted	—			$—	Granted	—	$—
Exercised	(2,104	)		$35.69	Exercised	(595)	$35.78
Forfeited or expired	(249	)		$48.34	Forfeited or expired	(34)	$50.40
Outstanding at March 31, 2019	3,934			$40.11
Outstanding at March 29, 2020					Outstanding at March 29, 2020	1,789	$40.96


	Number of RSAs/RSUs		Weighted Average Grant-Date Fair Value
Nonvested at June 24, 2018	3,689			$27.53
(awards and units in thousands)					(awards and units in thousands)	Number of RSAs/RSUs	Weighted Average Grant-Date Fair Value
Nonvested at June 30, 2019					Nonvested at June 30, 2019	3,081	$34.99
Granted	1,338			$47.81	Granted	994	$57.56
Vested	(884	)		$26.84	Vested	(1,085)	$30.38
Forfeited	(316	)		$27.65	Forfeited	(168)	$33.66
Nonvested at March 31, 2019	3,827			$34.87
Nonvested at March 29, 2020					Nonvested at March 29, 2020	2,822	$44.79



~~Balance at June 24, 2018~~		~~$1,774~~
~~Warranties accrued in current period~~	~~581~~
~~Expenditures~~	~~(355~~		)
~~Balance at March 31, 2019~~		~~$2,000~~



Capacity and overhead cost reductions	Total estimated charges		Amounts incurred through June 24, 2018		Amounts incurred through March 31, 2019		Cumulative amounts incurred through March 31, 2019		Affected Line Item in the Consolidated Statements of Loss
Loss on disposal or impairment of long-lived assets		$227		$227		$—		$227	Loss on disposal and impairment of long-lived assets
Severance expense	3,744		3,460		284		3,744		Sales, general and administrative expenses
Lease termination and facility consolidation costs	2,207		156		2,051		2,207		Sales, general and administrative expenses
Total restructuring charges		$6,178		$3,843		$2,335		$6,178

~~Reporting Segment~~(in millions of U.S. Dollars)

~~Balance at~~ March ~~31, 2019~~29, 2020

~~$349,726~~

LED Products

~~180,278~~180.3

~~Consolidated total~~Total

~~$530,004~~